E-commerce companies moved hard into Southeast Asia in 2013. Armed with innovative strategies and lots of funding, global giants and local startups raced to promote online retailing in a region where brick-and-mortar stores still dominate. Their efforts will bring more than just convenience to tens of millions of net-enabled consumers. They’ll also boost living conditions and create opportunities for a new generation of ambitious entrepreneurs.
Southeast Asia excites e-commerce companies for several reasons. For starters, strong economic growth has put disposable income in the hands of more people than ever before. About 70 million people in Indonesia alone will enter the ranks of the middle and upper classes by 2020, according to a recent Boston Consulting Group study. These consumers are likely to turn to e-commerce for their newfound shopping needs.
The abundance of young, tech-savvy consumers is another appealing aspect of the Southeast Asian market. Roughly half of the region’s 600 million people are under 30 and increasingly moving to cities, which helps explain why the region has some of the highest levels of digital engagement in the world. And high Facebook and Twitter usage provides e-commerce companies with a fertile channel for connecting with potential customers.
Pursuing this opportunity, investors poured over half a billion dollars into Southeast Asian e-commerce startups last year. Susie Sugden, managing director of Jakarta e-commerce logistics company Vela Asia, says consumer-to-consumer marketplaces dominate now, but business-to-consumer e-commerce is growing fastest and will take on a greater share of e-commerce revenues as the industry matures.
Berlin-based Rocket Internet is leading the B2C charge in the region. In 2013, the startup incubator raised hundreds of millions of dollars to expand the presence of its two flagship Southeast Asian brands: Lazada, an “online department store” that resembles Amazon, and Zalora, a fashion and footwear retailer that resembles Zappos. Meanwhile, other global e-commerce leaders such as Japan’s Rakuten and China’s Alibaba are planting their flags, as smaller players strive to capture unfilled market niches.
Some of these companies will sizzle and others will fizzle, but consumers—especially poorer citizens who live far away from the glittering malls in urban hubs like Singapore, Bangkok or Manila—will emerge as the ultimate winners.
“For people living in remote areas, e-commerce provides access to a vastly wider selection of goods than what’s available in local markets,” says David Jou, co-founder of Pomelo Fashion, an online retail startup in Thailand. “It also creates price competition that allows people everywhere to buy more with less. This changes people’s lives dramatically for the better.”
E-commerce industry growth also creates new job opportunities for local entrepreneurs and tech professionals. According to Jou, e-commerce presents some of the best earning opportunities for ambitious up-and-comers, and helps drive capital to related sectors, such as online marketing and graphic design.
Still, many challenges await Southeast Asia’s e-commerce entrepreneurs. A major one involves educating a market that lacks broad awareness and understanding of what e-commerce is. Trusting an e-commerce store and negotiating a checkout process is second nature for many in the developed world, but for tens of millions of people who only came online in the past few years, these habits will take time to cultivate.
Another challenge is accepting payments in a region with low banking and credit card penetration. E-commerce companies often deal with this by offering to let customers pay with cash on delivery, though this raises the risk of theft, loss, or nonpayment. Some companies also accept more innovative payment methods, such as mobile account credits.
Logistics and fulfillment in a region with underdeveloped infrastructure and gridlocked urban traffic will pose another bottleneck. Another obstacle to the industry’s growth will be the country-by-country patchwork of varying laws, languages, consumer preferences, and other factors.
Investors and entrepreneurs believe these challenges can be overcome. They’re already finding inventive solutions to serve a market long neglected by global e-commerce leaders like Amazon. As they do, access to goods and services will be democratized, jobs will be created, and fortunes will be built. The rise of e-commerce will benefit millions.
Will Greene is a writer and strategy consultant focused on Asia’s emerging R&D ecosystems. You can find him on LinkedIn.