Thailand's internet economy 'healthy' but lags in digital adoption

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OCTOBER 31, 2019 - 8:22 PM

Thailand's internet economy is growing at "a healthy clip", from US$6 billion in 2015 to US$16 billion in 2019, but the country still lags behind regional peers in digital adoption and digitalisation, a report by Maybank Kim Eng said on Thursday.

The report, titled 'Disruption Watch #7: Thailand's Digital Revolution', said online travel is the largest component, while e-commerce, online media and ride-hailing are growing strongly. The online travel sector, worth US$7 billion in 2019, is the dominant component as Thailand has the biggest tourism economy in Asean. The star performer is however the US$5 billion e-commerce sector, which grew by an "astounding" 54 per cent compound annual growth rate over the past 4 years, the report prepared by Maybank analysts Lee Ju Ye and Chua Hak Bin said.

E-commerce penetration rate remains small at only 2 per cent of total retail sales, below most of ASEAN including Singapore at 8.3 per cent, Malaysia at 3.8 per cent and Indonesia at 2.8 per cent. But Maybank KE said it is early days yet and there is plenty of room left to grow.

An emerging trend is social commerce, which consists of all digital transactions made via social channels such as Facebook, Instagram and LINE. It is now an important aspect of ecommerce, accounting for 20 per cent of total e-commerce transactions, Maybank KE noted.  With 74 per cent of the population on social media, Thailand is among the world’s largest social commerce market.

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The e-commerce boom is lifting consumer goods imports and lowering prices of consumer items. While Chinese products are becoming more common on Thailand’s e-commerce
platforms, local merchants are also benefitting from these platforms to export to China, the report said.

Despite having a high digital connection, electronic payments adoption remains low. Estimates by regional e-commerce services provider aCommerce14 show that around 76 per cent of business-to-consumer sales are still paid for by cash-on-delivery.

Thailand's digital economy vision took shape in 2016, when the military government introduced a new economic initiative ‘Thailand 4.0’, to revolutionise industries through digitalisation and lift the country from the middle-income trap in 5 years.

But despite the government's ambitions, Thailand still lags behind in digital adoption compared to its regional peers. Based on the Digital Evolution Index (DEI) 2017, Thailand falls under the “Watch Out” zone, which refers to countries with low state of digitalisation and low momentum, the only Asean-6 country in this category.

Maybank KE noted that adoption of digitalisation by small and medium enterprises (SME) is still low. Even though SMEs account for 42 per cent of GDP and 79 per cent of employment, they are still underequipped with digitalisation skills. The country ranked 11th out of 14 countries in Asia Pacific in terms of digital readiness, based on a 2019 study by Cisco Systems.

In addition, Thailand is one of the "laggards" in 5G development in the region, partly due to the telecom firms’ reluctance to invest and develop 5G given expectations that demand for the service will be insufficient to justify the expensive infrastructure, the report said. The cost is estimated at 100 billion baht (US$3 billion). While 5G adoption in Thailand is expected in late 2021, Singapore and Malaysia have plans to roll out 5G in 2020, Maybank KE added.

Even so, 5G adoption will depend on the country’s digital readiness, an area that requires some catching up, the report said, adding that Thailand ranked just 40th place out of 63 in the 2019 IMD world digital competitiveness ranking.

The report highlighted several challenges, including the lack of human capital such as tech graduates and a scarcity of foreign talent despite generous visa allowances for foreign tech workers. In addition, the laborious tax system is a bottleneck for businesses, while funding for its tech sector is the lowest in the region.