LIFTING-THE-BARRIERS REPORT 2014 | RETAIL

Published date: December 2014


TABLE OF CONTENT

(Click any topic to read the related section)


1. Executive summary

With ASEAN Economic Community coming into effect by the end of 2015, economic integration is at the heart of the political agenda. In that context, retail e-commerce offers a unique opportunity to connect millions of merchants and consumers across the region, contributing to the integration of the different markets.

Today, the e-commerce market is still relatively underdeveloped with online retail accounting for less than 1% of total retail sales compared to 6%–8% in Europe, China or the U.S. In the coming years, ASEAN online retail has potential to grow at up to 25% annually driven by increasing purchasing power, growing internet penetration and development of online offerings.

To drive this growth, some initiatives have already been launched across the region. However, to ensure continued growth, some key interventions are further required.  At the recent ABC forum, the Lifting-The-Barriers roundtable highlighted five specific directions that ASEAN countries should quickly consider in order to take e-commerce in ASEAN to the next level.

 

  1. Increase broadband access – Using state-aid mechanisms where private investment is not sufficient, enhancing cross border connectivity and increasing efforts to raise online awareness
  2. Support the emergence of local players – Improving access to finance for SMEs, fostering integration of digital talent into businesses and promoting awareness of e-commerce marketplaces
  3. Reinforce online security – Increasing information sharing and bilateral assistance, harmonising existing legislative framework and creating a regional online dispute resolution facility
  4. Promote e-payment – Promoting non-cash transactions, establishing e-payment specific regulation and harmonising e-payment regulation at a regional level
  5. Improve logistics & trade efficiency – Encouraging development of online retail logistics services, facilitating e-retailers and logistics players’ partnerships, accelerating integration of logistics systems and ensuring full implementation of ASEAN Single Window

 

A holistic approach, taking into account all directions mentioned above, is required to optimise coordination of regional efforts. The upcoming ASEAN ICT Masterplan represents a great opportunity to build such a holistic vision on regional retail e-commerce and unlock the full potential of e-commerce across ASEAN.

ASEAN Business Club (ABC) Forum roundtable – The recent ABC Forum roundtable helped identify a series of barriers hindering the development of retail e-commerce in the region. Industry participants gave their thoughts on how some of the key areas can be improved:

  • Payment systems: The participants suggested that collaboration between stakeholders (telecom operators, retailers, banks, regulators) should be taken to the next level to facilitate access to e-payment and ensure ecosystem agility in this rapidly changing environment
  • E-commerce regulation: The region’s economies need to work together to harmonize regulations for the sector across ASEAN to help settle cross-border disputes and reinforce consumer confidence
  • Logistics: Efforts should be made to improve supply chain efficiency across the region

 

Retail e-commerce and ASEAN integration – By the end of 2015, 10 Southeast Asian countries will regroup and officially create the ASEAN Economic Community (AEC), forming a single market with a free flow of goods, services, labor, investment and capital. In that context, the development of retail e-commerce1, borderless by nature, is a great opportunity for regional businesses to tap into a market of 600 million ASEAN consumers. At the same time, successful e-commerce integration is also expected to deliver significant benefits to workers, citizens and the environment, capturing new job opportunities and additional social exchange.

 

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This paper builds on the roundtable insights and aims to provide a structured understanding of the main barriers to e-commerce whilst providing guidance on the way forward. It specifically shares an overview of the retail e-commerce across the six major ASEAN economies2 and suggests how each key barrier can be lifted to unlock the full potential of retail e-commerce in the region.

 

2. ASEAN retail e-commerce market

2.1  A seven billion-dollar pie

Online retail market in ASEAN 6 is estimated to be worth US$7.1 billion. Singapore is the largest market estimated at US$1.7 billion and accounting for around 25% of the regional market, followed by Malaysia and Indonesia – both worth around US$1.3 billion.

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Online users – The share of internet users is highly heterogeneous across ASEAN. Indonesia is lagging behind with only 16% of its population using the internet, corresponding to around 40 million users in absolute numbers. Internet penetration in Thailand, Philippines and Vietnam is still below the 50% threshold whereas the same in Singapore and Malaysia is close to the advanced internet economies.

