Economy / Asia Wide

The true cost of e-commerce in Asia

by Zafirah Mohamed Zein
Length 13 min

E-commerce is thriving in Asia, as the pandemic has kept people at home and  motivated them to shop online. As digital consumption soars, who pays the price of its convenience?

Online shopping an indispensable part of daily life

Unless you’ve been living under a rock for a while, you’ve probably noticed how e-commerce—the buying and selling of goods and services online—has been big business all around the world. While e-commerce markets have steadily grown over the past several years, nowhere has it grown more than in the Asia Pacific region, where scores of new users are shopping online each month.

With 855 million digital consumers, China is the world’s largest and fastest-growing e-commerce market. Its online retail sales, larger than the next top ten markets combined, account for 3.2 percent of its gross domestic product.

Much of China’s ecommerce growth has relied on the country’s high mobile penetration and smartphone ownership rates. This has led to the rise of super-apps—which gather a boggling range of digital functions on the same platform, from ordering food to booking flights—and a “mobile-first” approach to engaging people online. Fully integrated e-payment systems such as WeChat Pay and Alipay enjoy widespread trust, turning smartphones into hubs for social media, communication, and online shopping all at once.

All this has boosted China’s e-commerce share, amounting to 36.7 percent of all retail sales. In fact, a full eight out of ten e-commerce transactions in the country are performed on smartphone apps.

In Southeast Asia, too, residents enjoy some of the highest rates of e-commerce adoption in the world. Thailand, Malaysia, and Vietnam each exceeds the global average of 75 percent. These countries are more urbanised and have higher mobile connectivity than less wealthy countries such as Cambodia and Laos.

As the region’s middle class and its spending power expands, growing internet use and familiarity with online shopping looks set to fuel e-commerce growth for years to come. Driven by mobile access and ever-more-sophisticated online app platforms, Southeast Asia’s internet economy is predicted to grow to over US$300 billion gross merchandise value by 2025.

 

A viral catalyst for global e-commerce 

If e-commerce had already been growing in recent years, the COVID-19 pandemic in 2020 took things to a whole new level.

Less than 48 hours after Wuhan, China, had entered a full lockdown on 23 January, 2020, Alibaba—the country’s tech behemoth—started pumping food and medical supplies through the city via its digital logistics platform. Autonomous vehicles ran contactless deliveries on deserted streets, while e-commerce giant JD.com dropped parcels of essential items over remote villages using drones.

Demand for food staples, such as rice and flour, soared as the lockdown dragged on. Freshippo, Alibaba’s grocery division, hired staff from shuttered restaurants to keep food supply chains running, even as food delivery platform Meituan Dianping partnered with thousands of supermarkets to deliver everyday supplies to households. Leveraging their vast networks of delivery drivers and suppliers, China’s major e-commerce platforms helped keep communities fed and employed during the crisis.

As COVID-19 eventually spread beyond China’s shores, and most of the world entered some form of lockdown, many people started filling their shopping carts from the safety and comfort of their homes. In Southeast Asia, food delivery and groceries ranked as the two most sought-after online services, as the pandemic shuttered restaurants and supermarkets. Bit by bit, even traditionally physical businesses attempted to shift their services online.

It has since been many months since most countries started easing movement restrictions and allowing retailers to reopen—but the trend towards online shopping remains strong. Observers predict that new digital users, accustomed to the ease and convenience of e-commerce platforms, will continue shopping online long after the COVID-19 situation improves. In Asia, where e-commerce had already been widely used before the pandemic, the pace of adoption has accelerated. During their lockdowns, Southeast Asians spent more than an hour online each day, on average.

More than one in every three digital service consumers in Southeast Asia came online due to COVID-19, and nine in tenare expected to stay on after the pandemic. Today, e-commerce has become an essential for many new digital consumers in the region, providing access to goods, education, entertainment, and other services.

 

Who has benefitted from the e-commerce boom?

For e-commerce companies across Asia, new sales from COVID-19 have done way more than keep the lights on. As the pandemic drove consumers away from brick-and-mortar stores and towards the digital marketplace, online e-commerce giants have emerged as the winners of COVID-19, raking in millions of dollars in new revenue.

