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Three Key Predictions for E-Commerce in Southeast Asia 2018

21 April 2018 | Jeremy Chew

2017 has been a vital year for eCommerce in Southeast Asia. With Gross Merchandise Value (GMV) of first-hand goods surpassing $10B, up from $5.5B in 2015, and a stunning 41% Compound Annual Growth Rate (CAGR) over the past couple of years, as mentioned in Google-Temasek’s eConomy Spotlight SEA Spotlight 2017 report, last year proved to be an amazing year for the industry

Among other major ecommerce highlights of 2017 was Amazon’s long-awaited entrance into Singapore, the fast rise of Shopee’s mobile-first platform, as well as the$250M record-breaking sales by Lazada’s Online Revolution Campaign. Furthermore, Alibaba and Tencent continues to increase presence by increasing their capital in an attempt to 'win' the market.

To keep track with the fast-evolving tech industry in the high-potential region, we listed three vital predictions for the ecommerce industry in Southeast Asia this 2018.

1. Increased investment from China into Southeast Asia

In February 2018, Alibaba upped the stakes into Southeast Asia leading ecommerce, Lazada with an extra $2billion in investment. Furthermore, the Chinese e-commerce giant appointed its veteran executive Lucy Peng as chief executive with the goal of accelerating its growth in Southeast Asia and deepening Lazada’s integration into the Alibaba ecosystem. To date, Alibaba has invested a total of $4billion into Lazada.

In addition, Chinese Billionaire and founder of Alibaba Jack Ma shook hands with the Malaysian Prime Minister to launch its first Digital Free Trade Zone (DFTZ) outside China. A report by Reuters revealed the e-fulfillment hub will extend across 24,700 acres (almost 10,000ha) and should generate over US$1.58 billion worth of foreign and domestic investment.

However, this is just the tip of the iceberg. We would expect to see more China-based companies pouring in investments in a bid to dominate Southeast Asia’s digital economy. Already with a grip on the region is Tencent who has heavily invested into Shopee (ecommerce), Tokopedia (online marketplace) and Go Jek (ride-hailing).

Other Chinese giants expecting to enter Southeast Asia could possibly be Baidu (search engine) and Didi Chuxing (transportation). But why the heavy investment into the region? An article on Tech in Asia listed the key reasons:

  • Southeast Asia is geographically close to China.
  • The region has a huge, untapped market with 600 million people and a growing middle class.
  • China’s economy is slowing down and Chinese giants are sitting on piles of cash to spend on overseas growth.
  • Cultural affinity: Southeast Asia is home to the largest community of overseas Chinese (over 25 million across the region).

No wonder Amazon has an eye on this region.

2. While some thrive, some will fall

In the past years, we have seen both the rise and fall of businesses even though the ecommerce potential in this region has been ample.

One such example was Uber, who exited the region by selling its business to rival Grab after ruling the region as a loss-making market due to a subsidies war between the two rivals. Another was Rakuten which closed in 2016 after failing to replicate its success in Japan in the region.

Though there wasn’t a specific reason why such an ecommerce model could fail, there were similarities why they did. One reason was the failure to craft a localised strategy befitting the industry. Rakuten’s replication of its B2B2C model from Japan failed to materialise in Southeast Asia as its ‘one size fits all’ strategy did not fit and was too conservative for local market according to an ex-Rakuten staff.

For Uber, though they were quick to point out that it gave country offices the freedom to suggest and develop a localized policies and ideas, its Southeast Asian arm lacked coherence. This was somewhat apparent as Uber only appointed a regional head for Southeast Asia in August 2017, four years after its initial arrival.

TechCrunch stated that this late move by Uber symbolized its struggle to develop a strategy until it was too late. Added with controversies that hit Uber as a company in 2017, the report stated that it ‘no doubt’ impacted decision-making to its offices outside of the U.S.

So, who will be the next ones to exit the region? Time will tell.

3. Amazon to attempt a major acquisition and be a serious competitor to Alibaba

Amazon experienced a rocky start in Southeast Asia after users could not access Amazon Prime Now - its same-day delivery service launched in Singapore on July 26, 2017. While a number of consumers were excited of the U.S. company’s entry into the region, it has yet to reveal plans to launch a full-blown local presence.

Nevertheless, Singaporeans under the Free Amazon Global Saver Shipping option were already enjoying free international shipping from the company. As such, the country ranks 29th in terms of sessions per year but fourth when normalized for population size. With an average of 14.04 sessions per person per year, Singapore takes the top spot in Asia according to Tech in Asia.

In fact, the opinion article that stated the launch of Amazon Prime in Singapore makes it even less likely for the firm to set up local operations beyond Amazon Prime Now. With time running out for a full-fledged, organic entry into the high-growth markets of Southeast Asia and not too distant memories of failure in China, it might be safe to say Amazon might attempt one major acquisition in 2018 to take the fight to Alibaba.

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This article was first published on ValueWalk.

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