Etail of the Tiger: Asian retail shoppers log on for business

JAKARTA (JP): Asia is on the verge of a retail revolution that has already struck the United States and is sweeping through Europe.

Internet based retailing, "e-tailing", is transforming the shopping experience -- from choosing products to postpurchase customer support. Consumers across Asia can now plug into the Internet and access the best the world has to offer in multiple product categories in a range of competitive prices.

Asian retailers are already scrambling to get online. The Boston Consulting Group (BCG)'s ongoing Asian Online Retail Study has identified over 1,400 Asian-based sites selling to consumers across the region, but this is just the tip of the iceberg. BCG's criteria concern site size, popularity, design features and functionality. Many operating sites do not match our criteria and more sites are going online every day.

Japan has the biggest number of large, well-functioning sites, but South Korea leads the rest of Asia. Singapore, Hong Kong, Australia/New Zealand and South Korea have the most sites per capita, while the largest Asian countries -- China, India and Indonesia -- have the fewest large, well-functioning sites.

Across Asia, there are significantly more pure-play retail sites (i.e., those that only have a presence on the Internet) than there are sites belonging to retailers who also have a "bricks and mortar" presence.

Asia is logging onto the Internet in droves, with 20 million new users last year alone. The pool of Internet users is expected to grow from 66 million to nearly 375 million by 2005. Japan has the largest user base -- an estimated 20 million -- but China, Australia, South Korea and Taiwan also have sizable Internet populations. By 2005, this distribution is likely to change, with China taking the top spot and Japan, India, South Korea and Taiwan following.

Explosive growth in user numbers will translate into explosive growth in online selling. If buying levels approach those now seen in the U.S., the online market in Asia could be worth US$25 billion by 2003. At present, however, the market is relatively small. Online buyers number 10 million across the region, concentrated mostly in Japan. Only 0.5 percent of Asian shoppers have purchased online, compared to over 12 percent in the United States (Japan and Australia have considerably higher penetration than the rest of Asia, at 6 percent and 4 percent respectively).

Asia's top online retail categories appear to be computer hardware/software, cards/gifts/flowers, books, financial services and travel. Interestingly, some categories that are very big in the U.S., such as collectibles (person-to-person auctions), have been slow to catch on in most Asian markets.

One of the product-category winners is likely to be financial services, as many Asian countries, including Hong Kong, Taiwan, Japan and South Korea, allow online trading and large segments of their trading populations tend not to use intermediaries. Indeed, online brokerage trading in South Korea now has over 40 percent of the share of total brokerage trades, well above the 15 percent penetration seen in the U.S. Other product categories make up around 60 percent of the Asian sites we identified, suggesting that Asian online retailers are experimenting across a broad set of product areas.

The Asian business to consumer (B2C) e-commerce market is now worth $3 billion -- a 264 percent increase over last year's $1.1 billion market level. Approximately 90 percent of the market is in Japan and Australia, but a group of countries led by Taiwan and South Korea is likely to grow significantly in the near future.

Survey data suggest that consumers throughout Asia are gearing up to spend online. For example, 58 percent of Japanese Internet users plan to buy online, compared with the approximately 30 percent who actually do so now. In South Korea and China, an astounding 80 percent of Internet users intend to buy online in the near future. Even in Thailand, a relatively underdeveloped market, 15 percent of Internet users intend to buy online, a significant increase from the 3 percent we see today.

The prospects for B2C e-commerce in Asia are clearly bright, but e-tailers will need to overcome some important obstacles if they are to reach their full potential.

First, infrastructure limitations such as low telephone line and computer penetration in countries such as China, India and Indonesia will hinder e-tailers' ability to reach large numbers of potential consumers.

Second, an important set of payment and delivery issues need to be addressed. Much of Asia is still not oriented toward using credit cards to settle transactions. Delivery will also be an obstacle, and expensive international and regional shipping rates may deter potential online buyers.

Finally, privacy and security are ongoing concerns for consumers. In Japan, worries about these issues were the main reasons given for not buying online (only concerns about online retailers' reliability ranked higher).

Although important, we do not expect any of these issues to halt the progress of online retailing. For example, enterprising Asian retailers are already exploring convenient and secure alternatives to credit cards. The issue is not whether these problems will be solved, but when. Successful e-tailers will move quickly, but remain flexible enough to exploit infrastructure and other improvements as they occur.

-- By Boston Consulting Group