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E-Commerce in ASEAN
NITIN MITTAL
2
Agenda
Scope & Definitions
Overview
Landscape
Growth in Middle Class
Market Size and Forecast
Value Chain
Platform Architecture
Framework for Competitive Analysis
Regulations & Impact of Customs
Similarities & Differences Among ASEAN Countries
Appendix
3
Scope
E-Commerce is defined as sale of multi-brand goods online to
consumers via PC or mobile and excludes services like travel,
insurance etc.
4
E-Commerce Definitions
B2C
Store – storefront and fulfilment
Marketplace – storefront for SMEs/Merchants
Daily Deals/Private Sales
C2C
Storefront for individuals instead of SMEs/Merchants
Classifieds
5
5 Key Factors Fuel E-Commerce in ASEAN
Rise of Middle Class
Greater mobile/Internet penetration
More supply of new e-Commerce players
Increasing logistic options
Alternative Payment Methods
Source: Singpost, Analysis
6
Key Challenges Facing E-Commerce in ASEAN
Lack of robust ecosystem
Management of Customer expectations and Perception
High customer service needs for small purchases
Trust in online payments
Securing supply chain
Cross border commerce issues
Inconsistent duties
Logistics, taxes1, customs clearance, payment methods
Corruption
Lack of reliable, low cost logistics infrastructure
Local contracts, deals, localization for each ASEAN country
Fulfilment infrastructure not built to serve the scale of e-commerce scale
Foreign Ownership Regulations
Taxes in ASEAN can include import tax, excise tax, interior tax, VAT and other/ special duty; 90% tarriffs eliminated within ASEAN and between ASEAN and China but not the Western countries
Source: Singpost, Analysis
7
ASEAN E-Commerce Landscape
Traffic in 000’s
Source: UBS
8
ASEAN Shopping Website Traffic Comparison
Monthly hits in Millions
With ASEAN population 2X that of US, the monthly hits to shopping websites are < 10%
of those in the US, although the traditional hits are even lower at about 1% of those in
the US
9
Rise of Middle Class1
Country Size of
Middle Class
(2004/5, M)
Middle Class
as % of
Population
Annual
Spend ($B)
Percentage
point
change in
middle class
as % of
population
Change in
Population
(M)
Change in
yearly
Expenditure
s ($M)
Thailand 56 86% 117 +17.6% +17 +55
Malaysia 22 89% 52 +5.6% +7 +22
Philippine
s
48 55% 80 +12% +24 +48
Vietnam 44 52% 63 +57% +49 +77
Indonesia 103 47% 67 +46% +114 +168
Source: ADB 1Middle Class = Daily Consumption Expenditure of US$ 2- 20
1990 - 2008
10
Greater Internet Penetration: ASEAN (2011 – 16)
Source: Euromonitor
11
Increasing supply of E-Commerce & Logistics Players
Sourcing
Company
Retail
Platform
(Marketing +
Distribution)
Logistics
(Warehouse
+ Delivery)
Consumer
Sourcing (33%)
Marketing (30%)
Distribution (20%)
Logistics (17%)
Manu-
facturer
Margin
$10 +$33 +$50 +$17 $110
Yamato
Emerging end-to-end e-
commerce platform players like
Acommerce, Velasaia, Singpost
Source: Interviews; Numbers will vary depending category of product
12
E-Commerce Market Size (2013) & Potential
ASEAN E-Commerce at 0.2% of Retail Sales; China’s is 40X @ 8%; ASEAN like China in 2006-08
Source: WSJ; *E-commerce at 5% of retail
13
E-Commerce Value Chain
Sellers Platform Warehouse Delivery Consumer
Owned/
3rd Party
(local, intl.)
B2C
Store/
Marketplace/
Hybrid
Drivers
Pricing
Inventory Mgmt.
