With some 4 million new Internet users going online each month and a young population that local retail can’t satisfy, Southeast Asia is a tempting prospect for online retailers. The area is made up of 11 countries, including five dominant ‘tiger cubs’ with vibrant economies, Malaysia, Thailand, Indonesia, the Philippines, and Vietnam, as well as the small but wealthy territories of Singapore and Brunei.
This region already has a massive eCommerce sector, but the rate of expansion is surpassing expectations.
In fast-growing economies like Cambodia, consumers are increasingly urban, earning more, and avid Internet users. Local commercial infrastructure lags behind consumer ambitions, making eCommerce (including cross-border eCommerce) a tempting solution for many consumers.
There are 350 million people online already in this region of the world, with Internet penetration quickly spreading. Retailers wanting to engage with this region must understand that it’s very much a mobile-first market with a high degree of mobile penetration.
Social media has a significant influence, and many brands already use social eCommerce as a sales channel. The time people spend online has already surpassed that spent watching TV, and people in Southeast Asia spend more time online than people in China and Japan.
There’s a huge amount of investment in digital business going on in the region, and tech companies like Lazada, InMobi, and Tokopedia are emerging.
In some ways, these environments face the same challenges as other emerging markets. There’s a lack of retail space, big-box retail stores, and transport infrastructure to support consumer access to shopping areas.
Some countries in Southeast Asia have low rates of participation in the formal economy and banking system, making online transactions difficult. Plus the region has high rates of people without formal ID, which frustrates efforts to bring them into the banking system.
Bigger players like Amazon and Alibaba are already trying to win the region, making it difficult for smaller players. Non-tariff barriers remain a problem, particularly for smaller companies. Logistics are also a challenge, as there’s still no reliable, low-cost logistical infrastructure in place across the region.
While some local in-country networks exist, it’s hard to scale a regional logistical solution without resorting to a patchwork of providers. And the general transport infrastructure provision there can be patchy. A country like Malaysia or Thailand has good transport networks across rail/roads, whereas Indonesia and the Philippines have less robust infrastructure.
To date, eCommerce has been broadly unregulated, but this is set to change. It’s certainly likely that eCommerce tax rules will change. An initiative to regulate marketplaces will probably drive more sellers to less regulated social media platforms where social eCommerce is more informal.
But regulation is also being used to encourage activity in the ASEAN region, with initiatives like agreements to facilitate cross-border eCommerce transactions.
Cash-on-delivery payments can also be an issue for many online retailers in emerging markets. Since some parts of Southeast Asia do not participate widely in the banking system, and there’s a general mistrust of online payments, many consumers still insist on paying cash.
Cash on delivery is notorious for holding eCommerce growth back. The problem is particularly prevalent in countries where banking participation rates are low, like Indonesia and Vietnam. Although bank transfer is also a popular payment method, credit card penetration is low.
Part of the problem is that the banking infrastructure is inadequate with poor penetration, particularly in rural areas.
If consumers can’t access physical banks, ATMs, or debit/credit cards, it’s possible that FinTech will leapfrog traditional financial services and offer mobile-friendly options such as digital wallets and bank transfer apps. But those are still novel solutions for emerging middle classes in Southeast Asia.
If you’re engaging with the Southeast Asian market, you’ll probably want to work with LINE. Much like WhatsApp (and with a similar story of rapid growth in adoption), LINE is a Japanese messaging app that emerged just a few years ago.
LINE offers all the messaging facilities you’d expect from a messaging app, plus tools such as taxi booking, mobile payments, and music streaming. Although it’s recently lost some ground, associated products such as the newly launched LINE SHOPPING are worth keeping an eye on.
The LINE app is also an example of a wider trend in the region: eCommerce apps that go beyond eCommerce. The fusion of social media, messaging apps, and shopping has been far more successful in Asia as compared to the West.
The future of the Southeast Asia market is likely to be mediated by such platforms. It’s a content challenge for brands entering this region, as they need to be prepared to offer way more than just eCommerce features.
This can include additions such as gamified content, UGC, or stickers on messaging apps. There’s less of a consumer preference here for eCommerce pureplay, and retailers need to understand that if they want to succeed.
Ultimately, it’s the customer experience that counts–specifically on mobile via apps and browsers. You will also need to serve customers in a language they’re comfortable with, or they’ll find a local provider who can.
The balance of power is swinging in favor of the customer as competition floods Southeast Asia’s emerging marketplace. We must understand that the winner will be the one that best serves customers and caters to their specific needs.