1. E-Commerce in ASEAN
NITIN MITTAL

2. 2
Agenda
Scope & Definitions
Overview
Landscape
Growth in Middle Class
Market Size and Forecast
Value Chain
Platform Architecture
Framework for Competitive Analysis
Regulations & Impact of Customs
Similarities & Differences Among ASEAN Countries
Appendix

3. 3
Scope
E-Commerce is defined as sale of multi-brand goods online to
consumers via PC or mobile and excludes services like travel,
insurance etc.

4. 4
E-Commerce Definitions
B2C
Store – storefront and fulfilment
Marketplace – storefront for SMEs/Merchants
Daily Deals/Private Sales
C2C
Storefront for individuals instead of SMEs/Merchants
Classifieds

5. 5
5 Key Factors Fuel E-Commerce in ASEAN
Rise of Middle Class
Greater mobile/Internet penetration
More supply of new e-Commerce players
Increasing logistic options
Alternative Payment Methods
Source: Singpost, Analysis

6. 6
Key Challenges Facing E-Commerce in ASEAN
Lack of robust ecosystem
Management of Customer expectations and Perception
High customer service needs for small purchases
Trust in online payments
Securing supply chain
Cross border commerce issues
Inconsistent duties
Logistics, taxes1, customs clearance, payment methods
Corruption
Lack of reliable, low cost logistics infrastructure
Local contracts, deals, localization for each ASEAN country
Fulfilment infrastructure not built to serve the scale of e-commerce scale
Foreign Ownership Regulations
Taxes in ASEAN can include import tax, excise tax, interior tax, VAT and other/ special duty; 90% tarriffs eliminated within ASEAN and between ASEAN and China but not the Western countries
Source: Singpost, Analysis

7. 7
ASEAN E-Commerce Landscape
Traffic in 000’s
Source: UBS

8. 8
ASEAN Shopping Website Traffic Comparison
Monthly hits in Millions
With ASEAN population 2X that of US, the monthly hits to shopping websites are < 10%
of those in the US, although the traditional hits are even lower at about 1% of those in
the US

9. 9
Rise of Middle Class1
Country Size of
Middle Class
(2004/5, M)
Middle Class
as % of
Population
Annual
Spend ($B)
Percentage
point
change in
middle class
as % of
population
Change in
Population
(M)
Change in
yearly
Expenditure
s ($M)
Thailand 56 86% 117 +17.6% +17 +55
Malaysia 22 89% 52 +5.6% +7 +22
Philippine
s
48 55% 80 +12% +24 +48
Vietnam 44 52% 63 +57% +49 +77
Indonesia 103 47% 67 +46% +114 +168
Source: ADB 1Middle Class = Daily Consumption Expenditure of US$ 2- 20
1990 - 2008

10. 10
Greater Internet Penetration: ASEAN (2011 – 16)
Source: Euromonitor

11. 11
Increasing supply of E-Commerce & Logistics Players
Sourcing
Company
Retail
Platform
(Marketing +
Distribution)
Logistics
(Warehouse
+ Delivery)
Consumer
Sourcing (33%)
Marketing (30%)
Distribution (20%)
Logistics (17%)
Manu-
facturer
Margin
$10 +$33 +$50 +$17 $110
Yamato
Emerging end-to-end e-
commerce platform players like
Acommerce, Velasaia, Singpost
Source: Interviews; Numbers will vary depending category of product

12. 12
E-Commerce Market Size (2013) & Potential
ASEAN E-Commerce at 0.2% of Retail Sales; China’s is 40X @ 8%; ASEAN like China in 2006-08
Source: WSJ; *E-commerce at 5% of retail

13. 13
E-Commerce Value Chain
Sellers Platform Warehouse Delivery Consumer
Owned/
3rd Party
(local, intl.)
B2C
Store/
Marketplace/
Hybrid
Drivers
Pricing
Inventory Mgmt.
CMS
Payment Options/
Currency
Marketing
Merchant Tools
Language
Customer Support
Owned/
3rd Party
(cost driver)
Model
Hub n Spoke
Overseas/
Local
Model
Normal Post
Courier
Self-pick up
Owned/
3rd Party
(cost driver) Overseas/
Local
Reverse
Logistics
(Driven by Size
Dependence/
Payment method)
Logistics
Warehousing: custom packaging, storage, picking & packing, returns, and next-day delivery;
Source: Interviews

14. 14
Platform Architecture
Product
Metadata
Descriptio
ns,
Pictures,
Reviews,
Ratings
Forecasting
tools for
better gross
margins;
Merchant
tools for
listing,
marketing,
pricing,
image/video
uploading ;
Engines:
Recommend
ation,
comparison
Routing
Algorithms
Online/
Offline
Payments
COD
Bank
Transfer
Credit/Debit
Cards
Prepaid Card
Features
Wishlist
Recommend
ations
Shipping
methods
Promotions
Order history
Online/
Mobile/
Hybrid
App
Web
Social Media
Forums
Classifieds
Messenger
groups
Omni
Channel1
1in-store pick-up/returns, store locator, online-offline availability, ship to store
CMS
Inventory/
Pricing/Tools/
Engines
Order Mgmt. Payment Shopping Cart Storefront
Source: Interviews + Analysis

