Time to follow up with our new market analysis, and after taking a look at the Kenya e-commerce situation, let’s travel to Indonesia, the 4th most populated country in the world according to the World Bank (WB) Data, member of the G-20 and with an expected growth of more than 19% in the next twenty years following the Badan Pusat Statistik (BPS-Statistics Indonesia).
It seems Indonesia could be an opportunity for brave investors right now. From 2010 to 2015, due to the global economic crisis, the GDP growth decreased from 6.38 to 4.79 (WB). But since then, it has started what seems to be a new period of increase to 5.11 in 2016, with a growth forecast of 5.53 for 2018.
The e-commerce market of Indonesia has one of the biggest growth potentials in the world. Now it has 100 million internet users, and this only means a 40% penetration rate. It doesn’t seem very difficult to double these numbers in the coming years. The government is developing the country’s e-commerce regulations which, once done, will bring transparency and stability. It is estimated that by 2020, online transactions will be about 5% of retail business.
However, not all the information is positive about this big market. E-commerce has an important dependency on infrastructures, since they affect directly some value-contributor factors such as shipment costs and delivery delays. In this area the World Economic Forum points out that Indonesia is the 62nd country in the world, meaning that the country needs to put forth extra-effort to develop its transport, electricity and general communication networks. Things like using GPS services for tracking customers’ orders, barcodes and other simple solutions are far from common in Indonesian e-commerce day-to-day. The inefficiency of this particular area of Indonesian economy is especially alarming, as Indonesia’s logistics costs account for 24% of its GDP.
The good news is that this is just what National Medium Term Development Plan 2015-2019 (RPJMN 2015-2019) is about, and it will focus on developing the infrastructures. Encouraging words from the government that in this case seem will come to fruition. Frost & Sullivan is forecasting the Indonesian logistics industry will grow about 15.4 percent in 2020.
On the other hand, this lack of infrastructures also means that lots of remote locations don’t have access to the most popular shops and brands. And as Hugh Harsono points out for TechCrunch, e-commerce may be a solution for this, giving people in isolated locations the opportunity to buy as if they were in a big city.
Another big problem for the e-commerce economy is the large number of people living in poverty who cannot access the market and buy goods and services.
It is well-known that one essential factor in e-commerce is the buyer’s trust. In this area, Indonesia it is a very particular market, because people are still suspicious regarding online payments and purchases. At first glance it appears that the distrust is based on fear of using something new, since many Indonesians are using the Internet for the first time. But Indonesia has the biggest proportion (26 %) of users being scammed online. This is something to take into consideration for someone about to enter in the market. Trust may be as important as SEO this time. In Indonesian society Information spreads out by word of mouth and social networks, so it is a good idea to have a marketing plan for them, from the very beginning.
In addition, joining a national partner could be very effective in acquiring some first-hand information about the market and avoiding government restrictions to foreign investors in the Negative Investment List. This last reason may be losing its power though, because since 2016 the government is approving more open regulations about this, even allowing an e-commerce business with 100% of shares owned by foreigners (something that wasn’t allowed in 2014’s list).
The most popular e-commerce platforms in the country are not the most famous in
Because of the growth potential and the evidence that the Indonesian government intends to open the country to the world, we are looking at one of the biggest opportunities we have seen, but it also has, of course, some serious risks. Hopefully, this information will be useful to any entrepreneurs considering the Indonesian adventure.