Rise of ASEAN's digital economy

The rise of ASEAN’s digital economy has a number of key characteristics –a growing population of internet and mobile phone users, region-wide digital initiatives to increase connectivity between markets and the rapid acceleration of digitalisation across practically all aspects of the economy. Together, these factors signal the business potential linked to the digital integration of the region, which is estimated to generate an additional USD1 trillion in GDP by 2025. ¹

Below is a summary of insights from the rise of ASEAN’s digital economy session at our recent webinar, ‘Connecting EU and UK Businesses to Growth Opportunities in ASEAN’. The panel featured guest speakers Anthony Fung, CEO and Managing Director, Zalora Indonesia and Hong Kong; Leontinus A. Edison, Co-Founder and Vice Chairman, Tokopedia; and Stephen Hogan, Vice President, Regional Treasury Asia-Pacific, Corporate Finance, Deutsche Post DHL Group. It was moderated by Francois de Maricourt, President Director and CEO, HSBC Indonesia.

Although a trend that started before COVID-19, the pandemic has accelerated end-user engagement with digital services in ASEAN – by as much as 50% depending on the market. ² E-commerce has grown significantly, as well as e-education, e-banking, e-health and e-government services.

The dynamism around digital services is being driven in large part by a rising number of internet users in the region; in 2020 alone, there were 40 million new users, reinforcing the expectation that the internet sector in ASEAN will grow from the current USD100 billion in GMV to USD300 billion by 2025.³

Highlighting the impact on e-commerce, Leontinus A. Edison explained how rapid this transition has been in Indonesia: "Tokopedia took a decade to grow to six million merchants, but in 2020 alone, that merchant count grew to 11 million."

For international businesses interested in ASEAN, it is necessary to grasp how widespread the trend of digitalisation has become around the region. Initiatives including ‘Go Digital ASEAN: Digital skills to address the economic impact of COVID-19’ and the ‘ASEAN Digital Integration Framework’ have been designed to enable all businesses – including micro, small and medium enterprises (MSMEs), which account for at least 88% of all establishments in the region – to participate in the digital economy and enjoy its benefits.⁴

The adoption of digital payment solutions has been key in this regard by allowing merchants to reach previously untapped customer groups and engage more easily in cross border e-commerce. Digital wallets are also enabling new consumer groups to join the market.

Anthony Fung put these changes into perspective, explaining that “Back in 2012, most people didn’t have mobile wallets and 70% of Zalora’s transactions were done through desktop. But looking at 2021, mobile apps now make up 90% of the transactions.”

Another important element of e-commerce in ASEAN is personalisation. Research has found that over nine in ten consumers are more likely to shop with brands who provide relevant offers and recommendations, while over 80% are willing to share their data to receive such experiences.⁵

On platforms such as Zalora, data is being used to ensure a given customer is both aware of what products others are purchasing – social proof being an important motivator for ASEAN buyers – and receiving personalised products recommendations based on their preferences.

A key consequence of ASEAN’s increasingly connected consumer base is the need for cross-border services to support the buying and selling of goods across the region. Businesses have responded by accelerating their digital transformations to adapt to the fast-changing consumption landscape.

Big data, AI and other advanced technologies are playing an important role in this process, helping businesses improve their efficiency and make better business decisions. They are also enabling businesses of all sizes in ASEAN to find their place in the global value chain and access new markets.⁶

In the logistics sector, robotics and predictive analytics have ensured that supply chains are able to accommodate the rise in demand from e-commerce. Stephen Hogan’s advice was clear: “Don’t try and do everything. Partnering with local providers and local suppliers will allow you to focus on your core international competencies.”

Big data and AI are being applied to wide range of uses, including price comparisons, supply demand predictions and inventory management. As the region becomes increasingly connected and the number of internet users continues to rise, using big data effectively will be an imperative for businesses to stay competitive.

As businesses look for opportunities to thrive in ASEAN’s burgeoning digital economy, foreign investment is both welcomed and needed. Governments across ASEAN are supporting a digitalisation agenda that features important incentives for EU and UK investors seeking in-roads into their markets.

For example, the Indonesia-EU Comprehensive Economic Partnership (IEU-CEPA), focused on increasing trade and investment between the two economies, is anticipated to be Indonesia’s largest bilateral trade agreement to date once negotiations conclude.⁷ Similarly, Indonesia and the UK recently announced a new Joint Economic and Trade Committee (JETCO) aimed at strengthening their greater economic ties.⁸

Pair these developments with the double-digit growth of Indonesia’s digital economy,⁹ having originated 70% (or USD5.47 billion) of all digital investments in Southeast Asia in 2020-2021,¹⁰ and the market is an important destination for international businesses interested in the region.

Vietnam, another rapidly growing digital economy, is developing a 2030 FDI mobilisation strategy focused on the technology and related sectors.¹¹ The strategy is envisioned to complement existing Industry 4.0-related initiatives, such as the building of an innovation centre in Hanoi to attract foreign and domestic investment.

Thailand is encouraging investment for the building of data centres and cloud computing capabilities to support the digital transformation of businesses in the country. The government is also providing tax incentives and streamlined entry for skilled personnel in the technology sector through its Smart Visa program.¹²

These are just some of the many opportunities that the rise of ASEAN’s digital economy presents. A range of sectors, from logistics and retail to manufacturing, will all require significant investment over the coming years. For more information on these opportunities, please contact your relationship manager.

1 https://asean.org/storage/ASEAN-Digital-Masterplan-2025.pdf, p. 26

2 https://asean.org/storage/ASEAN-Digital-Masterplan-2025.pdf, p. 10

3 https://www.bain.com/insights/e-conomy-sea-2020/

4 https://asean.org/storage/2020/06/Factsheet-Go-Digital-ASEAN-as-of-19-June-2020_final.pdf

5 https://www.accenture.com/_acnmedia/PDF-77/Accenture-Pulse-Survey.pdf, pp. 3-4

6 https://asean.org/storage/2017/09/Ch.2_The-Future-of-Technology-Opportunities-for-ASEAN-in-Digital-Economy.pdf, p. 37

7 https://www.thejakartapost.com/news/2020/07/15/indonesia-seeks-to-conclude-trade-negotiation-with-eu-next-year-to-bolster-recovery.html

8 https://www.aseanbriefing.com/news/uk-and-indonesia-promote-new-economic-ties/

9 https://www.bain.com/globalassets/noindex/2020/e_conomy_sea_2020_report.pdf

10 https://www.bizasean.com/buzz-southeast-asia-is-the-hot-digital-investment-destination/

11 https://www.economica.vn/Content/files/PUBL%20%26%20REP/30%20Year%20of%20FDI%20in%20Vietnam.pdf

12 https://smart-visa.boi.go.th/smart/