Opinion: Amazon will probably never enter Southeast Asia. Here’s why

Photo credit: Stephen Woods.

A few days back, TechCrunch reported that Amazon would be delaying its highly anticipated Q1 entry into the fast-growing Southeast Asian ecommerce market according to its sources. Unclear who these sources may be, the lack of any substantial evidence that the ecommerce giant is entering Singapore points to the case that it probably will never happen.

Plans of entry into the city-state don’t make sense considering Amazon’s past and present market strategy. Here’s my analysis.

Conventional vs guerilla warfare

Like the giant Goliath, Amazon performs best in wide-open “terrains” where it can accumulate and leverage its scale advantages. Look at the markets where Amazon is currently dominating the competition: US, Japan, UK, Germany, France, and increasingly India.Amazon entering Southeast Asia is comparable to the Americans fighting the Vietnam war. They’ll be battling an enemy that’s scattered in different countries, which are often divided by water and much better equipped at playing the local game. Drop a few Amazon executives from Seattle into the jungle called Jakarta to navigate “prime” logistics in the city’s legendary traffic and they might beg to go home.

Just look at Europe, which, despite the European Union, is still a loose collection of individual countries. Amazon’s tour de force in Europe has whittled down to three major markets—UK, Germany, and France.

China seems like the exception—an enormous single market similar to the US—yet Amazon’s market share tanked from 15 percent in 2008 to less than 2 percent today. Decision-making was centralized in the US, which slowed down its operations in China and couldn’t outcompete the hungrier competition.

In the end, Amazon China was no match for Alibaba’s Jack Ma and JD’s Liu Qiangdong, leaving them no choice but to “throw in the towel” and set up a shop on Tmall instead in 2015.

In the Middle East, Amazon is currently entangled in a bidding war with the UAE magnate Mohamed Alabbar to acquire Souq.com. Souq operates across the Gulf Cooperation Council (GCC) countries, all connected by land and no custom duties between them. This provides Amazon access to 50 million people sharing the same language and culture, and fits with its strategy of going after large single markets.

Singapore is not operation D-Day for Amazon

Amazon’s rumored entrance into Southeast Asia has specifically focused around setting up in Singapore first, arguably the most mature, albeit smallest, ecommerce market in the region.

Prior to Lazada snapping up Redmart for US$30-40 million, there were talks of Amazon trying to buy Redmart as a way to jumpstart its Singapore operations. But Amazon setting up local retail operations in Singapore doesn’t make any sense. Singaporeans, due to their country’s GST relief and efficient global logistics, are already ordering from Amazon en masse.

Amazon and Singpost are driving improvements in global cross-border logistics to deliver packages from the US to Singapore within three days with priority shipping. That’s the average time for local domestic deliveries inside Indonesia. And you can expect even faster deliveries in the future when Amazon successfully expands its own fleet of planes.So, could Singapore serve as a distribution hub to expand into the rest of Southeast Asia? Probably not. There are good reasons why Jack Ma decided to set up his new Southeast Asia hub in Malaysia’s new Digital Free Trade Zone and not in Singapore:

• Malaysia is connected to Thailand via land that gives it access to Cambodia, Myanmar, and Vietnam.
• Malaysia is as close to Indonesia, Alibaba/Lazada’s biggest market in Southeast Asia, as Singapore is.
• Malaysia (population: 30 million) itself is a much bigger ecommerce market than Singapore (population: 5.5 million).
• Malaysia has a much bigger overseas Chinese community than Singapore, whose citizens are regular users of Tmall, Alibaba, and AliExpress.
• Malaysia is a close political ally of China (not everything is purely business; read between the lines).
• Malaysia has more physical space than Singapore to fit in a massive logistics operation.

But Amazon is recruiting people…right?

Indonesia would be the place to start