Southeast Asia is the next big market for online shopping according to a recent study by UBS, which warns of the threat to established retailers posed by e-commerce firms.
Physical barriers such as poor transport logistics infrastructure still hinder virtual shopping in the ASEAN group of countries, but as online retailers like China’s Alibaba plan international expansion, the e-commerce market for Southeast Asia could be worth as much as $35 billion in the next six years.
UBS researchers analyzed the region’s web traffic data and found the number of people with access to the Internet in the Association of Southeast Asian Nations (ASEAN) is growing faster than previously thought.
The bank estimated there were almost 200 million internet users across the region, which represents an internet penetration rate of 32% out of a total population of 620 million. This contrasts with previous market data claiming that the number of people online could be as low as 62 million.
The researchers suggest that the market for B2C e-Commerce, businesses selling to consumers through their websites, could increase at least five fold by 2020 – representing an opportunity worth up to $35 billion.
Rising personal incomes and increased access to the Internet through mobile devices pose a serious threat to traditional ‘bricks and mortar’ shopping malls in countries such as Thailand, Singapore and Indonesia. Unlike the U.S., where retailers such as Walmart have popular online storefronts, the main Southeast Asian mall owners are late to develop their own e-commerce platforms and risk being overtaken.
“The power shift is moving quickly against them, and a cohesive online strategy is now a priority…or online platforms will take significant share of wallet,” the report’s authors claim.
Even if Internet access is no longer the bottleneck it once was, there are plenty of other barriers to scalable growth in ASEAN e-Commerce that have no quick solutions. Currently the infrastructure in the region, perhaps with the exception of Singapore, does not support the kind of next day delivery offered by Amazon, the U.S. firm that pioneered and perfected the transport logistics of e-commerce.
“Customer experience is key to the success of online retailing, and with a high proportion of transactions based on ‘cash-on-delivery’, online platforms and retailers require confidence that the last-mile delivery does not tarnish the experience,” said the report’s researchers. Over the past decade, development of highways and related infrastructure in countries such as Indonesia, Vietnam, Cambodia and Myanmar has failed to keep up with the rising number of vehicles. Road quality and capacity can vary greatly between countries. While Singapore and Thailand boast fully paved roads, 2007 data from the Economic Research Institute for Asia (EIRA) show that fewer than 10% of roads in Laos and Cambodia and just under half of Vietnamese roads are paved.
Consumers in Southeast Asia also make far fewer payments by credit card than their Western counterparts, in Thailand only around 5% of the population has a credit card compared to 80% of 18 to 64 years olds in the U.S.
One company with the resources and vision to overcome these issues is the Chinese e-Commerce company Alibaba Group Holding Ltd. The private firm valued itself at $130 billion in a recent regulatory filing ahead of its initial public offering, while last year the value of goods sold on its platforms was greater than Amazon and eBay combined.
Alibaba’s business to consumer platform, called Tmall, accounts for 45% of the Chinese B2C market according to the Beijing-based market research firm Analysys International. Revenues from Tmall and its consumer to consumer website, the eBay-like Taobao, reached 35.17 billion yuan ($5.66 billion) in the nine months ended December 31, 2013, representing 86.9% of revenues from the period.
Recognising the logistical challenges in the ASEAN region, in May this year Alibaba agreed to buy a minority stake in SingPost, Singapore’s main postal service, for S$312.5 million. The deal signals the Asian e-commerce firm’s plans for international expansion and the two groups are reportedly discussing a joint venture for international e-Commerce logistics.
With UBS predicting that 48% of Southeast Asia will be online by 2017, a modest rise in the volume of online shopping from the current 0.2% of all retail sales to 5% would create a market worth $21.8 billion.
This should be enough incentive for firms and policymakers to address the structural problems holding back e-commerce, bricks and mortar retailers are right to be worried about the looming threat to their business models.