CIMB ASEAN Research Institute - GEVME · the retail e-commerce across the six major ASEAN...

CIMB ASEAN Research Institute Lifting-The-Barriers Initiative

Role of e-commerce in ASEAN Integration (Retail)

November 2014

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Table of Contents

Executive summary 2

ASEAN retail e-commerce market 4

A seven billion-dollar pie 4

A market still in its infancy 6

Growth expected to accelerate 8

Lifting the barriers 10

# 1 – Increase broadband access 11

# 2 – Support the emergence of local offer 15

# 3 – Reinforce online security 18

# 4 – Promote e-payment 21

# 5 – Improve logistics & trade efficiency 24

Concluding remarks 28

Authors 29

2

Executive summary

With ASEAN Economic Community coming into effect by the end of 2015, economic integration is at the

heart of the political agenda. In that context, retail e-commerce offers a unique opportunity to connect

millions of merchants and consumers across the region, contributing to the integration of the different

markets.

Today, the e-commerce market is still relatively underdeveloped with online retail accounting for less than

1% of total retail sales compared to 6%–8% in Europe, China or the U.S. In the coming years, ASEAN

online retail has potential to grow at up to 25% annually driven by increasing purchasing power, growing

internet penetration and development of online offerings.

To drive this growth, some initiatives have already been launched across the region. However, to ensure

continued growth, some key interventions are further required. At the recent ABC forum, the Lifting-The-

Barriers roundtable highlighted five specific directions that ASEAN countries should quickly consider in

order to take e-commerce in ASEAN to the next level.

1. Increase broadband access – Using state-aid mechanisms where private investment is not sufficient,

enhancing cross border connectivity and increasing efforts to raise online awareness

2. Support the emergence of local players – Improving access to finance for SMEs, fostering

integration of digital talent into businesses and promoting awareness of e-commerce marketplaces

3. Reinforce online security – Increasing information sharing and bilateral assistance, harmonizing

existing legislative framework and creating a regional online dispute resolution facility

4. Promote e-payment – Promoting non-cash transactions, establishing e-payment specific regulation

and harmonizing e-payment regulation at a regional level

5. Improve logistics & trade efficiency – Encouraging development of online retail logistics services,

facilitating e-retailers and logistics players’ partnerships, accelerating integration of logistics systems and

ensuring full implementation of ASEAN Single Window

A holistic approach, taking into account all directions mentioned above, is required to optimize

coordination of regional efforts. The upcoming ASEAN ICT Masterplan represents a great opportunity to

build such a holistic vision on regional retail e-commerce and unlock the full potential of e-commerce

across ASEAN.

ASEAN Business Club (ABC) Forum roundtable – The recent ABC Forum roundtable helped identify a

series of barriers hindering the development of retail e-commerce in the region. Industry participants gave

their thoughts on how some of the key areas can be improved:

Payment systems: The participants suggested that collaboration between stakeholders (telecom

operators, retailers, banks, regulators) should be taken to the next level to facilitate access to e-

payment and ensure ecosystem agility in this rapidly changing environment

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E-commerce regulation: The region’s economies need to work together to harmonize regulations

for the sector across ASEAN to help settle cross-border disputes and reinforce consumer

confidence

Logistics: Efforts should be made to improve supply chain efficiency across the region

Retail e-commerce and ASEAN integration – By the end of 2015, 10 Southeast Asian countries will

regroup and officially create the ASEAN Economic Community (AEC), forming a single market with a free

flow of goods, services, labor, investment and capital. In that context, the development of retail e-

commerce1, borderless by nature, is a great opportunity for regional businesses to tap into a market of

600 million ASEAN consumers. At the same time, successful e-commerce integration is also expected to

deliver significant benefits to workers, citizens and the environment, capturing new job opportunities and

additional social exchange.

Figure 1. Expected benefits from regional e-commerce integration

This paper builds on the roundtable insights and aims to provide a structured understanding of the main

barriers to e-commerce whilst providing guidance on the way forward. It specifically shares an overview of

the retail e-commerce across the six major ASEAN economies2 and suggests how each key barrier can

be lifted to unlock the full potential of retail e-commerce in the region.

1 Or online retail i.e.

selling of products and services by businesses to consumers through an electronic medium

2 Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, hereafter ASEAN 6

4

ASEAN retail e-commerce market

A seven billion-dollar pie

Online retail market in ASEAN 6 is estimated to be worth $7.1 billion. Singapore is the largest market

estimated at $1.7 billion and accounting for around 25% of the regional market, followed by Malaysia and

Indonesia – both worth around $1.3 billion.

