Boyden Executive Search

Rising smartphone usage and higher incomes are transforming the archipelago into a hot ecommerce market and a competitive battleground.

Despite the logistical challenges of delivering packages in a country stretched across 13,466 islands, Indonesia is an ecommerce market on the ascent. While it is estimated that only about 15% of Indonesians currently shop online, this is changing fast. Since 2015, the value of goods sold online has approximately doubled each year, to $8-12 billion. In a joint report, Google and Temasek, Singapore’s sovereign wealth fund, forecasted the market ballooning to $53 billion by 2025. Analysts at McKinsey are more bullish still, putting projected spending in the Indonesian ecommerce market as high as $65 billion by 2022.

Two local firms, Tokopedia and Bukalapak, dominate the market, along with Chinese-backed regional companies Shopee and Lazada. Both of the latter are based in Singapore, but operate mainly in Indonesia. Tencent is a big shareholder in tech company Sea, which owns Shopee; Alibaba owns Lazada. At present the Indonesian market is not widely served by Amazon. The American firm has long-term investment plans in Indonesia, but Alibaba and Tencent are well ahead.

Tokopedia has the greatest reach, thanks to a network of partnerships with local logistics firms. This allows it to deliver to 93% of Indonesia’s thousands of districts. It also has the financial resources, recently securing over $1 billion in a funding round led by Japan’s SoftBank and Alibaba. It is reportedly valued at $7 billion. Tokopedia is also growing more rapidly than its local competitors, having quadrupled its sales between 2017 and 2018, according to The Economist.

Both Indonesia-based firms, Tokopedia and Bukalapak, benefit from the most local knowledge, which is invaluable in such a complex ecommerce market. Bukalapak gathers information through its network of 400,000 offline “agents”, who typically run neighbourhood shops. Customers can place and pick up their online orders at agents’ physical stores, earning the agents a commission.

Tokopedia, Bukalapak and Shopee have similar business models, earning most of their revenues from advertising and ancillary services like data analytics. Lazada is more focused on its logistics business. It owns one of Indonesia’s biggest warehouses, outside Jakarta, and has nine other such centres. Ashwath Ramesh, CEO of Lazada eLogistics, says its network reaches 80% of the country. Pre-stocking vendors’ goods at its warehouses allows Lazada to offer cheaper and faster shipping.

Similar to Chinese ecommerce consumers, Indonesians frequently shop on their smartphones. For this reason Shopee is investing in mobile. The firm also uses social commerce, allowing customers to chat with buyers via its mobile app. Some 60% of Shopee’s sales follow online social interactions. Alibaba’s mobile app, Taobao, has achieved tremendous growth through social commerce.

As Indonesia’s top ecommerce firms vie for market share, attracting more connected consumers in rural and suburban areas will be critical. In 2017 these groups accounted for 30% of the value of online sales, according to McKinsey, which predicts that by 2022 they will account for around half. To realise such growth, Indonesian ecommerce firms will need to overcome trust issues and reckon with recent government taxation measures, as well as ever-mounting competition.

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