ASEAN online users are young (around 70% are below 35 year-old), they spend between 2 and 4 hours a day on the internet and are addicted to social media (29% of time spent online for ASEAN vs. 20% global average).

Online shoppers – The share of online shoppers among internet users is close to the levels found in Japan (78%) or in the U.S. (73%) in most ASEAN 6. It is far lower in Indonesia (12%), meaning that only 5 million out of the 248 million Indonesians buy online.

While the personal computer remains the primary device to buy online, the use of mobile phones for online purchases in ASEAN is higher than the global average (57% vs. 44%). In countries where fixed broadband is not yet fully developed (Indonesia, Philippines, Thailand and Vietnam), consumers are more prone to use their mobile phones to buy online.

 

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2.2  A market still in its infancy

ASEAN is significantly below its fair share of the global retail e-commerce market. We estimate that the region accounts for less than 1% of global market, far below its share of global population (7.7%) or of global GDP (4.2%). The most developed markets are the U.S., EU 5, China and Japan which represent 76% of global retail e-commerce market.

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Online retail constitutes less than 1% of total retail sales in most ASEAN countries whereas it is roughly between 6 to 8% in Europe, China or the U.S.

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Future market potential in ASEAN is therefore significant. A simple calculation indicates that Indonesian market would be around US$60 billion if online retail share of total retail sales were 6%.

Market potential can also be determined based on the share of online shoppers and share of GDP per capita spend found in more mature geographies (U.S., Europe and Japan). Not surprisingly, Indonesia shows strong potential arising from their large population, while Thailand is second in terms of potential due to the sizable population and strong GDP/capital.

 

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2.3  Growth expected to accelerate

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In the past 4 years, the ASEAN online retail market has grown at around 15% annually, twice faster than GDP. In the coming years, ASEAN online retail has potential to grow even faster (up to 25% annually) driven by increasing purchasing power, growing internet penetration and development of online offer.

 

  • Increasing purchasing power – GDP per capita is expected to increase at a similar rate (6.2% per annum) as between 2009 and 2013. In most ASEAN countries, economic growth is expected to further enable the emergence of a young middle class that is more prone to engage into online shopping.
  • Growing internet access – Households access to fixed broadband3 is expected to increase at a faster rate in the next few years as a consequence of increased network coverage. Mobile shopping will also play a significant role in future market growth as smartphone penetration and access to mobile broadband increase rapidly. Hence, in countries where fixed broadband is less developed, consumers will be converted more easily to mobile shopping. Several entities, such as banks and telecom operators, are already developing innovative payment methods, e.g. payment by text message, making it easier for consumers to pay with their smartphones.
  • Development of online offer – Online users are expected to spend more as online offerings are expanding and improving. Major players have recently extended their position in Southeast Asia and offer new shopping opportunities. For instance, Rakuten launched a mobile marketplace in Singapore (Carousell) in 2013 and has been investing substantially in Indonesia and Malaysia since 2011 and 2012 respectively. Local players are also playing their part – for instance, HipVan, an e-commerce store that focuses on products with great design (including home furnishings, fashion accessories, etc), started from Singapore and expanded rapidly into Malaysia. Recent development of additional e-payment solutions is also expected to play a positive role in future online retail growth.

Overall, ASEAN online retail market has potential to narrow the gap with the U.S., E.U. and Japan, growing more than twice faster than those regions in the 2013-2017 period – only China is expected to grow at a comparable pace.

 

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3. Lifting the barriers

However, to achieve the full potential of growth, there is a need to overcome several structural barriers and improve overall regional competitiveness. The Lifting-the-barrier roundtable highlighted five specific barriers that ASEAN countries should understand and act upon to unleash the full potential of e-commerce in the region – involving broadband access, local offer, online security, e-payment and logistics & trade.

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To help better understand each of those barriers in detail, the following pages aim to illustrate how each barrier constitutes an obstacle to e-commerce development, highlight some regional or local initiatives that are currently helping overcome those barriers and provide guidance for future action.

 

3.1  Increase broadband access

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A.   Understanding the barrier

(i)    Current picture

Online connectivity in ASEAN countries is still relatively low. In Vietnam, Philippines, Thailand and Indonesia, less than half of the population are Internet users. Only Singapore has comparable access to fixed broadband3 as developed e-commerce geographies like the U.S. (26 vs. 29 subscribers per 100 people).

