Singapore panorama skyline in the morning
Southeast Asia is a region of Asia, which is getting more and more attention and rightly so. The Indian subcontinent bounds the region roughly on the west, China on the north, and the Pacific Ocean on the east.  Just look at the numbers: it has a population of around 620 million (the third largest in the world after China and India) and covers an area of 1.7 million sq m (4.5 million sq km).

The region is composed of eleven countries of impressive diversity in religion, culture and history: Brunei, Burma (Myanmar), Cambodia, East Timor (Timor-Leste), Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. It is today one of the most dynamic areas of the world economically, a factor which largely accounts for its growing international significance.

The establishment of the ASEAN Economic Community (AEC) in 2015 was a major milestone in the regional economic integration agenda in ASEAN, offering opportunities in the form of a huge market of US$2.4 trillion. In 2015, AEC was collectively the third largest economy in Asia and the seventh largest in the world.

In present times consumer markets around the world are transforming under the influence of demographic shifts. In the past expanding populations largely fuelled market growth, while today incomes are the force to reckon with. According to the World Economic Forum, two-thirds of consumption growth in South-East Asia in the period up to 2030 will come from increasing per capita spending, and the remaining one-third from population growth. This increase is not uniformly distributed. It is therefore vital that consumer-focused companies in the region develop much more granular growth strategies, identifying pockets of higher income and population growth. Companies need to know which consumers have the most purchasing power, what they are likely to spend on, and where they live. In an ageing world, South-East Asia continues to benefit from both robust population growth and sharply rising incomes. In combination, these two forces should help to sustain strong consumption growth, fuelling the continued expansion of GDP. In every age group, the region’s population growth rate will be faster than the global average, and will contribute 34% to consumption growth by 2030, compared with the global figure of 25%, according to a recent McKinsey report Urban World: The Global Consumers to Watch (available on request).

One of the areas, which are of growing importance in South East Asia, is (online) retail.

According to a recent Bain and Google report titled “Can Southeast Asia Live Up to its e-Commerce Potential,” online sales in Southeast Asia representing four per cent of the region’s total retail market or $6 billion, could grow to $70 billion by 2020. While 100 million individuals in Southeast Asia have already made online purchases and 150 million are taking the first step of researching products online prior to a purchase, e-commerce in the region is growing at a much slower pace compared to developed and other developing markets.

According to the report the growth of the Southeast Asian e-commerce market has been slow but significant, starting from a very small base in 2012 and has doubled every year since.

The report identifies the highly fragmented nature of the region as the biggest hurdle for e-commerce success with regulations, infrastructure and customer preferences making it difficult to establish a presence and build scale particularly for foreign-owned businesses.

Another challenge to the success of e-commerce (as we see in many parts of the world) is the consumers’ concern over trusting the e-commerce platforms and the difficulty of finding a wider range of products at competitive prices.

A growing digitally sophisticated population and a growing use of smartphones are seen to make e-commerce broadly acceptable in the region. As the number of Southeast Asians coming online increases exponentially, more and more will take the step to purchasing online.

According to the researchers Southeast Asia’s countries—Philippines, Indonesia, Singapore, Thailand, Malaysia and Vietnam—are beginning to have a critical mass of internet users, growing from 260 million today to around 480 million by 2020.

In Southeast Asia, besides Singapore and Malaysia, retail outlets can be hard to come by. “Access to organised retail in remote areas is limited; you simply don’t get access to products. This opens up a huge potential for ecommerce,” according to the report.

The Philippines has almost 7,000 islands, while Indonesia has more than 900 inhabited islands. This makes it difficult for organised retail chains to expand to far-flung areas and reach a dispersed consumer base. In order for e-commerce to take full flight regionally however, practical logistical needs will need to be overcome. In Indonesia, logistics costs are one of the highest in Asia.

Southeast Asia is expected to be richer than ever before — and all that extra change may well translate into an online shopping bonanza.

I wholeheartedly share the conclusion of the report that for (online) retailers to succeed in the online marketplace in Southeast Asia, there is a need to clearly understand the consumers and their shifting behaviour and to use such information in building and investing a digital strategy. Choosing the right partner will also be vital in order to succeed. That is by the way sound advice for all entrepreneurs to take into account when considering exploring new markets.