Integration, interoperability, inclusion: Igniting the e-commerce boom in Asia

Despite these impressive growth rates, Asian governments still have much work ahead of them to translate the region’s swift adoption of e-commerce into inclusive digital trade opportunities for more local firms, especially small businesses. This will require a deeper integration of markets, the implementation of international commitments on trade and data, and the improved cross-border interoperability of digital payments and platforms.  

Integration through trade agreements 

Governments in the region have long sought to facilitate regional e-commerce through broad-brush arrangements such as the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN), alongside more advanced free trade agreements that unite regional economies with international partners to promote digital trade – for example, the US-Japan Digital Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The adoption of the policies and practices in these agreements are conducive to digital trade infrastructural needs, from e-payment laws and export promotion programs to financing for online small and medium-sized enterprises. They have, therefore, all bolstered the e-commerce surge.

These obstacles and concerns point to the clear need for an alignment of the regional policy agenda to promote digital trade. In short, there needs to be further interoperability across national digital regulations in particular to facilitate greater compliance among smaller firms. More regional signatories to the CPTPP and other trade agreements with binding e-commerce rules, for example, could help to foster this convergence and lock each participating economy into standardized rules for digital trade. The intention of ASEAN economies to negotiate a Digital Economy Framework Agreement (DEFA) is a potential positive step towards more robust and binding rules that promote e-commerce, promote digital interoperability, and create a more level playing field. 

“Firms also worry about potential data localization – where local authorities require data to be stored in the country – undermining cross-border e-commerce.”

Easing border and payment blockages

Asia’s prolific innovation in payment systems is yet to be matched by payment system interoperability: different national payment systems often still can’t understand or work with each other. About one-third of firms in the region report losing online export sales because they are unable to accept payments from foreign customers, according to Nextrade research. High cross-border logistics costs, the increasing complexity and geoeconomic fragmentation of business-to-business logistics, and the persistence of requirements for paper-based trade and payment documentation continue to present significant challenges to the e-commerce boom. 

Efforts to promote the cross-border interoperability of payments and logistics, therefore, must be extended across the region. Encouragingly, robust bilateral and multiparty real-time payment interoperability pilot projects already exist. These initiatives and the ongoing adoption of ISO 20022, a global standard for data interchange between financial institutions, aim to streamline communications between national payment systems. Project Dunbar, a platform that collates knowledge about digital currencies from central banks, commercial banks, and technology partners, could also accelerate cheaper and more efficient cross-border payments and pave the way for similar, beneficial initiatives.

In trade logistics, blockchain and other technologies can be put to use at a greater scale to promote traceability and interoperability in logistics value chains and lower the cost and duration of shipments and green trade transactions. In addition, previous market access barriers such as tariffs need to be addressed for trade to flow. 

Let the data flow 

Asian firms engaging in digital trade need more fluid access to data on their operations and customers, and the ability to store, process, and analyze that data cost-effectively. However, there is much work to be done here. The US Trade Representative’s 2022 and 2023 reports on foreign trade barriers highlight obstacles to data transfers in several Asian countries such as Indonesia, China, and Vietnam, the latter of which is a signatory to the CPTPP that bans data localization. 

“Online seller-exporters are more likely than offline sellers to export to multiple ASEAN economies and markets outside of the region, according to our research.”

For example, China’s Data Security Law, Personal Information Protection Law, Cybersecurity Law, and National Security Law restrict cross-border data transfers that would be considered routine – and fundamental to business activity – in many other jurisdictions. This restrictive framework imposes local data storage and processing requirements on companies that collect “important data,” which Western and other officials have described as an overly broad and vaguely defined term.  

Businesses worry that such restrictions could impact not just companies in “critical information infrastructure sectors,” but also those that operate in other sectors that inadvertently run afoul of the uncertain geopolitics. Given the wide range of business activities that are dependent on cross-border data transfers, these developments have generated serious concerns among foreign governments and services suppliers.

Primed for further e-growth 

Businesses across Asia are increasingly realizing that the opportunities of the future lie inextricably with e-commerce. In ASEAN countries, two-thirds of micro and small firms use the online shopping platform Shopee, our research shows. About half use rival app Lazada, and more than a quarter of them use Amazon. Mid-sized and larger firms widely use global marketplaces such as Amazon and Alibaba, as well as direct-to-consumer platforms such as Shopify.  

Crucially, more than 60% of micro-enterprises that sell on global online marketplaces now export, with half of them getting into the export business because of e-commerce. Online seller-exporters are more likely than offline sellers to export to multiple ASEAN economies and markets outside of the region, according to our research.  

This surge in business-to-consumer e-commerce is paralleled by the strong growth of cross-border business-to-business digital trade, as sellers seek to create “omnichannel” experiences for purchasing managers. Digitally deliverable B2B services exports have risen by around 16% per annum over the last 15 years in the ASEAN region alone, far exceeding the five percent annual growth rate seen globally, according to Nextrade analysis based on WTO data.

The deeper integration of markets, the implementation of digital trade commitments, and the improved interoperability of payments and logistics services will help Asian online businesses dramatically expand their sales in the coming years. By integrating small firms, remote sellers, and a growing army of tech creatives into these new markets, policymakers can enable more inclusive trade – and produce ever greater gains from the sweep of digital commerce.

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This article was provided by the Hinrich Foundation for publication in I by IMD, the magazine of the Institute for Management Development.

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