Figure 2. ASEAN retail e-commerce market size (2013, $b)

Online users – The share of internet users is highly heterogeneous across ASEAN. Indonesia is lagging

behind with only 16% of its population using the internet, corresponding to around 40 million users in

absolute numbers. Internet penetration in Thailand, Philippines and Vietnam is still below the 50%

threshold whereas the same in Singapore and Malaysia is close to the advanced internet economies.

ASEAN online users are young (around 70% are below 35 year-old), they spend between 2 and 4 hours a

day on the internet and are addicted to social media (29% of time spent online for ASEAN vs. 20% global

average).

Online shoppers – The share of online shoppers among internet users is close to the levels found in

Japan (78%) or in the U.S. (73%) in most ASEAN 6. It is far lower in Indonesia (12%), meaning that only 5

million out of the 248 million Indonesians buy online.

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While the personal computer remains the primary device to buy online, the use of mobile phones for

online purchases in ASEAN is higher than the global average (57% vs. 44%). In countries where fixed

broadband is not yet fully developed (Indonesia, Philippines, Thailand and Vietnam), consumers are more

prone to use their mobile phones to buy online.

Figure 3. Key facts on ASEAN 6 online users / shoppers

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A market still in its infancy

ASEAN is significantly below its fair share of the global retail e-commerce market. We estimate that the

region accounts for less than 1% of global market, far below its share of global population (7.7%) or of

global GDP (4.2%). The most developed markets are the U.S., EU 5, China and Japan which represent

76% of global retail e-commerce market.

Figure 4. Global retail e-commerce market size (2013, $ b, % global market size)

Online retail constitutes less than 1% of total retail sales in most ASEAN countries whereas it is roughly

between 6 to 8% in Europe, China or the U.S.

Figure 5. Online retail as a % of total retail sales (2013)

Future market potential in ASEAN is therefore significant. A simple calculation indicates that Indonesian

market would be around $ 60 billion if online retail share of total retail sales were 6%.

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Market potential can also be determined based on the share of online shoppers and share of GDP per

capita spend found in more mature geographies (U.S., Europe and Japan). Not surprisingly, Indonesia

shows strong potential arising from their large population, while Thailand is 2nd

in terms of potential due to

the sizable population and strong GDP/capita.

Figure 6. Assessment of current theoretical market potential

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Growth expected to accelerate

Figure 7. ASEAN online retail market growth drivers

In the past 4 years, the ASEAN online retail market has grown at around 15% annually, 2 times faster than

GDP. In the coming years, ASEAN online retail has potential to grow even faster (up to 25% annually)

driven by increasing purchasing power, growing internet penetration and development of online offer.

Increasing purchasing power – GDP per capita is expected to increase at a similar rate (6.2% per

annum) as between 2009 and 2013. In most ASEAN countries, economic growth is expected to further

enable the emergence of a young middle class that is more prone to engage into online shopping.

Growing internet access – Households access to fixed broadband is expected to increase at a faster

rate in the next few years as a consequence of increased network coverage. Mobile shopping will also

play a significant role in future market growth as smartphone penetration and access to mobile broadband

increase rapidly. Hence, in countries where fixed broadband is less developed, consumers will be

converted more easily to mobile shopping. Several entities, such as banks and telecom operators, are

already developing innovative payment methods, e.g. payment by text message, making it easier for

consumers to pay with their smartphones.

Development of online offer – Online users are expected to spend more as online offerings are

expanding and improving. Major players have recently extended their position in Southeast Asia and offer

new shopping opportunities. For instance, Rakuten launched a mobile marketplace in Singapore

(Carousell) in 2013 and has been investing substantially in Indonesia and Malaysia since 2011 and 2012

respectively. Local players are also playing their part – for instance, HipVan, an e-commerce store that

focuses on products with great design (including home furnishings, fashion accessories, etc), started from

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Singapore and expanded rapidly into Malaysia. Recent development of additional e-payment solutions is

also expected to play a positive role in future online retail growth.

Overall, ASEAN online retail market has potential to narrow the gap with the U.S., E.U. and Japan,

growing more than twice faster than those regions in the 2013-2017 period – only China is expected to

grow at a comparable pace.

Figure 8. Expected annual growth rate per region (2013-2017)

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Lifting the barriers

However, to achieve the full potential of growth, there is a need to overcome several structural barriers

and improve overall regional competitiveness. The Lifting-the-barrier roundtable highlighted five specific

barriers that ASEAN countries should understand and act upon to unleash the full potential of e-commerce

in the region – involving broadband access, local offer, online security, e-payment and logistics & trade.

