E-Commerce out at SEA
Updated: Feb 2
E-Commerce Out at SEA
Written by: Mohammad Amir Rezza bin Mohammad Zahed
E-commerce entails the act of buying or selling goods online. The concept of selling goods online has been around as far back as the 1970’s. Since then, the word “E-commerce” has evolved into an umbrella term for various business models. Examples include business-to-business (B2B), business-to-customer (B2C), customer-2-customer (C2C) and online auction houses among many other models. The industry has evolved and matured throughout the years, however there are yet untapped markets.
In 1995, a man by the name of Jeff Bezos decided to open an online bookstore called “Amazon” on the then-nascent internet. Two decades later, Amazon has transformed into the e-Commerce giant that we all know - reporting 11.59 billion USD in net profit in 2019 (Amazon, 2019) and has 1.1 million employees as of July 2020 (Amazon, 2020). However, despite Amazon’s strong presence in North America and Europe, it has not been able to penetrate the Southeast Asian (SEA) region. Nor has its Chinese e-commerce adversary, Ali Baba.
A Rising Tide
The SEA countries comprise of Singapore, Malaysia, Indonesia, Thailand, Cambodia, Laos, Brunei, Philippines and Timor Leste who are all members of the Association of Southeast Asian Nations (ASEAN). One of the organization's main objectives is to promote economic integration among its members.
As mature economies in the West slow down, emerging markets in Asia Pacific (APAC) are accelerating ahead. The region has doubled its share of global gross domestic product (GDP) during the past two decades, despite its share of global population stagnating over the same period.
Figure 1: SEA population as a share of global population
Source: CITATION our20 \l 18441 (ourworldindata, 2020)
Figure 2: SEA GDP as a share of global GDP Source: CITATION Fed1 \l 18441 (Federal Bank of St. Louis, n.d.)
This growth in SEA is part of the wider tidal wave of economic growth from APAC. The World Economic Forum had forecasted that APAC economies would become larger than the rest of the world combined in 2020. (Huiyao, 2019)
Figure 3: SEA GDP size
Source: CITATION Fed1 \l 18441 (Federal Bank of St. Louis, n.d.).
The author has forecasted a 3.4% economic contraction in 2020 followed by a 6.1% expansion in 2021 as per CITATION Int20 \l 1033 (International Monetary fund, 2020).
Black Friday Fever
In December 2019, a new lethal coronavirus strain, Covid-19 emerged from Wuhan, China. Despite the widespread adoption of social distancing measures and lockdowns in numerous countries, the virus was spread globally. Countries within ASEAN were among the first to report Covid-19 cases outside of China and thus quickly adopted country wide lockdowns. Companies were mandated to let their employees work remotely. Schools were shut down or forced to adopt remote learning arrangements. Businesses that were deemed as “non-essential” to people’s lives were ordered to cease operations. Even the food and beverage (FnB) industry, which was mostly deemed “essential”, was not sparred as FnB outlets experienced reduced operating hours. Not to mention, even grocery stores faced restrictions on the number of concurrent patrons in their premise.
These new societal rules catalyzed the (1) widespread adoption of technology, and a (2) paradigm shift in consumer behavior.
People were spending more hours at home either because there was no need to leave or there was nowhere to go. Employees and students no longer had to commute, and they turned to technology to fill their newfound free time. SEA saw a surge in people connecting themselves to the internet for the first time. In 2020, one in three e-commerce users were first time users (Google, Temasek & Bain, 2020).
Figure 4: Internet Penetration Rate (%) Source: CITATION Goo19 \l 1033 (Google, Temasek & Bain, 2019)
(2) Consumer Behaviour
E-commerce offered a solution to social distancing in the form of “contactless payments”. Consumers realized they could purchase groceries online and instruct the delivery men to leave the goods outside their front doors. Thus, eliminating the risk of spreading Covid-19. Over time, e-commerce also became an avenue for consumers to satisfy their pent-up demand for a wider range of goods. SEA’s e-commerce gross merchandise value (GMV) experienced a compounded annual growth rate (CAGR) of 63.16% from 2019 to 2020. Furthermore, the change in consumer behaviour has prompted an upward adjustment to forecasts for the industry. Analysts believe the industry is set to experience a 22.64% CAGR from 2020 to 2025. (Google, Temasek & Bain, 2019)
Figure 5: SEA e-commerce GMV ($T) Source: CITATION Goo201 \l 18441 (Google, Temasek & Bain, 2020)
A Fever you can’t sweat out
The current leaps in growth for e-commerce are far from short-lived. The pandemic has merely accelerated the long-term growth of digital solutions.
As ASEAN eased out of the lockdowns, consumers did not return to their pre-lockdown spending behaviors. The extended periods of exposure to digital services had caused a fundamental permanent change in consumer’s behavior as per figure 6 & 7.
