The ecommerce opportunity in ASEAN

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

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

To begin with, the opportunity is huge but with challenges. The drivers of ecommerce in ASEAN are a growing middle class, higher smartphone and internet penetration, growing number of ecommerce players, more logistics options, and alternative payment methods.

However, there are key challenges that an ecommerce player is likely to face – managing customer expectations and perception 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 for ecommerce, and each country’s own regulations related to ecommerce and foreign ownership.

According to a UBS report, the new ecommerce space could be worth US$22 billion if online commerce reaches 0.5 percent of total retail. Comparing to China, ASEAN was only at 0.2 percent of retail in 2013, whereas China was at eight percent, making the region at least five years behind. Even if we assume Lazada’s gross merchandizing volume of approximately US$200 million in 2014 and giving it 20 percent market share, that is a US$1 billion market already, which needs to grow annually at 100 percent, 100 percent, 50 percent, 30 percent, and 30 percent in the next few years to become a US$10 billion market by 2020. Even this might be conservative, given that Lazada grew by 200 percent from H1 2013 to H1 2014.

The ecommerce value chain and platform offer many areas for players to differentiate themselves. It could be a differentiation achieved through a mix of product categories with level of integration with sellers, platform user experience and algorithm based engines, fulfilment technologies and capabilities for many small orders to be delivered quickly, delivery mechanisms in countries with bad transport infrastructure and 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 ecommerce startup can play around with the following levers – sourcing, product assortment, pricing, logistics, customer service, and technology.

Ecommerce law is two to five 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 ecommerce payments are based on cash on delivery, a large percentage of orders come from outside of the capital cities, and a lot of discovery happens on social and messaging platforms.

My Slideshare presentation goes into further details of the ecommerce opportunity and shows interesting ecommerce timelines by country courtesy of the UBS report. 3G networks, and the entry of Ebay, Groupon, and Rocket Internet have provided a somewhat better ecosystem for ecommerce startups and the growing ASEAN ecommerce M&A and investment trend is only going to continue to generate further interest in it.

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