The Last Mile? Where next for E-Commerce in Southeast Asia?

For the past few years, ecommerce in Southeast Asia has been a seemingly endless source of unicorns for venture capital investors. While the Covid-19 lockdowns may have been difficult or even fatal for many businesses, if anything e-commerce was benefitted, as people turned to online ordering rather than going out shopping in person. What’s more, people who first got online as a way to deal with pandemic-related issues have stayed online even after the end of the lockdown.

Given the past few years of rapid growth, could the industry be ready to plateau? A 2021 report by Google, Temasek Holdings and Bain & Company said that over 75% of the population of Singapore, Malaysia, Indonesia, the Philippines, Vietnam and Thailand now have internet access and 80% of them have made at least one online purchase.

Despite this, the experts say no. Amit Anand of Jungle Ventures has said confidently on CNBC’s Squawk Box Asia that the field is still at a “very, very nascent stage”, with the region as a whole still only being at “single-digit digital penetration”. At the same time, Jungle Ventures announces that it had raised $600 million to invest in regional start-ups.

This has been confirmed by various other investors and specialists in the region, notably Marc Woo, Google’s head of e-commerce, travel and financial services, who noted that internet usage still has room to expand a great deal in the region, and the growing middle class will continue to drive demand even when internet penetration begins to approach 100%. According to Nielsen’s estimates, the ASEAN middle class reached 400 million in 2020, having more than doubled since 2012. The result is that Google and Temasek estimate that e-commerce sales will grow at a rate of 32% CAGR between now and 2025, and that even then they will only make up 6% of the total retail market, leaving plenty of room for further growth.

This bonanza has not just attracted venture capitalists looking for the next locally-grown unicorn, but also the giants of the sector. China’s two biggest e-commerce companies, Alibaba and JD.com have both indicated an interest in the region. Last year Alibaba paid $1 billion for a controlling stake in the Singapore-based e-commerce business Lazada, which in turn owns a stake in multiple e-commerce businesses across Southeast Asia. Alibaba has also been working to set up a “digital free-trade zone” in Malaysia, having already signed a memorandum of understanding with both the Malaysian government and the authorities of its home region of Hangzhou to facilitate trade between the two nations. Meanwhile, JD.com executives have also begun speaking openly about their intentions to expand internationally.

If anything, it is likely to be the looming presence of these Chinese giants that is likely to put pressure on the Southeast Asian e-commerce industry, rather than the exhaustion of new opportunities. Local companies such as Sea Ltd. (formerly Garena) have already begun making strategic plans for dealing with these new competitors.