CMS
Payment Options/
Currency
Marketing
Merchant Tools
Language
Customer Support
Owned/
3rd Party
(cost driver)
Model
Hub n Spoke
Overseas/
Local
Model
Normal Post
Courier
Self-pick up
Owned/
3rd Party
(cost driver) Overseas/
Local
Reverse
Logistics
(Driven by Size
Dependence/
Payment method)
Logistics
Warehousing: custom packaging, storage, picking & packing, returns, and next-day delivery;
Source: Interviews
14
Platform Architecture
Product
Metadata
Descriptio
ns,
Pictures,
Reviews,
Ratings
Forecasting
tools for
better gross
margins;
Merchant
tools for
listing,
marketing,
pricing,
image/video
uploading ;
Engines:
Recommend
ation,
comparison
Routing
Algorithms
Online/
Offline
Payments
COD
Bank
Transfer
Credit/Debit
Cards
Prepaid Card
Features
Wishlist
Recommend
ations
Shipping
methods
Promotions
Order history
Online/
Mobile/
Hybrid
App
Web
Social Media
Forums
Classifieds
Messenger
groups
Omni
Channel1
1in-store pick-up/returns, store locator, online-offline availability, ship to store
CMS
Inventory/
Pricing/Tools/
Engines
Order Mgmt. Payment Shopping Cart Storefront
Source: Interviews + Analysis
15
Framework for Competitive Analysis
Sourcing
Product
Assortment
Pricing
Logistics
Customer Service
Technology
 Track record with brands to educate and convince them go online
 Network with brands vs agents affects access to product range
 Exclusive products
 Products unavailable in local stores
 Variety
 Pricing in price sensitive markets
 Proprietary pricing data built over time
 Owned vs third party; Warehous ing & fulfilment capabilities for large number of fast
moving orders daily
 First/Last mile delivery optimization
 Same/Next day delivery capability
 Delivery time
 Return policies
 Payment options
 Delivery routing algorithms
 Recommendation engines
 Integration to supplier networks
Source: Interviews + Analysis
16
Foreign Ownership Regulations for E-Commerce
Country Feasibility Method Remarks
Indonesia Not allowed but
workarounds
- Nominee
structure
- Separate out
pure online from
offline (logisitics)
Look at Alibaba and
Baidu incorporation
in Indonesia; JV
structures have not
worked well
(Rakuten, Ebay)
Vietnam Not allowed but
workarounds
- Nominee structure Similar to Indonesia
Thailand Allowed Board Of
Investment (BOI)
Philippines Allowed
Malaysia
Source: Interviews + Analysis
17
Status of E-commerce law in ASEAN
Legislation is 2-5 years old in most countries
Source: A.T. Kearney
18
Impact of Customs in ASEAN
Source: A.T. Kearney, Singpost
If purchased
from the US,
customs value
$90
19
Status of Transport Networks in ASEAN
SG, MY & TH offer the best networks
Source: A.T. Kearney
20
Country Differences
Country Logistics Spend Per
Transaction (US$)
Social Commerce Online Shoppers
using online
payments
Banked
Indonesia Lazada built own;
no nationwide
provider
$20 Instagram/Facebook
/Twitter
4% 20%
Vietnam Nationwide provider $20 2% 21%
Thailand Warehousing
strongest after SG
$50 Facebook/Line 11% 79%
Philippines Nation wide
provider bu
Smallest 3% 27%
Malaysia $60 5% 66%
Singapore Strongest in
warehousing; has 20
of top 25 third party
logistic companies
$60 50% 98%
Low banked levels and lack of
trust in online payments make
cash on delivery the most used
payment method in ASEAN
Source: A.T. Kearney + Interviews
21
Country Similarities
 Large percentage of e-commerce transactions from outside the capital cities
 Thailand – 40% (Line)
 Indonesia – 70% (Lazada)
 Referrals from social networks like Facebook (Thailand) and Instagram (Indonesia)
 No established large scale offline chains like Walmart/BestBuy etc.
 Cash on Delivery
Source: Acommerce + Interviews
LINE flash sales by region, Thailand
22
Appendix
23
E-Commerce Market Size – ASEAN $7B, 2013
(much higher compared to WSJ report, which looks more reasonable considering regional
Lazada/Zalora GMV in 2013 of EUR 150M and assuming 20% SEA e-commerce market share)
Source: A.T. Kearney
24
E-Commerce in ASEAN relative to other regions shows a huge
opportunity to grow - 5X over the next 5 years to $35B, < 50% of the
overall potential of $67-89B
Source: A.T. Kearney
25
E-Commerce Potential in ASEAN
Source: A.T. Kearney
26
INDONESIA
27
Indonesia Middle Class
Source: ADB
28
Indonesia Online Shoppers
Source: eMarketer
29
Preferred E-Commerce Channels in Indonesia
Source: Techinasia
30
Preferred E-Commerce Payment Methods (2013)
Source: Vela Asia
31
Innovative Indonesian Payment Methods (2013)
Source: Vela Asia
32
Indonesia Top Shopping Websites by Monthly Traffic (March 2014)
Note: C2C included
33
Popular Categories (2013)
Source: Statista
34
Timeline
Source: UBS
35
Philippines
36
Philippines Middle Class
Source:ADB
37
Philippines Top Shopping Websites, March 2014
38
Timeline
39
Thailand
40
Thailand Top Shopping Websites by Traffic, March 2014
41
Timeline
Source: UBS
42
Example of US Import tax calculation in Thailand
Source: Singpost
43
Malaysia
44
Malaysia Top Shopping Websites, March 2014
45
Timeline
Source: UBS
46
Challenges in SME Adoption
Source: A.T. Kearney
47
Vietnam
48
Timeline
Source: UBS
49
Financials
50
E-Commerce Valuations
Source: UBS, June 2014
51
Zalora Financials – H1 2014
Fashion category has higher margins – 30 – 50% (private labels)
Source: Rocket Internet Financials
52
Lazada Financials – H1 2014
Electronics category has very low margins – 10% and so Lazada is beginning to diversify to
increase product categories
200% + Growth in
GMV, Orders &
Customers
Source: Rocket Internet Financials
53
Listed Logistics Companies
Source: UBS, June 2014

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E-Commerce in Asean

  • 2. 2 Agenda Scope & Definitions Overview Landscape Growth in Middle Class Market Size and Forecast Value Chain Platform Architecture Framework for Competitive Analysis Regulations & Impact of Customs Similarities & Differences Among ASEAN Countries Appendix
  • 3. 3 Scope E-Commerce is defined as sale of multi-brand goods online to consumers via PC or mobile and excludes services like travel, insurance etc.
