SEA region undeterred by global headwinds, says study

While the world continues to face uncertainty in growth, Southeast Asia seems to be a relatively stable playing field, said a recent report by Bain & Company and Meta. By the end of 2023, Southeast Asia is expected to maintain its projected growth at 5.1% compared with other markets such as the US (1.3%), the EU (2.1%), and China (4.7%). The annual report, titled SYNC Southeast Asia which looks at the digital economy and the future of e-commerce in the region said this comes on the back of Southeast Asia seeing more foreign direct investment (FDI) being channelled into the region.

FDI accounted for a greater proportion of total investment in 2021, at 17% versus 15% in 2015 and just 9% in 2009.

This steady rise in foreign investment is a testament to investors’ confidence in Southeast Asia and is fueling the growth of new technologies such as fintech. 

Moreover, the digital consumer population in Southeast Asia is still growing steadily and is forecast to reach 370 million by end-2022, accounting for 82% of the total population of 15-year-olds and above. This figure is projected to rise further to 402 million by 2027, accounting for 88% by the end of the forecast period. The region’s working population, which is defined as people within the age range of 15 to 64 years old, is set to grow by 23 million people by 2030.5 Indonesia is set to lead this trend, with its working population forecast to increase by 13 million. This is followed by the Philippines (9 million), and Malaysia and Vietnam (2 million each).

This growing labour pool presents an opportunity for businesses and companies to tap into, and is in contrast to other markets outside the region such as China, whose working population is expected to decline by 27 million by 2030. Alongside this growth in population, Southeast Asia’s upper-middle class is also expected to grow, with 51 million new high and upper-middle class households forecast to emerge in the region.

Specifically, high-income households are projected to more than triple from 12 million in 2021 to 41 million in 2030, and upper-middle income households are expected to rise from 49 million to 71 million within the same period. This positive trend will bode well for consumer purchasing power in the region.

The study found that Southeast Asia sees a higher penetration of e-Wallets, cryptocurrency and non-fungible tokens compared to most other markets such as China, the US, the EU and Japan.

Almost 70% in Southeast Asia have also used at least one metaverse-related tech in the last year. The experience of metaverse-related technology such as augmented reality, virtual reality, virtual worlds, cryptocurrencies and NFTs will evolve from 2D apps currently, to immersive virtual 3D experiences in the next two to three years. The study forecasts virtual reality for business such as training and development as well as virtual working and the holding of social events in virtual worlds to be available in the region in the next 10-15 years.

“This openness of consumers to experimentation and engagement is also driving new behaviours with 63% of respondents having used business messaging in the past year,” said Benjamin Joe, VP, Southeast Asia and emerging markets at Meta.

“As consumers seek more engagement, we’re also seeing the rise of the creator economy in the region. Creators are emerging as brands and retail channels and it is important that businesses find effective ways of marketing through this channel," he added.

However, while online purchase continues to rise, consumer satisfaction with online experience dips despite growing use of eCommerce. Post pandemic, the study found that Southeast Asian consumers are at a new stage of evolution. The consumer appetite for integrated shopping experiences that effectively blend online and offline services continues to drive digital commerce in the region. For Southeast Asia as a whole, the average NPS score this year stood at 35%, down from 53% last year—though the score is still higher than 2020’s score of 23%. 

On a country-by-country breakdown, every market has seen a decline in its highest NPS—notably in Indonesia (from 74% in 2021 to 50% in 2022), Vietnam (from 65% to 41%), and the Philippines (from 64% to 43%). 

A possible contributing factor for this decline could be that as pandemic-related movement restrictions are lifted and consumers have more options to do their shopping, online platforms are facing more competition from offline. Another possibility is that consumers have shifted their criteria for what satisfies them while shopping online.

Variety, price and availability are the top three factors that can both improve and diminish customer satisfaction this year, and these have moved up in importance from 2021.

Online platforms may face challenges to fulfill these factors possibly because of supply chain disruptions and inflationary pressures. Resolving supply chain challenges and building operational resiliency, including redefining the overall value proposition of products, can help to boost or improve customer satisfaction, leading to a higher NPS.

"This new evolution of digital consumers will undoubtedly be the driving force for Southeast Asia's eCommerce gross merchandise value growth" said Praneeth Yendamuri, partner at Bain & Company.

"With longer term favorable demographic profile, and as Southeast Asia leads in the adoption of future technologies, businesses that focus on staying the course in the region, build a truly integrated channel strategy and necessary capabilities, make their supply chains resilient, and leverage new tools and technologies to engage with digital consumers will emerge as winners," Yendamuri said.

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