EconomyEcommerce in Southeast Asia and why it’s ripe for disruption

For the uninitiated, this market is huge, with 600 million potential customers to boot
Chong SiongNovember 25, 201810 min
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While it may only be half as big as the Chinese or the Indian market, its fragmented demography BUT highly connected population makes it an attractive market to set foot in.

Almost every company in China has ventured out, and have bases setup in the Southeast Asian market. For one, operating costs in developing territories such as Vietnam, Thailand, Indonesia and Philippines are significantly lower. For example, the cost of hiring a fairly experienced tech developer with the ability to code is only about US$800 in Vietnam. Any other labour intensive roles such as customer service or warehouse helper only costs in the range of US$300 to US$450.

Photo by: Screenshoot We Are Social

However, most of the big boys who are already in the market; such as Alibaba’s Lazada, SEA’s Shopee and so on, are hemorrhaging cash – barely able to turn a profit in the name of achieving market dominance and share. Why is this happening, even after investing not hundreds of millions of dollars, but BILLIONS?

 

Regulations that stifle growth

The financial regulators in the countries that reside in Southeast Asia have had a tight grip on the system for a long time. This is especially so after what was described as the “Tom Yum Goong” crisis – in Thailand, or Asian Financial Crisis (as many know it to be) for other countries in Southeast Asia; where financial authorities took it to themselves to control the outflow of their local currencies to prevent speculators from speculating in Thai Baht, Malaysian Ringgit etc.

As someone who had previously started a cross-border ecommerce company in Thailand, just 2 years ago, we always had difficulty to move money out of the country to pay for goods and services. There was always a limit to how much we could transfer out to avoid alarming the central bank, where we needed to have a good reason to transfer funds outward.

To top that off, taxes and duties are extremely complex, which meant that the importation of goods was a huge barrier of entry (and still is) for many ecommerce players. This is not only the case in Thailand but in Indonesia as well. To give an example, say you are a furniture importer. Tables and chairs are subjected to different taxes depending on its built and material composition. Even with the most advanced technologies (or blockchain), and given that regulators try and modernize their infrastructure, it still isn’t likely that such processes can be sped up enough.

It isn’t the question about demand. Demand for imported goods in Southeast Asia is alive, and growing (albeit slow). Otherwise, you wouldn’t see the rise of ecommerce players who do tremendously well in less regulated markets such as Malaysia and Singapore.

 

Lessons from bitcoin

Perhaps the inventor of Bitcoin, Satoshi Nakamoto knew that there were no way regulators would play nice – and this was repeatedly proven true. Just look at Bitcoin’s predecessors such as egold and hosts of other digital currencies which were unfortunately centralized. The government knew which company was behind them, and took no time at all to rip it all apart.

This was until Bitcoin came along, and the regulators had no ability to “regulate”. It just spread like wild fire. Bitcoin was decentralized, almost fully anonymous which meant that it couldn’t be shut down by ANYONE. As a result, not only were billionaires minted, the internet again had a chance to breathe.

Remember when the authorities tried to shut down internet freedom using SOPA? Did we also forget that Wikileaks which brought us the truth on so many hidden agendas were also funded by Bitcoin? While we try not to pick sides on this, it just goes to show that too much regulation can only stifle freedom, and with freedom stifled, so does trade and business. Today, millions of businesses accept Bitcoin as means of payment, and millions more who work overseas can send money back to their family without paying an arm and a leg to the “moneymen”.

 

Freeing up from protectionist mindset

It is understandable when governments who adopt protectionist policies want to protect their own industries. However, in this day and age, it is becoming increasingly impossible. Do patents still bring value to companies who file them? The short answer is YES, however, do innovators really care? Your fantastic product or invention could be airing on “Shark Tank” one day, and be ripped off the following month. This is how fast the world is moving – and by creating regulations that “stifle” innovation in the name of “protecting” local industry might not make sense moving forward.

The only way to truly thrive in today’s economy is by encouraging innovation and continuous improvement. If parallel imports of branded products (which are supposedly illegal) in many countries can exist, and customers can pay a lower price buying online rather than from the retail store, who do you think stands to lose in terms of taxes? So, when we said the Southeast Asian ecommerce market is ripe for disruption – it is entirely true. Only that the disrupters must be the leaders, governments and regulators themselves. The innovators and businesses have already put everything on the line all these years, to build up a huge industry generating hundreds of thousands of jobs, directly and indirectly.

It is high time that the next step is taken by those in power; before these businesses retreat and pull a Binance (jumping from China to Singapore to Malta). They can and they will, if pushed. Otherwise, it won’t be long before ecommerces start decentralizing, accepting cryptocurrencies and bypassing regulations altogether, relying on the power of peer to peer for product sourcing, shipping and delivery.

Chong Siong

Rocket Internet by training, he has worked as a professional marketer for Lazada/Alibaba & Bamilo (Ecommerce) and Easy (Transportation). Later, he honed his skills in operations, logistics, and management by launching and growing the Thai business (worth tens of millions) of a popular cross-border ecommerce platform (in Southeast Asia). Headhunted to join a public-listed tech company in Singapore, he led its Thai business until early 2018. Regarded as a trusted advisor by venture builders, Chong spends his time advising and investing into tech and crypto projects.

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