Wed, 29 Jul 2015
Economies across Southeast Asia have endured weaker growth this year. But one sector is powering ahead nevertheless: ecommerce.

A surge in internet penetration has encouraged a raft of start-ups across the region. In Indonesia, for example, the number of internet users has risen by 150 per cent a year over the past decade to reach 90m. The government has set a target of 150m by 2019.

International information technology players have been piling in.

Japanese telecoms group Softbank has made a string of acquisitions across Asia. It invested $250m in the region’s ride-hailing app GrabTaxi at the end of last year. In Indonesia, it invested $100m in online marketplace Tokopedia and mobile device retailer Trikomsel.

Singaporean blue-chip companies such as Singapore Press Holdings and MediaCorp, the latter controlled by Temasek Holdings, Singapore’s government-controlled investment company, have also been involved in a raft of deals.

This month, Temasek said it would partner with United Overseas Bank to set up a venture and debt financing fund of nearly $500m to help finance the growth of ecommerce and other technology and healthcare initiatives around the region.

Online sales account for only 1 to 2 per cent of total retail sales in many southeast Asian countries, providing ample scope for the kind of breakneck growth that online trade has enjoyed in China — where ecommerce now accounts for 11 per cent of total retail sales, up from 2.5 per cent just five years ago, according to estimates by FT Confidential Research, a Financial Times research service.

But ecommerce operations in Southeast Asia are often hindered by factors such as high logistics costs and the limitations of online payment systems. In Indonesia, more than 95 per cent of ecommerce transactions are settled in cash on delivery, and more than 90 per cent of visits to ecommerce sites do not result in sales.

Nevertheless, online retailers Lazada and Zalora, both owned by German tech investor Rocket Internet, have built up robust online sales across the region. They have tackled logistical constraints by investing heavily in their own in-house logistics and supply chain providers.

Chinese ecommerce giant Alibaba, meanwhile, is expanding its international ecommerce site AliExpress across the Asean region. It recently acquired a 14.5 per cent stake in Singapore Post, which last year announced plans to spend $145m on a regional ecommerce logistics hub. Its rivals in the logistics sector include Singapore-based aCommerce, which is backed by Japan’s NTT Docomo.

A number of pan-Asean online payment systems are in the process of being established, meanwhile, such as 2C2p and Coda Payments.

As ecommerce expands, consolidation is set to follow. Many domestic start-ups have focused excessively on building initial sales volume at the expense of profitability. At some point soon, a shake-out appears inevitable.





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