In-Depth Analysis: Google's E-Conomy SEA Report Underestimates Southeast Asia's Digital Potential

The e-Conomy SEA report is a widely cited annual study on the state of Southeast Asia's internet economy. The resource, jointly produced by Google, Temasek, and Bain & Co, analyzes the growth of digital enablers such as internet penetration and smartphone penetration and its impact on the adoption of digital services.

Our report dives into the underlying assumptions used in the report and compares this against how other countries' internet economies have developed to get a sense of how conservative or aggressive the forecasts are.

Despite the bullish outlook presented in the e-Conomy SEA report, we believe that Google and Temasek still underestimate the potential for Southeast Asia's growth.

In particular, we find that if Southeast Asia even partially follows the trajectory of China's mobile payments adoption several years ago, then the region's digital economy can easily grow faster than currently expected. This is because e-wallets and mobile payments can serve as a gateway for consumers to more seamlessly enter into the digital economy and conveniently adopt different digital services such as e-commerce, online travel, and online media.

We argue that this scenario is more than likely given that:

1. Big Tech in China is aggressively investing in the region. Companies like Alibaba and Tencent are leveraging their past successes scaling the adoption of digital services in China and applying their playbook to Southeast Asia. Chinese tech companies, having gained maturity and experience through years of growing in the space, can now apply their know-how to capitalize on untapped opportunities in Southeast Asia. We note that out of Southeast Asia's 11 unicorns, 10 are backed by Chinese investors. These unicorns regularly receive guidance on how best to scale adoption and build ecosystems, and often send executives to their China investors' headquarters to learn.
2. Developing markets like Southeast Asia can more readily adopt digitalservices. Developing markets have an advantage over developed markets when it comes to digital adoption. This is because developing markets tend to have poorer infrastructure outside of capital cities creating gaps that digital services can then "plug in". For example, e-commerce is more invaluable in tier 2 or 3 cities where brick & mortar outlets are relatively sparse given than it can take hours to reach the closest mall.
3. Southeast Asia benefits from favorable demographics and accelerating digital enablers. The region is still relatively young with median ages ranging from the late 20s to early 30s. This is supported by rapidly improving digital enablers such as access to the internet and increasing smartphone penetration.

I. Southeast Asia’s Internet Benchmark: The e-Conomy SEA Report

II. Overly Conservative? The Report has Revised Forecasts Upwards Three Times Already

III. E-commerce, the Largest Driver for SE Asia’s Digital Economy, is Underestimated

IV. Southeast Asia E-commerce can Grow Much Faster Assuming it Even Partially Follows China’s Mobile Payments Trend

1. Rising Internet and Smartphone Penetration
2. Favorable & Younger Demographics

V. Developing Markets Have an Advantage Over Developed Markets When it Comes to Digital Adoption

VI. Chinese Investment is Influencing Southeast Asia’s Internet Economy to Evolve in Similar China-like Ways

1. Grab and Gojek Adopt China's Super-App Strategy
2. Lazada and Shopee Take Notes from China E-commerce
3. Alibaba and Tencent Fight Proxy Payment Wars in Southeast Asia
4. Digital Banking Another Major Catalyst

VII. Conclusion: Southeast Asia’s Digital Economy Can Grow Much Faster than Expected

Appendix - Digitization Underway: Individual Country Snapshots

1. Indonesia
2. Singapore
3. Philippines
4. Thailand
5. Vietnam
6. Malaysia