Meta & Bain: The Evolution of Digital Adoption by Consumers in Southeast Asia

Sep 19, 2022

(Image Source: Bain & Company)

Digital habits in Southeast Asia have shifted even more dramatically since the end of the pandemic. A year or two ago, the emergence of COVID-19 encouraged more home-centric lives and sped up the transition from offline to online, but today's digital consumer marketplace exists in quite different circumstances. Inflationary pressures, geopolitical tensions, and other global macroeconomic obstacles threaten the region's recovery as we emerge from the pandemic period.

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What effects have these changes had on the habits of Southeast Asians while shopping online? How have new consumer habits and trends emerged, and how will they develop further in the future? The latest report by Meta and Bain & Company delves into the answers to these questions and more, to provide a fuller picture of the current state of the region’s digital consumer ecosystem, as well as an outlook for its future development. Read on to find out some of our key findings below:

Southeast Asia's Expanding Digital Consumer Community

As COVID-19 ushered in more home-centric lifestyles and facilitated the transition from offline to online, the past two years have seen unprecedented development in Southeast Asia's digital consumer base. We anticipate a less dramatic rise in the digital consumer population compared to prior years as we get through the epidemic phase and travel restrictions are relaxed, while we still estimate sustained growth ahead.

According to forecasts, there will be 370 million digital customers in the area by 2022, an increase of 28 million over current estimates. This number is expected to increase from 82% in 2022 to 402 million by 2027, representing 88% of the total population of people aged 15 and up by the conclusion of the projection period.

At 168 million, Indonesians will make up the bulk of the region's digital users, up from last year's total of 154 million. With an estimated 63 million in 2021, 69 million in the Philippines will be digital users by the end of 2022. An increase of 8% in digital consumers is the highest projection among the six Southeast Asian markets covered in our analysis. Thailand will gain 2 million (4%), followed by Malaysia at 1 million (4%), and Vietnam at 4 million (6%).

Promising Prospects for the Region Despite a Slowdown in Its Expected E-Commerce GMV Growth

Online consumer spending in Southeast Asia continues its robust upward trend, as measured by e-commerce gross merchandise value. In this context, "online marketplace sales" is the total dollar amount of products and services sold through online marketplaces over a given time frame.

From a projected $112 billion in 2021, GMV is projected to expand to $129 billion in 2022 and then to $280 billion in 2027. The growth has decreased, from 48% in 2020–2021 to 15% in 2021–2022. The loosening of COVID-related regulations may have played a role in this drop since increased consumer mobility has resulted in additional opportunities for offline purchasing.

Potentially driving this channel shift are consumers' preferences for the "look and feel" provided by offline channels. Inflationary and supply chain stresses are two other explanations. Some types of purchases, however, have seen an increase in the number of times they are made online. Beauty and cosmetics had a 15% increase, from 3.8 purchases on average to 4.4, while home furniture (particularly home office setups) saw a 6% increase, from 3.6 to 3.8, and home appliances saw a 5% increase, from 3.5 to 3.9.

Future Technology Usage Continues to Advance Throughout Southeast Asia

While still in its infancy, the metaverse is one of several emerging technologies that are getting momentum in regions all over the world, Southeast Asia included. These technologies include web3 or metaverse-related technologies, health tech, and edtech. Financial technology is sometimes referred to as fintech.

What’s more, Fintech and web3 technologies, such as those connected to the metaverse, have been adopted rapidly throughout Southeast Asia. There is a greater penetration of electronic wallets, cryptocurrencies, and non-fungible tokens (NFTs) in Southeast Asia than in China, the United States, the European Union, or Japan, for example. The use of electronic wallets is highest in India, but it is rapidly growing in other parts of Asia.

With the rest of Southeast Asia still lagging, Malaysia and Singapore are leading the way in the adoption of internet banking. Due to the region's vast unbanked population and very little aging infrastructure, fintech and web3 have seen rapid adoption there. NFTs and cryptocurrencies both provide excellent prospects for generating revenue.

Adapt To Shifting Consumer Trends And Macroeconomic Conditions

The global macroeconomic environment is providing significant challenges affecting growth rates everywhere, including online GMV, as discussed earlier. Alongside these changes, the digital customers in the area are changing; they now demand a more integrated shopping experience, seek out greater involvement, are more willing to try new things, and are more value-conscious. They have shown a lot of interest in new technology, and we anticipate this to increase in the future.

Moreover, the consumer goods and retail industries as a whole are experiencing widespread changes. One example is the movement in industry profit pools when firms change their engagement in the distribution channels and value chains for their products and services. Partnerships are becoming more vital as the competitive landscape shifts in response to the rise of disruptive insurgents. There is a shift occurring in the talent environment, with greater labor mobility and shorter lifespans for skills.

In addition to a focus on economic factors, environmental, social, and governance considerations are growing in importance as consumers become more concerned with the long-term viability of the products they buy and as more pressure is placed on businesses to comply with sustainability-related legislation and public pledges. In light of the foregoing, companies can no longer afford to avoid dealing with these changes.

Positive Structural Factors Are Propelling the Region’s Long-term Outlook

Opportunities for continued expansion in Southeast Asia look bright going forward. A total of 23 million more individuals will be in the region's working age bracket (designated as 15-64) by the year 2030. Foremost among these countries is Indonesia, where an extra 13 million people will soon be joining the labor force.

After that comes 9 million people in the Philippines, 2 million each in Malaysia and Vietnam. In contrast to economies outside the area like China, whose working population is predicted to shrink by 27 million by 2030, there is a rising labor pool in the region, which provides an opportunity for enterprises and corporations to tap into.

At the same time, 51 million new upper-middle-class households are predicted to develop in Southeast Asia, adding to the region's already booming middle class. The number of families with high incomes is forecast to more than quadruple from 12 million in 2021 to 41 million in 2030, while the number of households with upper-middle incomes is projected to increase from 49 million to 71 million over the same period. The rising confidence of consumers is a good sign for the economy.

Download the report for the full list of insights!

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