The region’s major players—Tokopedia (Indonesia), Shopee (Singapore), Taobao (China) and Sendo (Vietnam)—have witnessed massive growth in online transactions. Even smaller platforms such as Indonesia’s Bukalapak have managed to ride the wave, as merchants from small cities and rural areas flocked online to sell their wares. Alibaba’s Lazada and Sea Group’s Shopee—both headquartered in Singapore—were among the most downloaded apps in Southeast Asia’s six key economies.

All this new revenue has made the already wealthy owners of e-commerce platforms even richer. Five of the ten wealthiest people in China, for instance, work in e-commerce or internet services. Jack Ma, former chairman of tech titan Alibaba Group, is an annual chart-topper, and Huang Zheng, CEO of e-commerce site Pinduoduo, has nearly doubled his wealth over the years. Pinduoduo’s success came from its smart use of social media to let customers form online groups and make bulk orders with one another via WeChat, China’s super-app messaging service.

The invisible hands behind Asia’s e-commerce success

It’s tempting to focus on the revenue and wealth that e-commerce demand has brought to its star founders and CEOs in the wake of the pandemic.

But conveniences such as one-hour delivery and cheap fees don’t simply happen on an app. An army of low-paid, often exploited workers, toiling in warehouses or rushing to deliver food to stay-at-home populations, is paying the price of convenience for those who can afford it.

Asia, a region already characterised by massive inequality, is especially vulnerable to this. E-commerce requires a base of wealthy consumers able to afford delivery, but it also needs access to cheap, low-skilled workers who prepare packages and get them safely delivered into their hands. Invisible at best—and rarely thanked until the global pandemic revealed their necessity—these workers make paltry wages and face abuse by both consumers and managers throughout the e-commerce supply chain.

Food delivery riders, for one, have seen their earnings fall due to the many new delivery workers looking to earn a living in uncertain times. At logistics centres, staff work long, gruelling hours to meet soaring demand. In China, the death of two employees from Pinduoduo raised public concern that they had been overworked, even as a delivery rider for Alibaba’s subsidiary Ele.me set himself on fire to protest unpaid wages.

In South Korea, where online orders spiked 23 percent from February to October 2020, 14 couriers died from overwork that year, and work-related injuries for couriers rose 43 percent from January to June. All across the region—and the world—couriers have gone on strike to demand better working conditions and shorter hours.

Delivery workers and those hustling in the gig economy lack the benefits and safeguards typically afforded to full-time workers: overtime, paid time off, and insurance against injury. Though they are central to keeping things running, these essential workers have also been among the least protected groups of labourers during the pandemic.

As more such cases come to light, labour issues are tainting the glossy image of the e-commerce industry. Once heralded for their promise of new jobs and economic transformation, Asia’s tech conglomerates enjoy unchecked power today, stretching the gap between workers and the moguls who benefit off their backs.

 

E-commerce is greener and more efficient… if one ignores the cost of convenience

At first glance, loading your items into a digital shopping cart and getting them delivered to your doorstep might have a smaller environmental footprint than a trip to the shops. Even Jeff Bezos, founder of e-commerce heavyweight Amazon, once wrote to the company’s shareholders, “Shopping online is already inherently more carbon efficient than going to the store.”

In theory, this is true. The logistics of online shopping are more efficient than traditional retail in ideal scenarios. Think about how much less pollution and emissions occurs when one truck makes multiple grocery deliveries in the same neighbourhood versus several individual car trips to the supermarket.

However, as people get used to speedier deliveries and hassle-free returns, these new norms risk cancelling out the environmental benefits of not traveling to a physical store. Expedited shipping—same-day, bullet-speed, or express deliveries—produce almost 0.75 kilograms of carbon dioxide emissions (CO2e) per shopper, more than twice that of regular delivery methods. In China, quick deliveries account for more than 10 percent of overall deliveries, fuelled by the falling cost of shipping.

