Is Indonesia the Next China for e-Commerce?
Could Indonesia be the next China in the world of e-commerce? In conversations with consumers across the country, we discovered an online revolution in the making that has huge growth potential for investors.
Indonesia is experiencing explosive Internet growth. The number of Indonesians online is expected to more than double from 92 million in 2015 to 215 million by 2020.
With an expanding middle class and growing smartphone penetration among its roughly 255 million residents, Indonesia could well become a major e-commerce market in the coming years. But challenges exist, and it may take time to assess the most promising investments.
It’s easy to make comparisons to China, where e-commerce penetration is higher than in many developed markets. For example, both countries have huge markets and populations with increasing disposable income, which feeds demand for new products and services.
But there are major differences. To begin with, Indonesia is a vast archipelago with some 6,000 inhabited islands. Because its infrastructure is less developed than China’s, delivery logistics can pose problems.
On a recent grassroots research trip, we spoke with consumers from urban Jakarta to rural Sidoarjo. We saw how key improvements in logistics, road infrastructure and online payments are paving the way for an online revolution.
BEATING THE CROWDED STREETS
On Jakarta’s congested streets, we saw countless motorcyclists fighting their way through the capital city’s interminable traffic jams, sporting green jackets and helmets with GO-JEK logos. Since GO-JEK’s award-winning mobile app launched in 2015, it’s been at the forefront of logistics innovation. The GO-JEK app takes delivery of goods and services to a new level. Consumers can stay home and, at a finger’s touch, have any online purchase—medicine, groceries, movie tickets and more—delivered the same day.
In Surabaya, Indonesia’s second-largest city, an agent owner for local courier JNE said that e-commerce made up half her revenues, and didn’t exist just a few years ago.
Payment systems are surprisingly well established. There are 21 e-wallet licenses in Indonesia and many providers partner with retail banks that have a countrywide presence. Cash on delivery is popular among sellers who want to develop a relationship with their customers.
For example, Firmansyah, a 30-year-old teacher in Surabaya, also has an online business selling used auto parts from Singapore. With mostly local buyers, he prefers cash on delivery so he can interact with fellow car enthusiasts.