Bain & Company: Contribution of E-Commerce to Retail Sales in ASEAN is Still in the Early Stage

The use of e-commerce platforms in ASEAN is considered still in the early stages to boost the economic contribution of the retail SME sector. For that, the space to match China and the United States is very wide open.

The research results of management consulting firm Bain & Company supported by Sea Group, Google, and Tan Sri Rebecca, entitled "Advancing Towards ASEAN Digital Integration: Empowering SMEs to Build ASEAN's Digital Future" shows the e-commerce service sector (B2B and B2B2C) grew 25% annually for the past five years. Estimated sales through the sector reached US$10 billion in the last year or new 2% of total retail sales.

"This condition is far behind the United States at 12% and China at 20%," the report said.

When described in more detail, Singapore leads the way compared to other neighboring countries by 5%, followed by Brunei Darussalam 4%, Malaysia 3%, Indonesia and Thailand 2%. Nevertheless, ASEAN has a great opportunity to match the two developed countries.

The supporting factor lies in the strengthening of the macroeconomic demand wave. More than 50% of ASEAN's population is under the age of 30 and ASEAN's real GDP per capita has grown by 3,8% in the last five years, compared to the global average of 2,3%. Meanwhile, the proportion of internet users has increased by 2,8 times from 2012 to 2017.

Digital integration challenges

Bain & Company conducted a survey of 2.342 SME respondents in the agro, manufacturing, retail, transportation and logistics sectors in 10 ASEAN countries. The survey took place during March-April 2018. One of the results shows that SMEs across all sectors benefit directly and sustainably when integrated with the digital economy.

Respondents from retail SMEs said that those who use e-commerce channels experienced an average increase in sales of 15%, logistics SMEs average productivity increased by 10%-20%. Meanwhile, agro SMEs that adopt agricultural applications increase their productivity by 5%-10%.

From 80% of respondents surveyed retail SMEs, they agree there is potency which can be dug deeper to increase business through the use of e-commerce platforms. Nonetheless, in general retail SMEs still face barriers that limit them from further online growth in both domestic and cross-border sales.

A number of these obstacles include a lack of understanding of digital technology, employees lack the skills to sell products online, and weak internet connections.

Other obstacles when retail SMEs want to export, for example logistics infrastructure that is still poor, cross-border complexity due to many non-tariffs, and minimal payment options.

Talking about the level of internet adoption among retail SMEs, on average in ASEAN it reaches 34%. Singapore again took first place with a percentage of 50%, Malaysia 49%, the Philippines 41%. However, Thailand (32%), Indonesia (30%) and the rest of the countries are still below this average.

"This research demonstrates the key role that e-commerce can play in realizing a more inclusive economy in Indonesia -whether by empowering rural SMEs or helping women entrepreneurs increase their incomes and livelihoods," said Sea Group Economist Santiarn Sathirathai.

"We see great momentum in e-commerce as SMEs enter new, fast-growing markets online going forward."