 

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In terms of mobile broadband, less than half the population in Philippines, Indonesia and Vietnam have access to mobile broadband. Similarly, only Singapore has comparable access to mobile broadband as developed e-commerce geographies like the U.S. – where 100% of people have access.

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(ii)  Root Causes

  • Limited network coverage – In many areas across ASEAN, high-speed internet is not yet available for various reasons, contributing to the “urban-rural divide”. In some areas, private investment is often considered too risky. In Indonesia, connecting thousands of islands represents a big challenge. In Vietnam, there is a large gap in broadband usage between the two main cities (Ho Chi Minh City and Hanoi) and the rest of the country4.
  • Slow Internet – Internet speed in ASEAN is relatively slow. Even Singapore which enjoys the fastest speed in the region is only ranked 20th worldwide5. Situation is even more problematic for the Philippines, Vietnam and Indonesia, which are at the bottom of the international ranking.

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  • High cost of connection – Cost of broadband is still very high in the region despite recent increase in internet penetration with only Singapore and Malaysia being under the affordable broadband threshold6.

 

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  • Limited awareness –  Recent increase in Internet penetration has not yet offset the need to raise Internet awareness. Population from rural areas or older generations still do not know how or are still reluctant to use the internet and therefore need additional guidance.

 

B.   Lifting the barrier

  (i) What is being done today?

  • ICT7 ASEAN Masterplan – Regional cooperation in the ICT sector dates back to 1999 with the e-ASEAN initiative. The ICT ASEAN Masterplan 2015, launched in 2011, is the current regional framework for digital strategy with actions outlined in the masterplan being articulated around 6 strategic thrusts:
    –     Economic Transformation
    –    People empowerment and engagement
    –    Innovation
    –    Infrastructure development
    –    Human capital
    –    Bridging the digital divideMid-term review of the plan held in December 2013 highlighted that two-thirds of the 29 actions related to those objectives had already been achieved. Successful initiatives were implemented in various fields, such as the first ASEAN CIO Forum in 2012 or the creation of a training program for elderly and people with disabilities (Asean4all.org).Other initiatives, such as the ASEAN Broadband Corridor have been launched, focusing on “developing the next generation infrastructure and setting the minimum standards and quality of broadband connectivity in the region”.
  • Local investment in broadband infrastructure, especially mobile broadband – ASEAN countries have also been active individually in developing their internet infrastructure. Indonesia for instance has invested to connect eastern islands to country’s internet network and is planning to develop a nationwide fiber optic network. Thailand migrated from 2G to 3G, reaching 70% coverage in a few months (end of 2013). In addition, the country also introduced 4G wireless broadband services. Since penetration rate for mobile broadband already exceed that of fixed broadband and will continue to grow, we expect it to play a significant role in e-commerce expansion going forward.

(ii) Key recommendations for tomorrow

  1. Use state-aids to increase broadband coverage – As outlined8 by Singapore’s Minister for Communications and Information, Yaacob Ibrahim, “Application of ICT in public sector is one of the key initiatives of the ASEAN ICT Masterplan 2015. But recognising that different states have different levels of development, ASEAN has left the implementation of these initiatives to the various states”.

    However, local action has its limitations. As broadband coverage is increasing rapidly in areas with high potential, it is foreseeable that coverage of remote areas will soon be an issue. Private players are indeed likely to be more reluctant to invest in these areas which could accentuate the digital divide in the longer term.

    The European Union has successfully addressed this issue with a collective response. It has set state-aids mechanisms to foster broadband deployment in remote area, considering that private sector might consider such investments not attractive. The E.U. regional policy investment helped to make broadband available to more than 5 million extra people by the end of 2012. Use of comparable mechanisms in ASEAN could significantly accelerate access to broadband throughout the region and consequently increase retail e-commerce market potential.

  2. Enhance cross-border connectivity – International infrastructure is also key to ensure regional connectivity. A recent report mandated by UNESCAP9 called for an intervention by governments to implement a Pan-Asian Terrestrial Fiber Optic Network. International infrastructure in the region is currently limited and generates inequality among markets. The report has already identified priority projects, including one between Malaysia and Indonesia, also noting that private sector has been reluctant to make these investments and public intervention is needed to provide financial support and facilitate the bureaucratic process.
  3. Increase efforts to raise online awareness – Digital awareness programs should be further generalised in the educational system of different countries. Involvement of private players should also be further encouraged as it can bring additional insights and strengthen existing initiatives. In September 201410, the Malaysian publishing industry pushed the idea of introducing e-textbooks in Malaysian schools.

