There was a time, not so long ago, when the only hot thing going on in Southeast Asia was the weather. Not anymore. These days, it's one of the hottest growth regions in the world. Digital technology in the region is also booming, with double-digit growth rates of smartphone sales in 2011 as well as the world's highest usage of social networks such as Facebook, Twitter, and Instagram. Amidst this exciting landscape, e-commerce still remains a nascent opportunity, and is only beginning to take off. What took it so long?

Reasons for slow e-commerce adoption

The first observation that comes to mind is that people there are too attached to their airconditioned malls. Probably because of the need to escape the humid, tropical weather, 'mall-ing' is not just a favorite activity of Southeast Asians, it's deeply embedded into their cultural and social fabric. Some of the biggest shopping malls in the world are located in Indonesia, Thailand, and the Philippines.

The second issue is underdeveloped infrastructure. Two of the biggest Southeast Asian nations, Indonesia and the Philippines, are composed mainly of islands, so transportation even over short distances can be challenging. Roads are not well-paved in many areas. Payment is also an issue, since credit card penetration is low and people still mostly rely on cash for transactions. Internet penetration has grown through the years but still remains low, with many people accessing the internet in places not exactly conducive to shopping, such as internet cafes or mobile phones.

These hurdles will not disappear overnight, but it seems that the benefits are starting to outweigh the risks for investors. Not only is the region one of the most populous and fastest-growing, it is also one of the youngest. Many companies are betting on this tech-savvy and increasingly wealthy generation of Southeast Asians as the next big market for e-commerce. 

Early movers

Largely untouched by Amazon and Ebay, e-commerce in the region bloomed in 2012 with the entry of German tech incubator Rocket Internet. It quickly launched 5 companies, including Lazada, an almost identical clone of Amazon, and Zalora, a Zappos clone. It was rewarded handsomely for being a first mover in the region. Swedish venture capital firm AB Kinnevik has invested 40 million USD into Lazada. JP Morgan put in an estimated 50 million USD into both Zalora and Lazada.

In C2C, a big player in Southeast Asia is Multiply. Originally conceived as a photo-sharing site in the US, it pivoted last year to become an e-commerce platform mainly catering to the Indonesian and Philippine markets. It now has over 200,000 merchants on its marketplace platform. 

Group buying is also a big phenomenon in the region. The most successful one so far is Ensogo. Beginning in 2010 as a startup in Thailand, it has achieved 85% market share in its home market, as well as 60% in the Philippines and 50% in Indonesia. It has since been acquired by Livingsocial in 2011 after a bidding war with Groupon, and serves as one of the most inspiring startup stories in the region so far.

These players have largely been successful by adapting to specificities in Southeast Asia. Most of them operate on COD (Case-on-delivery) basis. Many also offer store pickup services as well as generous return policies. Group buying meshes well with the consumer behavior in the region. Since it's basically an online-to-offline trigger, people get cheap discounts online but still get to go to their favorite malls. 

Looking ahead

The bigger international players are taking notice. Ebay has ramped up its Southeast Asian efforts. Japanese e-commerce giant Rakuten opened its headquarters in Singapore last year, and is expanding to Malaysia, Thailand, and Indonesia. Startup incubators are sprouting left and right, eager to jump on promising startups such as, a premium fashion retailer based in Manila. The seeds have finally been planted, and there is no way to go but up. The cultural diversity and infrastructure problems make Southeast Asia a very complicated market, but the untapped potential in this region of 600 million people, bigger than all the EU nations combined, is simply too attractive to ignore. Although it's always been known for its sunny beaches, it's only now that Southeast Asia is finally getting its moment in the sun.

By Scott Si