How Southeast Asia can become a $1 trillion digital economy

The demand for digital products and services in Southeast Asia has accelerated quickly and fuelled the growth of the digital economy.

The demand for digital products and services in Southeast Asia has accelerated quickly and fuelled the growth of the digital economy. Image: Getty Images/iStockphoto

Sapna Chadha
Vice President, Southeast Asia and South Asia Frontier, Google
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  • Southeast Asia's digital economy is steadily growing, with users continuing to top digital engagement in various categories.
  • As highlighted in the e-Conomy SEA 2023 report, the region has stayed relatively resilient compared to many other parts of the world.
  • But more work must be done to help Southeast Asia's digital economy reach up to $1 trillion gross merchandise value by 2030.

Southeast Asia’s digital economy has been on a steady growth trajectory in recent years as the region’s users have continued to top digital engagement in various categories across global rankings — such as time spent online, mobile internet usage and mobile app usage.

It’s clear that the region is tech-forward. Since 2016, the number of people online has doubled across six of its biggest countries: Indonesia, Malaysia, The Philippines, Singapore, Thailand, and Vietnam. As a result, the demand for digital products and services has accelerated quickly and fuelled the growth of the digital economy.

The e-Conomy SEA 2023 report by Google, Temasek and Bain & Company shows that, despite the economic effects of the pandemic and the global macroeconomic headwinds that have followed, the region has stayed relatively resilient compared to many other parts of the world.

Southeast Asia’s digital economy growth prospects

Its long-term market growth prospects remain strong, and the digital economy is on track to hit $600 billion in gross merchandise value (GMV) by 2030.

Southeast Asia has substantial headroom for long-term growth driven by factors such as a growing working population, room for income growth and remaining urbanization potential. Certain step changes can drive the region’s digital economy to reach up to $1 trillion GMV by 2030.

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For the region to be able to unlock this full potential, digital economy stakeholders – investors, businesses, governments, and non-governmental organizations (NGOs) alike – must work together to help the region achieve this milestone.

Here are some of the requirements for that to happen:

Increase digital participation to unlock the next wave of growth

Southeast Asia has seen good progress on digital inclusion, making inroads into rural areas to bridge connectivity gaps. Some metro cities are nearing the digital penetration saturation point and there are clear signals that the urban and rural connectivity gap is narrowing.

However, there’s a growing gap between the demand and supply of digital products and services outside metro areas. While users in these areas might have internet access, they cannot participate and contribute meaningfully to the digital economy. This represents a potential risk of a widening digital economic divide.

Digital economic growth happens as a result of digital inclusion and the active participation of digital users
Digital economic growth happens as a result of digital inclusion and the active participation of digital users Image: Google, Temasek and Bain, e-Conomy SEA 2023

In addition to the need for governments and businesses to strive to bridge the gaps, stakeholders like investors and NGOs can help knock down barriers so that more Southeast Asians can become active users of digital services.

For example, investors can actively take a digital inclusion lens when evaluating new opportunities and encourage portfolio companies to address digital participation issues.

NGOs, in partnerships with governments and the private sector, need to continue launching education initiatives and introducing economic development plans to increase skills such as digital and financial literacy that are needed to make use of digital opportunities in a safe, productive way.

Invest in infrastructure and supporting international policy frameworks

It is essential that governments – supported by private sector partnerships – continue investing in digital and physical infrastructure to create an environment where companies can confidently expand and run profitable businesses.

Hurdles such as insufficient infrastructure and road density, alongside challenges in creating cost-efficient supply models in rural areas, often make it harder for businesses to operate in those areas even though the demand for digital products and services is growing. The right investments are needed to lower cost-to-serve and accelerate digital penetration.

Inclusive environment: encouraging digital participation by addressing common barriers
Inclusive environment: encouraging digital participation by addressing common barriers. Image: Google, Temasek and Bain, e-Conomy SEA 2023

Another area where governments play a critical role is driving multilateral, interoperable policy frameworks such as trade and cross-border data governance agreements and infrastructure standards.

International alignment can help businesses provide cross-border services and technologies and stoke growth across the region. Without alignment, digital fragmentation can be particularly challenging for small businesses that have fewer resources to navigate disparate policies.

Have you read?

ASEAN’s Digital Economy Framework Agreement (DEFA) is a good example of a unified digital framework that will help accelerate growth in the region’s digital economy.

Adopt new business models and technologies to remove barriers to participation

Businesses need to actively build strategies to meet the growing consumer demand outside metro areas and existing customer groups.

One of the prerequisites is to remove barriers to digital participation consistently. Common obstacles to the adoption include, for example, delivery issues such as high costs and minimum order requirements in e-commerce or long waiting and hidden transaction fees in ride-hailing.

Creating easier-to-use or more affordable products and services and building trust with new users by offering cash-on-delivery services and flexible refund policies are some of the ways that enable businesses to tap into the latent demand.

It’s important for businesses to keep a finger on the pulse and adopt new technologies, such as artificial intelligence (AI) tools that can help fuel business growth by enabling companies to improve operational efficiency and connect with customers in new, accessible ways.

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Improving inventory management and route optimization or increasing deeper engagement and digital participation through personalized content recommendations in online media can contribute to companies improving profitability and unit economics.

AI can also play an important role in detecting and preventing fraud, increasing security for both consumers and merchants.

Digital economy a key driver of growth for Southeast Asia

The digital economy will continue to be a major growth driver for Southeast Asia’s economy and is on track to continue growing faster than the region’s gross domestic product.

The ecosystem – governments, policymakers, businesses, and NGOs – all play a vital role in accelerating both digital inclusion (direct access to technology and the Internet) and digital participation (direct consumption of digital products and services).

Not only is it the right thing to do – but it will also help Southeast Asia unlock sustainable growth opportunities – and pave the path towards its growth, potentially becoming a $1 trillion digital economy by 2030.

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