KUALA Lumpur is ranked one of the top e-commerce cities in South-East Asia, but a lack of trust among consumers pose a challenge for the industry’s growth, says a recent study by YCP Solidiance.
The report, titled ‘Top E-commerce Cities in Asia’, credits KL’s e-commerce growth to its Internet penetration, technology adoption and Internet usage.
“With 86% Internet penetration rate, KL outnumbers Singapore and Jakarta at 81% and 72%, respectively. The technology adoption rate is a staggering 96%, making it one of the highest compared to other Asian metropolitan cities, thanks to the fast adoption of the smartphone.
“This number has also pushed its Internet usage higher, with people spending an average of 13 hours on their devices,” it says.
KL is an attractive market. Home to a population of 7.4 million, it has a digital banking penetration rate of 85% and retail market size of US$11.4bil.
The largest sectors within e-commerce are travel, followed by entertainment media, consumer electronics and fashion.
Among the key drivers for the city’s e-commerce growth include a good transport infrastructure for product sourcing, logistics and delivery.
However, it notes that the local industry faces the problem of trust in terms of product reliability and payment system. Consumers are often uncertain about the quality of products and services sold online, particularly so when there is an influx of products from China.
Additionally, concerns on security and fraud are often the biggest barriers when it comes to adoption of non-cash payment methods, making it a drawback in getting consumers to purchase goods and services online.
The report also notes that Malaysia still struggles with high logistics cost and a fairly low credit card penetration rate. The going rate, it says, is “US$3.03 charged for every kg of goods delivered.”
Nonetheless, KL is ready for the e-commerce industry considering its network infrastructure and governmental support.
“The city has a decent length of roads, a fairly high number of trucks, and high digital banking penetration rate. Malaysia’s government has also been supportive, establishing the world’s first digital free trade zone, allowing Malaysia to be the logistics centre for global marketplaces as well as encouraging innovation in e-commerce,” it says.
The report defines an “e-commerce city” as an urban city that has interconnected systems that make up an e-commerce ecosystem.
While economic size and growth of cities are important considerations in ranking e-commerce cities, YCP Solidiance notes that there are other factors that help determine the attractiveness of the city’s e-commerce landscape, including the city’s readiness to accept technological disruption, network infrastructure, ecosystem and competitiveness, customer behaviour, and most importantly, future growth opportunities.
“These factors not only help a city sustain high economic growth rates but also create a stable and harmonious business environment for e-commerce to strive,” the report adds.
According to YCP Solidiance, the top 12 e-commerce cities in Asia - in no particular order - are Bangkok, Beijing, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Mumbai, Osaka, Seoul, Shanghai, Singapore and Tokyo.
The report urges cities to improve their e-commerce ecosystem to reach their full potential. This can be achieved through having stable and predictable regulatory environments, adequate talent, ensuring market readiness and robust infrastructure, funding to scale up the business, and adopting global culture to empower innovative ideas.
The paper also suggests big companies to build synergy through investment or partnership in e-commerce, combining corporate know-how and long-term experience with innovative and fast-paced e-commerce entrepreneurs.
“The synergy built with e-commerce and tech-companies will directly boost the growth of e-commerce in the city and even the country in the current digital age,” it says.
The global e-commerce industry has continued to witness exponential growth. E-retail revenues worldwide reached US$2.86 trillion in 2018 and are estimated to grow to US$6 trillion in 2022.
China and the US currently dominate the e-commerce market with around 65% of global e-commerce.
But Asia Pacific enjoyed a 35% growth rate in 2018. Retail e-commerce sales reached US$1.8 trillion, making up 17% of total retail sales in the region. They could potentially outnumber e-commerce users in Europe and North America.