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E-commerce sector feeling effects of consolidation: Analysts

However Research firm Frost & Sullivan expects Singapore to remain the largest e-commerce market in Southeast Asia, with 16 per cent annual growth over the next five years. 

SINGAPORE: Singapore's e-commerce industry could be in for a rough patch, especially as the economy sees slower growth. The sector, which is dominated by players chasing growth at the expense of profitability, is already feeling the effects of consolidation.

One high-profile casualty is Japan's Rakuten, which recently bowed out of Southeast Asia.

Said Mr Ajay Sunder, vice president of ICT Practice at Frost & Sullivan: "From a long-term perspective, we are clear, e-commerce has its value proposition and will grow. (In the) short term, what we are expecting is that there will be a lot of consolidation in the market and e-commerce is in that state where a lot of companies have tried different business models.

“There is a business case and for companies to realise and see what business model will work eventually. Profitability is something within it. Right now, the whole focus seems to be on customer growth at the cost of profitability. (In the) long term, that will not be sustainable.

"So we do expect some of the players who are unprofitable right now to either go down, or consolidation will be the name of the game. Some of the bigger players will acquire some of these smaller players."

Despite short-term pressures, industry watchers are confident about the long-term fundamentals of the sector. They added that certain segments within e-commerce, such as the consumer-to-consumer model, have greater potential for growth.

One example is local start-up Carousell, which runs a platform where individuals can buy and sell items directly to each other.

Mr Marcus Tan, co-founder of Carousell, noted: “In terms of mobile commerce and e-commerce, it’s still a very a nascent stage. Yes, the market may have slowed down a bit. But we see this as a great opportunity for growth. The reason being two-thirds of the world still have no Internet. And they’re going to be on the Internet through smartphones and smartphones allow people to participate on e-commerce more.”

Looking ahead, analysts said the e-commerce market will continue to evolve, with players from Asia taking a bigger role.

Mr Fabio Vacirca, senior managing director of Accenture Products, commented: “In the last two to three years, the trend we observed primarily in the UK and US was branded as multi-channel, so all companies tried to have a seamless shopping experience between the physical and digital channels. I believe in Asia, like many other domains, there will be a leapfrog, so the winners in Asia can be winners on a pure digital space.

“So they will drive their differentiation through the use of leading-edge technologies … definitely I see the technology space to be the one defining the next five years of e-commerce here in Asia.”

Research firm Frost & Sullivan expects Singapore to remain the largest e-commerce market in Southeast Asia, with 16 per cent annual growth over the next five years.