Will Southeast Asia be the world’s next e-commerce hub?

Affifah Kassim, a 26-year-old entrepreneur based in Kuala Lumpur, Malaysia, often browses TikTok for fashion inspiration. “From Sofia Richie’s viral wedding, the old money aesthetic has become the ‘It’ trend that influences my shopping,” she tells Jing Daily. “When the video blew up, tweed jackets, pearl necklaces, and simple and elegant materials, such as silk or satin, became must-buy items,” she adds. Kassim is one of the millions of Southeast Asian consumers that TikTok is hoping to target through its latest endeavor. Last month, the short-video platform announced plans to invest billions of dollars in Southeast Asia over the next three to five years, with the goal of quadrupling its global e-commerce business to as much as 20 billion in annual merchandise sales. The increasing focus on the region makes sense for Gen Z’s favorite app, considering its demographics — the region boasts roughly 630 million people, half of which are under the age of 30. Plus, Southeast Asia generates more than 325 million visitors to the app every month. As global companies turn their attention to this diverse market, here’s what they should know about its e-commerce landscape and how to court its digital shoppers. Burgeoning pool of digital consumers Unlike markets such as the US, where population growth is at a historic low — or in China’s case, declining — Southeast Asia’s labor pool is expanding fast. In fact, the region’s working age population (ages 15 to 64) is set to grow by 23 million people by 2030, according to Bain & Co. and Meta’s 2022 SYNC Southeast Asia report. At the same time, household incomes are expected to rise, with 51 million new high and upper-middle class households to emerge by 2030, the report forecasts. This combination of a burgeoning working population and higher household incomes will lead to an uptick in consumption. Southeast Asia will add about 140 million new consumers by 2030, representing 16 percent of the world’s consumers, “many of whom will make their first online purchase or buy their first luxury product,” states a World Economic Forum report on the Association of Southeast Asian Nations (ASEAN), an intergovernmental organization that comprises 10 member states. The number of digital consumers is projected to hit 402 million by 2027, up from an estimated 370 million in 2022, forecasts Bain & Co, with Indonesia leading growth, followed by the Philippines, Vietnam and Thailand. The region’s rapid e-commerce development has been likened to China’s. “Given the current trajectory, with e-commerce as a percentage of total sales and overall e-commerce sales surging, Southeast Asia may well be poised to become the 'next China' in terms of e-commerce growth potential,” says Jacob Cooke, co-founder and CEO at WPIC Marketing + Technologies. "Southeast Asia may well be poised to become the 'next China' in terms of e-commerce growth potential." “Although Southeast Asia consists of several distinct markets without the same geographic cohesion and language uniformity as China, Lazada and Shopee have made it convenient for merchants to sell into multiple markets via cross-border e-commerce from the same platform,” he adds. Short videos, KOLs drive discovery journey Given Southeast Asia’s robust growth potential, how can brands build relationships with local audiences? According to Bain’s Southeast Asia study, which surveyed 16,000 people across six countries, 60 percent of digital consumers do not know what they want to purchase when shopping online. In other words, they largely discover new products while they are browsing, particularly for non-essential categories like clothing and consumer electronics. Because of this, social media platforms are key in the Southeast Asian consumer’s discovery journey. Social media videos are the fastest-growing source for online discovery. Meanwhile, online word of mouth is the top-ranked means of educating consumers about products (in their evaluation journey), followed by social media ads and posts by influencers, notes the aforementioned report. When it comes to influencers, K-pop idols have a significant impact on boosting brand awareness in the market, says Sukonthotok Chinchote, a senior account manager at brand communications consultancy Vero in Thailand. “Consumers in Thailand often look up to K-pop idols as trendsetters and fashion icons, and their endorsement of luxury brands can create a strong aspirational effect,” says Sukonthotok. “Lisa being a global ambassador for Celine is a notable example. As a member of one of the most popular K-pop groups worldwide, her endorsement of Celine has led to a surge in the brand's popularity in Southeast Asia, especially in Thailand where Lisa hails from.” On a recent trip to Ayutthaya, Thailand, K-pop star Lisa accessorized her vacation look with a black Celine Ava Triomphe shoulder bag. KOCs, price points weigh heavily on purchasing decisions That said, word of mouth plays a bigger role in influencing the buying decisions of Southeast Asians. “There’s an increasing trend of KOCs (key opinion consumers) who can share more convincing product reviews. Having a big KOL or celebrity to endorse a product can work to drive brand awareness, but to influence the purchase decision, brands should consider having a mix of KOL and KOCs,” says Tran Kim Hoang Yen, a PR account manager at Vero. Malaysia-based TikToker @flareywings is known for sharing beauty product reviews with her 33.4k followers. Arguably though, price is the most important factor determining which products consumers purchase and which platforms they purchase from. As Bain points out, Southeast Asian consumers are value conscious and willing to switch brands to obtain better value. “Countries in SEA have a significant portion of the population that falls within middle-income brackets. This demographic tends to prioritize affordability and better value due to budget constraints and the desire to maximize their purchasing power. Bargain-hunting and comparing prices are common practices,” Sukonthotok says. Turning social media content into conversion For global players looking to sell in Southeast Asia, tailoring their e-commerce strategies to the nuances of the market is crucial. “The current customer journey is not linear; it’s messy and will become even messier,” says Do Quang, vice president of integrated marketing and communications consulting at Vero Vietnam. “Therefore, brands need to be prepared for conversional opportunities wherever they approach consumers.” “The current customer journey is not linear; it’s messy and will become even messier. Therefore, brands need to be prepared for conversional opportunities wherever they approach consumers." That is what TikTok has done by leveraging its built-in social media presence. In 2022, TikTok Shop facilitated 4.4 billion worth of transactions across Southeast Asia, more than four times what it made in 2021. The GMV of TikTok’s overall international cross-border business grew 136 percent last year, with more than 30,000 influencers and 60,000 stores broadcasting over 2.7 million hours of commercial content and generating 1.3 billion user interactions, states the company’s year-end report. Beyond selling, nurturing conversations with consumers is just as important, Do adds. “For social media content and influencer content, we have found that click-through rates (CTR) and engagement rates are higher when we start by addressing consumer pain points, or providing information they want to know, rather than immediately promoting the product,” says Do. “As most consumers don't come to social media intentionally seeking information about a brand, it's essential to address their pain points or curiosity first, and then plug the products into relevant contexts for promotion.” Although offline shops and traditional e-commerce sites like Shopee are prevalent, social media platforms are gaining momentum as shopping channels. But simply having an online presence isn’t going to cut it in this increasingly competitive market. To connect with potential customers, businesses need a clear understanding of their target audience within the region — remembering that priorities and preferences are diverse across countries — and create engaging content that ultimately leads to clicks, conversions, and cash.

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Will Southeast Asia be the world’s next e-commerce hub?