Key Takeaways from UBS Q-Series: ASEAN eCommerce

If you ask the Swiss investment bank and multinational financial services provider UBS what their Q-Series reports are about, they answer that it’s “Where Socrates meets Wall Street“. I think it’s more about positioning the rather conservative institution as a knowledgeable advisor on fast-growing business sectors, which the latest report on ASEAN eCommerce is a brilliant example of. I’ll skip all the boring stock recommendations and give you my favorite insights from the 64 page PDF.

The report is framed as being about ASEAN as a whole, but mainly uses data from the following countries: Singapore, Philippines, Malaysia, Indonesia and Thailand as well as China and the US for comparison.

#1: Brick & Mortar’s Are Losing The Land Grab

As concluded through data about the top shopping websites in the ASEAN countries as well as China provided mainly by Similarweb (which has gotten much more accurate lately and I now recommend), it is clear that the eCommerce market, all over Asia, is dominated by online-first players who manage to get traction much faster than traditional offline retailers going online.

As reported on page 12, “Traditional retailers in China and ASEAN are capturing only 2.4- 2.5% of online shopping traffic”, which leaves more or less the whole online market to the companies that started there.

The data is however a bit skewed by the huge numbers of China (currently twice the eCommerce market than the rest of ASEAN combined), where just four sites contribute more than 85% of the total online shopping traffic. As a comparison, the top quartet of the US eCommerce market command just over 25% of the market.

The conclusion here must be that Asian eCommerce is indeed a land grab like no other and a terrific opportunity for the online-savvy, but that China is already much more locked than the rest of ASEAN.

Bonus link: “Oliver Samwer: Jack Ma is not waiting for anyone”

#2: China And US eCommerce Equally Mature, SEA Boom Coming Soon

While eCommerce in both the United States and China is poised to grow rapidly in the years to come, the growth opportunity is, if possible, even more obvious in the Southeast Asian region.  Just look at the following numbers from page 16:

“eCommerce markets in China and the US command 8% and 8.7% of retail sales… similar levels in major ASEAN markets translate to a US$35bn market at current prices, or US$49bn assuming 5% pa growth in the underlying market by 2020”

Combine that with the fact that current B2C and C2C markets for ASEAN combined amount to around 550-1100m USD (0.12-0.24% of total Retail Sales) and that has to be the most obvious indicator of market opportunity in a long time.

The above numbers are however just estimates, and especially the conversion rates and average order sizes used to calculate the American market size seem very high to me (see Page 19 ‘Sanity check’), but even slashed in half there’s still a tremendous opportunity in the ASEAN markets.

The conclusion of the above must be that ASEAN, especially as its most technologically nascent members like Indonesia get increasingly online-savvy, is poised to go through a phase of extreme growth. The question remains who’ll be there to fulfill those desires. And orders.

#3: ASEAN eCommerce Revolution Likely To Be Mobile-First

It’s hard to forecast and it’s especially hard to forecast the future. But looking at both China and some of the more tech-savvy ASEAN states like Singapore and Malaysia, a clear pattern arises regarding the steps a market must take, technologically, to become ripe for eCommerce growth:

  1. Internet access becomes widely available and Internet penetration rates soar.
  2. Low-cost feature and smartphones become widely available and mobile penetration soars.
  3. As smartphone usage soars, 3G and 4G (LTE) networks become available at affordable price points.
  4. Percentage of mobile subscribers using data services soars.
  5. mCommerce and eCommerce adaption rates soar.

The above is an extreme simplification, but contains the major technological steps each market has historically taken before experiencing their eCommerce boom.

Perhaps to be placed between the fourth and fifth step is a stage where the mobile subscribers’ share of online time spent shifts gradually from social networking and browsing to product research and commerce. Based on this (page 38), Indonesia will be a glowing example in the years to come:

“[…] Indonesians mostly use internet for social networking (88%), browsing (69%) and news update (68%)—while online shopping remains the least favoured (0.1%). That said, we see upside potential as we estimate that Indonesia’s internet penetration is 31% currently and could reach 54% by 2015E.”

Conclusion

The UBS Q-Series: ASEAN eCommerce report is by no means interesting only from a marketing perspective, and probably not very actionable either, but extremely compelling for getting a better grasp of both the various country-specific markets inside the ASEAN alliance and how they compare with more mature markets like China and the United States.

The report contains a lot of interesting data especially in the Appendixes with top shopping websites per country and eCommerce maturation timelines for each local market.

Download the report here: UBS report 2014

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