How the Digital Revolution is Integrating Southeast Asian Customers
The same way we have gone through the Industrial Revolution, we are now going through a Digital Revolution. This time, the people of South East Asia are not just following, but also leading.
The Digital Revolution has radically changed our way of life since the 1980s and the development of the first personal computers, though the majority of the change has come in the 21st century. It has created a comparable upheaval in human society to the Industrial Revolution, though with significantly less air pollution created in the process. Most importantly, however, it has been a revolution that has rapidly swept the entire planet without the assistance of planet-spanning empires.
Just think of how far technology has come since 2000. Barely 20 years ago, the average mobile phone was something akin to a brick; the Nokia 3310 considered cutting edge, selling 126 million units to become one of the most successful phones in the world. Just 17 years later, it was re-released because it was already considered retro enough to be cool again.
Of course, fashion already moved fast, even before the 2000s. However, the quantum leap in mobile capabilities in that time has been staggering. The 3310 could just about entertain its owner with a game of Snake while a modern mobile can be used to control virtually every aspect of its owner’s life, from the colour and intensity of their light bulbs to the movement of their money. A mobile phone was once a minor tool in a businessperson’s arsenal - it’s now possible for an entrepreneur to run their entire business from one.
While the Industrial Revolution was something that came to Southeast Asia through the western powers that had previously carved the area up between themselves, the Digital Revolution is something that the region has itself embraced and, in some ways, led. Coming at the same time as the development of the 10-nation Association of Southeast Asian Nations (ASEAN), it has led to a greater degree of cooperation than this part of the world has seen for centuries, transforming the region into one of the world’s biggest and most dynamic emerging markets. And it’s only just getting started.
With so many countries and cultures in the region, the biggest hindrance to the Digital Revolution in Southeast Asia has been international cooperation. Unilateral development would have no shortage of users in the larger countries like Indonesia, the Philippines, Vietnam and Thailand thanks to their large populations. However, to expand into other regional markets, they would take a significant effort in integrating foreign languages - often using completely different alphabets - and abiding by foreign laws and customs.
Despite these challenges, it is worth reflecting on just how far Southeast Asia has come. Thanks to online marketplaces like RedMart and honestbee, local families in Jakarta, Singapore and Manila now have access to high-grade groceries imported from around the world - items that were previously only available to wealthy expatriates. E-commerce platforms like Alibaba have created opportunities for thousands of small enterprises in Malaysia and Thailand to sell their goods across the country, growing their numbers of potential customers from a few thousand to several million. There are even cultural impacts, with South Korean fashion, music and cosmetics sweeping the youth of the Philippines, Indonesia and Vietnam.
However, there are also still limiting factors. International borders continue to be a major barrier as, unlike ASEAN’s European equivalent (the European Union), there is no free-trade agreement yet in place. As a result, the physical movement of goods around Southeast Asia is still impacted by different tariffs and regulations. Even the movement of data from one country to the next has its challenges as each ASEAN government requires different privacy and security measures. While greater international cooperation is coming, it may be decades before it is fully realised.
A land of opportunity
A driving factor behind the gradually improving international cooperation and the development of ASEAN as an economic bloc is the potential that Southeast Asia has as a unified region. Counted together, the 10 member nations - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - have about 650 million inhabitants. That’s about 200 million more than the EU and roughly double the US population.
Of course, the population in Southeast Asia has a significantly larger gulf between rich and poor, but it is one that a rapidly growing middle class is filling. This is thanks, in no small part, to the fact that the region is home to some of the world’s most stable growing economies. Just 20 years after the 1997 Asian financial crisis, the region’s GDP was $6.5 trillion, making it equivalent to the world’s fourth-largest economy.
There remains plenty of potential for further growth. In 2015, only $5.5 billion of E-commerce was recorded across the region, accounting for less than 1 per cent of total retail sales. However, a study by Google and Temasek came up with a prediction that this figure will become $88 billion (6.4 per cent) by 2025, particularly as big investments are being made in logistical infrastructure to move physical products to digital customers.
More money to spend
The further advancement of the Digital Revolution in Southeast Asia is driven by a number of important trends, not least of which is the fact that the potential number of customers is expanding very rapidly throughout the region. Already, about 40 per cent of Southeast Asians are categorised as middle-class and affluent consumers (MACs), and it’s projected to rise to 64 per cent by 2030.
Rising affluence has led to a shift in culture as goods that were once considered extravagant indulgences are now consumed without a second’s thought. The rapid expansion of Starbucks, bubble tea and other snack foods across the region is a great example of this, but is just the tip of the iceberg. International travel is on the rise, with Southeast Asian expats returning with new ideas and opinions that shift the local lifestyle and fashions - the previously cited rise in South Korean fashion across the region being a prime example of this.
Much like in the Industrial Revolution before it, a massive amount of urbanisation has both contributed to and resulted from the Digital Revolution. Major cities like Bangkok, Jakarta, Manila and Ho Chi Minh City continue to expand at a galloping rate. Between 2015 and 2030, the percentage of the populations of Thailand, Indonesia, the Philippines and Vietnam that live in cities is expected to rise from 48 per cent to 57 per cent, creating 87 million additional urbanites. With greater economic opportunities available in big cities, a growing urban population inevitably means a growing MAC population.