Figure 9. Barriers to ASEAN retail e-commerce development

To help better understand each of those barriers in detail, the following pages aim to illustrate how each

barrier constitutes an obstacle to e-commerce development, highlight some regional or local initiatives that

are currently helping overcome those barriers and provide guidance for future action.

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# 1 – Increase broadband access

Figure 10. Lifting-the-barrier # 1 – Increase broadband access

A. Understanding the barrier

a. Current picture

Online connectivity in ASEAN countries is still relatively low. In Vietnam, Philippines, Thailand and

Indonesia, less than half of the population are Internet users. Only Singapore has comparable access to

fixed broadband3 as developed e-commerce geographies like the U.S. (26 vs. 29 subscribers per 100

people).

Figure 11. Fixed broadband subscribers (2013, per 100 people)

3 Digital subscriber line, cable modem, or other high-speed technology.

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In terms of mobile broadband, less than half the population in Philippines, Indonesia and Vietnam have

access to mobile broadband. Similarly, only Singapore has comparable access to mobile broadband as

developed e-commerce geographies like the U.S. – where 100% of people have access.

Figure 12. Mobile broadband subscribers (2013, per 100 people)

b. Root Causes

Limited network coverage – In many areas across ASEAN, high-speed internet is not yet available for

various reasons, contributing to the “urban-rural divide”. In some areas, private investment is often

considered too risky. In Indonesia, connecting thousands of islands represents a big challenge. In

Vietnam, there is a large gap in broadband usage between the two main cities (Ho Chi Minh City and

Hanoi) and the rest of the country4.

Slow Internet – Internet speed in ASEAN is relatively slow. Even Singapore which enjoys the fastest

speed in the region is only ranked 20th worldwide

5. Situation is even more problematic for the Philippines,

Vietnam and Indonesia, which are at the bottom of the international ranking.

Figure 13. Average connection speed per country (Mbps, Q4 2013)

High cost of connection – Cost of broadband is still very high in the region despite recent increase in internet penetration with only Singapore and Malaysia being under the affordable broadband threshold

6.

4 Source: EIU

5 Out of 238 countries/ regions connected to Akamai Intelligent Platform for internet penetration

6 Threshold as determined by the Broadband Commission for Digital Development, jointly set-up by ITU and UNESCO

13

Figure 14. Fixed-broadband prices as % of Gross National Income (2013)

Limited awareness – Recent increase in Internet penetration has not yet offset the need to raise Internet

awareness. Population from rural areas or older generations still do not know how or are still reluctant to

use the internet and therefore need additional guidance.

B. Lifting the barrier

a. What is being done today?

ICT7 ASEAN Masterplan – Regional cooperation in the ICT sector dates back to 1999 with the e-ASEAN

initiative. The ICT ASEAN Masterplan 2015, launched in 2011, is the current regional framework for digital

strategy with actions outlined in the masterplan being articulated around 6 strategic thrusts:

- Economic Transformation

- People empowerment and engagement

- Innovation

- Infrastructure development

- Human capital

- Bridging the digital divide

Mid-term review of the plan held in December 2013 highlighted that two-thirds of the 29 actions related to

those objectives had already been achieved. Successful initiatives were implemented in various fields,

such as the first ASEAN CIO Forum in 2012 or the creation of a training program for elderly and people

with disabilities (Asean4all.org).

Other initiatives, such as the ASEAN Broadband Corridor have been launched, focusing on “developing

the next generation infrastructure and setting the minimum standards and quality of broadband

connectivity in the region”.

Local investment in broadband infrastructure, especially mobile broadband – ASEAN countries

have also been active individually in developing their internet infrastructure. Indonesia for instance has

invested to connect eastern islands to country’s internet network and is planning to develop a nationwide

fiber optic network. Thailand migrated from 2G to 3G, reaching 70% coverage in a few months (end of

2013). In addition, the country also introduced 4G wireless broadband services. Since penetration rate for

mobile broadband already exceed that of fixed broadband and will continue to grow, we expect it to play a

significant role in e-commerce expansion going forward.

7 Information and communications technology

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b. Key recommendations for tomorrow

1. Use state-aids to increase broadband coverage – As outlined8 by Singapore’s Minister for

Communications and Information, Yaacob Ibrahim, “Application of ICT in public sector is one of the key

initiatives of the ASEAN ICT Masterplan 2015. But recognizing that different states have different levels of

development, ASEAN has left the implementation of these initiatives to the various states”.

However, local action has its limitations. As broadband coverage is increasing rapidly in areas with high

potential, it is foreseeable that coverage of remote areas will soon be an issue. Private players are indeed

likely to be more reluctant to invest in these areas which could accentuate the digital divide in the longer

term.

