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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.
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.
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.
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