SPECIAL REPORT: Never-ending rise of e-commerce in Southeast Asia

Lee Kok Leong, our special correspondent, talks to Charles Brewer about why e-commerce is such a hot industry now in Southeast Asia.

Lee Kok Leong, our special correspondent, talks to Charles Brewer about why e-commerce is such a hot industry now in Southeast Asia.

Charles Brewer portrait smiling

Charles is the CEO of Click & Connect, an e-commerce and logistics consultancy.  He was previously the CEO of DHL e-commerce and has spent 30 years at DHL Express.

With a population of about 640 million, a growing middle class and rising internet penetration, Southeast Asia has huge potential for e-commerce.  One of the most important factors driving e-commerce growth is the proliferation of smart phones with internet access.

This eventually led to a change in consumer behavior where consumers have switched from shopping at physical stores to shopping online.  According to a Google and Temasek study in 2018, their combined size of the online retail market is forecasted to grow to US$102 billion by 2025, up more than four-fold from US$23 billion in 2018.

The six biggest economies in Southeast Asia are Indonesia, the Philippines, Vietnam, Thailand, Malaysia and Singapore.  Together, they will have 483 million internet users by 2020.  The middle class and affluent segment in the region are expected to rise from 40 percent today to 65 percent in 2030.

Please give your thoughts on the current state of play of the six economies.

Online shopping is booming everywhere, from South Africa to Senegal, from India to Indonesia, from the Middle East to middle Europe, it is on a charge!

Online sales as a percentage of total sales now represents more than 12 percent.  And it is growing at more than 20 percent year on year.  Conversely, retail’s growth is at a very low single digit. In the US alone, 9,000 shops will be shuttering this year.  This is another depressing record for the high street.  That shouldn’t come as a surprise to anyone.

Who in their right mind would want to navigate through ever more crowded streets, fight for a parking space, elbow their way through poorly laid out and antiquated shopping malls, and, when you eventually make it to the mall, find that the item you wanted either isn’t available in the right color or size or is sold out.  It is just so much easier to do it from your phone!

Southeast Asia is equally on a march with the bigger markets like Indonesia, Thailand, Philippines and Malaysia all seeing double-digit growth and a continued and accelerated push to online.  The outlook is for e-commerce to continue to grow and grow fast.

What are the mega trends driving the growth of e-commerce in Southeast Asia?

Clearly, the rise and rise of e-commerce is driven by a number of factors.  None more so than convenience, control, choice, price and in the more emerging markets, by internet availability and the introduction and expansion of platform sellers to regions like Africa with Jumia, the Middle East with Noon.com and Southeast Asia with Lazada, Shopee, Qoo10, etc.

E-commerce doesn’t stand still and there are a number of interesting trends taking shape across the Southeast Asia region.

Platform sellers
There is clearly a head to head battle emerging between Lazada and Shopee.  While one appears to have changed tack in recent months and is focused less on a ‘land grab’ and more on profit, the other is steaming ahead, acquiring as many consumers as it possibly can.

Logistics and capacity
A few years ago, there simply wasn’t enough logistics capacity in the markets.  However, we are now seeing the first signs of potential over-supply.

With continued investments from the traditional carriers like DHL or Kerry, and increasing activity from new players like J&T, Best, CJ and of course the most recent news of Grab’s strategic stake in Ninja Van, this signals a very clear intent that the ‘everyday app’ clearly sees e-commerce as another cornerstone service to provide.

Furthermore, the ‘captive’ space is growing, i.e. those geographies where the platforms, like Lazada, want to service themselves, via their own logistics operation.

Watch for the rise and rise of the on-demand consumer.  Only a couple of years ago, same-day delivery was seen as a very unnecessary evil.  Now 40 percent of consumers expect sellers to offer alternate speeds.  They will often leave a site if same-day delivery isn’t provided.

This will start with the metro consumer and we will see more and more point to point and same-day delivery, along with increased numbers of dark stores operating as metro fulfilment locations.

For example, over the weekend, I needed to order black tea leaves from a well-known tea provider, a leader in their space, and did so on their website.

Their website is incredibly antiquated and user unfriendly, and what compounded an already unpleasant experience was when I was told that the delivery would take four days with no option to select and pay for faster delivery.  10 years ago, I would have been ecstatic.  Now, with today’s choices, I was a very unhappy consumer.

With increased competition comes the need for differentiation.  We are seeing plenty of examples of platforms looking to introduce new activities that aim to differentiate and create consumer and seller loyalty, whether it is the accelerated introduction of alternate delivery points, through to the level of personalization being developed and/or heavy discounts to sellers, among others.

In your opinion, where do you think are the e-commerce hidden gems in Asia?

Every country is pretty much an ‘unhidden gem’!  Remember that online penetration levels in all markets across Southeast Asia are low single digit.  As such, the upside and unexplored opportunity is still enormous.

Take Indonesia for example, less than three percent of what is bought is bought online, and that already represents more than 3.5 million parcels a day – staggering upside!

That said, away from the six biggest economies, you have really exciting markets like Myanmar with a population of more than 60 million and on a positive economic growth trajectory.

There really are few hurdles, other than the e-commerce platforms and logistics companies seeing the same potential and moving in – which they will.

The outlook for Southeast Asia is incredibly exciting, with more than 620 million potential online shoppers, increasing personal and disposable income, and an insatiable appetite for all that is new and digital.  The sky really is the limit!

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