Singapore's pole position for e-commerce to be overtaken by Indonesia in 2018

Southeast Asia will be one of the world's fastest-growing markets for e-commerce revenues in 2014, according to new research from Frost & Sullivan. Total revenues from B2C e-commerce in the six largest Southeast Asian countries (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) reached US$7 billion in 2013 and will grow at a CAGR of 37.6% to reach US$34.5 billion by 2018. 

Singapore was the largest e-commerce market in Southeast Asia in 2013, valued at US$1.7 billion; but by 2018, growth in emerging economies will overtake the island. Frost says Indonesia will be the largest Southeast Asian e-commerce market by then, generating over 40% of regional revenues.

Marc Einstein, Industry Principal, ICT Practice, Asia Pacific at Frost & Sullivan, named several growth drivers for the sector, including economic growth, Internet adoption and foreign investment. 

"Per capita income is rising in Southeast Asia and more consumers are using the Internet through PCs, smartphones and tablets. There is no dominant player in the regional market but foreign companies such as Amazon, Rakuten and Alibaba are all expanding in the region and there are several strong domestic companies, hence the region is very competitive despite its infancy," he said.

Einstein also said that the rapid-growth in the Chinese e-commerce market is generating enthusiasm for the sector. "In 2013 e-commerce revenue in China represented 7.8% of all retail sales, higher than in the US, Europe and Japan," he added. "Given the rapid adoption of e-commerce there, we believe that e-commerce will grow rapidly in Southeast Asia countries where e-commerce still represents less than 2% of all retail sales."

The e-commerce market in Southeast Asia is not without its challenges. Credit card ownership reach is less than 10% of the population in some Southeast Asian markets and upwards of 50% of the population in some countries lack bank accounts, making payment a major issue. 

Internet fraud is also very high is some countries such as Indonesia, which further discourages e-commerce adoption. Nonetheless, Einstein thinks that the market will continue to expand and eventually consolidate. 

"In Southeast Asia, there is no one company with the number one position in two markets, and there is no player with the market power of companies like Amazon, Rakuten or Alibaba. Therefore the region is ripe for M&A activity and we expect to see market developments in the near future," he predicted.