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Economy

Indonesia, Thailand and Vietnam vie for digital spending crown

Study shows middle class to drive Southeast Asia's $120bn internet economy

Indonesia, Thailand and Vietnam are expected to be the biggest contributors to the growth of digital consumer spending in Southeast Asia over the next five years.

SINGAPORE -- Indonesia, Thailand and Vietnam are expected to be the biggest contributors to the growth of consumer digital spending in Southeast Asia over the next five years, according to consultancy Bain and Company. A joint study with social media group Facebook, released on Friday, found that projected digital spending in the region would nearly quadruple to $120.9 billion by 2025, from $31.3 billion in 2018.

The study surveyed almost 13,000 respondents in the middle of this year across Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, concluding that the emerging middle class in the region would account for 70% to 80% of the growth in digital consumers. Indonesia has the largest such consumer base at present, growing from 64 million in 2017 to 102 million in 2018.

Bain partner Praneeth Yendamuri said the rapid digitalization of communities in Indonesia, Thailand and Vietnam made these countries the top contenders for the region's digital spending crown: "If you look at Thailand and Vietnam, they are growing very fast. And we believe that Thailand and Vietnam, together by 2025, should be as big or even bigger than Indonesia."

From 2017 to 2018, Thailand's digital consumer population grew from 21 million to 34 million, the study showed, while the increase was 38 million to 45 million for Vietnam in the same period. In terms of the rise of digital consumers across Southeast Asian countries, the study estimated that the numbers would reach 310 million by 2025, from 250 million in 2018.

The biggest spenders tended to come from Singapore, according to the study, with 55% of online shoppers from the city-state falling under this category. For the rest of the five countries included in the study, high spenders made up 40% or less of digital consumers.

CIMB Private Banking Economist Song Seng Wun said that sustained jobs and income growth in the region, especially among the middle class, bodes well for consumption activity in Southeast Asia. Although the International Monetary Fund has pegged the global growth forecast at 3.4% for next year, Song noted that growth in the Association of Southeast Asian Nations is still estimated to outpace that at close to 5%.

"Digital trade is on a strong growth trajectory on the back of improving digital infrastructure and rising wealth, creating new trade opportunities for big firms or small and medium-sized enterprises to sell more products to more markets," said Song. However, the risk of regulators imposing additional barriers on cross-border e-commerce to protect domestic businesses may be a dampener for increased online spending, he added.

The Facebook-Bain study projected average spending per digital consumer in Southeast Asia to triple from $125 to $390 between 2018 and 2025. Clothing, personal care and beauty products are expected to drive the growth in spending across markets in the region.

Impulse buying appears to be a standout trend among digital spenders in Southeast Asia, according to Bain's Yendamuri. He noted that 54% of online shoppers bought when they felt like it, as opposed to making planned and deliberate purchases to fulfil a need.

The study found 67% of respondents did not know exactly what they wanted to buy before shopping online. Future growth in online spending, however, was expected to shift increasingly towards consumers who do, and who will plan for purchases as they become more comfortable with e-commerce, said Yendamuri.

Consumers are also not expected to be loyal customers, the study found. The average online spender in the region window shops across more than three websites before buying something, which helps to explain the lack of one dominant e-commerce player in Southeast Asia, it noted.

Across the six countries polled, more than 50% of respondents in each country said they were willing to buy from multiple brands. And 86% of those surveyed would compare products across online and offline channels before making a purchase.

Over 40% of respondents said they had tried an online store they had previously never heard of in the past year. Top reasons for making purchases included seeing positive reviews from other users, promotions and interesting products.

"As choices become more plentiful, as people become more sophisticated digital consumers, they don't just look for deals, they also look for other things like variety and the experience online," said Sandhya Devanathan, country director for Facebook Singapore. She said brands would need to re-imagine the way they spent their marketing dollar to match the habits of customers who shop across online and offline channels.

The growth in digital consumers is also expected to be big business for the social media group in terms of advertising revenue. Devanathan said Facebook was hoping to deepen its relationship with merchants as e-commerce powers ahead.

"Asia is one of our fastest-growing regions, globally, in terms of revenue," she said. "All of that points to more and more businesses coming online. I hope that we will continue to stay an important and significant part of businesses' journey as they sell more things online," Devanathan said.

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