This article originally appeared on Express Computer

The shopping patterns of people all over the world have changed drastically since the emergence of eCommerce, a shift that was further accelerated when the pandemic hit. As brands and merchants scrambled to go online, technology became a game changer. Tech players in the ecosystem, be it adtech, shopping cart, marketplaces, logistics or analytics, all saw phenomenal growth in the last few years. And post pandemic, the resurgence of offline retail has meant that technology has become even more important in eCommerce. Consumers now have choice and brands and merchants have to work harder to win their customer’s loyalty. 

Today if we look at the eCommerce market, we see two distinctly different stories being played out in different parts of the world. On the one hand we have China and the US. China with $2700B and the US with $800B, are the two largest eCommerce markets in the world. They are also perhaps the most mature markets. But with dominant players like Amazon, Shopify, Alibaba, Facebook and Tiktok, there is very little headroom for growth. Add to that the macroeconomic headwinds. Rising interest rates and high inflationary pressure, geopolitical tensions, have all taken a toll. Stock markets have been hit, as have jobs and of course, consumers are feeling the pinch. 

With the slowdown gripping the eCommerce industry in the mature markets, the world is now turning towards the South East Asian region, particularly India and Singapore, as prospective market spaces. 

The South East Asian Region as an emerging eCommerce market

With a combined population of 1.9 billion and GDP $5.7 trillion, South East Asian countries represent a large concentrated cohort of the consumer population. The last 3 years have seen 100 million new internet users in the region and a report by Google, Temask & Bain suggests that eCommerce is nearing full adoption among digital users in urban SEA. The purchasing power of people has increased, and this region has witnessed the emergence of a thriving middle class. Estimates suggest that the eCommerce market is likely to reach approximately $230 billion in SEA and $120B in India by 2025.

Even with the global headwinds, SEA is relatively less impacted than other regions. 

Over the past few years, SEA has witnessed some of the fastest-growing platforms. For example, Tokopedia was launched in 2009 in Indonesia. It was the first company to raise an investment of $100 million from Sequoia Capital and Softbank. Another success story is Shopee, established in Singapore in 2015. It was touted as the largest eCommerce platform in the South East Asian Region in 2021. The platform recently reported a 14% year-on-year increase in GMV for the third quarter, reaching 19.1 billion dollars. 

India, on the other hand, has seen a phenomenal rise of D2C brands in recent years, with brands like Mamaearth, Boat and Sugar Cosmetics, to name a few, breaking through. Marketplaces too have grown, and around 20 marketplaces have achieved more than $1 billion in GMV. Many players have turned profitable.

The region, in general, has witnessed rapid expansion of eCommerce markets. And the digital economy is expected to grow 2X, as fast as GDP, through 2030 (Google, Temask & Bain). 

Challenges faced by brands in this region

While these numbers paint an optimistic picture, the industry is not without its own set of challenges. Brands are finding it increasingly difficult to manage profitability as the eCommerce sector continues to become more complex. Given the increase in the number of marketplaces, and the necessity of being present on them for reach, brands are faced with revenue shares with the various platforms. Fluctuating warehouse costs, increasing freight and last mile costs, have also had a big impact.

The biggest challenge today lies in advertising and customer acquisition costs (CAC), which account for anywhere between 40-60% of GMV. Not only are brands dealing with Google and Facebook, marketplaces too are becoming ad plays. In fact, marketplace advertising will likely dethrone Facebook & Google in the coming years. With brands having to bear the burden or increased spends, margins are under threat. 

With a view to improving profitability, brands have now started to shift their focus. Increasingly, it is less new customer acquisition and more, deeper engagement with existing customers. Brands today are looking for ways to reduce the complexity of doing business. One obvious way is to leverage data, bringing data from across their business into one unified data pool to reduce operational complexity. More importantly, having a unified pool of data allows for machine learning algorithms to analyse the data and identify trends and patterns, and give actionable recommendations. This allows brands to act in real time and make more informed and data backed decisions. 

Bottomline

Even with the changing economic conditions, the outlook and opportunity for eCommerce growth in the India and South East Asia region remains optimistic. The change in consumer buying behaviour that we have seen in the last few years is here to stay. As a result, we are seeing brands, emerging and established, increasing their efforts and investments in the online channel. In all this, technology, data and AI will play a critical role in driving profitable growth for brands. 

Authored By Prem Bhatia, Co-Founder and CEO, of Graas.