Asean e-commerce - Hidden tigers meet tech dragons

WITH 158 million middle-class consumers, Asean is often seen as the next frontier for the e-commerce market. Despite experiencing rapid expansion over the past five years, e-commerce penetration is still less than 2 per cent of total retail sales in Asean. For context, this was where China was in 2010 and only a tenth of Chinese e-commerce penetration today.

However, we think the Asean e-commerce scene is about to change significantly, thanks largely to the recent entry of Chinese tech giants into the region. China tech-related investments through companies such as Alibaba, JD.com and Tencent have surged in 2017 - the number of deals quadrupled and value rose about three times. These tech giants bring with them capital and know-how, while also easing constraints on logistics and e-payment adoptions that has been holding back e-tailing. Competition in the Asean e-commerce sector will also intensify. Alibaba and Tencent are probably watching each other's moves in the region and propel each other to expand in Asean. Other large players have been flooding into the market. For instance, Amazon recently launched its first service, Amazon Prime in Singapore late last year.

The lack of efficient logistics and fulfilment has been one factor holding back e-commerce growth in the region. Although digital platforms can improve access to information such as pricing and product variety, getting products delivered to customers in a cost effective and timely manner is still challenging in Asean ex-Singapore. Homegrown startups such as Ninja-Van, Deliveree and aCommerce, together with larger logistics companies such as SingPost and GD Express, have already been entering the market and getting funding to tackle this last-mile logistics problem in South-east Asia. In addition, Chinese e-commerce companies can help ease the region's logistics constraints in two ways. First, they have a track record of using warehouse automation technology to drive efficiency, and can bring this knowhow to drive greater efficiency in Asean. Second, the entry of deep-pocketed Chinese players will likely raise pressure to scale up e-commerce markets.