Discover opportunities and challenges in Southeast Asia's eCommerce market, i.e., logistical and cultural barriers, payment methods, and customs laws.
As the Internet and mobile penetration in Southeast Asia (SEA) continue to grow, cross-border eCommerce has become increasingly popular. Consumers are now demanding international products more than ever before. This surge in cross-border eCommerce has brought both opportunities and challenges to the region. In this blog post, we will delve into these opportunities and challenges to provide you with a better understanding of the topic.
Challenges of Cross-border in Southeast Asia eCommerce Southeast Asia is a region that has great potential with a large potential market for businesses that wish to develop their business.
However, there are some challenges that companies must address to be successful in this area, such as logistics, payment methods, language barriers, and complex regulations.
1. Logistics Logistics has become one of the main issues in the region. Poorly developed transportation infrastructure in certain areas can result in longer shipping and delivery times, higher shipping costs, and increased risk of product damage during transit. Such challenges can negatively impact the customer experience, potentially resulting in lost sales and decreased customer loyalty.
Environmental sustainability is also starting to become a matter of concern in the company's logistics process. Logistics activity is one of the biggest contributors to gas emissions .
Therefore, it is imperative that companies adopt environmentally friendly practices and reduce their carbon footprint. However, environmentally friendly practices have a relatively high cost which can burden the company's finances.
Adidas closed their factories in Vietnam, which accounted for 28% of the company’s sourcing from July to September 2021 and a gradual re-opening of the global economy from the COVID-19 pandemic severely impacted their supply chain.
In order to mitigate these issues, Adidas moved their production to China and Indonesia, dispatched stock from other markets in Asia and utilised more air freight to deliver products to their customers. These caused them to experience £342m loss in sales in Q1 2022.
2. Payment methods Navigating different payment methods across countries presents a challenge for brands and businesses engaged in cross-border eCommerce. Credit card penetration in Southeast Asia is relatively low, resulting in consumers in countries like the Philippines, Indonesia, Thailand, and Vietnam preferring payment modes such as Cash on Delivery (COD), digital wallets, or bank transfers
For example, the popular digital wallet solutions in Indonesia are Dana and Doku 25% of the respondents
While this means businesses are required to adapt their payment options to cater to local preferences, it is no doubt time-consuming and expensive.
Currency should also be a concern for the company when it wants to expand into Southeast Asia. Unlike Europe, which has a central currency, Southeast Asia has as many currencies as the countries within it.
In choosing a payment service partner, make sure your company chooses a service that can accept various types of currencies so that the company will not be too affected by changes in currency values that can quickly affect margins.
3. Language and cultural barriers The diversity of languages and cultures across Southeast Asia poses a challenge for businesses seeking to effectively market their products and communicate with customers. To establish trust with international consumers, localisation is crucial regardless of the products offered.
However, even with localisation, it is important to double-check with local teams for cultural nuances to avoid misunderstandings and prevent customers from making mistakes when purchasing products. Failure to address these language and cultural barriers can result in lost sales and damage to a brand's reputation.
Coca-Cola and Pepsi committed famed cultural blunders in China. When Coca-Cola entered China, the Chinese characters on the product read “Bite the Wax Tadpole” or “a female horse stuffed with wax” while Pepsi launched the slogan, “Pepsi Brings You Back from the Grave”. After discovering this mistake, Coca-Cola later changed to “Happiness in the Mouth”
4. Regulatory barriers With different regulations and customs laws in place across Southeast Asia, cross-border eCommerce can be a complex and challenging landscape for businesses to navigate. Import/export restrictions, tax policies, and product safety requirements can vary significantly between countries, making compliance a crucial factor for success in this space.
For instance, Tokopedia may be the third most visited marketplace in SEA but it is limited to trading activities in Indonesia. Furthermore, Tokopedia is only available for selected product groups. For Lazada, cross-border selling is prohibited for foods and supplements.
Businesses must invest time and resources to understand these regulations to avoid potential legal issues and negative impacts on their reputation. Failure to comply with regulations can result in fines, legal actions, and even the suspension of business operations.
Despite the challenges highlighted above, cross-border eCommerce in Southeast Asia presents several opportunities for businesses.
Cross-Border eCommerce Opportunity in Southeast Asia Behind the challenges, the e-commerce market in Southeast Asia holds great opportunities that can make companies grow fast. Several factors influence this, including the potential number of customers, larger profit margins, product diversification, and potential for collaboration and partnerships.
1. Access to a larger customer base There is no denying that the southeast asian market is starting to become one of the biggest market. For starters, the region boasts a rapidly growing population and an expanding middle class with increasing purchasing power. The rising penetration of the Internet and mobile devices further fuels the demand for eCommerce, opening new markets for businesses, allowing them to reach a broader customer base, providing access to consumers outside their country of origin, and growing their revenue.
Based on the data released by Startup Ranking , Indonesia has 2,341 startups and is ranked 5th in the world and contains the highest number of Unicorns such as J&T Express and Bukalapak. With lower corporate tax than some of its counterparts in SEA and digital economy growth, this indicates Indonesia is one of the countries for brands to tap into for market expansion.
2. Higher profit margins Cross-border eCommerce allows businesses to diversify their revenue streams and tap into the enormous potential of Southeast Asia's eCommerce market. Businesses can purchase products from neighbouring countries with lower manufacturing costs and sell them in countries with higher retail prices, resulting in higher profit margins for businesses.
Since the mid-1990s, Nike has been outsourcing their manufacturing more than 100 suppliers and 96 factories there today. Businesses can also leverage their existing strengths and offer unique value propositions to Southeast Asian consumers.
3. Diversification of product range Another advantage of cross-border eCommerce is the access to a wider range of products, giving consumers in Southeast Asia access to goods that may not be available in their local markets. This helps create demand for new and innovative products and can be a significant driver for businesses that offer niche or specialised products. Delivering them seamlessly can result in increased customer satisfaction and loyalty. Customers appreciate having access to a broad range of products and a smooth shopping experience.
According to PWC, 76% of Singaporeans stressed that customer experience influences their purchase decisions. In fact, 20% of APAC customers 10% of SEA consumers
4. New partnerships and collaborations Finally, cross-border eCommerce allows businesses to forge partnerships and collaborations across borders, facilitating knowledge sharing, and enabling businesses to tap into each other's strengths. By working together, businesses can leverage each other's expertise, resources, and market knowledge, leading to mutually beneficial outcomes.
Recently, AEON Vietnam entered into a partnership agreement with Boxed , a U.S. eCommerce retailer and enabler to build its eCommerce and omnichannel capabilities. In fact, the latter also partnered with AEON Malaysia to improve their eCommerce operations by launching myAeon2go which provides in-store pickup and on-demand delivery at more than 40 locations in 2021.
Seizing the opportunities In a nutshell, while cross-border eCommerce in Southeast Asia presents several challenges, it also offers significant opportunities for businesses willing to invest in the region's growing eCommerce market. This includes having access to a broader customer base, higher profit margins, diversification of product range, and forging new relationships with neighbouring countries or manufacturers.
However, businesses must be aware of the challenges posed by logistics, payment methods, language and cultural barriers, and regulatory barriers. The key is to navigate the challenges effectively while leveraging the opportunities presented by the market to create sustainable growth and long-term success.
Not sure how to navigate through cross-border eCommerce in Southeast Asia? Drop us a message and our growth experts will be in touch with you shortly.
