Southeast Asia eCommerce underperforming
A new report questions if Southeast Asia eCommerce can live up to its potential.
With an online retail market estimated to be worth US$6 billion, the region has constraints in logistics and payments infrastructure that are making eCommerce a tough nut to crack, says the report, developed by global management consulting firm Bain & Company in conjunction with Google.
This is despite the region having more than 150 million consumers digitally active – rivalling China for connectivity – with high levels of product search and engagement.
While 250 million consumers are using smartphones and 100 million are engaging in online transactions in Southeast Asia, sales are below 4 per cent of total retail – well behind developed markets and even other developing markets.
Surveying more than 6000 consumers across six Southeast Asian markets (Indonesia, Malaysia, Singapore, Philippines, Thailand and Vietnam), the report compilers found that digital influences 20 per cent of consumer purchases, particularly of mobile phones, clothing and laptop computers. Overall, Bain anticipates online retail sales across Southeast Asia could hit $70 billion by 2020. While this does not yet match the pace of China, which is now a $500 billion-plus market, multinational retailers cannot ignore the region’s emerging influence.
“The growth of the Southeast Asian eCommerce market is slow but significant, particularly when you consider that it started from a very small base in 2012 and has doubled every year since,” says Bain partner Sebastien Lamy, co-author of the report.
“We believe this region is on the cusp of a digital boom that is beginning to transcend eCommerce and impact sectors from travel and tourism to financial services and payments.
“Those who recognise its early potential in spite of persistent complexities will reap the rewards.”
According to the report, the biggest hurdle for Southeast Asia eCommerce success is the highly fragmented nature of the region. Regionally-specific cultures, regulations, infrastructures and customer preferences make it hard to establish a presence and build scale, which deters foreign-owned businesses. However, local and regional players are thriving simply by providing a highly tailored customer experience.
This includes competing on more than just price – more than 60 per cent of survey respondents cited both experience and choice as a driver of loyalty. Many local companies are also adapting to varied banking penetration across the region by expanding beyond credit-card payment and door delivery, offering instead cash payment and pickup options.
Another finding of the report is that the region’s consumers are still largely “site agnostic”, using a range of platforms for purchasing. Consequently, searching has become primary for product research and discovery, led by the use of video, particularly in Indonesia and Thailand. Social media is also highly influential in building consumer trust around product quality and seller credibility, with more than 80 per cent of consumers using social media and over-the-top content to research products or connect with sellers.
“Our research is a ‘last chance’ warning for Southeast Asian companies,” says Bain partner Florian Hoppe, the other co-author of the report.
“We’ve had a front-row seat to watch the digital disruption unfold in other markets – first the US and Europe, followed by China and India. With a few regional differences, we know how it will play out here, too, but companies are running out of time to act if they want to stay ahead of consumer preferences and beat the competition.”