The European Union has successfully addressed this issue with a collective response. It has set state-

aids mechanisms to foster broadband deployment in remote area, considering that private sector might

consider such investments not attractive. The E.U. regional policy investment helped to make broadband

available to more than 5 million extra people by the end of 2012. Use of comparable mechanisms in

ASEAN could significantly accelerate access to broadband throughout the region and consequently

increase retail e-commerce market potential.

2. Enhance cross-border connectivity – International infrastructure is also key to ensure regional

connectivity. A recent report mandated by UNESCAP9 called for an intervention by governments to

implement a Pan-Asian Terrestrial Fiber Optic Network. International infrastructure in the region is

currently limited and generates inequality among markets. The report has already identified priority

projects, including one between Malaysia and Indonesia, also noting that private sector has been reluctant

to make these investments and public intervention is needed to provide financial support and facilitate the

bureaucratic process.

3. Increase efforts to raise online awareness – Digital awareness programs should be further

generalized in the educational system of different countries. Involvement of private players should also be

further encouraged as it can bring additional insights and strengthen existing initiatives. In September

201410

, the Malaysian publishing industry pushed the idea of introducing e-textbooks in Malaysian

schools.

Several initiatives conducted as part of the ICT ASEAN Masterplan can also inspire actions to be led at

the local level. For instance, the ASEAN Cyberkids Camp designed to create awareness of basic ICT

applications for primary schoolchildren could serve as a starting point for other large-scale local

campaigns.

8 Source: FutureGov, November 2013

9 An In-Depth Study of Broadband Infrastructure in the ASEAN Region, August 2013 for the United Nations Economic and Social

Commission for Asia and the Pacific(UNESCAP) by Terabit Consulting 10

At the 2nd ASEAN Ebook Conference held in September 2014 in Kuala Lumpur

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# 2 – Support the emergence of local offer

Figure 15. Lifting-the-barrier # 2 – Support the emergence of local offer


a. Current picture

Although a few local champions have emerged, consumers appear to be more attracted by offer from

foreign players who do not necessarily have a local footprint. In Singapore almost half of the market is

made of online players located out of ASEAN. In Malaysia Groupon is the top destination for online

shoppers, whereas in Thailand Amazon and eBay are leading the race.

Figure 16. Share of sales made outside ASEAN (2013, % online retail sales)

b. Root Causes

Skepticism to develop an online offer – In most ASEAN economies, SMEs represent a very significant

contribution to GDP and employment. However, many SMEs are still reluctant to sell their products online

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despite the opportunity offered by retail e-commerce. Almost half of Malaysian SMEs11

surveyed said

“they are not involved in e-commerce … and are not planning to be”.

Brick & Mortar SMEs who decide to go online are already facing a strong competition from several types

of players. Pure retail e-commerce players are seeing 41 times more traffic than traditional brick & mortar

stores12

.

Lack of resources – The main obstacles to SMEs involvement in e-commerce include the lack of

financial resources, limited access to digital talent and the absence of general information. Hence, SMEs

are either unable to (a) afford an e-commerce presence, (b) acquire capabilities to develop one, or (c)

obtain the information required to develop one.

Figure 17. Survey on Malaysian SMEs involvement in e-commerce (2012)


a. What is being done today

Financial support - Malaysia has recently set-up an initiative to reward the most promising e-commerce

SMEs. The national ICT agency Multimedia Development Corporation has announced in June 2014 an e-

commerce reward program to boost adoption by local small and medium enterprises with prizes worth up

to ~ $ 50,000 for the top 25 SMEs13

.

Education – In Singapore the IDA14

has launched the FutureSchools@Singapore designed to encourage

innovation and entrepreneurship at school. This program “will equip students holistically with the essential

skills to be effective workers and citizens in the globalized and digital workplace of the future.” IDA

industry partners will also leverage Future Schools to experiment and commercialize the most promising

new ideas.

11 Source: ACCCM

12 Source: Asian Briefing

13 Source: CIO-Asia.com

14 Infocomm Development Authority of Singapore

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Best practices sharing – The US-ASEAN Business Council recently organized an ICT–focused

workshop for 100 SMEs in Malaysia in partnership with the SME Corporation of Malaysia. Major players

from the US such as eBay, Google or PayPal attended and shared information on:

- E-commerce platforms and payment tools

- International shipping and delivery services

- Legal aspects of cross-border e-commerce

- Strengthening global market presence through online marketing

The Partnership is also working to establish a cloud-based portal to support Southeast Asia SMEs.

Provision of e-services – Malaysian E-government (MYEG) is one of the best examples of e-services

portal in the region. Even though it is not dedicated to e-commerce, it helps SMEs access general

information or apply for licenses to start operating business in the country.


