Unlocking the potential of Indonesia’s e-commerce
Over 50 representatives from multinational and national companies active in the e-commerce sector attended the virtual delegation on e-commerce held by EKONID this October, where topics such as legal requirements for cross border shelving and best e-practices were disseminated.
The COVID-19 pandemic has turned out to be a boon for e-commerce in Indonesia. The Indonesian e-commerce sector remains the star of the digital economy and is expected to record a growth in the market value from US$21 billion in 2019 up to $83 billion by 2025 according to Bain & Temasek. In Southeast Asia Indonesia is set to become the largest digital economy with approximately 40% of the total regional market share.
With 51% of the population of over 270 million people under 30, Indonesia’s young demographic is expected to continue to play a keen role in capitalizing this market. According to a 2018 report from McKinsey, Indonesia’s e-commerce sector has doubled every year for the past three years and is projected to grow eight times by 2022 due to higher expectations in terms of ease of business and convenience. However, pressure for e-commerce growth, given Indonesia’s potential, remains limited to the untapped potential of the country’s tier 2 and tier 3 cities as the critical component to the country’s ambitions of becoming the world’s fourth largest economy by 2045.
These are just some of the points discussed during EKONID’s Virtual Business Delegation to Indonesia, which was titled “Unlocking the potential of Indonesian e-commerce". Held from October 26-28, the event was a comprehensive deep dive into the Indonesian e-commerce sphere, from the various legal and Halal requirements needed to enter the sector to possible logistical roadblocks and solutions, as well as a preview of some of the best practices of European companies already present in the Indonesian digital economy.
The first day of the virtual delegation began with an introduction to Indonesia’s e-commerce sector by EKONID Deputy Managing Director Ute Brockmann, who noted the huge potential of the country's digitally savvy and young consumers towards high-quality brands from Germany and Europe. Following Ms. Brockmann was Mr. Rofi Uddarojat, Head of Public Policy and Government Relations at the Indonesian E-Commerce Association (idEA). Mr. Uddarojat highlighted the increased MSME participation in online commerce; growing investment in online commerce and supportive government policies.
Indeed, the corona crisis has prompted many micro, small and medium enterprises (MSMEs) to shift to online platforms. According to the Minister of Cooperative and MSMEs, the number of SMEs using online platforms has risen to 10.2 million during the pandemic. Additionally, the recent merger between the local ride-hailing app Gojek and e-commerce platform Tokopedia signals how big startups are strategizing to dominate Indonesia lucrative but challenging market.
The following speakers who hail from various e-commerce platforms, namely Bhinneka, Bukalapak, Lazada, and JD.id, noted the above trend and showcased their solutions for cross-border e-commerce in Indonesia. Also in attendance during the first day was Sirclo, an e-commerce enabler who have helped international companies break through the Indonesian market.
The second day of the virtual delegation discusses the more legal aspect of Indonesia’s e-commerce, such as the need to be registered as a local company before being able to list items on certain e-commerce platforms, as well as the need to register products with the local food and drugs administration.
Finally, the third day saw a number of enlightening presentations from speakers from German and European companies and their experience of participating in Indonesia’s digital economy. These players include Beiesdorf, Schneider Electric, the ABB Group, as well as local logistical solution provider PT Uniair Indotama Cargo. These presentations include market entry strategies through established products, having the right distribution partner, as well as potential pain points such as dealing with fraudulent products and fraudulent online stores.
Untapped digital growth potential
One repeat topic is the importance of unlocking the potential of e-commerce outside of the highly populated capital city Jakarta. These tier 2 and 3 cities are home to 45% of the population and 40% of the national GDP. As much as 80% of the 124 million people in these cities are being digital laggards with digital habits that are 3-5 years behind tier 1 city. According to Euromonitor International on E-commerce in Indonesia, the penetration of e-commerce in the country is still concentrated in the Java area (76%), followed by Sumatra (14%) and Sulawesi (4%).
The virtual delegation identified internet infrastructure as the main roadblock. The Internet user penetration in Indonesia remains relatively low and unequal compared to neighboring countries like Singapore and Malaysia. According to a September 2021 report from Speedtest Global Index, Indonesia was ranked 108 out of 138 countries in mobile Internet speed and is positioned as the slowest in Southeast Asia. In terms of fixed broadband, it was ranked 116 out of 181 countries.
Although 5G commercial networks has been launched in a few urban areas, many islands and rural areas have poor or non-existent access to the Internet. Based on the Village survey data conducted by the Indonesian Statistics Agency (BPS), around 12,000 villages in 2018 were not yet covered for online connection.
Those that are are still experiencing frequent connection glitches. It is however important to note that the Indonesian government has built a billion-dollar fiber-optic development program to enable economic opportunities across the archipelago. Known as the Palapa Ring broadband network, this massive internet infrastructure project, which should become operational by 2023, include a planned Rp 21.4 trillion (US $1.5 billion) satellite project that will bring internet connection to 149,000 locations to areas outside of Java.
With these challenges and opportunities in mind, EKONID would like to thank the speakers and guests who have participated in the Virtual Delegation on e-commerce. We hope that the seminar has provided even more perspectives to the digital economy sector in Indonesia.