Sebastien Lamy: Southeast Asia's Emerging E-commerce Market

Bain Partner Sebastien Lamy discusses the logistics challenges retailers face, and how and where they should invest to win.


Sebastien Lamy: Southeast Asia's Emerging E-commerce Market

Only one in four consumers in Southeast Asia have made an online purchase, despite widespread mobile use across the region. But as consumer demand grows, the market is rapidly approaching a tipping point. Sebastien Lamy, a partner in Bain's Consumer Products practice, discusses the logistics challenges retailers face, and how and where they should invest to win.

Read the transcript below.

SEBASTIEN LAMY: We are seeing a shifting tide in Southeast Asia. The research that we are doing with Google shows that 150 million consumers are what we call digital consumers: consumers who are ready to engage [and] research products online, but also buy products online. We're still at an early stage. We find that only one in four consumers has actually made a first purchase, but this is changing very fast. Consumer behavior, consumer demand is here to try to do more purchases online. And that tipping point is really happening now in terms of doing first trial and starting to get into repeat purchases from a consumer standpoint.

The challenges are not so much on the demand side. We're seeing from a demand side that consumers are really ready to transact online. It's about the supply side. For a long time, it's been the offering, which has been insufficient (platforms not really investing in the offering), but also logistical and payments infrastructure. Logistics, because supply chains were not really ready to take on vast volumes of transactions and deliveries, but also payments, because of the fragmentation of payment services and payment platforms across Southeast Asia, the relatively low penetration of credit cards and debit cards. These have been challenges to the market and a slow change is happening through investment in [this] infrastructure.

Consumers are really circumventing some of these supply constraints. What the research with Google shows is that a lot of these consumers, especially in Tier-2, Tier-3 rural areas, are going around some of these challenges. What that means is a lot of cash on delivery in Tier-2, Tier-3 cities. Rather than having the goods being delivered, it's arranging with the merchant on a place to just meet and actually deliver the product. So consumers are really, really circumventing some of these challenges.

One thing which is pretty particular about consumers in Southeast Asia is social e-commerce. We're seeing a significant portion of the market—we estimate it to be around 30%—that transacts directly from one consumer to one consumer on social platforms, on messaging platforms, and not so much on the traditional e-commerce platforms. That's something that we're seeing a little bit in China and India, but is very strong in Southeast Asia.

For companies who want to tap into the Southeast Asian e-commerce opportunity, the time is now. The market is on the verge of a significant step-change from a volume standpoint. It's critical, however, to think about what we call the where-to-play and the how-to-win. Where to play: are we a regional platform, do we pick a few markets to participate in? And then very significantly in the how-to-win, which is, how do we circumvent some of the constraints from the supply side, thinking about delivery, thinking about logistical constraints, thinking about the way to engage with consumers, given some of the particularities around social e-commerce and how social consumers across Southeast Asia are?

Why do it now? Southeast Asia is one of the last few frontier markets from an e-commerce standpoint. It still is relatively nascent. It is still relatively fragmented. So you do still have a little bit of room for some of the new players to come in and really tap into the opportunity.

Read the related Bain Brief: Can Southeast Asia Live Up to Its E-commerce Potential?


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