Southeast Asia: The world’s e-commerce battleground — who will win the roaring 20s?

  • Despite massive growth, e-commerce penetration in the region has only reached a meager 5% in 2021
  • E-commerce GMV in SEA will triple in the next 5 years
  • This growth will attract even more attention to SEA’s e-commerce ecosystem, making it likely that SEA will become the battleground for the climactic battle between e-commerce giants from different regions
  • To date, SEA’s e-commerce ecosystem as a whole remains relatively heterogeneous and entirely distinctive to the “the west” — aka the United States and Europe — and “the east” aka China
  • Whereas it is impossible to predict which companies will win in the future, predictions can be made about how the battle will unfold, four keywords: (1) Capital Burn (2) Consolidation (3) Vertical E-Commerce (4) Amazon
  • Any company that wants to win at a regional scale will need to devise a highly customer-centric strategy that is nuanced to the distinctive local differences in every Southeast Asian market
  • There will be one clear winner: Southeast Asian consumers will heavily benefit from the increasing investment into the space in various ways

Putting growth intro perspective: E-commerce GMV in SEA remains relatively low in absolute terms

  • the ubiquity of shopping festivals (11.11., 12.12. etc.)
  • the mountains of parcels that are piling up in condominium lobbies
  • the emergence of several SEA-native e-commerce unicorns (Lazada, Tokopedia, SEA, Bukalapak)
  • the significant advances in the supporting infrastructure of the ecosystem
  • SEA is at a massive economic disadvantage: GDP per capita of ASEAN nations is $4,925 compared to $63,736 in the US
  • SEA is at a massive structural disadvantage: many essential components of the e-commerce ecosystem had to be built from scratch (e.g logistics) or are a lot less mature than in the US (e.g. underbanked population, consumer trust)

The roaring 20s: An exciting future lies ahead for e-commerce in the region

Eyes on the Prize: SEA could become the battleground for the climactic battle between e-commerce giants from different regions

iPrice’s The Map of E-Commerce ranks the region’s top 50 e-commerce players based on their average quarterly traffic, mobile application ranking, social media followers and number of staff. This ranking is based on Q4 2020.
  • Apart from Shopee & Lazada, the two regional powerhouses, the landscape across countries is largely heterogeneous, i.e. the main players vary by country
  • JD ID, the Indonesian subsidiary of Chinese e-commerce giant JD, is the only “eastern” or “western” behemoth that is a relevant player in the abovementioned markets, making SEA’s ecosystem comparatively unique
  • Southeast Asian Giants: Shopee, Lazada
  • Local Giants: Tokopedia, Bukalapak, Tiki.com
  • Chinese Giants: Alibaba, JD, Pinduoduo, etc.
  • Western Giants: Amazon, Walmart

How will this battle unfold?

  • Billions of Dollars of capital will be burnt in the bloody fight to gain market share
  • Consolidation seems inevitable, as companies seek profitability and users might at some point get tired of perusing different marketplaces with the same business model & similar assortments. Even relatively unconventional consolidation might occur among digital-first powerhouses with complementary capabilities, as the Tokopedia-GoJek merger shows.
  • Vertical e-commerce will be a growth driver: much attention is given to horizontal players, while strong & innovative vertical players, such as Indonesia’s parent-focused Orami or Thailand’s hybrid Pomelo Fashion are frequently overlooked. There are plenty of international role models and it seems only a matter of time until more regional vertical players emerge.
  • Amazon will enter the party somehow at some point: Nothing intrigues me as much as thinking about how Amazon will choose to compete in Southeast Asia. Since its launch in Singapore in 2017 and coverage about a potential investment in GoJek back in 2019, news about the US company’s foray into SEA has become scarce. Expansion plans might have been shelved but I highly doubt they have been abandoned.

Who will win?

  • Assuming Southeast Asian consumers are homogenous: consumer habits and preferences differ greatly among markets
  • Imposing “what works at home”: companies need to make an effort to truly understand Southeast Asian consumers and then combine their capabilities to build a fully localized service offering
  • More choice: consumers will be able to select their preferred platform from a variety of options to make their purchase
  • Better deals: increasing competition will induce various platforms to fight for consumers money & loyalty, which will ultimately lead to better deals for end consumers
  • Faster & cheaper delivery: there is still much to be done in the logistics space, particularly with regards to cost. On Shopee, for example, it is not uncommon to pay quite significant percentages of Order Value for shipping, particularly for small purchases. I would not be surprised if subscription models a-la Amazon Prime will be launched at some point to stimulate higher purchase frequency.
  • More payment & financing options: many players are heavily investing in digital wallets, e.g. Shopee’s parent company SEA with Airpay. The company has already launched financing options in some markets and it can be expected that more and more e-commerce companies will venture into financial services to decrease costs, stimulate purchases, and boost margins. For consumers, this will open up an entirely new payment & financing ecosystem outside the traditional banking world.

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