Forging ahead on Southeast Asia's digital journey

Speaking at the Singapore Business Federation's ASEAN Outlook Conference 2018 held in January, Senior Minister of State for Trade and Industry Dr. Koh Poh Koon said that e-commerce is key focus area with Singapore assuming ASEAN chairmanship this year. Regional business leaders at the conference also held the view that as the digital economy in Southeast Asia grows, cross-border cooperation is key to realizing its full potential.

Indeed, to continue to thrive as one of the fastest-growing regions globally, Southeast Asia must be innovative and resilient. Digital technology will play a catalyzing role in its regional progress.

Technology enables the creation and proliferation of new ideas as countries prepare themselves to seize growth opportunities, while at the same time, work through a myriad of challenges in areas such as financial inclusion, trade facilitation or external threats such as cyber-terrorism and climate change risks.

To that end, ASEAN countries needs to be digitally ready - both in terms of availability of connectivity infrastructure and adoption of technology across governments, businesses and citizenry.

While there are many success stories of homegrown start-ups and thriving digital native businesses in Southeast Asia, there is still significant room to fully leverage the benefits that digital transformation can bring to the region.

The reality is that a digital chasm remains between the developed and developing economies as a region. According to the MasterCard-Fletcher School Digital Evolution Index, there are huge gaps in digital capability and readiness between different ASEAN countries.

Much of that is invariably a result of the diversity and varying levels of maturity on different fronts in the region, such as physical and regulatory infrastructure, differing policies and consumer behaviors, and availability of skilled talent.

Having said this, the challenges are not insurmountable if member nations are committed to collaborate for the betterment of both the local economy and the region.

Review and harmonize regulations and policies

ASEAN is a target growth market, evident from the recent surge of investments from Chinese technology companies into the e-commerce sector in the region. It is estimated that Southeast Asia's e-commerce spending will rise to almost US$90b by 2025.

Yet, there are existing barriers to entry, such as slow regulatory reforms, extensive bureaucracy and lack of government incentives and promotion in various parts of the region that could curtail the potential of e-commerce.

Developing the e-commerce potential of the region must focus on optimizing the entire supply chain. To that end, it is necessary for ASEAN governments to continue to improve the quality of their local infrastructure - transportation, telecommunications, finance and trade platforms -- as well as the regulations and laws that support the transaction, distribution and provision of goods and services.

To facilitate open and smooth trade processes between the member countries, governments should look to review and harmonize standards within the region for both the digital and physical space. For example, the establishment of the ASEAN Consultative Committee on Standards and Quality has harmonized national and international standards and facilitated implementation of mutual recognition arrangements between member countries for priority products and standards.

Within the AEC Blueprint 2025, the ASEAN Work Programme on Electronic Commerce 2017-2025 is a vital first step for the establishment of a comprehensive and harmonized framework to integrate ASEAN's e-commerce industry. If disparate regulations remain, ASEAN's economic progress will be impeded as foreign and domestic companies struggle to make financial sense in paying to play in ASEAN markets.

Build and scale digital infrastructure

A future-ready government will require digital infrastructure in place - efficient networks, hardware and software widely accessible by citizens. Connectivity in Southeast Asia varies; Brunei's and Malaysia's internet penetration rates are at 86% and 71% respectively, while only 26 per cent of the population in Laos and Myanmar have access to the internet.

Laos has recognized this and is looking to resolve the issue by signing joint venture agreements with Vietnamese telecommunication firms that can bring in investment and expertise to help boost the country's infrastructure and economy. This mutually beneficial agreement is an example of how cross-border assistance between member states can be successful.

From a business perspective, many businesses are increasingly reliant on technology and the internet due to its relatively lower set up cost, capabilities and reach. A lack of digital infrastructure including basic internet accessibility would mean a continual struggle for business to scale and grow, and hinders countries in accelerating value creation in the new economy.

Skill a fit-for-purpose workforce

Technology is an important enabler, but just as important is the human element - a digitally ready workforce. Governments and businesses must co-drive the investment in education and skills training to transition its population to one that is future-ready.

Currently, the level of digital literacy and competency across ASEAN countries varies greatly; even countries such as Singapore and Malaysia that are commonly considered to be ahead in education in the region still do not have the critical mass of talent that are equipped with the skills needed to fully capitalize the potential of the digital economy.

Science, technology, engineering and mathematics (STEM) education is especially pertinent given rapid technological shifts and the rise of industry automation, alongside the emphasis on infrastructure development in many emerging ASEAN economies. By bringing STEM education to the forefront of national dialogue, policymakers can encourage awareness, participation and cultural shifts.

Lead with a strategic vision

It is easy to establish a digital platform and leave it to the contractors or solution providers to manage the system. However, to encourage business innovation and make impactful changes to citizen engagement, governments should delve deeper to understand the needs of its citizens, and outline a digital roadmap where underlying issues can be addressed in different phases on the timeline.

Beyond deploying digital capabilities for the end-user, the back-end processes should be equally digitally ready to provide data for analysis. A cultural shift within government would be necessary for its people to have the digital aptitude, capacity and agility to execute digital strategies and policies for the future.

Leadership from the top is crucial in pushing through digital adoption beyond government bodies to the wider business community. For example, Thailand's Digital Government Plan 2017-2022, done in collaboration between 20 ministries, aims to develop capabilities within all sectors of the economy to drive economic and social progress.

In Singapore, a whole-of-nation digital transformation is in play. The Smart Nation and Digital Government Office under the Prime Minister's Office drives digital innovation in government, builds capabilities of the public sector, and promotes adoption and participation by the public and industry.

The Masterplan on ASEAN Connectivity 2025 estimates that digital technologies in ASEAN could potentially be worth up to US$625 billion - 8 per cent of ASEAN's GDP by 2030 - which may be derived from increased efficiency, new products and services, etc.

Capturing this opportunity requires the establishment of regulatory frameworks for the delivery of new digital services including data management and digital financial services; support for the sharing of best practices on open data; and equipping businesses and people with the capabilities to access these new technologies.

Building a connected and competitive ASEAN region through digital enablement will require new ways of working and collaborating among country governments to deliver improved citizen engagement and business and investment experiences.

Individual countries may go at it alone; but in the case of Southeast Asia's digital transformation, the whole is certainly greater than the sum of its parts.

The writers are Sam Wong, EY Asean Government & Public Sector Leader and Dominick Low, Advisory Associate, Ernst & Young Advisory Pte. Ltd. The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.