Amazon is on its way to Southeast Asia, but will it succeed?

Photo: By Nick Youngson/CC BY-SA 3.0 NY

Amazon is coming to Southeast Asia. The company will launch in Singapore first, but exactly when, and what services it will offer remains to be seen.

By John Pennington

Amazon is preparing to battle for a slice of Singapore’s e-commerce market and launch local services to consumers in Southeast Asia.

The company will arrive in the region soon. Reports last year predicted a launch in the first quarter of 2017, but Amazon has issued no official confirmation. Discussions with third-party logistics providers and warehouse companies in Australia – where a similar launch is expected at the same time – took months, which may explain the lack of a launch date or further information.

Reports of their arrival came at a time when some established e-commerce services were struggling. Alibaba rescued Lazada with a US$1 billion investment last year while Rakuten closed down e-commerce sites in Indonesia, Malaysia and Singapore. Zalora sold its unprofitable businesses in Thailand and Vietnam.

Amazon’s move into Southeast Asia will follow other major expansions

The move into Southeast Asia follows a US$3 billion investment in India and the launch of Amazon Prime in China. For Amazon, Singapore as a starting point makes sense. Its size makes it logistically advantageous and as Techcrunch reports, “the level of customer spend and consumer culture is more closely aligned with Western markets”. Singapore’s high internet penetration rate of 82% – as per World Bank data from 2014 – is another obvious plus.

Projected estimates put the worth of the e-commerce market in Southeast Asia as high as US$5.4 billion by 2025, making the region an attractive proposition for Amazon. Initial inroads have already been made. Viewers in Singapore can enjoy Amazon Prime videos, as one of 200 countries in which Amazon launched the service to compete with Netflix. The retail giant is now reportedly setting its sights on launching its Prime delivery service and its Amazon Fresh grocery service in Singapore.

Even Amazon will have some big hurdles to overcome to conquer Southeast Asia

Further expansion into an area that boasts 600 million consumers (although one where just an estimated 5% of all purchases are carried out online) will present massive challenges, even for an operation the size of Amazon. A 2016 Bain & Company report suggested the e-commerce market in Southeast Asia is, “rapidly approaching a tipping point”. However, the report added that although online retail penetration may currently be small, consumers are “highly influenced” by digital content and this drives purchases.

Nevertheless, there is limited developer capacity and leadership in the region, no healthy mergers and acquisition system and many people have no access to banking services. Delivery options are limited while fraud and cyber-attacks are prevalent. The infrastructure is poor and the delivery industry’s logistics network is inefficient.

It is nowhere near ready for the automated, electronic tracking and signing systems that guarantee quick and reliable delivery times to consumers in the West. That is partly down to the geography of Southeast Asia, with its thousands of islands but also down to politics and culture. Each country in the region has its own import rules, for example, and no one strategy will fit for all of them.

Amazon vs Alibaba – the latest round

Amazon’s launch in Singapore and Southeast Asia will see them go head to head with Alibaba. Alibaba accounts for 80% of China’s online sales and Amazon 60% of US’s online sales. The two companies competing in the same market is nothing new.

China-based Alibaba now offers services in the US, Amazon is taking on Alibaba in China and both are competing in India. Alibaba rolled out cloud computing services to compete with Amazon Web Services. China is one of the countries in which Amazon Prime is available.

Alibaba’s Lazada is the market leader in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Lazada also acquired online grocery retailer Redmart, who reportedly fended off Amazon’s interest beforehand, making it clear that Amazon will be playing catch-up from the moment they launch.

For any e-commerce company to succeed, they need to be omnipresent

Amazon may well crack the Southeast Asian market, and to do so, it requires an offline as well as an online presence, in addition to meeting local as well as regional and national needs. There are few companies with the infrastructure and resources to manage this but Amazon has already made this model work elsewhere in the world.

As George Pepes, vertical solutions and marketing lead retail at Zebra Technologies, explained, “Besides the opening of physical stores to sell its books, Amazon also has plans to open grocery stores that provide a range of services within the confines of brick-and-mortar. Singapore has recently also experienced a spate of flagship store openings – from the likes of American lingerie brand Victoria’s Secret to Japanese casual wear brand Uniqlo.”

However, despite its billions of dollars, its status, and its resources, Southeast Asia may still prove to be Amazon’s sternest test yet.

About the Author

John Pennington
John Pennington is an English freelance writer and a self-published author. He graduated from the University of Warwick with a bachelor’s degree in French and History in 2006. After spending time as a sports journalist, he now writes about politics, history and social affairs.