1. Improve access to finance – “Many SMEs lack awareness of financing resources and programs

available from commercial banks, private sector or government sources. They have difficulty defining and

articulating their financing needs.” - OECD, ASEAN SME Policy Index 2014

The development of public or private financial support program would help entrepreneurs pay for their high

start-up costs. Availability of financial support programs is an enabler but is not sufficient by itself. These

programs should be “marketed” to SMEs at the very local level to make sure that they reach the largest

possible audience. Provision of financial advisory services for SMEs should also be encouraged.

2. Foster integration of digital talent into businesses – Most ASEAN countries have already developed

digital educational programs in schools or in universities. However, based on SMEs feedback, there is still

a shortage of digital talents – therefore more emphasis should be put in digital education. With more digital

talents in the market, SMEs will find it easier to acquire digital expertise to develop and manage their e-

commerce presence, either by hiring in-house or obtaining external expertise. Linkage between schools /

universities and businesses should be encouraged as much as possible, helping employers’ access, train

and leverage new digital talents. Efforts in the field of entrepreneurial education should also be reinforced.

3. Promote awareness of e-commerce ‘marketplaces’ – One way for SMEs to circumvent the lack of

financial resources and limited access to digital talent would be to utilize e-commerce players, such as

eBay and Lazada. The ‘marketplace’ created by these players through their websites may be the most

effective and efficient way for SMEs to sell online, without the need for huge financial investments or

digital-savvy talent. The SME Associations in each country should work with these service providers to

promote awareness of the services and benefits of using such ‘marketplaces’.

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# 3 – Reinforce online security

Figure 18. Lifting-the-barrier #3 – Reinforce online security


a. Current picture

Improving consumers’ confidence in online transactions is a particularly strong issue in ASEAN. To

illustrate, across ASEAN 6 countries except Singapore, online shoppers are more reluctant to give their

credit card information than the global average.

Figure 19. Online shoppers who do not trust giving their credit card information online (2014)

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b. Root Causes

Regulation gaps – Study conducted by the UNCTAD15

on the state of e-commerce legislation

harmonization in the ASEAN suggested that in spite of countries’ efforts to build a comprehensive e-

commerce regulation framework, important pieces of legislation are still missing in some countries.

Figure 20. Status of e-commerce regulations in ASEAN (as of March 2013)

Absence of cross-border jurisdiction – To date, there is no regional-level entity that is able to fight

against cybercrime or to settle cross-border disputes. This creates anxiety among consumers, online

retailers or even investors given that a significant share of cybercrime is cross-border. As observed by

UNCTAD, “becoming participants of the International Consumer Protection and Enforcement Network

could be a first step in improving regional cooperation. To date, only the Philippines and Vietnam are

members.”

Multiplication of cyber-attacks – Globally, 8 out of 10 countries that are most threatened by cyber-

attacks are in Asia, including Indonesia, Thailand, Philippines and Malaysia16

. Indonesia has even

overtaken China as a source of cyber-attack traffic17

. As a result, internet users get worried when a

website requires that they enter personal information. A survey even found that up to 77% of Filipinos are

hesitant to share personal data online18

.



Countries have developed and enforced numerous laws in the past years including general regulations on

e-commerce data protection or electronic transactions. However, these regulatory frameworks lack

sharing of best practices on cyber security within the region and a broader harmonization of legislative

frameworks.

15 UN Conference on Trade and Development

16 Source: Sophos – 2013 Security Threat Report

17 Source: Akamai

18 Source: UM

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Figure 21. Selection of recent e-commerce legislations


1. Increase information sharing and bilateral assistance – Inter-governmental cooperation in sharing

regulatory best practices make the legislation process faster, smoother and more consistent regionally.

Given that some countries are trying to catch up with more advanced geographies, bilateral assistance

could be very beneficial to create proper measures to boost confidence of online users for seamless

participation.

2. Harmonize existing legislative framework – The need for harmonization in the fields of cybercrime,

consumer protection and recognition of electronic signatures has been highlighted by UNCTAD. The goal

is to “reduce conflicts and improve cooperation among ASEAN regulators and public law enforcement

agencies (…) and facilitate smoother cross-border enforcement”. In the field of consumer protection, EU

Unfair Commercial Practices Directive (2013) can inspire ASEAN members. This directive lays down

harmonized rules including bans on fraudulent claims about products, aggressive marketing practices,

hidden advertising or direct marketing to children.

3. Create a regional online dispute resolution facility – The need for such a facility has been

highlighted by UNCTAD due to increasing cross-border disputes and fewer case settlements.