15. 15
Framework for Competitive Analysis
Sourcing
Product
Assortment
Pricing
Logistics
Customer Service
Technology
 Track record with brands to educate and convince them go online
 Network with brands vs agents affects access to product range
 Exclusive products
 Products unavailable in local stores
 Variety
 Pricing in price sensitive markets
 Proprietary pricing data built over time
 Owned vs third party; Warehous ing & fulfilment capabilities for large number of fast
moving orders daily
 First/Last mile delivery optimization
 Same/Next day delivery capability
 Delivery time
 Return policies
 Payment options
 Delivery routing algorithms
 Recommendation engines
 Integration to supplier networks
Source: Interviews + Analysis

16. 16
Foreign Ownership Regulations for E-Commerce
Country Feasibility Method Remarks
Indonesia Not allowed but
workarounds
- Nominee
structure
- Separate out
pure online from
offline (logisitics)
Look at Alibaba and
Baidu incorporation
in Indonesia; JV
structures have not
worked well
(Rakuten, Ebay)
Vietnam Not allowed but
workarounds
- Nominee structure Similar to Indonesia
Thailand Allowed Board Of
Investment (BOI)
Philippines Allowed
Malaysia
Source: Interviews + Analysis

17. 17
Status of E-commerce law in ASEAN
Legislation is 2-5 years old in most countries
Source: A.T. Kearney

18. 18
Impact of Customs in ASEAN
Source: A.T. Kearney, Singpost
If purchased
from the US,
customs value
$90

19. 19
Status of Transport Networks in ASEAN
SG, MY & TH offer the best networks
Source: A.T. Kearney

20. 20
Country Differences
Country Logistics Spend Per
Transaction (US$)
Social Commerce Online Shoppers
using online
payments
Banked
Indonesia Lazada built own;
no nationwide
provider
$20 Instagram/Facebook
/Twitter
4% 20%
Vietnam Nationwide provider $20 2% 21%
Thailand Warehousing
strongest after SG
$50 Facebook/Line 11% 79%
Philippines Nation wide
provider bu
Smallest 3% 27%
Malaysia $60 5% 66%
Singapore Strongest in
warehousing; has 20
of top 25 third party
logistic companies
$60 50% 98%
Low banked levels and lack of
trust in online payments make
cash on delivery the most used
payment method in ASEAN
Source: A.T. Kearney + Interviews

21. 21
Country Similarities
 Large percentage of e-commerce transactions from outside the capital cities
 Thailand – 40% (Line)
 Indonesia – 70% (Lazada)
 Referrals from social networks like Facebook (Thailand) and Instagram (Indonesia)
 No established large scale offline chains like Walmart/BestBuy etc.
 Cash on Delivery
Source: Acommerce + Interviews
LINE flash sales by region, Thailand

22. 22
Appendix

23. 23
E-Commerce Market Size – ASEAN $7B, 2013
(much higher compared to WSJ report, which looks more reasonable considering regional
Lazada/Zalora GMV in 2013 of EUR 150M and assuming 20% SEA e-commerce market share)
Source: A.T. Kearney

24. 24
E-Commerce in ASEAN relative to other regions shows a huge
opportunity to grow - 5X over the next 5 years to $35B, < 50% of the
overall potential of $67-89B
Source: A.T. Kearney

25. 25
E-Commerce Potential in ASEAN
Source: A.T. Kearney

26. 26
INDONESIA

27. 27
Indonesia Middle Class
Source: ADB

28. 28
Indonesia Online Shoppers
Source: eMarketer

29. 29
Preferred E-Commerce Channels in Indonesia
Source: Techinasia

30. 30
Preferred E-Commerce Payment Methods (2013)
Source: Vela Asia

31. 31
Innovative Indonesian Payment Methods (2013)
Source: Vela Asia

32. 32
Indonesia Top Shopping Websites by Monthly Traffic (March 2014)
Note: C2C included

33. 33
Popular Categories (2013)
Source: Statista

34. 34
Timeline
Source: UBS

35. 35
Philippines

36. 36
Philippines Middle Class
Source:ADB

37. 37
Philippines Top Shopping Websites, March 2014

38. 38
Timeline

39. 39
Thailand

40. 40
Thailand Top Shopping Websites by Traffic, March 2014

41. 41
Timeline
Source: UBS

42. 42
Example of US Import tax calculation in Thailand
Source: Singpost

43. 43
Malaysia

44. 44
Malaysia Top Shopping Websites, March 2014

45. 45
Timeline
Source: UBS

46. 46
Challenges in SME Adoption
Source: A.T. Kearney

47. 47
Vietnam

48. 48
Timeline
Source: UBS

49. 49
Financials

50. 50
E-Commerce Valuations
Source: UBS, June 2014

51. 51
Zalora Financials – H1 2014
Fashion category has higher margins – 30 – 50% (private labels)
Source: Rocket Internet Financials

52. 52
Lazada Financials – H1 2014
Electronics category has very low margins – 10% and so Lazada is beginning to diversify to
increase product categories
200% + Growth in
GMV, Orders &
Customers
Source: Rocket Internet Financials

53. 53
Listed Logistics Companies
Source: UBS, June 2014