Amazon and the $200billion Internet Economy in South East Asia

Amazon's launch in Singapore last month marks the internet giant's official entry into South East Asia. Sophie Tuson explores why the region, and Singapore in particular, provides such fertile ground for e-commerce businesses in search of growth.

Last month Amazon launched its e-commerce services (Amazon Prime and Amazon Prime Now) in Singapore. The move sees Amazon establish a 100,000sq ft warehouse in the city-state (its largest facility in an urban centre). The highly-coveted launch follows hot on the heels of other big ticket entrants to the e-commerce market in Singapore, including Alibaba which acquired South East Asia's largest e-commerce site Lazada last year.

One thing seems clear: the battle for the Asian e-commerce market is hotting up. But why are such large household names flocking to South East Asia (and Singapore in particular) and what does this reveal about the opportunities for growth in the region's internet economy?

E-conomy

A recent report conducted by Google and Singapore-based wealth fund Temasek, suggests that South East Asia is the fastest growing internet economy in the world with 3.8 million users 'coming online' every month. Astonishingly, this internet economy is expected to reach $200 billion by 2025, largely driven by the growth in the e-commerce market. Indeed, the Singapore e-commerce market alone is expected to expand by 11.2% by 2021 which would bring it up-to-speed with both Canada and Australia.

Unlocking Growth

But what exactly is driving such seismic growth in the region? Commentators have pinpointed a number of factors which, when combined, provide fertile ground for e-commerce companies seeking international expansion. First, South East Asia has a thriving, young demographic with over 70% of the region's population under 40. Combine this with a burgeoning and affluent middle class and rapidly increasing internet access across the region (it is expected that over 80% of South East Asia will have internet access by 2025), and it is easy to see why the South East Asian region offers e-commerce operators such a healthy new consumer market to tap into.

Limited access to 'bricks and mortar' retail stores in the region (particularly in the more remote islands of Indonesia and the Philippines) also makes online shopping an attractive proposition. Further, the anticipated move away from 'Cash on Delivery' payment channels to a more effective e-payment ecosystem means that the risk for e-commerce merchants delivering to these new Asian markets is reduced.

The Singapore Appeal

It is no coincidence that the likes of Amazon and Alibaba have chosen Singapore for their South East Asian debuts. With its more westernised culture of consumer consumption, established e-payment system and its position as a regional hub, the Singapore market offers tech giants an appealing environment in which to test-bed strategies before building out their regional services. With commercial sensitivities around data protection also keenly felt by many e-commerce providers, Singapore's more robust cybersecurity landscape offers companies more reassurance than other parts of South East Asia. Henry Low, director of Amazon Prime's Singapore operations, has described the city-state's appeal: "Singapore consumers are busy; they love convenience and love the idea of having a range of products… This matches [Amazon's] proposition exactly."

Indeed all the signs suggest that investment in Singapore is a strategic move. Within the first few days of the launch of its 2-hour Prime Now delivery service in Singapore, the Prime Now App was downloaded over 11,000 times and Amazon was so overwhelmed by orders that it was forced to hire Uber drivers to help fulfil its deliveries.

Watch this Space

If the stats are anything to go by, the future of the e-commerce market in Singapore and the wider South East Asian region looks bright. Growing numbers of e-commerce providers entering the market can only be good news for customers as this will inevitably encourage fiercer competition and enhance consumer choice. What remains to be seen is how the battle for the Asian e-commerce market will affect the hundreds of Asian start-ups also trying to break into this space. Will they, like Lazada, be able to ride on the waves of the e-commerce movement or will they be forced to consolidate and/or be subsumed by larger regional players?

Time will tell, but for now retail-loving Singaporeans are enjoying the benefits of Amazon's rapid delivery service. Amazon's ever-increasing dominance continues; although it's early days, all the signs suggest that the company's investment looks set to pay off. With this in mind, it's likely to be just a matter of time before other big players follow suit. Watch this space.