    Several initiatives conducted as part of the ICT ASEAN Masterplan can also inspire actions to be led at the local level. For instance, the ASEAN Cyberkids Camp designed to create awareness of basic ICT applications for primary schoolchildren could serve as a starting point for other large-scale local campaigns.

 

 

3.2 Support the emergence of local offer

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A.     Understanding the barrier
(i) Current picture
Although a few local champions have emerged, consumers appear to be more attracted by offer from foreign players who do not necessarily have a local footprint. In Singapore, almost half of the market is made of online players located out of ASEAN. In Malaysia, Groupon is the top destination for online shoppers, whereas in Thailand, Amazon and eBay are leading the race.

 

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 (ii) Root causes

  • Skepticism to develop an online offer –  In most ASEAN economies, SMEs represent a very significant contribution to GDP and employment. However, many SMEs are still reluctant to sell their products online despite the opportunity offered by retail e-commerce. Almost half of Malaysian SMEs11 surveyed said “they are not involved in e-commerce … and are not planning to be”.Brick & Mortar SMEs who decide to go online are already facing a strong competition from several types of  players. Pure retail e-commerce players are seeing 41 times more traffic than traditional brick & mortar stores12.
  • Lack of resources – The main obstacles to SMEs involvement in e-commerce include the lack of financial resources, limited access to digital talent and the absence of general information. Hence, SMEs are either unable to (a) afford an e-commerce presence, (b) acquire capabilities to develop one, or (c) obtain the information required to develop one.

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B.     Lifting the barrier

(i)    What is being done today

  • Financial support – Malaysia has recently set-up an initiative to reward the most promising e-commerce SMEs. The national ICT agency Multimedia Development Corporation has announced in June 2014 an e-commerce reward program to boost adoption by local small and medium enterprises with prizes worth up to ~ US$50,000 for the top 25 SMEs13.
  • Education – In Singapore, the IDA14 has launched the FutureSchools@Singapore designed to encourage innovation and entrepreneurship at school. This program “will equip students holistically with the essential skills to be effective workers and citizens in the globalized and digital workplace of the future.” IDA industry partners will also leverage Future Schools to experiment and commercialise the most promising new ideas.
  • Best practices sharing – The US-ASEAN Business Council recently organized an ICT–focused workshop for 100 SMEs in Malaysia in partnership with the SME Corporation of Malaysia. Major players from the US such as eBay, Google or PayPal attended and shared information on:

-    E-commerce platforms and payment tools
–    International shipping and delivery services
–    Legal aspects of cross-border e-commerce
–    Strengthening global market presence through online marketing

The Partnership is also working to establish a cloud-based portal to support Southeast Asia SMEs.

  • Provision of e-services – Malaysian E-government (MYEG) is one of the best examples of e-services portal in the region. Even though it is not dedicated to e-commerce, it helps SMEs access general information or apply for licenses to start operating business in the country.

    (ii)   Key recommendations for tomorrow

  1. Improve access to finance – “Many SMEs lack awareness of financing resources and programs available from commercial banks, private sector or government sources. They have difficulty defining and articulating their financing needs.” – OECD, ASEAN SME Policy Index 2014The development of public or private financial support program would help entrepreneurs pay for their high start-up costs. Availability of financial support programs is an enabler but is not sufficient by itself. These programs should be “marketed” to SMEs at the very local level to make sure that they reach the largest possible audience. Provision of financial advisory services for SMEs should also be encouraged.
  2. Foster integration of digital talent into businesses –  Most ASEAN countries have already developed digital educational programs in schools or in universities. However, based on SMEs feedback, there is still a shortage of digital talents – therefore more emphasis should be put in digital education. With more digital talents in the market, SMEs will find it easier to acquire digital expertise to develop and manage their e-commerce presence, either by hiring in-house or obtaining external expertise. Linkage between schools / universities and businesses should be encouraged as much as possible, helping employers’ access, train and leverage new digital talents. Efforts in the field of entrepreneurial education should also be reinforced.
  3. Promote awareness of e-commerce ‘marketplaces’ – One way for SMEs to circumvent the lack of financial resources and limited access to digital talent would be to utilise e-commerce players, such as eBay and Lazada. The ‘marketplace’ created by these players through their websites may be the most effective and efficient way for SMEs to sell online, without the need for huge financial investments or digital-savvy talent. The SME Associations in each country should work with these service providers to promote awareness of the services and benefits of using such ‘marketplaces’.