The convenience of ordering a product online in just a few clicks, with the option to return it for a small price or for free, has made it easy for consumers to justify purchases even without physically touching them or trying them. A fifth of e-commerce buys today are returned, twice as many as purchases made in physical stores.

The rejected items, along with their packaging, gets dumped in landfills.

Thousands of delivery trucks—most powered by fossil fuels—are also needed to transport the sheer volume of packages from warehouses to consumers. Packages may be passed from truck to truck on the way to their end destinations, and with commutes expected to increase by 21 percent due to extra traffic, the carbon footprint of online orders is set to rise. The World Economic Forum predicts that emissions from urban last-mile deliveries will increase by more than 30 percent in 100 cities all over the world, as more delivery vehicles are dispatched to meet rising e-commerce demand.

All this means that e-commerce might be inherently far less green than it seems.

And that’s not even considering the additional demand e-commerce platforms can create overnight, using digital marketing and targeted campaigns at a global scale. Special sales events such as China’s Singles’ Day—an “anti-Valentine’s Day” started by Nanjing University students in 1993, which Alibaba transformed into a global shopping festival in 2009—rake in billions of online sales, breaking their own records each year.

To put things in context, environmental advocacy group Greenpeace reported that Singles’ Day orders in 2016 generated 52,400 tonnes of CO2 emissions, equivalent to 57.7 million pounds of coal burned. In 2020, almost four billion packages were shipped during the 12-day-long shopping extravaganza.

The true cost of e-commerce in Asia

Source: DHL Carbon Calculator

Environmentally sustainable consumption takes root among today’s youth

Concerned about the negative impacts on e-commerce on the environment, a growing youth movement focused on environmental sustainability and conscious consumerism is challenging the appeal of digital connectivity and convenience.

More consumers today recognise that the planet can no longer support our current rates of consumption. This has led to more demand for environmentally-friendly products and sustainable delivery options, forcing corporations to adapt their practices in response.

Consumers in Asia and Latin America are also more inclined to buy a product based on its sustainability credentials today, a Julius Baer Global Wealth & Lifestyle Report found in 2020. This choices are likely fuelled by their experience with the man-made negative impacts of economic growth, such as environmental and labour exploitation.

These days, many more people in Asian economies are shopping from domestic rather than international brands, with local and regional companies witnessing higher value growth over the years compared to their multinational counterparts. Buying local limits the carbon footprint of shipping and allows consumers to pick their purchases up themselves, reducing the need for packaging.

More consumers are also signing on to the online rental and secondhand goods model, which gives products second lives and minimises the need to buy and throw. In Singapore, fashion subscription boxes such as StyleTheory, Maison M, and MADThread have gained traction amongst young professionals, while online platform Carousell became famous for connecting sellers of secondhand items from across Asia.

As people buy in more environmentally friendly ways, e-commerce and retail companies are being forced to reconsider the paradigm that convenience and growth are—and should be—king in the marketplace.

 

Moving from convenience to ethical consumerism

As optimistic as one might be about conscious consumerism today, convenience still remains the currency of choice in much of the e-commerce world. Tech platforms, logistics partners, and suppliers alike spend lots of resources trying to speed up their deliveries and scale efficiently, all under the assumption that people will order more and more goods and services online—and expect them delivered in an hour.

The focus on speed and always-growing demand is understandable given businesses’ need to profit, but it also benefits wealthy and middle-class consumers—as well as e-commerce’s tech elites—at the expense of the e-commerce sector’s underpaid labour and the environment we all share.

Asia’s consumers are becoming more aware of the true cost of e-commerce and how much their consumption habits can shape the decisions of e-commerce companies. Instead of demanding more goods and faster deliveries, a growing number of people in Asia—especially youth—are choosing fewer goods and picking things up themselves, placing pressure on corporations’ social and environmental priorities.

While e-commerce and its norms will stay in a rapidly digitising world, there is still lots of room to explore how business, consumption, and sustainability can benefit one another. As consumers spend on innovative profit models that merge e-commerce technologies with the circular economy, companies may soon find themselves held to account for the human and environmental costs of business as usual.