Asean remains the market to watch for e-commerce: Fitch Solutions

NOVEMBER 07, 2018 - 10:53 AM

Asia has topped the Fitch Solutions’ latest E-Commerce Index, with Southeast Asia in particular the “market to watch” with the sub-region attracting increasing investment from Chinese players, according to a Fitch Solutions report.

The report projected that e-commerce sales in emerging Southeast Asia (Philippines, Vietnam, Thailand and Indonesia) will grow by 15 per cent per annum over the medium term. While e-commerce is developing from a low base, investors will benefit from first mover advantage, it said.

The market is increasingly being contested by the Chinese e-commerce giants Alibaba and JD.com. Alibaba’s Lazada has not only focused on Indonesia, but has operations in Philippines, Thailand and Vietnam. As for JD.com, it has also sought to develop its footprint, with investments in Pomelo Fashion and Go-Jek.

The report highlighted Malaysia as having the strongest growth in the region. It is currently a relatively small e-commerce sales market, with just US$8.3 billion worth of sales projected in 2019, ranking it eighth regionally in the E-commerce Index behind Indonesia, the largest market in South East Asia.

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Developing from a lower base, however, the country is on track to post the strongest growth in the region over Fitch Solutions’ forecast period (2018-2022) at 20 per cent, a growth trajectory that will see e-commerce sales in Malaysia rise to a projected US$12.9 billion in 2022.

“In the short term consumer spending in Malaysia is being aided by policies introduced by the new Pakatan Harapan with the re-introduction of the less broad-base sales and service tax (SST) following a three month tax holiday as well as increasing minimum wages,” said the report.

E-commerce demand in Malaysia is set to be driven by the large percentage of young consumers, with 36 per cent of the population falling into the young adult age group. E-commerce majors already have the country on their radar, with Alibaba setting up a 'Digital Free Trade Zone' in the country in February 2018. The initiative is designed to make cross-region shipments more affordable for Malaysian small- and medium-sized companies – the majority of businesses in the country.

A core element of the scheme is an electronic world trade platform (eWTP) which is designed to ease trade between Malaysian and Chinese firms. The virtual platform, due to take effect in 2019, will connect businesses, manage cargo authorisations and assist on customs.

As for Southeast Asian markets as a whole, the report flagged that the developed e-commerce market of Singapore can act as a base of operations to then springboard into the region.

US e-commerce giant Amazon is testing this strategy, launching its first service Amazon Prime Now in Singapore in July 2017, a move that not only enables it to break into Singapore’s high value e-commerce sector, but also offers it a base from which it can explore other opportunities in Southeast Asia.

Other major e-commerce players like Alibaba have also increased their investment in Singapore and have used their existing operations in the country to launch offerings into other markets in South East Asia.

Alibaba raised its stake to 14.4 per cent, from 10.2 per cent, in Singapore's national postal company SingPost, which offers dedicated logistics and delivery services across Southeast Asia. Internet-related services and products company Tencent invested US$550 million in Singapore online gaming and e-commerce firm Sea, previously known as Garena. Sea is looking to expand into the fast-growing Indonesian e-commerce market by building infrastructure in the country.