Southeast Asia's emerging economies continue to attract manufacturers and service providers eager to tap into a combined population of 630 million and a growing middle class. But an increasing number of investments in recent years have been focused on the new digital economy and the huge potential it represents.
The point was underlined dramatically earlier this year when the Chinese e-commerce giant Alibaba invested US$1 billion in the popular Southeast Asian shopping portal Lazada. And while Asean consumers are flocking online to shop, they are also looking for more efficient ways to pay, giving rise to national e-payment systems such as PromptPay in Thailand, and mobile money platforms that eliminate the need for banks in some cases.
With 252 million active internet users, equivalent to 40% of the population according to We Are Social data, Asean is becoming a prime hunting ground for businesses looking to capitalise on the opportunities that digital platforms present.
Everyone, it seems, is talking about the "digital economy", though the very expression will soon be obsolete since digital technology now underpins nearly every aspect of economic activity, from shopping to financial services, heavy industry, utilities and government services.
Despite the many opportunities, Asean still faces obstacles to driving the digital economy forward and reaping the benefits of better and faster connections.
"There remains a significant digital divide within Asean," said Jayant Menon, lead economist with the economic research and regional cooperation department of the Asian Development Bank.
Singapore is the only Asean country in the top 20 of the ICT Development Index compiled by the International Telecommunications Union, and it is the region's most mature e-commerce market. Cambodia, Laos, Myanmar and Vietnam remain in the early stage of digital development.
And while most countries' digital performance corresponds roughly with their level of income, Indonesia trails its peers in terms of internet access and overall ICT development, Mr Menon told Asia Focus.
"The transition toward a digital economy will be helped by sustained improvements in information and communication technology (ICT) access and usage across the whole region," he said.
China, on the other hand, has reached a more advanced stage, with rapid adoption of digital technologies in its retail, transport and banking sectors, said Deepak Mishra, a Washington-based lead economist at the World Bank.
A recent report by AT Kearney estimates that the Asean digital economy generates US$150 billion in revenue per year. The same report notes that ICT investment in Asean is growing at more than 15% annually, and surpassed $100 billion in 2014.
However, obstacles on both the supply and demand sides inhibit the growth of a broader digital economy in Asean, said Mr Menon.
On the supply side, increasing the supply and lowering the cost of digital services are major challenges, particularly in low and low-middle income economies. Regulations that inhibit innovation in digital services and e-commerce are also a constraint.
On the demand side, low awareness and concerns about privacy and security, particularly over online payments, limit the uptake of digital services. The lack of skills to develop online retail platforms and insufficient access to funding are also major obstacles for retailers.
In order to remove these obstacles, Mr Menon said governments needed to increase investments in communication infrastructure, reform regulations to encourage competition, and strengthen and harmonise cybersecurity, data protection and privacy laws. As well, he said, they should provide support to retailers through skill development.
"For digital technology to benefit everyone everywhere, it requires closing the remaining digital divide, especially in internet access. But greater digital adoption will not be enough," Mr Mishra told Asia Focus.
From the regional perspective of the Asean Economic Community (AEC), he said, more foreign equity ownership in telecoms should be allowed to provide the capital the industry needs. As well, domestic regulatory frameworks for digitally intensive services such as transport, finance, retail and audio-visual sectors should be harmonised with the goal of creating a regional single digital market.
Other helpful steps include limiting data localisation requirements in order to ensure seamless and costless cross-border flows of data, and harmonising and streamlining intellectual property licensing across borders.
Mr Mishra noted, however, that rich countries are not necessarily the most advanced digital economies, though the correlation between per capita income and digital adoption is significantly positive.
For example, China's e-commerce sector, India's digital identification system, Indonesia's hyperlocal ride-sharing services and Kenya's world-leading mobile payment system are examples of some of the most impactful digital interventions in their respective fields, yet none of these are high income countries.
Countries that have achieved all-round digital success, such as Estonia or Singapore, stand out in two dimensions, he said. First, they have made considerable effort to make the internet accessible, affordable, open and safe for everyone.
Second, they have built a strong "analogue foundation" under their digital economy by creating a more competitive business environment, adapting workers' skills to the demands of the new economy, and ensuring that institutions are accountable.
The creation of the Ministry of Digital Economy and Society reflect's Thailand's desire to steer the country into a new era. HANDOUT
THE THAI CONTEXT
In Thailand, the creation of a new Ministry of Digital Economy and Society underlines the commitment of the government. Authorities aim to support digital economy development by building ICT infrastructure, promoting e-payment, and collaborating with financial technology startups, said Anuchit Anuchitanukul, a Kiatnakin Bank executive vice-president and a member of the panel that helped launch PromptPay.
