Addicted to online shopping? Insights into Southeast Asia’s booming Digital Economy and Why Businesses want you to Keep Scrolling
Google, Temasek, and Bain & Company recently published a report detailing Southeast Asia’s (SEA) increasingly lucrative digital economy. E-commerce, consumption of online media, usage of AI and financial services are a few examples of sectors within the digital economy.
The region’s young and growing population, with high rates of digital literacy and AI enthusiasm, means a large and receptive market for the development of the digital economy.
Consumer behaviour in online shopping platforms continues to evolve rapidly as many people are shopping nearly 8 times more than in the last decade. What is interesting to note is that consumers are spending less each time due to the intensity of the competition within the e-commerce sector.
E-commerce refers to online marketplaces, i.e. groceries, retail, direct-to-consumer shops, and even video-commerce (use of video content to sell and promote videos online).
Despite the competition, businesses in the sector have been making significant profits by increasing take rates (a percentage of a transaction’s profits that a business keeps) due to keeping costs lower by eliminating the need for brick-and-mortar shops. Running more disciplined promotional and marketing campaigns and introducing new value-added services also contributed heavily to the rise in profits.
As the digital economy landscape matures, more firms turn toward supplementary revenue streams, such as investing in ad monetisation efforts and implementing price hikes by offering exclusive content on live streams and videos.
This is because videos are becoming deeply ingrained into the consumer shopping experience. From product discovery to research to the final purchase, over 40% of people in the research reported that they rely on videos to help them decide.
To take advantage of this, firms have implemented interactive live streams with limited-time deals with seamless digital transactions and increased the sponsorships of creator-led video content with affiliate links.
These changes in the digital economy landscape serve to attract even more international businesses in the region. Most SEA governments are actively taking into account the profitability of the digital economy into developing their national strategies. More are funding initiatives and creating a dynamic startup system to create favourable conditions for both domestic and international firms to plant their roots in the region.
This opens opportunities for cross-border collaborations by strengthening bilateral and multilateral relations. The Thai government has even launched a 4-year strategy to attract global technology leaders such as tax incentives, a streamlined application process, easier licence approvals encouraging international companies to locate their regional headquarters in Thailand.
The report mentions that investors are confident in SEA’s long-term potential, as nearly 50% of investments are directed towards incipient sectors of the digital economy, which may mean exciting opportunities for the growing Southeast Asian workforce.
However, putting aside growing profits for businesses and job creation for the economy, what does this all mean for consumers and local businesses in the region?
The increased integration of shopping with digital consumption has been known to create adverse effects. It fosters a hyper-consumerist culture and drives impulsive purchases, which can lead people into taking more debt to fund their shopping habits. This is particularly true in SEA, where they are known for their collectivist culture and needing to keep up with ‘face’.
This growing trend in fusing online entertainment with digital shopping means that more consumers have normalised the growing culture of ads and passive media consumption in their daily life.
Furthermore, an influx of international businesses is a double-edged sword. After all, local SMEs (small and medium enterprises) would have to fight for market share retention in order to remain competitive, and this may mean more quality products and lower prices in the market.
But, overseas firms would have the resources to drive out local players, monopolise the industry by initially offering lower prices to entice customers, then push up prices. Price hikes could create resentment for locals, and also, without the protection of the government, local SMEs in the region are more likely to fail.
However, this is all still very exciting for Southeast Asia’s future. The economic benefits that the region may reap would certainly outweigh the tradeoffs. SEA governments need only to put rules and regulations in place as they navigate an increasingly complex digital landscape that puts profits ahead of consumers’ well-being.
Bibliography
https://www.bain.com/about/media-center/press-releases/sea/e-conomy-sea-2024/
https://services.google.com/fh/files/misc/e_conomy_sea_2024_report.pdf