Is Google & Temasek’s e-Conomy SEA Report Underestimating Southeast Asia’s Digital Potential?

May 5, 2020

Google, Temasek, and Bain & Co have collaborated to produce the e-Conomy SEA Report, a widely referenced survey that values the total digital economy of Southeast Asia and analyzes growth metrics of digital enablers such as internet penetration and its impact on the digital economy.

Despite the bullish outlook presented in the e-Conomy SEA report, we believe that Google and Temasek still underestimate the potential for Southeast Asia's growth. We highlight the things that stood out to us:

SE Asia’s Retail E-Commerce Industry is Underestimated

E-commerce is the largest driver of the digital economy, hence we analyze the retail e-commerce penetration of total retail sales in various countries in comparison with e-Conomy SEA report’s forecast to show how conservative the report is.

Sources: China- Unido, eMarketer; US -, eMarketer; India - India Brand EquityFoundation, PwC; Korea - IT Statistics of Korea; SE Asia - e-Conomy SEA 2019Report; Zero One  

We note that despite our conservative calculations (we grew 2019’s total retail sales in-line with the World Bank’s forecasted GDP growth up till 2025), e-commerce penetration in Southeast Asia is implied to only grow to 11.4% in 2025 from 4.3% in 2019 based on Google & Temasek’s GMV forecasts, which is lower than China’s 2014 e-commerce penetration rate. This is in spite of the increasing smartphone adoption and internet penetration rates in Southeast Asia, bolstered by consumers becoming more adapt at using super-apps by unicorns Grab and Gojek.

Mobile Payments Could Grow Southeast Asia’s E-commerce Rapidly if it Follows a Similar Trend to China

Adoption of e-wallets and mobile payments are a major catalyst for rapid e-commerce growth as e-wallets and digital payments act as a gateway to expose consumers to online ecosystems where they are in-turn introduced to other services like online travel or hotel booking, online media streaming, and various digital services. As seen in the charts below, China experienced a drastic rise in e-commerce GMV between 2013 and 2014, coinciding with the increased usage of mobile payments and launch of WeChat Pay, an e-wallet and digital payment gateway.

Sources: Unido, eMarketer, People's Bank ofChina, Caixin Data, CEIC, Zero One

Currently, Southeast Asia may be on a similar trend with super-app unicorns Grab and Gojek driving the mobile payments trend with their respective super-apps with built in e-wallets.

Southeast Asia’s Digital Economy Can Grow Much Faster Than Expected Due to Various Factors

Although we continue to believe that the e-Conomy SEA report is an extremely valuable resource that serves as a benchmark for Southeast Asian technology industry. The goal of our report is to offer another perspective on how Southeast Asia’s internet economy can grow even more rapidly, akin to China’s historical growth trajectory due to the factors mentioned above and the following factors:

• Rising internet and smartphone penetration in Southeast Asia

• Favorable and younger demographics of the region

• Chinese tech giants’ investments into Southeast Asia influencing the region’s digital economy growth

Click here to read the full report on Smartkarma >>

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