Explosive growth for Southeast Asia’s digital economy

Exceeding expectations . . .

After crossing a major inflection point in 2018, Southeast Asia’s digital economy continues to grow at an unprecedented pace, reaching US$100 billion in 2019. A recent report projects that at this rate, the region’s digital economy will reach US$300 billion by 2025, exceeding initial projections of US$200 billion. Indonesia and Vietnam are the two fastest-growing digital markets, with average growth rates of 49 per cent and 38 per cent, respectively. E-commerce and ride-hailing are leading this growth due to changes in consumer behaviours and rapid adoption by the emerging middle classes. In particular, food delivery and online shopping have become the norm among middle-class consumers in crowded metropolitan cities across Southeast Asia.

Beyond the mega-cities . . .

While most of the growth is concentrated in metropolitan cities, digital economy start-ups and established firms are beginning to develop their businesses beyond metro areas in search of new growth opportunities. In the next five years, non-metro areas are expected to lead the way by growing twice as fast as metro areas. Indonesian unicorn Tokopedia has chosen to go rural instead of global by expanding its services to West Java and supporting village entrepreneurs to become national entrepreneurs. Meanwhile, ride-hailing giant Grab has launched its social impact program, Grab for Good, providing digital literacy to students and helping micro entrepreneurs to digitalize their workflows, especially in non-metro areas.

Shock-proof strategies . . .

Southeast Asia’s digital markets have remained bullish despite the recent WeWork shock over the postponement of its initial public offering. Investors have been concerned that a flood of private capital in the past few years has led to over-valuations of Southeast Asian start-ups. However, the region’s digital economy players have shifted their business strategies to retain investor confidence by focusing on profitability and user engagement with upgraded services, instead of rapid expansion and user acquisition. The Singaporean fund, Temasek Holdings, is one player that plans to boost its investments in promising digital start-ups. Increasing inflows of investments assure investors of the health and growth of the region’s digital economy.

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