Why Amazon Will Probably Never Enter Southeast Asia

Written by Sheji Ho on March 27, 2017

Sitting comfy where I fit.

A few days back, TechCrunch broke news that sources claimed Amazon would be delaying its highly anticipated Q1 entry into the fast-growing Southeast Asian ecommerce market. Unclear who these ‘sources’ may be, the lack of any substantial evidence that the ecommerce giant is entering Singapore points to the case that it probably will never happen.

Plans of entry into Singapore have never made sense if you take a look at Amazon’s past and present market strategy, as I do here.

Conventional versus Guerilla Warfare

Like the giant in David and Goliath, Amazon performs best in wide-open “terrains” where the juggernaut can accumulate and leverage its scale advantages. Look at the markets where Amazon is currently dominating the competition: US, Japan, UK, Germany, France and increasingly India.

Amazon SingaporeAmazon entering Southeast Asia is comparable to the Americans fighting the Vietnam war. They’ll be battling an enemy that’s scattered across countries, often divided by water and much better equipped at playing the local game. Drop a few Amazon executives from Seattle into the jungle called Jakarta to navigate “Prime” logistics in the city’s legendary traffic and they might beg to go home.

Just look at Europe, which, despite the European Union, is still a loose collection of individual countries. Amazon’s tour-de-force in Europe has whittled down to three major markets — UK, Germany and France.

China seems like the exception — an enormous single market similar to the US — yet Amazon’s market share tanked from 15% in 2008 to less than 2% today. Decision-making was centralized in the US, which slowed down its operations in China and couldn’t outcompete the hungrier competition.

In the end, Amazon China was no match for Alibaba’s Jack Ma and JD’s Liu Qiangdong, leaving them no choice but to throw in the towel and set up shop on Tmall instead in 2015.

In the Middle East, Amazon is currently entangled in a bidding war with UAE magnate Mohamed Alabbar to acquire Souq.com. Souq operates across the Gulf Cooperation Council (GCC) countries, all connected by land and no custom duties between them. This provides Amazon access to 50 million people sharing the same language and culture and fits with its strategy of going after large single markets.

Singapore is not operation D-Day for Amazon

Amazon’s rumored entrance into Southeast Asia has specifically focused around setting up in Singapore first, arguably the most mature, albeit smallest, ecommerce market in the region.

Prior to Lazada snapping up Redmart for $30-40 million, there were talks of Amazon trying to buy Redmart as a way to jumpstart its Singapore operations.

But Amazon setting up local retail operations in Singapore doesn’t make any sense. Singaporeans, due to their country’s GST relief and efficient global logistics, are already ordering from Amazon en masse.

Amazon and Singpost are driving improvements in global cross-border logistics, to enable delivery of packages from US to Singapore within 3 days with priority shipping. That’s the average time for local domestic deliveries inside Indonesia. Expect even faster deliveries in the future when Amazon successfully expand its own fleet of planes.

Custom dutiesPerhaps Singapore could serve as a distribution hub to expand into the rest of Southeast Asia? Also, probably not the case. There are good reasons why Jack Ma decided to set up his new Southeast Asia hub in Malaysia’s new ‘Digital Free Trade Zone’ and not in Singapore:

  • Malaysia is connected to Thailand via land that gives it access to Cambodia, Myanmar, Vietnam, etc.
  • Malaysia is as close to Indonesia, Alibaba/Lazada’s biggest market in Southeast Asia, as Singapore is.
  • Malaysia itself is a much bigger ecommerce market than Singapore – 30M vs 5.5M population.
  • Malaysia has a much bigger overseas Chinese community than Singapore who are regular users of Tmall, Alibaba and AliExpress.
  • Malaysia is a close political ally of China. (Not everything is purely business; read between the lines).
  • Malaysia has more physical space than Singapore to fit in a massive logistics operation.

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But Amazon is recruiting people…right?

You may know someone who works in the ecommerce space in Southeast Asia who has received a phone call from an Amazon recruiter. Yes, Amazon is recruiting but not for the reasons you think.

Most of the jobs sourced are for its cross-border business based in Singapore long ago to get Southeast Asian merchants to sell on the Amazon global marketplace.

ecommerceIQ, Amazon jobs, Singapore

Amazon is hiring in Thailand for Amazon Global Selling (merchant acquisition) and AWS, not for local retail.

Indonesia would be the place to start

In line with Amazon’s strategy of going into large, singular markets, the most recent being Australia, a Singapore landing would be ruled out. If Amazon is really set on conquering Southeast Asia, a more likely entrance would target Indonesia. With a young population of 250 million and growing, Indonesia is the ‘new China’ — an economic and ecommerce powerhouse in a region of 600 million people.

Having said that, the window of opportunity for Amazon in Indonesia is closing fast. With Alibaba’s backing, Lazada is doubling down on its biggest market in Southeast Asia, and local giants like Lippo Group have pumped over $500 million into its ecommerce venture, MatahariMall. Then there’s JD that sneaked into Indonesia in 2015 and seen steady year-on-year growth and ecommerce veterans such as blibli.

To accelerate a move into Southeast Asia, a plausible option for Amazon is to buy its way into the market even though it didn’t work so well with China.

Even its bid to acquire Souq.com in the Middle East is still up for debate.

Fortunately for Amazon, Indonesia’s ecommerce space is still developing with plenty of players that could want a powerful ally like Amazon. Lets wait and see.

By Sheji Ho, aCommerce Group CMO

What do you think? Will Amazon ever enter Southeast Asia?

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