The Digital Archipelago

Two of Southeast Asia’s biggest nations are following China into rapid tech-led growth, says Baillie Gifford’s Ewan Markson-Brown.

The value of your investment and any income from it can go down as well as up and as a result your capital may be at risk.

Driving through Jakarta, you notice a few more glass skyscrapers dotting the urban sprawl.

Indonesia, with Southeast Asia’s biggest population, has the region’s most billion-dollar tech startups. Instead of eBay, Uber, and Amazon, it boasts Bukalapak, Go-jek, and Tokopedia. 

Chinese companies have raced into Indonesia with full pockets: Alibaba invested $1.1 billion in Tokopedia. Google, Softbank, and private equity funds are right alongside them. Each sees Indonesia as the gateway: win there, and you catch the better part of Southeast Asia, too.

Companies like Tokopedia and online shopping firm Shopee are disrupting Indonesia’s economy, driving a wedge into family-owned monopolies that have kept prices high, largely through their cosy political connections. Digitisation knocks down barriers to entry. It is good for women, who generate 35 per cent of online sales. And it is good for people living outside the main island of Java, for whom online goods are up 25 per cent cheaper than traditional retail.

Warungs, mom-and-pop corner shops, are now increasingly ecommerce pickup locations, too. They bridge bricks and clicks. Delivery by warung is a clever solution to a particularly Indonesian problem: many in rural areas live on nameless roads, without house numbers, while many streets in large cities bear the same name.

Indonesia isn’t yet at the stage of wealth where global brands are broadly affordable to most people. So ecommerce has the potential to create a boom in local manufacturing, ordered by mobile, delivered by warung. 

In per capita GDP, internet penetration, retail spending, and urbanisation, Indonesia today looks like China in 2010. Indonesia’s online market should grow eightfold from 2017 to 2022. Potentially, 16 per cent of retail will be online in 2022: up from 2 per cent in 2017. 

Much of the country isn’t even online yet. Smartphone penetration is currently Southeast Asia’s lowest, with 46 per cent of mobile phone users owning smartphones in 2017.  This is predicted to reach 78 per cent by 2020.

Let’s go Shopee

This is good news for marketplace platforms like Shopee, which launched in 2015, and saw its merchandise’s value reach $1.1 billion two years later.

Shopee is creating demand for products and services from areas which traditionally could not access them, or where their cost was high. Small businesses can connect with new willing consumers. 

On a recent trip to Jakarta, we visited one business which started listing products from three offline stores on Shopee in 2017. A year later, the business had grown tenfold, with online trade a multiple of the offline stores’ size.

Go-Jek, Tokopedia, and Traveloka - an Indonesia company operating the region’s biggest travel app - are mulling public offerings. Profit margins in electronics manufacturing are razor thin. We think clothes and fashion should become profitable faster. Goods there are more differentiated, customers more loyal, and purchasing-side economies of scale less pronounced.

Good morning Vietnam

Vietnam is also worth watching.  Large technology parks buzz in Hanoi, Ho Chi Minh City, and Da Nang. They provide offices for software companies like FPT and Viettel, and technical universities, health clinics, and supermarkets for their employees, too.

Vietnam’s population is young and digitally savvy: regionally it trails only Indonesia in social media accounts per person. Meanwhile 91 per cent of mobile users are set to have smartphones in 2023, up from 37 per cent in 2016.  

About a third of Vietnam’s population are online gamers, representing 32.8 million users. Most play at cybercafes, which have heavy government restrictions. As more people become able to play games on smartphones, without needing to visit web cafes, this looks like a market that could grow hugely in the next few years. The top 30 mobile games in Vietnam are expected to make $62 million in 2019: up 36 per cent from 2018.  

This kind of growth is promising for companies like SEA, Southeast Asia’s biggest gaming platform, with 161 million quarterly users. It’s a contrast with China, whose government has stopped the approval process for new games since March.

Selfie politics

Of course, it doesn’t hurt that there’s more political stability.

After an acrimonious April 2019 presidential election, re-elected President Joko Widodo invited his rival, a former army general, to join the government. The two now pose for selfies together. Widodo also convinced GoJek’s 35-year-old chief executive Nadiem Makarim to join his cabinet. Indonesia appears on course for a consensus politics of reform, with tech voices at the table.

As China’s economy slows, Indonesia and neighbours are offering the kind of opportunity China offered ten years ago.

Is it transformational? Yes. Are we just at the start of the trend? Absolutely.

Important Information
This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). The investments trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised and regulated by the Financial Conduct Authority.

Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. Investing in emerging markets is only suitable for those investors prepared to accept a higher level of risk. This is because difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. A Key Information Document is available by visiting All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.