Southeast Asia’s E-commerce Explosion

The ongoing Covid-19 pandemic fueled an upsurge in Southeast Asia’s e-commerce sector in 2020, with some 40 million new users coming online, bringing the total number of regional internet users to approximately 400 million, according to an “e-Conomy” report by Google, Temasek Holdings and Bain & Company.

The move was mirrored in a major uptick in online commerce. Over a third of 2020’s online business in Southeast Asia was generated by new shoppers – and, on average, eight in 10 of them intend to continue buying online in future, according to surveys. Moreover, online shoppers are buying more – even accounting for the new arrivals – and small- and medium-sized enterprises (SMEs) are increasingly shifting online.

Of course, such trends were a global phenomenon in the year of “work from home, stay at home,” but in Southeast Asia, where e-commerce had been described as “nascent” for many years, the shift was particularly pronounced. In short, the pandemic has spurred internet penetration, e-commerce uptake by consumers and innovation by sales platforms, delivery services and finance – not to mention shifts to online in the areas of education and medicine. In this sense, it’s likely that the “pandemic year” of 2020 will one day be seen as a harbinger, a taste of things to come, a sign of just how big e-commerce is more than likely to become – once and for all leaving the 1990s debates about “bricks versus clicks” in the dust.

According to the Google, Temasek and Bain report, in Southeast Asia, even after economies reopen, people surveyed said they would be 1.5 times less likely than American respondents to go out to shop and eat in the future, marking a significant cultural shift in the region and suggesting that the changes to the way that people shop and the way businesses sell in Southeast Asia are here to stay.

Stephanie Davis, vice president for Google in Southeast Asia, said in a press release accompanying the report’s release, “COVID-19 has changed people’s daily lives in fundamental ways [and] the digital adoption that was projected to happen over several years has accelerated.

A Facebook-Bain report from late 2020 found that 47% of Southeast Asian consumers spent less offline in the first half of 2020, while 30% spent more online, hailing 2020 as “Five years of digital transformation in one year.” The report noted that every category of online commerce, “be it consumer electronics and accessories; clothing, footwear and accessories; personal care and beauty; household, appliances and furnishings, saw at least a 1.4x increase in online retail penetration from 2019 to 2020. But the highest growth came from groceries, which achieved a 2.7x growth in online retail penetration as more people shopped online.”

The report also noted that Southeast Asia’s gross merchandise value (GMV) – the total value of a company’s sales over a particular timeframe – increased by 23% between 2018 and 2020, outstripping growth rates in China, India and the United States.

Exponential growth

For all the region’s major economies – Indonesia, Malaysia, Singapore, The Philippines, Thailand and Vietnam – the picture is very much the same: more people online and a rapid uptick in all categories of online business except travel, or so-called online travel agencies (OTAs).

The big Southeast Asian economies are not entirely equal, however, in terms of their recent uptake of online commerce during the pandemic. Perhaps somewhat surprisingly, the number of Indonesia’s online consumers is growing at a faster pace than those of its neighbors. On average, the number of online shoppers in Southeast Asia is growing annually at between 5% and 9%, depending on the country, but Indonesia’s digital consumers rose by 15% in 2020, taking its total to 137 million, or 68% of its estimated total population above the age of 15.

Malaysia, Singapore, and the Philippines now have the highest percentages of digital consumers, at 83%, 79%, and 74% respectively.

This has not resulted in a similar explosion of investment, probably because investment in regional so-called unicorns was relatively high in 2019 and 2018. A report by Cento Ventures described 2020 as “a very ‘normal’ year for Southeast Asia tech investment,” adding that “the total number of deals fell by 8%, but the amount of capital invested was about the same as in 2019, at just over US$8 billion.”

The 2020 investment climate, sector analysts note has led to a certain degree of consolidation, a focus on profitability, particularly by Southeast Asia’s “giant unicorns” – successful startups that are undergoing exponential growth. In 2020, 12 such unicorns dominated Southeast Asia’s online space: Bigo, Bukalapak, Gojek, Grab, Lazada, Razer, OVO, Sea Group, Traveloka, Tokopedia, VNG and VNPay. Together, they represent a formidable entourage of players that roam the full gamut of online: online travel; online media (advertising, gaming and subscription music and video on demand); ride hailing (transport and food delivery); and the growing digital financial services sector, which covers payments, remittances, lending, investment and Insurance, all of which have seen phenomenal growth in the more mature China market.

Most of these regional unicorns have made public statements over the past year about focusing on profitability as opposed to the transaction growth that attracts rounds of venture funding, suggesting that the Southeast Asian online market is maturing and aiming to stand on its own feet. To take one high-profile example, super-app Grab has announced it is limiting its core businesses to its chief strengths – digital financial services and transport and deliveries.

Resilience/growth in crisis

With 400 million internet users, Southeast Asia has entered a period of unprecedented online commerce growth. That growth is expected to continue to accelerate even as lockdowns become less frequent, smaller in scale and economies “normalize” in a post-pandemic world. Analysts expect investment in all online sectors to remain strong, with increasing spending in the up-and-coming healthtech and edtech areas, which for the moment remain relatively nascent but have strong grounds for hyper-accelerated growth.

To take healthtech alone, Indonesia, for example, has just 0.4 doctors and 1.4 hospital beds per 1,000 of its population compared to the United States, which has 2.7 and 2.8 respectively. Even Thailand, which is generally considered to have a good healthcare system does not look particularly better than Indonesia – Thailand has 0.2 doctors and 2.2 hospital beds per 1,000 people, lagging behind Vietnam with 0.8 and 2.8 respectively.

Both HealthTech and EdTech have played crucial roles since the outbreak of Covid-19 and have seen strong adoption rates, with lockdowns impeding regular doctor’s appointments and isolating students in their homes. Both are potentially high-growth areas that are likely to see increasing investment and innovation in the years ahead.

Meanwhile, on a purely retail front, all predictions have been revised upwards, with Facebook & Bain anticipating, for example, that digital consumers will be spending 3.2 times more in 2025 than they did in 2019 and that GMV will grow at approximately the same rate, reaching a value of $147 billion by 2025.

To put this in perspective, despite the recent surge in growth in Southeast Asia, the region’s online retail penetration rate is still only 5%, whereas in China it is 32%. That is to be expected, as China embraced online commerce earlier and more wholeheartedly than anywhere else, but it also points to staggering growth potential in the region now that Southeast Asian consumers and businesses have started to catch up.