The digitisation of Southeast Asia
Along with rising spending power comes a rise in the demand for convenience, which has brought a sudden serge in demand for on-demand services. Such services have inevitably resulted in technological solutions, but these would not be achievable if it were not for the widespread penetration of digital technology in Southeast Asia.
The remarkable fact of the Digital Revolution is just how far reaching it has been, especially here. While the fact that the average Thai, Malaysian and Indonesian spends as much as nine hours per day using their PC or tablet and four hours on their smartphone is relatively unremarkable as their western counterparts easily match such numbers, the fact that internet users in rural Thailand are only fractionally less active than they are in greater Bangkok is astonishing.
While China is generally used as the yardstick for digital development in Asia, the percentage of digital penetration there is actually slightly less than in Thailand and the Philippines (61 per cent compared to 67 per cent and 64 per cent respectively). Of course, given the fact that China’s population is orders of magnitude greater than the entirely of Southeast Asia combined means that China still has the advantage in sheer numbers, resulting in significantly greater spending power and online use. However, it remains an interesting statistic as it implies that digital technology is reaching into less affluent communities faster in Southeast Asia than in China.
How to spend
A particularly remarkable area of digital development in Southeast Asia is that of spending. There is no doubt that China is leading the way there, with 20 per cent of retail purchases made online there compared to 5.5 per cent at best in Southeast Asia (Singapore, in this case). However, digital technologies are already heavily involved in purchases, with large percentages of ASEAN populations looking online at some point in their purchase journey. There is a compelling argument to make that perhaps the only limitation is payment portals.
In western nations, the rise of credit and debit cards was an important stepping stone in the development of E-commerce. It enabled customers to pay for products and services digitally and with relative ease. However, relatively few Southeast Asians have plastic in their wallets. In the US, there are 177 credit cards for every 100 people while Thailand has only 29 and Vietnam only 5 per 100.
Fortunately, a solution has appeared in the form of digital payment platforms. The likes of GrabPay and Alipay. From 2014 to 2017, the number of digital accounts in use across Indonesia, Malaysia and Vietnam grew by up to 80 per cent, with Thailand reaching the point where there are 26 digital accounts per 100 people - almost as many as there are credit and debit cards.
Where to spend
Growing alongside payment platforms have been places to use them. While the previously cited border restrictions still prevent any region-spanning E-commerce platforms from emerging, there are already digital marketplaces with footholds in multiple countries, as well as comparatively small online service providers serving individual countries. Plenty of the companies dominating the market in one country have plans to expand into their neighbours, with the likes of Indonesia’s GO-JEK and Singapore’s honestbee both investing heavily into the infrastructure required to do so.
Some have even been successful in doing so already. Grab was launched in Malaysia in 2012 but now serves 132 cities across the region. “We take a hyperlocal approach to understand what users in each Southeast Asian city prefer, from language preferences to payment options,” said Tan Hooi Ling, who cofounded the ride-hailing service.
Sadly, logistical and regulatory obstacles prevent even these region-spanning organisations to operate seamlessly from one country to the next, often requiring local offices and different operating models, to some extent working like a franchise. However, as ASEAN governments work towards reducing these obstacles, E-commerce companies should be able to exploit the opportunities created quickly. Aaron Tan, CEO of Singapore-based used car marketplace Carro, said, “Once basic operationalisation in the local market is done, it will be very fast to scale it up because the same platform will cut across all markets.”
Examples of efforts and initiatives being taken by said governments include the Malaysian government working with Alibaba to develop a Digital Free Trade Zone. This is providing the infrastructure - in the form of a high-tech fulfilment warehouse near Kuala Lumpur’s international airport - to help small and medium-sized enterprises (SMEs) reach international customers. Abibaba is also working with Thai Customs and the Eastern Economic Corridor through Lazada, developing a similar logistics hub in Thailand, also serving Cambodia, Laos, Myanmar and Vietnam while offering E-commerce training to 30,000 SMEs.
The next steps
Digital integration across Southeast Asia has largely been led by innovative entrepreneurs, with relatively little government assistance. In fact, governments have mostly only served to provide the obstacles around which companies have been forced to adapt in order to thrive. The region’s regulatory framework is one of the larger and more significant areas where some change will be required for the Digital Revolution to maintain its momentum.
A practical way to achieve this is for larger private sector companies to work with the region’s governments to address the challenges of enabling the flow of goods and money across international borders. Both sides have something to contribute, with companies sharing the economic potential that E-commerce possess while officials and politicians have the expertise required to release that potential through upgrades to infrastructure and regulations.
It’s worth noting, however, that there is no definitive ‘next step’ - no clear path or step-by-step guide to increasing digital integration across the region. Instead, a holistic approach, with many companies developing different digital strategies, is required. For example, digital marketplaces cannot thrive without people spending money in them, so they require digital payment platforms and accounts. However, the latter cannot work without the former since, if there is nothing to spend your money on, why would you bother with an account?
With a solid platform of widespread digital penetration across Southeast Asia and small steps in international cooperation already being made, it is likely more a matter of ‘when’ than ‘if’ there will be a rapid expansion of digital integration in the region. However, with a lot of challenges still to come, nailing ‘when’ down to a precise schedule is virtually impossible at this time. As more companies and governments take an interest in the untapped potential, though, it’s highly likely that the schedule will continue to get shorter.
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