CLSA’s Paul McKenzie on Ecommerce Trends in ASEAN

CLSA consultant speaks out on trends and predictions for ASEAN’s ecommerce trends and landscape.

CLSA, Asia’s leading independent brokerage and investment group held a one hour seminar at The Campus, Grand Hyatt Erawan, Bangkok on Wednesday 9th March, 2016. Hong Kong based CLSA consultant, Paul McKenzie, discussed ecommerce trends in ASEAN.

McKenzie’s talk focused on the ‘e-liftoff’ of ASEAN countries which corresponded with CLSA’s proprietary report published in 2015. An analyst turned consultant, McKenzie focuses his research on the ecommerce landscape of developing Asian countries and presented his findings and predictions to a room of select ASEAN investors.

Although McKenzie’s target audience are financiers who do not work in the ecommerce industry, he makes a point to get into the nitty gritty ecommerce rhetoric, this was not a pitch, but an insightful one hour window into ASEAN countries’ ecommerce trends. The talk started with a quick rundown on each country’s ecommerce ranking, Indonesia presented as the most promising ASEAN market and through McKenzie’s reasoning, these are the reasons why:

Landscape by country

Indonesia has the greatest ecommerce potential because of its developing infrastructure and private equity advantage (cash is flowing). Thailand is a bit behind, with the ecommerce landscape growing fairly big, but not in the same scale as Indonesia. McKenzie is very cynical about Philippines and even less so about Malaysia.

“It’s simply too early right now for Philippines, there are not enough big and efficient companies in the market, and Malaysia’s market is just too small.’ The thing about Malaysia though, is that there is less of a potential void for ecommerce to fill, as offline retail penetration is even higher than China here.

McKenzie ends his introduction with a prediction that the ASEAN ecommerce market in general will grow in terms of IPO, and when that happens, it will be more appealing for investors to flock to the region without being overly cautious.


LINE leads the way

One of the key statements made by McKenzie in this hour was about LINE, ‘Look to LINE if you want to do ecommerce in ASEAN’. This probably confirms what we know already, but the data just further cements the company’s position in the market. Over 60% of Thais over the age of 14 are on LINE, and McKenzie sees mobile as the future of online shopping.’

He goes to predict that within the next few years, mobile will be even more important in ASEAN than it currently is in China. You don’t have to be working in ecommerce to notice that Asians have a mobile fixation, every where we look to, everyone is snapping pictures of their lunches and texting while crossing the road, and according to McKenzie, a third of online transactions are made on mobile, and 50% of online browsing is done on mobile, only lagging behind China by a year.

The thing that hinders mobile’s further progression in ecommerce is slow data speed. People complain about transactions being dropped and pages not loading and that directly affects their ability to make online purchases. We remain cautiously optimistic about significantly faster data speed in the near 4-5 years future.


Money Money Money

When we talk about ecommerce trends in ASEAN, we also talk about money. Majority of shoppers in the ASEAN region do not own credit cards. This creates a bit of a problem for ecommerce, which is why cash on delivery option amounts to a third of transaction. The number should actually be even higher, but a lot of ecommerce companies have some deep rooted trust issues with delivery services. This type of problem would only be happening in developing countries, where payment systems are not necessarily secure and systems are not always transparent.

McKenzie brought up an interesting example about Kenya’s unique M-PESA payment method that allows people to top up credit on their phone and use that to make online purchases. It eliminates the ‘no credit card’ handicap and the system is secure. Some telecom companies in ASEAN have tried to do this but without much success.


Let’s talk logistics

One thing ASEAN has been doing pretty well is delivery. McKenzie found that delivery time in capital cities in ASEAN are surprisingly consistent with 2-3 days delivery service. However, outside of Bangkok or outside Jakarta, the average delivery time becomes approximately 5 days to deliver to Surabaya. This means that there is a market for more warehouses or logistical service which could cater to non urban shoppers.

The goal for companies in ASEAN right now is to increase their SKUs. Lazada is a market leader in Indonesia with over 2 million while everyone else is trailing behind with less than 1 million. Once the SKU rate goes up, consumers will come, and then eventually potential investors.


Predictions for the future

ASEAN’s ecommerce landscape will grow to fit directly between the United States and China. Currently, ASEAN is too fragmented to have a sole dominant player like Alibaba in China, and not as big in scale or as wealthy as the US. Instead, McKenzie predicts that ASEAN will have a few key, prominent scattered around the region. This sounds about right, as each country under the ASEAN umbrella is simply too different with scattered consumer needs and different economic conditions. For example, Indonesia attracts a huge amount of private equity, whereas Thailand doesn’t quite have that luxury, possibly partly due to changes in political infrastructure.

Meanwhile, it seems like ASEAN is really getting prepped and ready for their ‘e-liftoff’, despite some likely bumps ahead, it will be one hell of a journey.