Author: Temasek
Source: Temasek
In recent years, the Internet, big data, cloud computing, artificial intelligence, blockchain and other technologies have accelerated innovation, and China's digital economy has continuously integrated with the real economy, expanding from the traditional e-commerce B2C model to the whole industry and all fields, with unprecedented speed, depth and breadth, becoming one of the key driving forces for empowering industrial upgrading and spawning new industries, new formats and new models.
Globally, the process of digital transformation is accelerating at the same time. Among them, the digital economy of Southeast Asian countries is booming, and there are huge opportunities.
According to the 2021 Southeast Asia Digital Economy Report (hereinafter referred to as the "Report") jointly released by Temasek, Google and Bainn, since the covid-19 epidemic, the consumption of digital services such as online shopping, food takeaway, and digital payment has continued to grow and deepen, and the digital transformation of merchants has accelerated.
E-commerce, transport and food, digital financial services and other industries are thriving, driving Southeast Asia's digital economy size (GMV) to $174 billion. By 2025, Southeast Asia's digital economy is expected to exceed $360 billion.
At present, among Southeast Asian countries, Indonesia has the largest digital economy, accounting for 40% of the entire Southeast Asian market; the Philippines has the strongest growth momentum. By 2025, the size of the digital economies in Indonesia, the Philippines, and Vietnam is expected to double.
The report argues that Southeast Asia has entered a "digital decade.". As consumer behavior and merchant operating models continue to be digitized and investor confidence increases, Southeast Asia's Internet economy is expected to reach $1 trillion by 2030.
01. The epidemic has accelerated the digital transformation of Southeast Asia
Behind the vigorous development of Southeast Asia's digital economy is the further popularization of the Internet and the transformation of consumer and business behavior patterns.
In 2021, the total number of Internet users in the six Southeast Asian countries covered by the Report (Indonesia, Malaysia, philippines, Singapore, Thailand, Vietnam) will be about 440 million, with 40 million new users, and the Internet penetration rate will increase from 70% last year to 75%.
Since the outbreak of the epidemic in 2020, 60 million new users of digital services have been added in Southeast Asia, accumulating 350 million. Among them, Thailand and the Philippines saw the most significant growth. In the first half of 2021 alone, Southeast Asia added 20 million new users of digital services, 60% of which came from non-metropolitan areas.
During the pandemic, more Internet users in Southeast Asia began to use digital services
While new users of digital services are joining, old users are also trying new services, and the overall frequency and expenditure of digital services have increased. Online shopping for fresh daily necessities, mobile phone order takeaway, online ride-hailing, online music and video consumption have gradually integrated into the daily lives of Southeast Asian consumers. Convenience and a good experience drive consumers to continue or even further use these digital services. Therefore, the report predicts that the growth trend of digital service consumption in Southeast Asia is expected to continue.
The dramatic shift in consumer behavior is also prompting merchants to accelerate their digital transformation. This year's Report added an analysis of SMEs in Southeast Asia. One-third of the merchants surveyed believe that the survival of their enterprises under the impact of the epidemic is due to the application digital platform, and 80% of the merchants expect that at least half of their sales will come from online operations in the next five years.
Southeast Asian SMEs are improving the front-end user interaction experience and back-end operational capabilities through 2C-side digital platforms, digital financial service solutions, and digital tools such as digital marketing, website services, digital analytics, operational software, and cloud storage.
02, e-commerce continues to become a growth engine, takeaway and digital financial services accelerate penetration
The report argues that Southeast Asia's digital economy has remained resilient during the pandemic and recovered this year. In 2021, the size of Southeast Asia's digital economy reached $174 billion, an increase of 49% over 2020. The report predicts that with the deepening of digital transformation, the size of Southeast Asia's digital economy will reach $363 billion by 2025 and is expected to reach $1 trillion by 2030.
On a country-specific basis, the six Southeast Asian countries covered by the study (Indonesia, Malaysia, Philippines, Singapore, Thailand, And Vietnam) showed double-digit growth overall in terms of digital economies.
Indonesia's digital economy is the largest and has the largest increment. The Philippines has seen the strongest growth momentum, nearly doubling in size from 2020. Singapore rebounded this year after experiencing negative growth last year.
The report estimates that Indonesia and vietnam and the Philippines, two emerging markets, will achieve a rapid doubling of GMV (Gross Commodity Trading) by 2025 at a compound annual growth rate of 20% or more.
The overall scale of digital economies in Southeast Asian countries showed double-digit growth
In terms of specific industries, among the five major digital economy sectors of e-commerce, transportation and food, online travel, online media and digital financial services, e-commerce continues to be the engine of digital economic growth in Southeast Asia in 2021, an increase of 62% over last year.
As market penetration accelerates, Southeast Asian e-commerce platforms are shifting their business focus from customer acquisition to improving user stickiness and order value-added. The report predicts that by 2025, e-commerce will continue to drive the overall development of Southeast Asia's Internet economy at a compound annual growth rate of 18%.
As online shopping becomes a daily consumption mode for people of all ages and regions (urban and non-urban), by 2030, e-commerce will contribute more than two-thirds of the total GMV of the Internet economy.
E-commerce is the main engine of digital economic growth in Southeast Asia
In the segment of e-commerce, online fresh groceries show considerable development potential. Despite the rapid growth at present, the penetration rate of online fresh grocery consumption is only about 2%, which is still far from the penetration rate of more than 10% in relatively more developed markets such as China.
If the market penetration rate continues to increase, the size of the online fresh grocery market in Southeast Asia will be comparable to the current e-commerce market in Southeast Asia. However, the unit economy of online fresh groceries, especially in terms of order fulfillment and "last mile" logistics distribution, still faces challenges, and continued innovation in business models and logistics infrastructure may help unlock significant value in this area.