  • 4. 4 E-Commerce Definitions B2C Store – storefront and fulfilment Marketplace – storefront for SMEs/Merchants Daily Deals/Private Sales C2C Storefront for individuals instead of SMEs/Merchants Classifieds
  • 5. 5 5 Key Factors Fuel E-Commerce in ASEAN Rise of Middle Class Greater mobile/Internet penetration More supply of new e-Commerce players Increasing logistic options Alternative Payment Methods Source: Singpost, Analysis
  • 6. 6 Key Challenges Facing E-Commerce in ASEAN Lack of robust ecosystem Management of Customer expectations and Perception High customer service needs for small purchases Trust in online payments Securing supply chain Cross border commerce issues Inconsistent duties Logistics, taxes1, customs clearance, payment methods Corruption Lack of reliable, low cost logistics infrastructure Local contracts, deals, localization for each ASEAN country Fulfilment infrastructure not built to serve the scale of e-commerce scale Foreign Ownership Regulations Taxes in ASEAN can include import tax, excise tax, interior tax, VAT and other/ special duty; 90% tarriffs eliminated within ASEAN and between ASEAN and China but not the Western countries Source: Singpost, Analysis
  • 7. 7 ASEAN E-Commerce Landscape Traffic in 000’s Source: UBS
  • 8. 8 ASEAN Shopping Website Traffic Comparison Monthly hits in Millions With ASEAN population 2X that of US, the monthly hits to shopping websites are < 10% of those in the US, although the traditional hits are even lower at about 1% of those in the US
  • 9. 9 Rise of Middle Class1 Country Size of Middle Class (2004/5, M) Middle Class as % of Population Annual Spend ($B) Percentage point change in middle class as % of population Change in Population (M) Change in yearly Expenditure s ($M) Thailand 56 86% 117 +17.6% +17 +55 Malaysia 22 89% 52 +5.6% +7 +22 Philippine s 48 55% 80 +12% +24 +48 Vietnam 44 52% 63 +57% +49 +77 Indonesia 103 47% 67 +46% +114 +168 Source: ADB 1Middle Class = Daily Consumption Expenditure of US$ 2- 20 1990 - 2008
  • 10. 10 Greater Internet Penetration: ASEAN (2011 – 16) Source: Euromonitor
  • 11. 11 Increasing supply of E-Commerce & Logistics Players Sourcing Company Retail Platform (Marketing + Distribution) Logistics (Warehouse + Delivery) Consumer Sourcing (33%) Marketing (30%) Distribution (20%) Logistics (17%) Manu- facturer Margin $10 +$33 +$50 +$17 $110 Yamato Emerging end-to-end e- commerce platform players like Acommerce, Velasaia, Singpost Source: Interviews; Numbers will vary depending category of product
  • 12. 12 E-Commerce Market Size (2013) & Potential ASEAN E-Commerce at 0.2% of Retail Sales; China’s is 40X @ 8%; ASEAN like China in 2006-08 Source: WSJ; *E-commerce at 5% of retail
  • 13. 13 E-Commerce Value Chain Sellers Platform Warehouse Delivery Consumer Owned/ 3rd Party (local, intl.) B2C Store/ Marketplace/ Hybrid Drivers Pricing Inventory Mgmt. CMS Payment Options/ Currency Marketing Merchant Tools Language Customer Support Owned/ 3rd Party (cost driver) Model Hub n Spoke Overseas/ Local Model Normal Post Courier Self-pick up Owned/ 3rd Party (cost driver) Overseas/ Local Reverse Logistics (Driven by Size Dependence/ Payment method) Logistics Warehousing: custom packaging, storage, picking & packing, returns, and next-day delivery; Source: Interviews
  • 14. 14 Platform Architecture Product Metadata Descriptio ns, Pictures, Reviews, Ratings Forecasting tools for better gross margins; Merchant tools for listing, marketing, pricing, image/video uploading ; Engines: Recommend ation, comparison Routing Algorithms Online/ Offline Payments COD Bank Transfer Credit/Debit Cards Prepaid Card Features Wishlist Recommend ations Shipping methods Promotions Order history Online/ Mobile/ Hybrid App Web Social Media Forums Classifieds Messenger groups Omni Channel1 1in-store pick-up/returns, store locator, online-offline availability, ship to store CMS Inventory/ Pricing/Tools/ Engines Order Mgmt. Payment Shopping Cart Storefront Source: Interviews + Analysis
