Published on 31 Dec 2019

Competition in Southeast Asia’s Digital Economy​

Find out more about the economic development and growth prospects of Southeast Asia, as well as the digital economy trends in the region.

By Nanyang Centre for Emerging Studies


Executive Summary​

The sheer scale and rapid growth rate of Southeast Asian economies attracts the attention of investors and innovators. The region is home to the world’s third largest population and its fifth largest economy. Growth of its regional economy exceeds the world average by nearly two percentage points. The adoption pace of the digital economy exceeds the world’s GDP growth rate by an order of magnitude.

Southeast Asia is the world’s fastest growing Internet market. The population with Internet connectivity in Southeast Asia reached 360 million in 2019, while its digital economy passed the $100 billion mark. Despite a 40% leap from the prior year, its digital economy accounts for only 3.7% of the region’s GDP, still far below that of leading digital economies.

Southeast Asia achieved great progress in digital infrastructure, with Internet connectivity and smartphone possession exceeding 60% in most of the region. Nonetheless, e-commerce in the region remains in the digitally developing stage, with the e-retail share of total retail reaching 6% in 2019.

Currently, home-grown companies in the digital economy struggle to secure their position by focusing on more nuanced segments of domestic market and pushing for localized strategies. They may also adopt a consumer-to-consumer (C2C) model that exploits their strong local networks and knowledge. Increasingly some invest in technology to strengthen their core competencies and support sustainable growth.

The entry and growth strategies adopted by the US digital titans may explain why they languish in Southeast Asia. These giants tend to enter directly, and thus must deal with the intricacies of local regulations and behaviour. They focus on scaling up at home, and then push standard or similar products or services overseas. These may represent inadequate responses to local needs and preferences. Their relatively tardy arrival may also make it difficult to catch up with established ecosystem leaders.

Global players from China, rather than the US, took the lead in expanding digitally enabled commerce Southeast Asia. With an overwhelming presence in their major digital sectors, Alibaba and Tencent extended their proxy war against their US rivals from China to Southeast Asia. Chinese digital leaders adopted strategies that helped them enter and grow in this regional market. These include investing heavily in digital infrastructure, backing local champions, cooperating with government agencies, and introducing proprietary e-commerce models and technologies to the region. However, Chinese digital firms now face increasing international distrust, on the back of rising geopolitical headwinds and the surging costs of globalization.

Local players need to consolidate their domestic markets and upgrade their technologies and talent pools. US digital companies should put more efforts on localization and build their owner local network. Chinese digital giants need to take more proactive tactics to alleviate legitimacy concerns ahead of the rising geopolitical headwinds.

Southeast Asia’s digital market is in its infancy. The sector is undergoing rapid consolidation and offers many opportunities. In such a turbulent environment, it is far from obvious which companies will sustain leadership over the long run.

About the author

The Nanyang Centre for Emerging Markets (CEM) is a new initiative by Nanyang Business School to establish global thought leadership on business-related issues in emerging markets. It conducts research on pressing and timely business issues in emerging markets through a global research platform of leading scholars and institutional partners. It closely interacts with corporate partners to identify research topics and manage the research process. Its research outputs include valuable and relevant implications for sustained profitable growth for local and multinational companies in emerging markets. It delivers a variety of research reports and organises forums, seminars, CEO roundtables, conferences, and executive training programmes for broad dissemination of its research outputs.

Read full report here.