 

3.3  Reinforce online security

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A. Understanding the barrier

(i) Current picture
Improving consumers’ confidence in online transactions is a particularly strong issue in ASEAN. To illustrate, across ASEAN 6 countries except Singapore, online shoppers are more reluctant to give their credit card information than the global average.

 

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(ii) Root Causes

 

  • Regulation gaps – Study conducted by the UNCTAD15 on the state of e-commerce legislation harmonisation in the ASEAN suggested that in spite of countries’ efforts to build a comprehensive e-commerce regulation framework, important pieces of legislation are still missing in some countries.

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  • Absence of cross-border jurisdiction – To date, there is no regional-level entity that is able to fight against cybercrime or to settle cross-border disputes. This creates anxiety among consumers, online retailers or even investors given that a significant share of cybercrime is cross-border. As observed by UNCTAD, “becoming participants of the International Consumer Protection and Enforcement Network could be a first step in improving regional cooperation. To date, only the Philippines and Vietnam are members.”
  • Multiplication of cyber-attacks – Globally, 8 out of 10 countries that are most threatened by cyber-attacks are in Asia, including Indonesia, Thailand, Philippines and Malaysia16. Indonesia has even overtaken China as a source of cyber-attack traffic17. As a result, internet users get worried when a website requires that they enter personal information. A survey even found that up to 77% of Filipinos are hesitant to share personal data online18.

 

B. Lifting the barrier

(i)  What is being done today
Countries have developed and enforced numerous laws in the past years including general regulations on e-commerce data protection or electronic transactions. However, these regulatory frameworks lack sharing of best practices on cyber security within the region and a broader harmonisation of legislative frameworks.

 

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(ii) Key recommendations for tomorrow

  1. Increase information sharing and bilateral assistance – Inter-governmental cooperation in sharing regulatory best practices make the legislation process faster, smoother and more consistent regionally. Given that some countries are trying to catch up with more advanced geographies, bilateral assistance could be very beneficial to create proper measures to boost confidence of online users for seamless participation.
  2. Harmonise existing legislative framework – The need for harmonisation in the fields of cybercrime, consumer protection and recognition of electronic signatures has been highlighted by UNCTAD. The goal is to “reduce conflicts and improve cooperation among ASEAN regulators and public law enforcement agencies (…) and facilitate smoother cross-border enforcement”. In the field of consumer protection, EU Unfair Commercial Practices Directive (2013) can inspire ASEAN members. This directive lays down harmonised rules including bans on fraudulent claims about products, aggressive marketing practices, hidden advertising or direct marketing to children.
  3. Create a regional online dispute resolution facility – The need for such a facility has been highlighted by UNCTAD due to increasing cross-border disputes and fewer case settlements.European Union has been active in providing a collective response to cybercrime. Several legislative actionshave been launched, such as the Directive on attacks against information systems in 2013. A European Cybercrime Centre has been created within Europol in January 2013 to serve as ” the focal point in the fight against cybercrime in the Union, pooling European cybercrime expertise to support Member States’ cybercrime investigations and providing a collective voice of European cybercrime investigators across law enforcement and the judiciary.”

 

3.4  Promote e-payment

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A. Understanding the barrier

(i) Current picture
A large share of payments for online retail is actually made offline. Based on Vela Asia survey, only 2 to 11% of digital buyers are using online payments in ASEAN 6 except Singapore. Low e-payment penetration is an obstacle for retail e-commerce growth because it is less costly and risky for merchants than offline payment methods such as cash-on-delivery.

 

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(ii)  Root Causes

  • Large share of “unbanked” – Within the ASEAN 6, there are two groups of countries in terms of financial inclusion – Singapore, Thailand and Malaysia on one side, and Philippines, Vietnam and Indonesia on the other. In the first group of countries, at least two-third of adults have a bank account whereas in the second group, 70 to 80% are unbanked. Not surprisingly, this also reflects the situation for payment card ownership per capita – a gap in penetration between the first group and second group.