  • 15. 15 Framework for Competitive Analysis Sourcing Product Assortment Pricing Logistics Customer Service Technology  Track record with brands to educate and convince them go online  Network with brands vs agents affects access to product range  Exclusive products  Products unavailable in local stores  Variety  Pricing in price sensitive markets  Proprietary pricing data built over time  Owned vs third party; Warehous ing & fulfilment capabilities for large number of fast moving orders daily  First/Last mile delivery optimization  Same/Next day delivery capability  Delivery time  Return policies  Payment options  Delivery routing algorithms  Recommendation engines  Integration to supplier networks Source: Interviews + Analysis
  • 16. 16 Foreign Ownership Regulations for E-Commerce Country Feasibility Method Remarks Indonesia Not allowed but workarounds - Nominee structure - Separate out pure online from offline (logisitics) Look at Alibaba and Baidu incorporation in Indonesia; JV structures have not worked well (Rakuten, Ebay) Vietnam Not allowed but workarounds - Nominee structure Similar to Indonesia Thailand Allowed Board Of Investment (BOI) Philippines Allowed Malaysia Source: Interviews + Analysis
  • 17. 17 Status of E-commerce law in ASEAN Legislation is 2-5 years old in most countries Source: A.T. Kearney
  • 18. 18 Impact of Customs in ASEAN Source: A.T. Kearney, Singpost If purchased from the US, customs value $90
  • 19. 19 Status of Transport Networks in ASEAN SG, MY & TH offer the best networks Source: A.T. Kearney
  • 20. 20 Country Differences Country Logistics Spend Per Transaction (US$) Social Commerce Online Shoppers using online payments Banked Indonesia Lazada built own; no nationwide provider $20 Instagram/Facebook /Twitter 4% 20% Vietnam Nationwide provider $20 2% 21% Thailand Warehousing strongest after SG $50 Facebook/Line 11% 79% Philippines Nation wide provider bu Smallest 3% 27% Malaysia $60 5% 66% Singapore Strongest in warehousing; has 20 of top 25 third party logistic companies $60 50% 98% Low banked levels and lack of trust in online payments make cash on delivery the most used payment method in ASEAN Source: A.T. Kearney + Interviews
  • 21. 21 Country Similarities  Large percentage of e-commerce transactions from outside the capital cities  Thailand – 40% (Line)  Indonesia – 70% (Lazada)  Referrals from social networks like Facebook (Thailand) and Instagram (Indonesia)  No established large scale offline chains like Walmart/BestBuy etc.  Cash on Delivery Source: Acommerce + Interviews LINE flash sales by region, Thailand
  • 23. 23 E-Commerce Market Size – ASEAN $7B, 2013 (much higher compared to WSJ report, which looks more reasonable considering regional Lazada/Zalora GMV in 2013 of EUR 150M and assuming 20% SEA e-commerce market share) Source: A.T. Kearney
  • 24. 24 E-Commerce in ASEAN relative to other regions shows a huge opportunity to grow - 5X over the next 5 years to $35B, < 50% of the overall potential of $67-89B Source: A.T. Kearney
  • 25. 25 E-Commerce Potential in ASEAN Source: A.T. Kearney
  • 29. 29 Preferred E-Commerce Channels in Indonesia Source: Techinasia
  • 30. 30 Preferred E-Commerce Payment Methods (2013) Source: Vela Asia
  • 31. 31 Innovative Indonesian Payment Methods (2013) Source: Vela Asia
  • 32. 32 Indonesia Top Shopping Websites by Monthly Traffic (March 2014) Note: C2C included
  • 37. 37 Philippines Top Shopping Websites, March 2014
  • 40. 40 Thailand Top Shopping Websites by Traffic, March 2014
  • 42. 42 Example of US Import tax calculation in Thailand Source: Singpost
  • 44. 44 Malaysia Top Shopping Websites, March 2014
  • 46. 46 Challenges in SME Adoption Source: A.T. Kearney
  • 51. 51 Zalora Financials – H1 2014 Fashion category has higher margins – 30 – 50% (private labels) Source: Rocket Internet Financials
  • 52. 52 Lazada Financials – H1 2014 Electronics category has very low margins – 10% and so Lazada is beginning to diversify to increase product categories 200% + Growth in GMV, Orders & Customers Source: Rocket Internet Financials