European Union has been active in providing a collective response to cybercrime. Several legislative

actions have been launched, such as the Directive on attacks against information systems in 2013. A

European Cybercrime Centre has been created within Europol in January 2013 to serve as ” the focal

point in the fight against cybercrime in the Union, pooling European cybercrime expertise to support

Member States' cybercrime investigations and providing a collective voice of European cybercrime

investigators across law enforcement and the judiciary.”

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# 4 – Promote e-payment

Figure 22. Lifting-the-barrier #4 – Promote e-payment


a. Current picture

A large share of payments for online retail is actually made offline. Based on Vela Asia survey, only 2 to

11% of digital buyers are using online payments in ASEAN 6 except Singapore. Low e-payment

penetration is an obstacle for retail e-commerce growth because it is less costly and risky for merchants

than offline payment methods such as cash-on-delivery.

Figure 23. Online shoppers using online payments (% respondents, August 2013)

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b. Root Causes

Large share of “unbanked” – Within the ASEAN 6, there are two groups of countries in terms of financial

inclusion – Singapore, Thailand and Malaysia on one side, and Philippines, Vietnam and Indonesia on the

other. In the first group of countries, at least two-third of adults have a bank account whereas in the

second group, 70 to 80% are unbanked. Not surprisingly, this also reflects the situation for payment card

ownership per capita – a gap in penetration between the first group and second group.

Figure 24. Share of adults with an account at a formal financial institution (2012)

Concerns about data security – The lack of online security and consumer protection also has a negative

impact on the adoption of e-Payment. Some 58% of Malaysians are concerned about their financial

information being stolen by cybercriminals19

. In Indonesia, the fear of fraud is the most important obstacle

to online shopping20

.

Heavy KYC21

process – In certain specific conditions, cross border transactions may involve a heavy

KYC process in order to ensure compliance with Anti-Money Laundering regulation. As explained by

PayPal, consumers “have to scan copies of their National ID and send them to the payment provider

facilitating the transaction. Wait a couple of days for their review before the payment instruction is carried

out. In the meantime, the merchant whom they purchased the product will be chasing them up on

payments and wondering if they have had cold feet.” Such process generates high compliance costs for e-

Payment players and strongly deteriorates customer experience.



Wide range of available e-payment solutions – A variety of e-payment alternatives to payment cards have emerged worldwide and are now widely accessible to internet users. Beyond popular solutions such as PayPal, Amazon Payments or Alipay, a significant number of players bring new innovative solutions every year on the market. Local e-payment providers are very active and could play an active role to increase adoption in the region. Malaysian company GHL Systems has emerged as one of the most promising companies in the field. It has developed a presence across ASEAN, including Malaysia, Thailand and Philippines. According to CIMB Research, “it is entering an exciting growth phase with its merchant acquisition strategy following the completion of e-pay’s integration.” Meanwhile, in Indonesia, multiple players are present, with no less than 17 different online payment companies in 2014.

19 Source: PayPal

20 Source: Association of Indonesian Internet Providers (APJII)

21 Know-Your-Customer

23

Local government initiatives in favor of e-Payment adoption – In Singapore, regulator (MAS22

) and

market participants (ADB23

) worked jointly to adapt payment regulation, ultimately providing inputs on

legislative changes and guidelines. An immediate payment project, named G3 has also been launched

and is likely to benefit e-payment adoption. “By enabling Singapore banks to process low-value payments

in real-time, attractive banking products can be developed to counteract the threat of new market entrants,

whilst minimizing settlement risk and offering customers the surety and guarantees of a bank based

payment”, explains payment solution provider Clear2Pay. For PayPal, “these services will support new

payment channels such as peer-to-peer payments and increase the competitiveness of non-bank payment

providers”.

In Malaysia, a new integrated payment system (EPP24

#4) will be created for which the government has

set three quantified goals to be achieved by 2020:

- Reduce total cash transactions from over 90% to 63%

- Increase e-payments to 200 per capita per year

- Increase number of point-of-sale (POS) terminals to 25 per 1,000 inhabitants

According to CIMB research, e-payment transactions should grow by 10 times by 2020.


1. Promote non-cash transactions – Development of e-payment has an overall positive economic

impact and specifically on e-commerce. Initiatives from Singapore and Malaysia provide the key directions

for future actions. Bringing together government and industry participants (including banks and telecom

operators) should help define the shape of a prospering e-Payment ecosystem. Government-led initiatives

on cash reduction are fundamental to accelerate e-payment adoption.