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  • Concerns about data security – The lack of online security and consumer protection also has a negative impact on the adoption of e-Payment. Some 58% of Malaysians are concerned about their financial information being stolen by cybercriminals19. In Indonesia, the fear of fraud is the most important obstacle to online shopping20 .
  • Heavy KYC21 process – In certain specific conditions, cross border transactions may involve a heavy KYC process in order to ensure compliance with Anti-Money Laundering regulation. As explained by PayPal, consumers “have to scan copies of their National ID and send them to the payment provider facilitating the transaction. Wait a couple of days for their review before the payment instruction is carried out. In the meantime, the merchant whom they purchased the product will be chasing them up on payments and wondering if they have had cold feet.” Such process generates high compliance costs for e-Payment players and strongly deteriorates customer experience.

B. Lifting the barrier

(i) What is being done today

  • Wide range of available e-payment solutions – A variety of e-payment alternatives to payment cards have emerged worldwide and are now widely accessible to internet users. Beyond popular solutions such as PayPal, Amazon Payments or Alipay, a significant number of players bring new innovative solutions every year on the market. Local e-payment providers are very active and could play an active role to increase adoption in the region. Malaysian company GHL Systems has emerged as one of the most promising companies in the field. It has developed a presence across ASEAN, including Malaysia, Thailand and Philippines. According to CIMB Research, “it is entering an exciting growth phase with its merchant acquisition strategy following the completion of e-pay’s integration.” Meanwhile, in Indonesia, multiple players are present, with no less than 17 different online payment companies in 2014.
  • Local government initiatives in favor of e-Payment adoption – In Singapore, regulator (MAS22) and market participants (ADB23) worked jointly to adapt payment regulation, ultimately providing inputs on legislative changes and guidelines. An immediate payment project, named G3 has also been launched and is likely to benefit e-payment adoption. “By enabling Singapore banks to process low-value payments in real-time, attractive banking products can be developed to counteract the threat of new market entrants, whilst minimising settlement risk and offering customers the surety and guarantees of a bank based payment”, explains payment solution provider Clear2Pay. For PayPal, “these services will support new payment channels such as peer-to-peer payments and increase the competitiveness of non-bank payment providers”.In Malaysia, a new integrated payment system (EPP24#4) will be created for which the government has set three quantified goals to be achieved by 2020:
    –    Reduce total cash transactions from over 90% to 63%
    –    Increase e-payments to 200 per capita per year
    –    Increase number of point-of-sale (POS) terminals to 25 per 1,000 inhabitants

    According to CIMB research, e-payment transactions should grow by 10 times by 2020.

 

(ii) Key recommendations for tomorrow

  1. Promote non-cash transactions  – Development of e-payment has an overall positive economic impact and specifically on e-commerce. Initiatives from Singapore and Malaysia provide the key directions for future actions. Bringing together government and industry participants (including banks and telecom operators) should help define the shape of a prospering e-Payment ecosystem. Government-led initiatives on cash reduction are fundamental to accelerate e-payment adoption.
  2. Establish e-payment specific regulation – KYC processes should be adapted to e-payment using a risk-based approach leveraging functionalities provided by big data analytics, says PayPal. The payment provider goes onto suggest that data points used to build a risk-based framework could include “IP address, smart device’s unique identification code, geo-location based on the nearest WiFi’s IP address and GPS – of course all encrypted and within the boundaries of acceptable data collection methods.”
  3. Harmonise e-payment regulation at a regional – Existing nature of e-payment regulations are yet to be harmonised and coordinated in ASEAN. To achieve this objective, PayPal made two concrete recommendations:
    –    Create a specific e-payments subgroup within the APEC25 Electronic Commerce Steering Group to provide common vision to local regulators
    –    Create a regional Central Body for e-payment, bringing together stakeholder agencies with the aim of providing regulatory oversight

3.5   Improve logistics & trade efficiency

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A. Understanding the barrier

(i) Current picture
Logistics & Trade do not seem to match ASEAN online shoppers’ expectations. Almost half of the Singaporeans surveyed indicated that main reason for not buying online was delivery26. A relatively small share of ASEAN online shoppers said that they received free delivery in 201427. This indicates that logistical costs are too high for many players, who end up passing the cost to consumers as a delivery charge28.

