The E-Commerce Opportunity in ASEAN

Thinking of doing a B2C e-commerce startup in ASEAN countries? If so, here is what you should be aware of before digging further into it. Also look back at the Southeast Asia Internet Opportunity Map published by me last year on Techinasia.

To begin with, the e-commerce opportunity in Southeast Asia is huge, but there are many challenges. The drivers of e-commerce in ASEAN countries are a growing middle class, higher smartphone and internet penetration, growing number of e-commerce players, more logistics options and alternative payment methods. However, there are key challenges that a B2C e-commerce player is likely to face – managing customer expectations and perceptions related to speed and reliability of delivery and online payment fraud; cross border issues related to custom duties, taxes, logistics and corruption; lack of low cost and reliable logistics infrastructure designed ground-up for online e-commerce, and each country’s own regulations related to e-commerce and foreign ownership.

According to a UBS report, the new e-commerce could be worth $22B if online commerce reaches 0.5% of total retail. Comparing to China, ASEAN was only at 0.2% of retail in 2013 whereas China was at 8%, making the region at least 5 years behind. Even if we assume Lazada’s gross merchandizing volume of approximately $200M in 2014 and give it 20% market share, that is a $1B market already. If the market grows annually at 100%, 100%, 50%, 30%, 30%, it becomes a $10B market by 2020, which might be conservative given that Lazada grew by 200% from H1 2013 to H1 2014.

The e-commerce value chain and platform offer many areas for e-commerce players to differentiate themselves. It could be a differentiation achieved through a mix of product categories with different levels of integration with sellers, platform user experience, smarter algorithm driven recommendation engines, fulfillment technologies and capabilities for larger number of small orders for quick delivery, novel delivery mechanisms in countries with bad transport infrastructure, location of the consumer (local vs overseas), payment methods, localization and much more that is specific to category, country and consumer behaviour. In brief, an e-commerce startup can play around with the following levers – sourcing, product assortment, pricing, logistics, customer service and technology.

E-commerce law is 2-5 years old in most ASEAN countries but best established in Singapore and Malaysia according to an A. T. Kearney report. Transport networks are not only strong in these two countries but also in Thailand, whereas it is quite a challenge in other countries offering an opportunity to focus and innovate in this area. Foreign ownership in Indonesia and Vietnam can also be complicated and needs further research.

There are certain commonalities in the emerging ASEAN countries. Most e-commerce payments are based on cash on delivery, a large percentage of orders comes outside of the capital cities and a fair bit of discovery happens on social and messaging platforms.

My Slideshare presentation goes into further details of the e-commerce opportunity and shows interesting e-commerce timelines by country courtesy of the UBS report. 3G networks, entry of Ebay, Groupon, and Rocket Internet have provided a better ecosystem for e-commerce startups, and the growing ASEAN e-commerce M&A and investment trend (recently covered by a Techcrunch  article) are only going to generate more entrepreneurial interest in it.

The views in this article are personal and do not represent my employer’s views.