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SEA digital connectivity rivals China

News, 21 March 2016

SINGAPORE: Digital media connectivity in Southeast Asia now rivals China, as more than 150m consumers in the region are digitally active and show high levels of product and search engagement, a new report has found.

However, although the region has 250m consumers connected via smartphone and 100m engaged in online transactions, e-commerce is being held back by constraints in its logistics and payments infrastructure.

These are the headline conclusions from a joint report from Bain & Company, the managing consultants, and Google, who surveyed more than 6,000 consumers in Singapore, Malaysia, Indonesia, Philippines, Vietnam and Thailand.

According to the report, online retail is a $6bn market in Southeast Asia, but with online sales of under 4% of total retail, the region still lags well behind developed markets and even other developing markets. That said, the Bain-Google report remained optimistic about the region's e-commerce prospects.

"The growth of the Southeast Asian e-commerce 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," said Sebastien Lamy, a Bain partner and co-author.

"We believe this region is on the cusp of a digital boom that is beginning to transcend e-commerce and impact sectors from travel and tourism to financial services and payments. Those that recognise its early potential in spite of persistent complexities will reap the rewards."

The biggest hurdle for e-commerce success in Southeast Asia is the highly fragmented nature of the region, the report said.

It identified regionally-specific cultures, regulations, infrastructures and customer preferences as issues that make it difficult to establish a presence and build scale, which acts as a deterrent for foreign-owned businesses.

There is much at stake because, overall, Bain estimates that online retail sales across the region could reach $70bn by 2020. While just a fraction of China's online market, the report said multinational brands "are finding it harder to ignore the region's emerging influence", although local firms will need to act to reap the rewards.

"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," said Florian Hoppe, a Bain partner and co-author.

"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."

Data sourced from Bain & Company; additional content by Warc staff