SINGAPORE -- Southeast Asia's e-commerce market will likely more than double in the next five years, according to a report that predicts Vietnam, Indonesia and the Philippines to be the key drivers.
Revenue from business-to-consumer e-commerce in the region may grow at a rate of 17.7% a year from $11.2 billion in 2015 to $25.2 billion in 2020, according to a report by research company Frost & Sullivan. "The astounding rate of digital adoption in the region" is boosting the growth, Cris Duy Tran, a lead consultant at Frost & Sullivan Asia-Pacific, said in a news release.
Frost & Sullivan examined six key markets in the region -- Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. It expects Vietnam to grow at the fastest pace to become Southeast Asia's largest e-commerce market by 2020. Indonesia will be the second-largest, while the Philippines will also see rapid growth. The top two countries in terms of revenue last year were Malaysia at $2.3 billion and Thailand at $2.1 billion.
Southeast Asia has lagged behind China's phenomenal e-commerce growth due to challenges such as unsophisticated logistics infrastructures and low use of credit cards. The e-commerce share of total retail sales in the region was less than 2.5% last year, compared with 12.1% in China.
"We believe Southeast Asia is set to follow a similar upward trajectory" as China's, the report said.
However, challenges remain. One is low profitability. Foodpanda, the food delivery marketplace backed by Berlin-based Rocket Internet, exited the Vietnamese market in 2015. Groupon pulled out of Thailand and the Philippines.
Turning a profit is hard in the business-to-consumer mass market because "all of the markets in Southeast Asia just behave very differently," Tran told Nikkei Asian Review. "Everything needs to be tailored," he said, to meet the unique customer preferences in each market.
Frost & Sullivan's report suggests that more exciting opportunities lie in specialized or peer-to-peer e-commerce. It mentions Singapore's Carousell and Indonesia's Tokopedia, both consumer-to-consumer mobile marketplaces, as examples of companies growing through an aggressive mobile strategy.
It remains to be seen who will be the behemoth ruling the region. "So far, no one in Southeast Asia is really dominating," Tran said. "A few more Chinese e-commerce companies beside Alibaba would love to enter" the regional market, he added.