Southeast Asia (SEA) has witnessed a phenomenal rise in e-commerce in the last decade. The e-commerce market grew at a rapid pace of 40% annually from 2016 to 2021 and the retail share has also grown.

With the rise in e-commerce trade, cross-border e-commerce is also anticipated to grow in Southeast Asia in the upcoming decade.

Cross-border e-commerce refers to trade conducted through e-commerce platforms across geographical boundaries. The trade can be B2B, B2C, or even C2C. The buyer and the seller are usually located in different countries.

Before diving into cross-border trade, let’s first look at the rising e-commerce market in SEA.

SEA eCommerce Is Booming

After the Covid-19 pandemic, e-commerce in Southeast Asia has boomed, with its share of retail sales surging from 5% to 20%. At this point, the growth is expected to continue.

For the next five years, the e-commerce market is expected to show a CAGR of 10.2% to reach a projected market volume of $144 Billion by 2029. 

Image Credit: Statista

The increase in revenue in recent years can largely be attributed to the increase in ARPU (Average Revenue Per User) rather than the user base. However, in the next five years, while the ARPU is expected to stagnate, the user base will be the growth driver for the market.

With the increase in e-commerce penetration, the number of users is projected to grow from 146.5 million in 2024 to 206.7 million by 2029 at a CAGR of 7.1%. 

Cross-Border eCommerce Is Expected to Grow as Well

Cross-border e-commerce is correspondingly seen as the global future for the retail market. Southeast Asia is no exception and is expected to rise in the upcoming years.

The SEA cross-border e-commerce market is estimated to be USD 13.5 billion in 2023.

The market is possibly to grow at a modest rate of 5.7% from 2024 to 2029, where these six big ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam) are expected to be the major drivers.

Furthermore, Singapore and Malaysia account for about 50% of cross-border e-commerce trade in the whole of Southeast Asia. Thailand, Vietnam, Philippines, and Indonesia are expected to follow suit and see rapid growth in the upcoming years.

Key Drivers of Cross-Border E-commerce Growth 

Here are the main growth drivers of cross-border e-commerce in Southeast Asia:

1. Economic Growth

Southeast Asian countries are expected to hit steady and rapid economic growth. The GDP growth rate was 6.5% in 2022. The same trend is anticipated to continue in the near term. Such increased economic growth in the region also raises consumer spending power. As a result, driving up more user base and spending in the e-commerce market.

2. Increasing Digital Penetration and Usage

The number of Internet users and their usage is expected to increase over the next decade.

Government policies as well as economic growth are driving internet usage and penetration in the region. Thailand 4.0, for example, is designed to ramp up internet connectivity in each village in Thailand.

According to ASEAN.org, more than 460 million people in Southeast Asia used the Internet in 2022, with an 80 percent penetration rate. 

Going forward, Southeast Asia is expected to see 29 percent more monthly data traffic per smartphone. By 2030, consumption is expected to skyrocket by 7X from the 2022 figures.

Image Credit: Kearney

This increasing connectivity is one of the primary drivers of e-commerce growth. Hence, cross-border trade is bound to benefit as well.

3. Improved Logistics and Cross-Border Trade

Companies and governments in Southeast Asia are heavily investing in infrastructure. Additionally, e-commerce platforms like Lazada and Shopee have also been expanding their logistics capabilities to ensure faster delivery times.

Plus, the ASEAN Economic Community (AEC) is planning to create a single market and production base within Southeast Asia. The move is expected to improve logistics and help in cross-border trade and commerce.

4. Evolved Digital Payment methods

Trust in digital payments has increased significantly over the last decade. Southeast Asia has embraced digital payments and e-wallets. And on a global scale, ASEAN countries are at the forefront of mobile wallet adoption rates.

Based on World Economic Forum data, half of the top 10 countries in the world in terms of e-wallet penetration are Southeast Asian countries (Thailand, Vietnam, the Philippines, Malaysia, and Indonesia).

Image Credit: World Economic Forum

Thailand and Singapore, especially, have spearheaded cross-border connectivity between fast payment systems PromptPay and PayNow.

The high adoption of digital payments has helped immensely in cross-border trade by enabling instant, low-cost mobile transfers between countries.

Major Players eCommerce SEA

Shopee dominates e-commerce landscape which leads the market share of 44% in Southeast Asia, followed by Lazada as second-largest with 7% share. Both companies have their headquarters in Singapore and operate across the SEA region. Those two players have focused on aggressive growth over profitability. Shopee clocked in $9 billion in revenue and is aiming for topline growth and to capture more market share. 

Shopee grew by focusing on mobile-centric shopping experiences and integrating social features that resonate with local consumers. Lazada leveraged Alibaba’s e-commerce expertise to improve product offerings and logistics. Both platforms excel in end-to-end online shopping experience with their payment solutions and own digital wallets, tailored promotions and flash sales, and aggressive campaigns with deep discounts and free shipping.

In 2023, Shopee had about 343 million visits, followed by Tokopedia and Lazada, which had 137 million and 128 million visits, respectively.

Image Credit: Campaign Asia

These are the main players present across the SEA region. While there are usual global players like Amazon, eBay, AliExpress, along with Apple and Samsung which operate mainly in electronics, the rest of the market is still fragmented.

Here are the key e-commerce players within each of the SEA countries. 

Apart from Shopee and Lazada, the rest are mainly country-specific players. For example, Tokopedia, the third biggest player, operates strongly only in Indonesia. 

Challenges Ahead

The main challenges for seamless cross-border trade in the SEA region include: 

• Lack of low-cost logistics and infrastructure: While the public and private sectors are investing in logistics and infrastructure, reliable and low-cost delivery logistics is still difficult. The infrastructure quality varies across countries, from urban to rural areas, and geographies. The disparity still heavily impacts delivery costs and time.
• Regulatory hurdles: Regulatory compliance is still an issue for robust cross-border trade in SEA. Despite this, different laws, regulations, and tax structures in different countries make it difficult to adhere to.
• Inconsistent duties and corruption: Custom clearances are another headache for e-commerce companies when it comes to cross-border trade. Inconsistent taxes and levies, import duties, and a layer of corruption in less transparent regions – pose serious operational risks.
• Language and cultural barriers: Southeast Asia is a highly heterogeneous region of 680 million people, comprising more than 1,500 ethnic groups who speak more than 1,000 languages and dialects. With such cultural diversity, businesses cannot thrive in cross-border trade without localizing.