Despite its relatively small geographic size, Southeast Asia is one of the world’s most diverse regions, and with 650 million people, its population is larger than North America.
Generally defined as the 10 member states of the Association of Southeast Asian Nations - Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Laos, Myanmar, Cambodia and Vietnam - Southeast Asia has a wide range of languages, religions, cultures and economic development.
But the overall picture is one of growth.
At a meeting of the ASEAN economic ministers in August 2018, the association reported that if the region were a single country, it would be the world’s fourth-largest economy by 2030.
One reason for this upward trajectory: a very young population that’s giving the region a huge labor force, estimated to be second only to China and India. As of 2017, more than half of the region’s residents were between the ages of 20 and 54, with another 34.5% below 20.
These figures are, in part, the reason travel and tourism predictions for the region are generally positive, forecasting increases in both intra-ASEAN travel and international visitation.
According to GlobalData’s March 2019 report, Tourism Destination Market Insights: ASEAN, the region is one of the fastest-growing destination regions in the world.
The report predicts a compound annual growth rate of visitors of 4.72% between 2018 and 2022, from 129.2 million to 155.4 million people.
In turn, travel brands in the region are having to meet this growing demand. For the area’s homegrown brands, not only are they responsible for meeting the varied, and evolving, needs of travelers, but they’re also facing competition from global players with deep pockets.
For the third piece in our series on Southeast Asia, we look at the distribution landscape in the area and how both B2C and B2B local players are competing for their slice of the pie.
Background
According to Tai Parata, senior director of online business at Sabre, Southeast Asia is one of the easiest - as well as one of the hardest - markets to enter into in the whole Asia Pacific region.
“The range of complications there is very, very different,” he says. “You’ve got Singapore, where you can get away with English, there’s high e-commerce literacy, a good, solid base of customers and payment gateways, credit card acceptance is very high. I think it’s one of the easiest countries in the world to enter.”
The limitation in Singapore, he says, is the size of the market, which is 6.1 million people, according to U.S. Census Bureau.
On the other end of the spectrum, Parata says, are countries like Vietnam and Indonesia, which have populations of 97.9 million and 264.9 million, respectively.
“There’s a huge population base, but there are heavy operational challenges,” he says. Payments are a major challenge, particularly for international players, he continues, as is language. “It’s a mixed bag, actually, how the online players have succeeded across [the region].”
He points to Indonesia, home to travel brands such as Traveloka and Tiket.com, as a success story: “Because Indonesia is so complicated, the local players have had the market to themselves for a long time, drawing up off the back of selling low-cost carriers. They’ve built strong brands directly with the customers and also have very, very deep, locally relevant product.”
Language and payments are also not an issue in Indonesia because the brands have grown organically, “whereas a lot of the international brands sort of stepped back, saying, ‘This is a big difficult for me and I’m not that keen on complicating my business model.’”
International brands, such as Booking.com and Expedia, have focused first on entering “easier” markets like Singapore, Parata says, but, because of global competition in Europe and the United States, they’re starting to take on more complicated markets.
The local advantage - and disadvantage
Local brands outside of Singapore have leaned on “a certain degree of isolation and learning” to develop their strategies across the region, Parata says.
“They’ve had a lot of time to develop deep products, so they’re going to win in the online space.”
Homegrown brands understand their customers - including what customers want and the types of holidays they book - and know how to market to them.
“On the marketing side, Southeast Asia definitely isn’t easy, but it’s easier than a lot of countries because a lot of the core target market has centralized around a small number of cities.”
Because these brands have grown in a less competitive environment, the marketing challenges are fewer than the operational challenges they face. But marketing still comes at a cost.
Southeast Asian travelers don’t want queues, they don’t want to deal with people at counters, they don’t even want to carry cash, they want everything right now.
Blanca Menchaca - BeMyGuest
“They tend to burn a lot of money because they have to educate the market, move them from offline to online. The main challenge is being able to hold and grow the business and have enough investment to keep growing their business.”
Phan Le, CEO of Vietnamese travel tech company VLeisure, says another challenge is having the funds to find and retain quality talent.
Despite this, the advantage VLeisure has, as an online marketplace where retail and wholesale consumers can buy hotel rooms, flights and travel insurance, is its deep understanding of the local market and its strong partnership network.
“Instead of competing with global online players, we cooperate with them to use their key assets,” Le says. “For example, we work with a wholesaler in China to get Chinese content, a Korean wholesaler for Korean content and so on. In return, we develop Vietnamese content that we can provide back to the global online players.”’
For Singapore-based OTA Agoda, which is second only to Booking.com as the top booking channel in all of Asia, chief marketing officer Ittai Chorev says developing technology has been key to its success in Southeast Asia.
“This is Agoda’s core region, and we have an advantage being headquartered here because we have had to develop our technology much more quickly to meet the demands of customers in the region, be it for mobile bookings or fast-adopted alternative payment platforms,” he says. “If we can compete well in Asia, we can compete anywhere in the world.”
Chorev says competition is rising, however, as new players with fresh injections of capital are starting to enter the market.
“We have to be better than any competition at delivering what travelers want,” he says. To that end, Agoda, which is owned by Booking Holdings, has been able to turn to other brands in the portfolio to help meet traveler needs, such as by offering flights on the platform through a recently announced partnership with Priceline.
Offline hurdles
According to Phocuswright’s Phocal Point database, the offline channel accounts for more than half of gross bookings in Singapore, Indonesia and Thailand in 2019, and the trend is predicted to decrease only slightly through 2022. (Offline bookings in Malaysia, meanwhile, account for just shy of 50% of bookings in 2019 and are expected to decrease to 45% by 2022.)
Parata says low-cost carriers tend to drive the initial adoption in the online space, and from there, consumers are moving to OTAs. The challenge for OTAs becomes educating the market to buy from and trust them.
Younger generations coming online is growing penetration, but there’s still much work to be done.
Subscribe to our newsletter below
He also says each region needs three OTA competitors in order to drive strong adoption, otherwise bookings tend to plateau and the acquisition cost of bringing offline customers online becomes too much.
For BeMyGuest, a Singapore-based B2B tours and activities marketplace, the challenge it faces is bringing suppliers online.
“Travel activities in Asia truly began to take off online since 2011, with an initial few local/regional brands digitizing products,” says BeMyGuest CEO Blanca Menchaca. “It remains a maturing sector where adoption of technology by operators is low and still presents the biggest opportunity.
“However, a tool is only as good as its users. The opportunity is there for companies who have the know-how, understanding with the right timing.”
Menchaca says suppliers in Asia need more support and guidance than their Western counterparts, and there’s a sustained disconnect between operators operating offline and travelers demanding electronic tickets and products that are instantly bookable on mobile.
“They don’t want queues, they don’t want to deal with people at counters, they don’t even want to carry cash, they want everything right now,” she says.
“There has been a shift, but there’s still a long way to go. Education of operators is at the core of the sector’s evolution.”