2. Establish e-payment specific regulation – KYC processes should be adapted to e-payment using a

risk-based approach leveraging functionalities provided by big data analytics, says PayPal. The payment

provider goes onto suggest that data points used to build a risk-based framework could include “IP

address, smart device’s unique identification code, geo-location based on the nearest WiFi’s IP address

and GPS – of course all encrypted and within the boundaries of acceptable data collection methods.”

3. Harmonize e-payment regulation at a regional level – Existing nature of e-payment regulations are

yet to be harmonized and coordinated in ASEAN. To achieve this objective, PayPal made two concrete

recommendations:

- Create a specific e-payments subgroup within the APEC25

Electronic Commerce Steering Group to

provide common vision to local regulators

- Create a regional Central Body for e-payment, bringing together stakeholder agencies with the aim of

providing regulatory oversight

22 Monetary Authority of Singapore

23 Association of Banks in Singapore

24 Entry Point Project

25 Asia-Pacific Economic Cooperation

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# 5 – Improve logistics & trade efficiency

Figure 25. Lifting-the-barrier #5 – Improve logistics & trade efficiency


a. Current picture

Logistics & Trade do not seem to match ASEAN online shoppers’ expectations. Almost half of the

Singaporeans surveyed indicated that main reason for not buying online was delivery26

. A relatively small

share of ASEAN online shoppers said that they received free delivery in 201427

. This indicates that

logistical costs are too high for many players, who end up passing the cost to consumers as a delivery

charge28

.

Figure 26. Share of digital buyers who received free delivery (% respondents, August 2013)

26 Source: SGE

27 Vela Asia Online Shopper Survey (August 2013)

28 In the case of free delivery, delivery costs are also passed to consumers, but are low enough compared to margins to be hidden in

the retail price

25

b. Root Causes

Due to the geography of ASEAN, logistics in the region faces inherent challenges. For example, in

Indonesia or in the Philippines, it is especially hard to deliver products due to complex geographic spread,

each having thousands of remote islands. However, these are the key logistical inefficiencies that further

exacerbate the issue:

Poor transport infrastructure – Rail is underdeveloped in the region, but several projects are on their

way. Once complete, the rail networks should benefit countries such as Thailand and Vietnam, increasing

connection with China. There is also a need for efficient road networks in order to ensure efficient last mile

delivery. According to Jones Lang LaSalle, upgrading roads and reducing bottlenecks in the region is the

highest priority to improve logistics in ASEAN.

Figure 27. Qualitative assessment of transport infrastructure in ASEAN

Lack of warehouses readiness for e-commerce – Apart from Singapore and Thailand, warehouse

capacity has not increased at the same pace as economic growth. In addition, investment in automation is

sometimes insufficient. Moreover, online players often have difficulties meeting volume requirements of

logistics players.

Inefficient last mile delivery – As observed by UBS, last mile delivery is particularly crucial in the region

given the high proportion of cash-on-delivery payment. However, logistics companies in ASEAN are still

familiarizing themselves with e-commerce last mile delivery, and would need to further customize their

processes to suit e-commerce delivery. For example, local post office operators find that they are often not

able to match expectations of retailers and consumers.

Heterogeneous and time consuming customs – Currently import duties vary among countries. For

example, in Singapore, goods valued below SGD 400 (US$320) are shipped duty free, while the limit in

Malaysia is RM 500 (US$156)29

. The limit, VAT and duty fee may also be different for specific product

types.

29 Dutycalculator.com; DHL; customs website

26

Figure 28. Customs value30

of a $100 dress31

purchased from another ASEAN country

For a $100 dress (free of charge) purchased from an ASEAN country, the digital buyer would have to pay

a cost equivalent to one-third of the dress price in duties and taxes in Thailand, Indonesia, Vietnam and

Philippines. In addition if the dress has to be returned, reclaiming import duties would either be impossible

or overly expensive. In some countries, importing certain product categories also requires import permits.



Significant pipeline of transport infrastructure projects – Most ASEAN countries have already

decided to invest in their transport infrastructure. Indonesia and Vietnam in particular have launched

numerous projects that should directly enhance local supply chain competitiveness.

Figure 29. Transport infrastructure projects by type (2013)

Investment projects in warehouses capacity – Major players are investing and adding warehouse

capacity in the region. DHL has decided to invest $180 million in the region by 2015. “Singapore, Vietnam,

Thailand, Indonesia, and Malaysia are among the countries that will benefit from new transport

capabilities, advanced IT solutions, and accelerated recruitment (…) DHL Supply Chain will double its

size in the region over the next few years.” says the global logistics player on its website.

