On-line retailing surges

Business Asia, March 17, 2000

Asia's on-line retail market -- driven by Japan, South Korea and Australia -- is growing faster than the United States and should surge at least 150 per cent to top US$7 billion in 2000.

On-line brokerage is the fastest-growing e-commerce market, driven primarily by phenomenal expansion in South Korea, while emerging categories include travel, consumer electronics and books.

However, a new report by the Boston Consulting Group (BCG), entitled "E-tail of the Tiger: Retail E-commerce in Asia-Pacific", says regional companies wanting to succeed in this new market must act soon or risk losing out to large global on-line players.

"The major global on-line players are starting to turn their eyes to this part of the world," said BCG vice-president David Michael, a co-author of the report.

"Asia-Pacific on-line retailers need to act fast to leverage their local knowledge if they want to win the competition that is coming with these global players."

With more than 10 million consumers having already bought on-line, and Internet use surging, the market is reaching critical mass.

"New entrants now have the opportunity to capture strong revenues as attractive new users start experimenting with on-line shopping," Michael said.

The on-line retail market in the Asia-Pacific region is still highly concentrated, with the leading 25 players in most countries accounting for more than 60 per cent of overall revenue. Some markets and categories -- such as computer hardware and software, financial services and travel -- are already starting to get crowded.

The report warns regional players, both pure-players (web only retailers) and multi-channels (web and off-line direct retailers), that they must think strategically for success in this fiercely competitive environment.

The report identifies several key Asia-Pacific on-line trends, including:

* Accelerating use of wireless access to the Internet, which will translate into new customers wanting new services;

* growth of "killer categories", which have large off-line revenues and strong on-line potential, such as on-line brokerage, travel, automotive and real estate; and

* the emergence of e-commerce enablers, such as web designers and distributors, supporting on-line retail businesses.

The report notes that on-line trading is also a natural point for converting Internet users into on-line shoppers.

"The popularity of on-line trading in many markets makes this a natural entry point. Once customers have learned to trade on-line, they are likely to gain confidence to make other purchases," Michael said.

BCG found that Asia's less-developed countries remain in very difficult retail e-commerce environments. Consumers in Thailand, Malaysia and Philippines are slow in showing interest in retail e-commerce, while markets in India, Indonesia and China remain small, reflecting low wealth levels and poor infrastructure.

Major findings

* Total on-line retail revenue in the Asia-Pacific region was US$2.8 billion in 1999, compared with US$3.5 billion in Europe and US$36.6 billion in the US.

* Growth potential is high, with online retail penetration of the total retail sector only 0.1 per cent, compared with 1.2 per cent in the US.

* Three countries account for 94 per cent of the total Asia-Pacific market: Japan at US$1.5 billion, Korea at US$720 million and Australia at US$380 million. Most other countries in the region have revenue of less than US$30 million.

* Computer hardware and software, and financial brokerages lead the categories, with revenue of US$770 million and US$700 million, respectively.

* Asia's Internet myths, p4.