The current shift in Thailand's economic development model toward digitisation, he believes, is the most significant change since the 1980s, when the administration of Gen Prem Tinsulanonda started steering the country toward an economy based on heavy industry and energy development.
But human resources remain a major challenge in Thailand, as the education system has not kept pace with the needs of the digital world, said Mr Anuchit. "Even if the education problem was resolved today, it would take around one generation for the results to bear fruit, while Thailand's ageing population is another problem [limiting numbers in the labour force]," he said.
Although internet access and mobile device usage among Thai citizens are high, shortcomings in knowledge mean that digital competitiveness is low, hindering programming ability, innovation and product development, he added.
Limited awareness also has implications for cyber security. No matter how secure an online security system is, there will always be users who don't take sufficient care with personal information and become targets for hackers.
Mr Anuchit also believes that the government needs to take advantage of the country's attractiveness to foreigners to encourage more foreign IT experts to relocate and help develop the digital sector.
"What is also important is domestic political stability as it is a foundation for building a digital economy plan," he added.
THE BUSINESS CHALLENGE
In addition to governments and regulators, businesses today are all facing some form of digital transformation, regardless of their size, says Robert Enslin, president for global customer operations of the multinational business software provider SAP.
Some companies -- Kodak is a notable example -- failed to grasp the opportunity completely. But others are finding ways to reinvent themselves profitably for a new age.
Mr Enslin points to Under Armour, an American sports clothing and accessories company, as a prime example. With its "connected fitness" concept, it is reinventing itself as an innovation company, which will also help improve its performance as retailer. It has completely revamped its digital strategy from a single website and now has 25 e-commerce sites globally with plans for even more.
The strengthened digital platforms also give the company reams of data about its customers' fitness habits and health. For example, there are 800,000 people tracking their running shoes in the Under Armour system. Data show that running shoes start to break down after about 600 kilometres, which increases the chance of injury. Under Armour now alerts customers when it's time to replace their shoes.
The recent SAP Digital Experience Report 2016, which polled 3,600 consumers across Southeast Asia, uncovered a strong link between digital experience performance, customer loyalty and advocacy, with repercussions for top-line revenue. Basically, businesses risk losing customers over poor digital experiences, thus affecting the bottom line, said Mr Enslin.
"There is enormous stored potential in the data and assets that organisations hold. With a better view of that data, new use cases and business models arise," he said.
Companies such as Uber and Airbnb, which are built on digital platforms, as well as the e-commerce model of Nestle Nespresso coffee, are other examples of how a company fuses technology with its business operation.
The Chinese e-commerce giant Alibaba, the Malaysian taxi-booking application Grab, and the Indonesian online marketplace Tokopedia are other names that stand out for effectively combining digitisation with their business models.
THE RISE OF FINTECH
By comparison, financial services are struggling to adapt to technological advances, while global interconnectivity among financial institutions is not sufficient to address customers' needs, said Mr Enslin of SAP.
Veerathai Santiprabhob, the governor of the Bank of Thailand governor, says the adoption of digital technology and shared infrastructure will be the very foundation for improved efficiency of financial services.
Thailand is banking heavily on PromptPay, the new national electronic money transfer system that is scheduled to be in full operation by the end of October. It will allow individuals, businesses and the government to transfer funds across service providers at low cost with ease and flexibility.
Under PromptPay, people can easily and rapidly transfer money online to recipients who hold accounts at different banks, or even the same banks in cross-clearing zones, free of charge, but they are required to sign up to link their ID card or mobile phone number to accounts at participating banks.
"On top of the promotion of e-commerce, PromptPay together with other e-payment initiatives -- for example shared point-of-sale terminals, digital tax messaging, standardised quick response codes -- will lead to a significant reduction in costs of cash management and paper processing, currently borne by banks, businesses and consumers, as well as the central bank," said Mr Veerathai.
"In addition, the move from cash-based transactions to more electronic-based transactions can potentially reduce incidences of corruption and improve governance through greater transparency."
Mr Enslin, meanwhile, is certain that the current financial services landscape dominated by banks will be disrupted more and more by financial technology (fintech) providers, alternative payment systems such as Apple Pay, and transaction models built on blockchain technology, such as Bitcoin.
Banks are moving quickly to make sure they are not left out, acquiring stakes in fintech companies in order to integrate new digital services with conventional financial offerings.
However, he warned that cybercrime and e-money hacking would increase as more people make digital platforms their main choice for financial transactions. But it is also easier to trace malicious activities on electronic platforms compared with the physical world, he added.