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(ii) Root Causes
Due to the geography of ASEAN, logistics in the region faces inherent challenges. For example, in Indonesia or in the Philippines, it is especially hard to deliver products due to complex geographic spread, each having thousands of remote islands. However, these are the key logistical inefficiencies that further exacerbate the issue:

  • Poor transport infrastructure –  Rail is underdeveloped in the region, but several projects are on their way. Once complete, the rail networks should benefit countries such as Thailand and Vietnam, increasing connection with China. There is also a need for efficient road networks in order to ensure efficient last mile delivery. According to Jones Lang LaSalle, upgrading roads and reducing bottlenecks in the region is the highest priority to improve logistics in ASEAN.

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  • Lack of warehouses readiness for e-commerce  –  Apart from Singapore and Thailand, warehouse capacity has not increased at the same pace as economic growth. In addition, investment in automation is sometimes insufficient. Moreover, online players often have difficulties meeting volume requirements of logistics players.
  • Inefficient last mile delivery  –  As observed by UBS, last mile delivery is particularly crucial in the region given the high proportion of cash-on-delivery payment. However, logistics companies in ASEAN are still familiarising themselves with e-commerce last mile delivery, and would need to further customise their processes to suit e-commerce delivery. For example, local post office operators find that they are often not able to match expectations of retailers and consumers.
  • Heterogeneous and time consuming customs  –  Currently import duties vary among countries. For example, in Singapore, goods valued below SGD 400 (US$320) are shipped duty free, while the limit in Malaysia is RM500 (US$156)29. The limit, VAT and duty fee may also be different for specific product types.

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B. Lifting the barrier

(i) What is being done today

  • Significant pipeline of transport infrastructure projects – Most ASEAN countries have already decided to invest in their transport infrastructure. Indonesia and Vietnam in particular have launched numerous projects that should directly enhance local supply chain competitiveness.

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  • Investment projects in warehouses capacity – Major players are investing and adding warehouse capacity in the region. DHL has decided to invest US$180 million in the region by 2015. “Singapore, Vietnam, Thailand, Indonesia, and Malaysia are among the countries that will benefit from new transport capabilities, advanced IT solutions, and accelerated recruitment (…)  DHL Supply Chain will double its size in the region over the next few years.” says the global logistics player on its website.
  • Increasing competition in last mile delivery – The ASEAN Post++ alliance – gathering the 10 national postal authorities – has been created in August 2014. According to Thailand Post President, the goal is to raise local postal authorities’ competitiveness at par with international courier companies. “The partnership will also extend the capabilities of e-commerce via Postemart.com to allow online shoppers to buy ASEAN-made products”32. In addition, third party logistics providers have emerged, such as aCommerce, a Thailand-based start-up, who raised US$11 million  to become a leading player of last mile delivery across Southeast Asia.
  • Preparation of the ASEAN Single Window – ASEAN Single Windows is a regional initiative designed to optimise data exchange to facilitate regional customs integration in preparation of the upcoming AEC. Each member country has been working on their own National Single Window taking the form of a unified internet portal and enabling stakeholders to access permits, licenses, and clearance services.

(ii) Key recommendations for tomorrow

 