Figure 6: Average hours spent online per day & Figure 7: Perceived helpfullness of internet services (%) Source: CITATION Goo201 \l 18441 (Google, Temasek & Bain, 2020)
The impact of Covid-19 has led the International Monetary Fund (IMF) to adjust their ASEAN and global growth forecasts for 2020 down to -3.4% and -4.4%, respectively (International Monetary fund, 2020). This global economic contraction will lead to rising unemployment which makes consumers more price sensitive. E-commerce connects buyers with sellers outside their region and vice versa, facilitating a seamless cross-border trade experience. Therefore, in the short term, consumers would rather purchase items on e-commerce platforms because they may find better prices and product options than that offered by local brick-&-mortar businesses.
In the long term, the increase in merchants increases supply of goods available which drives market prices down. Brick-&-mortar businesses will be unable to compete with online merchants who can sell at more competitive prices due to their lower overheads.
Besides just being a platform for buying goods, e-commerce players have branched into financial technology (fintech) such as e-wallets to address the needs of underbanked populations in the rural areas of SEA. These demographics have limited access to traditional banking services such as credit cards and loans. This is due in part to the physical inaccessibility of banking branches and ATMs, and poor credit ratings.
E-commerce players aim to fill this void by integrating secondary e-wallet solutions into their platforms such as micro loans, remittance, and escrow services. By capturing this untapped market, e-commerce players will then be able to convert their e-wallet users into e-commerce users. Half of the region’s population live in rural areas, a big growth potential for e-commerce players.
Figure 8: Distribution of SEA population Source: CITATION our20 \l 18441 (ourworldindata, 2020). 2018 through 2020 are forecasts by the author
Despite the bullish macro trends fueling the growth of e-commerce, there are factors that may limit it. Indonesia accounts for almost half of the regions e-commerce market share (Google, Temasek & Bain, 2020) and they have yet to end their lockdowns due to the rampant spread of Covid-19 within its border.
Figure 9: Cumulative Covid-19 Deaths, Indonesia
Source: (World Health Organisation, 2020)
A loss of life equates to a loss of productivity for an economy. This loss can be devastating for households that lose their sole breadwinner. Furthermore, the loss of high skilled professionals can cause companies to suffer as these individuals may not be readily replaceable. Specialist doctors are one example. Currently, the extended lockdown in Indonesia does not seem to have an end in sight. The longer they delay their economic recovery, the deeper the impact of the contraction on GDP and the disposable income of the consumers. Even with the successful development of a vaccine, there is no certainty that there will be enough to be shared by all countries in the coming years especially for poorer countries.
Silk Road 2.0
In November 2020, 15 Asia Pacific countries including China signed the Regional Comprehensive Economic Partnership (RCEP) which is the world’s largest free trade agreement (FTA) that is projected to add US$186 billion to the world economy (Wong, 2020). The FTA would remove trade tariffs which would stimulate more trade within the region thus driving the GDP of the FTA’s signatories. This can lead to job creation and a boost to disposable income in the region Furthermore, the removal of tariffs translates to reduced prices for consumers long-term, thus likely to boost sales on e-commerce platforms.
A lighthouse in a passing storm
The e-commerce industry in SEA is in a prime position due to multiple major macroeconomic trends that have accelerated its growth. In the short term, Covid-19 has presented downsides to the ASEAN countries economies in the form of reduced economic activity and disruptions to brick-and-mortar businesses.
However, in the long term, the region’s burgeoning internet population, increasing accessibility of financial services, and the RCEP agreement has set the tone for increased trade and economic growth beyond Covid-19. The IMF had forecasted Covid-19 to cause the least economic contraction in APAC, out of all regions, at -2.2%. This is followed by the highest forecasted growth for 2021 at 6.9% (International Monetary Fund, 2020), thus solidifying APAC’s position as the new apex economy.
All in all, SEA is still an emerging market with great potential that has yet to be fully tapped by e-commerce players.
Amazon. (2019). Amazon 2019 Annual Report. Retrieved from Amazon.
Amazon. (2020). Amazon 2020 Q3 Earnings Release. Retrieved from Amazon.
Federal Bank of St. Louis. (n.d.). Retrieved from FRED Economic Data, Federal Bank of St. Louis.
Google, Temasek & Bain. (2019). e-Conomy SEA 2019. Retreived from Google, Temasek & Bain.
Google, Temasek & Bain. (2020). e-Conomy SEA 2020. Retrieved from Bain.
Google, Temasek & Bain. (2020). e-Conomy SEA 2020. Retreived from Google, Temasek & Bain.
Huiyao, W. (2019, July 25). the-dawn-of-the-asian-century. Retrieved from World Economic Forum.
International Monetary fund. (2020). Regional Economic Outlook Asia and Pacific Navigating the Pandemic: a Multispeed Recovery in Asia. Retrieved from International Monetary fund.
International Monetary Fund. (2020). World Economic Outlook: A long and difficult Asscent. Retrieved from International Monetary Fund.
ourworldindata. (2020, November 21). Retrieved from Ourworldindata.
Wong, C. (2020, November 15). 15 Asian nations sign RCEP, world’s biggest free-trade deal, after eight years. Retrieved from South China Mornig Post.
World Health Organisation. (2020, November 28). Covid Cases in Indonesia. Retrieved from World Health Organisation.