Electronic commerce or e-commerce in Southeast Asia is the buying and selling of products and services over the internet in the countries of Southeast Asia. These practices reached Southeast Asia during the dot-com mania in the 1990s. After the dot-com bust, native e-companies have seen promising and fast growth in their sector.
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Before the Bubble
During the 1990s, due to the Internet and the beginning of e-commerce, it was possible for Southeast Asian consumers to purchase items from American and European companies that would be delivered in their countries. The dot-com companies’ stock prices skyrocketed, and native companies felt they needed to catch up to the other high selling e-commerce countries, choosing to underestimate the risks of launching many e-companies and letting the market decide which ones would succeed.
Asia had begun to attract nearly half of the total capital inflow from developing countries, appealed by the high interest rates. The economies of Malaysia, Singapore, Thailand and Indonesia saw a high GDP growth rates up to 12 percent, due to the stable Asian economies, the World Bank and the IMF for the benefit of the Asian local companies.
Purchasing power was growing as well as the number of e-commerce companies in each market, which promised a bright future for e-commerce.
After the Bubble
After 2000, the e-commerce market was mainly dominated by business-to-business (B2B) transactions due to consumer mistrust after going through the 1997’s financial crisis in Southeast Asia and the bubble burst. The only way e-commerce companies could re-enter the business-to-consumer (B2C) market was to earn back consumer trust. Companies like Amazon.com, for example, spent almost a decade, in coordination with the Southeast Asian governments that contributed by becoming “Internet-friendly”, to rebuild that trust.
Challenges and Issues
In addition to consumer mistrust, e-companies had to face low Internet usage. According to Nielsen, the average Southeast Asian Internet penetration today is around 38 percent among the 15 and over population, with the exception of Singapore where the use of Internet is widespread (at around 67 percent). This number is comparatively low to the rest of the world with Australia (at 78.9 percent), United States (at 78.1 percent), Germany (at 83.0 percent) and Japan (at 79.5 percent).
Others hurdles to overcome are cultural. For example, the number of credit card owners in Asia, and those who may are used to payment other than in cash, is small. Trust of the bank system and the electronic payments is traditionally low but government initiatives such as Thailand's PromptPay is trying to push for a "cashless society". The payments by credit or debit card are, however, on the rise, allowing the development of Internet services and retail. The number of fraud and the high rate of corruption in some countries also discourages people from paying over the Internet.
Lack of information in the industry is also a major concern as reliable market data is scarce and employees lack the digital experience needed to grow quickly. Market research brands such as ecommerceIQ are trying to fix this problem by published and sharing research and insights regarding ecommerce in Southeast Asia. The market research brand launched officially in February 2016 with Google Thailand.
In response to these challenges emerging e-commerce service providers such as WeLoveShopping, iTrueMart and aCommerce provide COD (cash on delivery) in order to penetrate second and third tier cities in Southeast Asia, as demonstrated by the 42% sales rate outside of the Thai capital, Bangkok. When participating in mobile commerce campaigns in the region, brands also noticed a higher uptake in high-priced items. "What was most surprising to us was how well high price point items sold. We believe this is driven by the fact that customers have the option to pay via cash on delivery (COD) which reduces the perceived risk for the customer and also enables brands to target customers in regions with lower credit card penetration," said aCommerce Regional Chief Marketing Officer, Sheji Ho.
Growth of Domestic e-commerce
With bankruptcies of many dominant international companies in the beginning of 2000 Southeast Asian companies were able to take over the Internet: Blogs, reviews, social networks and others started flourishing. It was not until the end of 2011, however, that the e-commerce really re-established itself in Southeast Asia. Foreign companies no longer just ship there but actually offer products and services focusing and responsive to regional needs, from local offices and warehouses.
Rocket Internet was the first company entering the online shopping market at a large scale in the region, through Singapore, with its fashion venture Zalora. Following that success, Rocket Internet launched Lazada Malaysia, an Amazon.com equivalent offering a range of products from electronics, recreation, home appliances, books, video games, health and beauty products, toys, baby products, and fashion items such as bags. The idea was to exploit the Southeast Asian market by offering the opportunity to get the same products that they used to purchase through foreign companies along with local products from an online company just around the corner. Either way, it takes only a few days for delivery whereas it took up to a month before. Zalora and Lazada Malaysia rapidly spread out to neighbor countries and figure now among the more visited and efficient websites in South-East Asia. That is why international and important investors such as JP Morgan, Kinnevik and Summit Partners invested millions of dollars in Lazada seeing the huge potential in the Southeast Asian market.
In Thailand, WeLoveShopping was established in 2004 as a C2C online marketplace by Ascend Group, a spin-off of True Corporation and subsidiary of C.P. Group. The site has recently changed its business model from earning revenue from rentals of online stores to earning commissions from transaction fees ranging from 2.9 to 13%. Payments for products will be placed in Escrow with cooperation with TrueMoney, and only when the product is delivered to the buyer satisfactorily will the seller get paid. Ascend Group also went on to set up iTrueMart in 2013 as a B2C e-commerce platform. In 2015, iTrueMart turned to Amazon Web Services (AWS) to run its e-commerce website and launched in the Philippines.
To overcome the mistrust of the consumers, e-companies adapted themselves to the market and its difficulties. In the case of Rocket Internet and aCommerce, they decided to offer the payment methods such as credit card payment and cash on delivery. Furthermore, they updated methods compared to the brick-and-mortar businesses to meet market expectations: They launched the “14 day return” policy and free and fast delivery in all countries to attract consumers back.
Soon after the appearance of Lazada and Zalora.com, Rakuten, Japan's largest B2B2C online retailer, also decided to reach into the same market by launching Rakuten in Malaysia. Even though they were already working with local and small e-commerce companies in a low customer catchment area, in Thailand in 2009 and Indonesia in 2011, their Malaysian venture is their biggest achievement in the region. They also had to match consumers’ expectations by offering attractive payment methods and appealing customer service.
In response to the significant growth in the number of online retailers, price-comparison websites became another e-commerce business on the rise. They compile product database from online retailers, traffic users to their websites, before redirecting to the designated merchants. Examples of these websites are Priceza, iprice, and PricePanda.
Despite the lack of trust in e-commerce and several cultural issues coming from the recent financial crisis, the market for e-businesses has been growing at a double digit rate and seems poised to become one of the most profitable sectors.