30 Does not include cost of shipping and insurance

31 Knitted cotton dress, manufactured in China

27

Increasing competition in last mile delivery – The ASEAN Post++ alliance – gathering the 10 national

postal authorities – has been created in August 2014. According to Thailand Post President, the goal is to

raise local postal authorities’ competitiveness at par with international courier companies. “The partnership

will also extend the capabilities of e-commerce via Postemart.com to allow online shoppers to buy

ASEAN-made products” 32

. In addition, third party logistics providers have emerged, such as aCommerce,

a Thailand-based start-up, who raised $11 million to become a leading player of last mile delivery across

Southeast Asia.

Preparation of the ASEAN Single Window – ASEAN Single Windows is a regional initiative designed to

optimize data exchange to facilitate regional customs integration in preparation of the upcoming AEC.

Each member country has been working on their own National Single Window taking the form of a unified

internet portal and enabling stakeholders to access permits, licenses, and clearance services.


1. Encourage development of online retail logistics services – Online retail implies a different

paradigm than business-to-business supply chain. New challenges to be solved include:

- Smaller inventories not adapted to logistics companies minimum volume requirements

- Demand for individual product tracking along the supply chain requiring development of new IT solutions

- Increase in the volume and complexity of last mile deliveries often challenging for post office operators

- Larger share of returns calling for flexible supply chain capabilities

While a few players such as aCommerce and TA-Q-BIN provides services solving some of these

challenges, governments can further stimulate growth by providing subsidies or tax breaks to players

focusing on online retail logistics.

2. Encourage e-tailers and logistics players’ partnerships – As e-commerce grows, ASEAN online

retailers will have to be even more vigilant that logistics does not hinder their expansion. As highlighted by

A.T. Kearney33

, cooperation between retailers and logistics players is key to tackle this potential barrier.

Alibaba’s investment in Singpost shows that this issue will have to be addressed in the coming years.

Involvement of government bodies at local and regional level would be very impactful to foster

collaboration between players.

3. Accelerate integration of logistics systems – On top of the necessity to invest in transport and

warehouse infrastructure at the local level, efforts to bring together national supply chains at the regional

level should not be neglected. In a recent paper, USAid34

highlighted areas where regional collaboration

would be needed, here are a few examples:

- Implement an ASEAN logistics database system that tracks costs, transit times and reliability

- Encourage businesses in ASEAN to outsource logistics activities to ASEAN service providers

- Support the establishment of a common standard trading provisions for logistics service providers

4. Ensure full implementation of ASEAN Single Window – The ASEAN Single Window is expected to

solve logistic challenges, especially difficulties with custom clearances. Progress made in this field, its

concrete impact on e-commerce and the appropriateness of thresholds and other policies should be

monitored closely, in order to ensure that the Single Window implementation is on track.

32 Bangkok Post, ASEAN targeting special deliveries, August

33 China's E-Commerce Market: The Logistics Challenges, 2011

34 Toward a Roadmap for Integration of the ASEAN Logistics Sector: Rapid Assessment & Concept Paper

28

Concluding remarks

A great opportunity for ASEAN – At the regional level, benefits of retail e-commerce development go

beyond direct economic impact. Retail e-commerce can be a vehicle for economic development, social

cohesion and cultural exchanges contributing to regional integration. At the global level, retail e-commerce

is also a chance for ASEAN to increase its influence and promote an appealing story. Economic partners

are already asking for a strong regional response to online retail matters. e.g. Chinese Cyberspace

Administration Director recently commented that China “would like to share information with the ASEAN

partners, including finance, customs data, disaster prevention and evaluation35

".

Approach should be coordinated – ASEAN has already achieved and launched ambitious initiatives in a

multiple number of areas impacting the e-commerce development directly. The need for harmonization in

each of these areas has often been highlighted and progress has already been made. Efforts around

digitalization, online offer development, data security, payment, logistics and trade should all be

coordinated to ensure that regional retail e-commerce develops as fast as expected and fully benefits all

regional stakeholders.

The inflection point – Forces already at work will not be sufficient to unlock the full potential of e-

commerce in the region. ASEAN members need to holistically and collectively lift the e-commerce barriers

that have been highlighted in this report. Doing so will enable the ASEAN countries to see a true inflection

point in regional retail e-commerce development, paving the way for a long period of sustained growth.

Figure 30. ASEAN retail e-commerce story

35 Source: Nationmultimedia.com

29

Authors

Geir Olsen, Partner, Singapore

[email protected]

Olivier Gergele, Senior Manager,

Singapore

[email protected]

Soon Ghee Chua, Partner, Singapore

[email protected]

Fabrice Bartolucci, Consultant, Singapore

[email protected]

CIMB ASEAN Research Institute - GEVME · the retail e-commerce across the six major ASEAN...

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