The food delivery industry (transportation and food sector) saw the most significant user growth this year. With 71% of Southeast Asian internet users having used online platforms to order meals, food delivery has become the most penetrating digital service in the region. The report predicts that the transport and food sector will grow to $42 billion by 2025 at a compound annual growth rate of 24%.
In the field of digital financial services, various segments such as lending, remittance, digital payment, insurance, investment and wealth management have grown strongly during the ongoing epidemic. Digital lending and digital insurance increased by up to 48% and 40% year-on-year in 2021. In Southeast Asian markets, where penetration of traditional banking services is generally low, e-wallets as alternative payment solutions are accelerating penetration and becoming mainstream.
Digital financial services such as digital lending and digital insurance are developing rapidly
While Southeast Asian Internet companies continue to deepen in various segments, some companies are constantly broadening their business boundaries and creating their own ecology, similar to The "super application" model of "one-stop service" such as WeChat and Alipay is developing rapidly.
In the first half of 2021, Indonesia's two major Internet companies, Gojek and Tokopedia, completed the merger, and the newly formed GoTo will become an integrated Internet platform spanning ride-hailing, distribution, payment and e-commerce businesses.
Grab, an Internet platform that started in Singapore, has also gradually expanded its main business from the initial taxi to takeaway, fresh grocery e-commerce, express delivery and financial services.
Singapore's Internet company Sea (Donghai Group), formerly a game agency, has created a product ecology with three major sectors: digital entertainment Garena, e-commerce platform Shopee, and digital finance SeaMoney, and launched a takeaway service Shopee Food this year. Through innovation and change, Southeast Asian Internet companies are providing services that can meet ultra-local consumption habits and more convenient consumer experiences.
03. Investor confidence has increased, and the scale of financing has reached a record high
Southeast Asia's Internet economic fundamentals are growing strongly, with successful exits and favorable regulatory policies driving increased confidence in global capital. In 2021, the amount of financing in the Internet sector in Southeast Asia reached a record high. In the first half of 2021, the number of investment and financing transactions in Southeast Asia increased by 65% year-on-year, and the total amount of investment and financing transactions has exceeded that of the whole of 2020, led by large transactions such as Jitu Express (US$2 billion) and used car e-commerce platform Carlo (US$360 million).
Today, there are 23 tech companies in Southeast Asia valued at more than $1 billion, 11 of which have benefited from the development of e-commerce and digital financial services, successfully joining the ranks of unicorns in 2021.
In 2021, early investment and financing in southeast Asia's Internet sector was particularly active, with the amount of financing reaching a record high in the first half of the year; the average transaction volume of seed and Series A financing was 6 times that of 2017, and the amount of Series B financing increased by 4 times in the same period. In addition, strong valuations and the emergence of new public funding options such as special purpose acquisitions (SPAC) have accelerated the pace of IPOs of many technology companies in the region ( such as Grab , Bukalapak , etc. ) .
In 2021, the amount of financing in the Internet sector in Southeast Asia reached a record high, and e-commerce and digital financial services were favored by investors
Empowered by innovative business models and infrastructure development, the e-commerce and digital financial services industries are the two most concentrated areas of investment and financing. In the field of e-commerce, the logistics industry has received high attention from investors. In addition, as the regional model of leading online shopping platforms matures, investors have set their sights on businesses in related fields, such as online health and beauty specialists, and direct-to-consumer (D2C) brands.
In the digital financial services industry, the volume of investment and financing transactions in the digital payment and investment and wealth management platforms increased by 150% and 400% year-on-year, respectively. Fintech infrastructure has become a notable investment theme, especially for key "back-office" enabling technologies. As the need for businesses to respond to regulation continues to grow, regtech will continue to receive attention.
In addition, under the continued spread of the epidemic, investors are optimistic about the potential of medical technology.
04. A More Inclusive and Sustainable Digital Decade
The report points out that the application of digital payment, investment and financing activities, the development of logistics infrastructure, the popularization of the Internet, the improvement of consumer trust and talents are the six key elements driving the development of the Internet economy in Southeast Asia. The shortage of skilled personnel continues to challenge the development of Southeast Asia's Internet economy, and the importance of continuous talent training, smooth career transformation and employee welfare protection is becoming increasingly prominent.
In order to achieve more sustainable and long-term development of the industry, the "Digital Decade" of Southeast Asia's economy also needs the blessing of three emerging elements – ESG and sustainability, digital inclusion, and better data infrastructure and regulatory systems.
"The sustainable development of the Internet economy requires universal ESG measurement standards and a credible ESG rating system. Environmentally friendly products and business models, as well as clean energy for digital and logistics infrastructure, are essential for achieving 'net zero carbon emissions' in the Internet economy. Rohit Sipahimalani, Chief Strategy Officer and President of Southeast Asia, Temasek, said, "Corporate social responsibility is very important, and Internet companies, especially large Internet platforms, need to think about how to create a positive impact on consumers, workers and employees under the new employment pattern."
"The future development of the digital economy also requires a more inclusive digital process, and a more stable, trusted and affordable Internet connection. Promoting 'digital literacy' through education requires especially taking care of those who are less likely to use digital devices and services. Rohid said.
"At the same time, the strengthening of data infrastructure, data security and the corresponding regulatory system are also crucial. The development of these key elements requires multi-party cooperation from consumers, merchants, platforms and regulators. ”
For the full text of the 2021 Southeast Asia Digital Economy Report, please click to read the original article or visit the https://tmsk.sg/e-conomy-sea-2021.