Graduate Studies Blog
Leading Trends Behind Southeast Asia’s Digital Economy
The sheer scale and rapid growth rate of Southeast Asian economies have caught the eye of investors and innovators alike. With the world’s third-largest population and fifth-largest collective economy, the region enjoys economic growth that exceeds the world average by nearly two percentage points.
“Internet connectivity in Southeast Asia grew by ten million last year, bringing the total internet users to 360 million. This rapid uptake of digital technology has propelled the region’s internet economy to hit the giddying $100 billion mark in 2019.”
Home to more than 660 million people, Southeast Asia generated over US$3 trillions in GDP last year, growing annually at a rate of 4.7% since 2014. The region’s accelerated digital boom is attributed to the significant improvements in internet infrastructure to meet the consumers’ growing appetite for digital-based services. Internet connectivity in Southeast Asia grew by ten million last year, bringing the total internet users to 360 million. This rapid uptake of digital technology has propelled the region’s internet economy to hit the giddying $100 billion mark in 2019—a 40% leap from the prior year.
With such rapid consolidation, Southeast Asia’s digital market provides expansive room for new market opportunities. The region’s digital economy currently accounts for 3.7% of the region’s GDP—still far below that of leading digital economies, such as China, which constituted 34.8% of its total GDP in 2019.
The leading digital players in Southeast Asia
ASEAN’s digital markets are still largely fragmented, with regional players—led by fast-growing e-commerce platforms Lazada, Shopee, and Tokopedia—battling head-to-head with global players from China and the US Silicon Valley.
Moreover, users are embracing digital technologies as a way of life. Case in point, the number of active users for ride-hailing grew tremendously from just eight million in 2015 to more than 40 million in 2019. A similar trend also occurred in e-commerce as the number of active users had tripled during the same period.
“Regional and global industry leaders will look to consolidate their power to cut through the competitive market ecosystem. To survive this consolidation, local digital leaders must focus on developing their digital capabilities and nurturing local talents to meet new demands in their respective industries.”
Tightened their grip on the region’s digital sector, the Chinese juggernauts Tencent and Alibaba have become direct market entrants as well as financial backers of the top regional players. For example, Alibaba is now the de-facto owner of Lazada and a dominant shareholder of Tokopedia—owning 90% and 25% of their shares, respectively.
While large Chinese companies successfully navigate through the intricacies of Southeast Asia’s diverse markets via their sprawling networks of well-endowed local champions, their Silicon Valley counterparts, however, languish amidst the turbulence. With the exceptions of Amazon and e-Bay, most US digital giants have failed to acclimatise to the region’s developing digital ecosystems due to their persistence in replicating their homegrown entry and scaling-up strategies overseas.
Meanwhile, the region’s domestic markets have shown signs of consolidation over time as local players leverage their extensive local insights, government support, and networks to carve their niches with localised value offerings.
What does the future hold for Southeast Asia’s digital economy?
Southeast Asia is home to diverse sovereign states at various stages of economic development. Beyond socioeconomic factors, the sharp contrasts in market demographics also pertain to language, culture, and religion. Entrepreneurs and innovators alike must take note of these significant differences to better understand the digital realities in these diverse markets.
Market leaders must maintain their digital competitiveness by focusing on the following industry trends:
- Big begets bigger
Once a digital company has successfully occupied a specific niche, there’s no way to go but up. Think about it; Google has dominated 90% of the market for internet searches, while Facebook, deeply embedded in 90% of the world’s economies, comprises two-thirds of the global social media market. On the e-commerce side, we have Amazon, which captures around 40% of the world’s online retail activity by owning more than half of the global cloud infrastructure services.
In the regional context, the top three e-commerce players – Lazada, Shopee, and Tokopedia -consistently experience a much higher growth rate than others. From 2015 to 2018, their accumulated merchandise volume grew seven times higher than the market average.
- The emergence of SuperApps
As consumers demand better, integrated services across platforms, the market for all-in-one applications, also known as SuperApps, is on the rise. Leading contenders of this new business model include the ride-hailing providers Grab and Gojek, which now provide services beyond their initial scope.
The Singapore EDB estimates the revenue of the SuperApp market across ASEAN at US$4 billion and projects this to reach US$23 billion by 2025. Besides ride-hailing, delivery, and e-commerce, the fintech industry is predicted to lead the next wave of SuperApp disruption as it becomes the likeliest entry point for other finance-related services, including insurance, investments, and remittance.
- Rapid digitalisation
The data currently stored in digital repositories now increase at a rate four times faster than the global economy. Experts have predicted that by 2022, the global IP traffic will reach 130,000 gigabytes per second. This explosive growth of data use is driven by the advent of 5G networks, rapid developments of Internet-of-Things, and a steady digital migration led by a growing number of tech-savvy consumers.
- The growing need for cross-border cybersecurity
Convenient and seamless connectivity leaves our information and assets highly vulnerable to cyberattacks. Worryingly, most industry leaders are still uncertain about their capabilities in handling such concerns.
As reported by Accenture, although 68% of business executives have shown increased reliance on the internet, their confidence level in cybersecurity is very low at 30%. This is predicted to drop further to 25% in the next five years unless significant changes are made. Left unabated, the risk of cybersecurity can lead to revenue losses valued at nearly 3% of the total turnover. It can further lead to souring relationships with stakeholders and missed opportunities to fully develop ASEAN’s digital economy in the right direction.
How should digital leaders prepare to go forward?
Regional and global industry leaders will look to consolidate their power to cut through the competitive market ecosystem. To survive this consolidation, local digital leaders must focus on developing their digital capabilities and nurturing local talents to meet new demands in their respective industries.
The rise of SuperApps, especially in the financial sector, will likely result in greater adoption of digital technologies among consumers, with giant Chinese companies leading the race despite concerns over the country’s geopolitical headwinds in recent times.
On the structural front, the proliferation of avant-garde technologies has succeeded in pushing massive digitalisation across sectors. This trend of digital adoption will further accelerate the pace of change. However, such a large-scale digital transformation also creates mounting concerns over cross-border cybersecurity. Digital leaders are, thus, tasked to collaborate with policymakers, global institutions, and a broad user community to push for the creation of relevant, industry-led security standards.
This article is based on a research report titled “Competition in Southeast Asia’s Digital Economy” published at the Nanyang Centre for Emerging Markets (CEM). A new initiative by the Nanyang Business School, the Nanyang CEM aims to establish global thought leadership on business-related issues in emerging markets through the global research platform of leading scholars and institutional partners.
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