Who will dominate ecommerce in Southeast Asia?
The dynamic economies of Southeast Asia present attractive opportunities for cross-border ecommerce. The ASEAN region is home to some of the world’s fastest-growing economies, such as Indonesia, Thailand, Vietnam, Malaysia, and the Philippines. These countries further benefit from rising smartphone use and young, tech-savvy populations.
In a recent report, Google and Temasek forecast that Southeast Asia’s ecommerce market will nearly quintuple in value to USD 102 billion by 2025 from USD 23 billion in 2018. With this in mind, Asia’s largest ecommerce companies, as well as Amazon, are all vying fiercely for market share in ASEAN’s major economies. Alibaba-owned Lazada and Singapore-based Shopee are among the strongest ecommerce companies in the region, but they face plenty of competition, including Singapore’s Zalora and Carousell, Indonesia’s Tokopedia and Bukalapak, Southeast Asia-based OLX Indonesia, Amazon, and China’s JD.com.
The lack of a unified ecosystem that incorporates online shopping and a preferred digital wallet contributes to market fragmentation. Nowhere in Southeast Asia is there a market scenario analogous to eBay’s partnership with PayPal or Alibaba’s pairing with Alipay. The whole ASEAN region is moving towards cashless payments, but each country has different preferences. Credit card penetration is high in Singapore and Malaysia, while digital wallets are increasingly popular in Vietnam, the Philippines, Thailand, and Indonesia, but overall penetration remains low.
For Alibaba, China’s top ecommerce platform, Southeast Asia offers a golden opportunity to break out of the confines of its home market and become a global business. To date, Alibaba has been successful at developing a cross-border business within China on its Taobao and TMall platforms, but that focuses on importing consumer goods for Chinese shoppers into China. Alibaba would like to replicate its success from China in Southeast Asia, but that’s easier said than done. Southeast Asian regulators won’t elbow aside the competition as the Chinese government did. Aside from that, Alibaba doesn’t have the same understanding of ASEAN’s disparate markets as it does when it comes to China.
That can be seen in Lazada’s uneven performance in Southeast Asia. In Indonesia, the region’s largest market, Lazada is not faring well. Research by the iPrice Group and App Annie shows that Lazada was fourth behind Shopee, Tokopedia (in which Alibaba also holds a majority stake), and Bukalapak in Indonesia in the first quarter of 2019.
Shopee has emerged as Lazada’s most formidable competitor. The Singapore-based company became Southeast Asia’s most visited ecommerce platform in the first quarter, as website and app traffic rose 5% sequentially to 184.4 million visits, the iPrice Group and App Annie found. Shopee was Vietnam’s top ecommerce platform in the first quarter of 2019 and second in Malaysia, the Philippines, Indonesia, and Thailand.
Shopee’s ecommerce business has been growing steadily for some time now. In 2018, its annual gross merchandise value exceeded USD 10 billion for the first time. Shopee’s adjusted revenue grew from USD 17.7 million in 2017 to USD 290 million in 2018. In March 2019, Shopee’s parent company Sea announced it was raising up to USD 1.55 billion for business expansion, likely for Shopee, analysts say.
In July 2019, Shopee Malaysia revamped its digital wallet, renaming it ShopeePay (formerly called Shopee Wallet) and enhancing its features, although they remain quite limited – topping up and withdrawal of funds; for now, it can only be used on the Shopee ecommerce platform. ShopeePay looks a lot like Lazada’s digital wallet because it serves primarily as a way to easily buy goods on a specific online marketplace without a credit card.
Unlike Alipay in China, which faced almost no credible competition, the digital wallets of Lazada and Shopee have to compete directly with credit card giants like Visa, Mastercard, and American Express. To be sure, the e-wallets and credit cards may find ways to work together in a bid to win more business opportunities. That has certainly worked for credit card companies on eBay, where cards can be part of a user’s PayPal wallet.
Meanwhile, in terms of average monthly users, Lazada remained ahead of Shopee in the January-March 2019 period, iPrice Group and App Annie found. Lazada also had the most users in Singapore, Thailand, Malaysia, and the Philippines, and was no. 2 in Vietnam and no. 4 in Indonesia. Analysts say that Lazada’s recent tech innovations have helped boost its popularity among users, turning the platform into ‘shoppertainment’, where users can play games and watch in-app live streaming in addition to buying goods. Shopping as entertainment strategy has its roots in China, where Alibaba holds a stake in the live-streaming site Bilibili.
Taking local user preferences into consideration, Lazada will likely need to further develop its ‘shoppertainment’ options across Southeast Asia to maintain its competitive edge in the short and medium-term. Competition is fierce. The unique nature of each Southeast Asian market requires multiple localised strategies and targeted investments.
In the long term, consolidation of the ecommerce market in different Southeast Asian countries might offer the chance to build more comprehensive ecosystems linking online shopping platforms with preferred digital wallets. If Lazada were to become the dominant ecommerce platform in the Philippines, for example, and the Alibaba-backed GCash wallet the preferred accompanying payment option, then Alibaba would effectively become the top ecommerce company in that country.
That’s feasible in one or even multiple Southeast Asian markets, but probably not in all of them. Through its stakes in Lazada and Tokopedia, Alibaba will undoubtedly be a major player in ASEAN’s preeminent ecommerce markets for years to come, but not quite the juggernaut it is in China.
This editorial was first published in our Cross-Border Payments and Commerce Report 2019 – 2020, which provides a comprehensive overview the major trends driving growth in cross-border payments, cross-border commerce, and marketplaces.
About Zennon Kapron
Zennon Kapron is Director at Kapronasia, and has been involved in financial technology for over 20 years. Before Kapronasia, Zennon was the Global Banking Industry Manager for Intel and the CIO for Citigroup Portugal. He holds a B.S. in Computer Science from Syracuse University and an MBA from INSEAD.
About Kapronasia
Kapronasia is a leading independent research and consulting company focused on the Asian financial services industry. We help financial institutions, technology vendors, consultancies, and private equity companies understand the impact of business, technology, and regulatory issues in banking, payments, insurance, and capital markets.
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