Amazon Makes Its First Move in Southeast Asia

But is it already too late for the ecommerce behemoth to catch up with Alibaba?

Author: Rahul Chadha

July 27, 2017

After months of speculation that it would do so, Amazon finally made its first foray into Southeast Asia this week by launching its Prime Now service in Singapore. 

On Wednesday night, Amazon made the Prime Now app available for download in the city-state on both Apple’s App Store and Google’s Play Store. Users can take advantage of Amazon’s promised 2-hour delivery on a range of products, including electronics, groceries and consumer packaged goods.

The move came just hours before the ecommerce giant reported second-quarter results, notching a 25% increase in revenue. But, as the Singapore investment illustrates, the company continues to invest aggressively in growth with less focus on profitability. Second-quarter earnings declined 77%.

For the Singapore rollout, Amazon said it would extend Prime Now benefits to non-Prime members for a limited time. Customers who make purchases totaling at least SGD40 (roughly $29) will get their goods delivered for free.

With the move, Amazon has fulfilled a long-held expectation that it would make a move into Southeast Asia’s ecommerce sector. The expansion also pits Amazon almost directly against the world’s other global ecommerce giant, China’s Alibaba.

Amazon already finds itself lagging behind Alibaba in the region. In 2016, Alibaba bought a controlling stake in Lazada Group, the company that operates ecommerce platforms in six countries in Southeast Asia: Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. (In June, Alibaba spent $1 billion to increase its stake in Lazada from 51% to 83%.)

Lazada’s properties are already dominant in most—if not all—of the markets in which it operates. According to data from SimilarWeb, Lazada Singapore outperformed any other business-to-consumer (B2C) ecommerce site in page views in April, recording nearly 4.1 million. RedMart, the online grocer acquired by Lazada in 2016, drew another 590,000 page views that month.

Still, it makes sense that Amazon would choose Singapore to establish a toehold in Southeast Asia. The country has a comparatively high internet penetration rate for the region. eMarketer estimates that 77.0% of the city-state’s population will be regular internet users this year.

Singapore’s retail ecommerce sector remains underdeveloped. Retail ecommerce sales will account for just 5.0% of total retail sales in the country this year, eMarketer projects, totaling $2.43 billion. That leaves a lot of room for growth in the market.

Singapore’s dense, urban nature will also make it easier for Amazon to manage delivery logistics within Prime Now’s 2-hour delivery window. The company has already built a fulfillment warehouse of about 100,000 square feet in Singapore to serve consumers there.

In many of Southeast Asia’s other markets, Amazon will have to rely on its vaunted experience in managing and delivering inventory to overcome the lack of solid infrastructure needed for last-mile delivery. The firm will also have to deal with both cultural and language barriers, as well as potential regulatory complications.

And in addition to Lazada, it will have to take on other regional ecommerce players that have already established themselves in their respective markets, such as Indonesia’s Tokopedia.

At the same time, Lazada has not been content to rest on its laurels in the region. This week, Lazada’s properties in Singapore and Malaysia made Alibaba’s popular Taobao Marketplace available to their users in English for the first time. Lazada clearly hopes to replicate the success Alibaba has seen in China with Taobao, which offers a wide variety of products from third-party vendors at very low prices.