  1. Encourage development of online retail logistics services – Online retail implies a different paradigm than business-to-business supply chain. New challenges to be solved include:
    –    Smaller inventories not adapted to logistics companies minimum volume requirements
    –    Demand for individual product tracking along the supply chain requiring development of new IT solutions
    –    Increase in the volume and complexity of last mile deliveries often challenging for post office operators
    –    Larger share of returns calling for flexible supply chain capabilities
    While a few players such as aCommerce and TA-Q-BIN provides services solving some of these challenges, governments can further stimulate growth by providing subsidies or tax breaks to players focusing on online retail logistics.
  2. Encourage e-tailers and logistics players’ partnerships – As e-commerce grows, ASEAN online retailers will have to be even more vigilant that logistics does not hinder their expansion. As highlighted by A.T. Kearney33, cooperation between retailers and logistics players is key to tackle this potential barrier. Alibaba’s investment in Singpost shows that this issue will have to be addressed in the coming years. Involvement of government bodies at local and regional level would be very impactful to foster collaboration between players.
  3. Accelerate integration of logistics systems – On top of the necessity to invest in transport and warehouse infrastructure at the local level, efforts to bring together national supply chains at the regional level should not be neglected. In a recent paper, USAid34 highlighted areas where regional collaboration would be needed, here are a few examples:
    –    Implement an ASEAN logistics database system that tracks costs, transit times and reliability
    –    Encourage businesses in ASEAN to outsource logistics activities to ASEAN service providers
    –    Support the establishment of a common standard trading provisions for logistics service providers
  4. Ensure full implementation of ASEAN Single Window – The ASEAN Single Window is expected to solve logistic challenges, especially difficulties with custom clearances. Progress made in this field, its concrete impact on e-commerce and the appropriateness of thresholds and other policies should be monitored closely, in order to ensure that the Single Window implementation is on track.

 

4. Concluding remarks

  • A great opportunity for ASEAN – At the regional level, benefits of retail e-commerce development go beyond direct economic impact. Retail e-commerce can be a vehicle for economic development, social cohesion and cultural exchanges contributing to regional integration. At the global level, retail e-commerce is also a chance for ASEAN to increase its influence and promote an appealing story. Economic partners are already asking for a strong regional response to online retail matters. e.g.  Chinese Cyberspace Administration Director recently commented that China “would like to share information with the ASEAN partners, including finance, customs data, disaster prevention and evaluation35”.
  • Approach should be coordinated – ASEAN has already achieved and launched ambitious initiatives in a multiple number of areas impacting the e-commerce development directly. The need for harmonisation in each of these areas has often been highlighted and progress has already been made. Efforts around digitalisation, online offer development, data security, payment, logistics and trade should all be coordinated to ensure that regional retail e-commerce develops as fast as expected and fully benefits all regional stakeholders.
  • The inflection point – Forces already at work will not be sufficient to unlock the full potential of e-commerce in the region. ASEAN members need to holistically and collectively lift the e-commerce barriers that have been highlighted in this report. Doing so will enable the ASEAN countries to see a true inflection point in regional retail e-commerce development, paving the way for a long period of sustained growth.

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5. Authors


authors

Footnotes

1    Or online retail i.e. selling of products and services by businesses to consumers through an electronic medium
2    Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, hereafter ASEAN 6
3    Digital subscriber line, cable modem, or other high-speed technology.
4    Source: EIU
5    Out of 238 countries/ regions connected to Akamai Intelligent Platform for internet penetration
6    Threshold as determined by the Broadband Commission for Digital Development, jointly set-up by ITU and UNESCO
7    Information and communications technology
8    Source: FutureGov, November 2013
9    An In-Depth Study of Broadband Infrastructure in the ASEAN Region, August 2013 for the United Nations Economic and Social Commission for Asia and the Pacific(UNESCAP) by Terabit Consulting
10    At the 2nd ASEAN Ebook Conference held in September 2014 in Kuala Lumpur
11    Source: ACCCIM
12    Source: Asian Briefing
13    Source: CIO-Asia.com
14    Infocomm Development Authority of Singapore
15    UN Conference on Trade and Development
16    Source:  Sophos – 2013 Security Threat Report
17    Source:  Akamai
18    Source:  UM
19    Source:  PayPal
20    Source:  Association of Indonesian Internet Providers (APJII)
21    Know-Your-Customer
22    Monetary Authority of Singapore
23    Association of Banks in Singapore
24    Entry Point Project
25    Asia-Pacific Economic Cooperation
26    Source:  SGE
27    Vela Asia Online Shopper Survey (August 2013)
28    In the case of free delivery, delivery costs are also passed to consumers, but are low enough compared to margins to be hidden in the  retail price
29    Dutycalculator.com; DHL; customs website
30    Does not include cost of shipping and insurance
31    Knitted cotton dress, manufactured in China
32    Bangkok Post, ASEAN targeting special deliveries, August
33    China’s E-Commerce Market: The Logistics Challenges, 2011
34    Toward a Roadmap for Integration of the ASEAN Logistics Sector: Rapid Assessment & Concept Paper
35    Source: Nationmultimedia.com


 

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