E-COMMERCE IN INDONESIA A guide for Australian business Disclaimer Copyright © Commonwealth of Australia 2018 This report has been prepared by Amplitude in consultation with the Commonwealth of Australia represented by the Australian Trade and Investment Commission (Austrade). The report is a general The material in this document is licensed under a Creative Commons overview and is not intended to provide exhaustive coverage of the Attribution – 4.0 International licence, with the exception of: topic. 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Using the Commonwealth Coat of Arms The terms of use for the Coat of Arms are available from the It’s an Honour website (www.itsanhonour.gov.au). 17-18-003 Publication date: January 2018 CONTENTS Executive summary 03 Popular products and categories 17 Asia’s next giant: 04 Entry points for Australian businesses 18 Indonesia’s e-commerce landscape Approaches for accessing the market 19 Leading the field: major players in 07 Conclusion 21 Indonesian e-commerce How Austrade can help 22 Understanding Indonesia’s online consumers 14 About this report: For more information on Amplitude: E-commerce in Indonesia: A guide for Australian business was W www.amplitudeconsumer.com prepared by Amplitude in consultation with the Australian Trade and E [email protected] Investment Commission (Austrade). This report is based on research conducted by Amplitude. Authors: Bede Moore, Karina Akib and Susie Sugden. E-commerce in Indonesia: A guide for Australian business 01 02 E-commerce in Indonesia: A guide for Australian business EXECUTIVE SUMMARY The Indonesian e-commerce market has enjoyed dramatic growth over the last five years, upending a long-held view among local venture capital firms and businesses that Indonesia was underperforming compared to its regional rivals. Recent estimates by Macquarie Bank suggest the Australian businesses should already be looking at Indonesian market has grown 60–70 per cent annually the possibilities afforded by the growth in Indonesian since 2014 and will expand from US$8 billion in e-commerce. This report examines Indonesia’s 2016 to US$60 billion in 2020.1 This is expected to e-commerce market, its growth, consumers and the generate new opportunities for e-commerce sites and avenues that businesses can follow to access online consumers. Accessing Indonesian e-commerce still their businesses. has its challenges, but Australian businesses with Several factors have ushered in the rise of Indonesia’s existing relationships and operations in the archipelago e-commerce industry. Increasing smartphone and should have an e-commerce strategy in place. internet penetration, intensive foreign investment in Australian businesses without existing relationships or leading platforms, the growing Indonesian middle connections to Indonesia should still look seriously at class, and the more recent overhaul of online entering its e-commerce market. However, the viability payments have all contributed to market growth and of doing so will depend on how well they can navigate the sophistication of local players. Positive regulatory ongoing regulatory barriers and their ability to furnish tweaks by the Indonesian Government also auger well, products that suit the tastes of Indonesian consumers. especially for Australian businesses looking to access These products should also take cultural and religious online consumers. differences into consideration. For example, some The rapid evolution of the market presents a real e-commerce markets may only accept Halal-certified opportunity for Australian businesses who have products. Businesses without connections to Indonesia typically faced a difficult process to gain access to have some options open to them, and this report Indonesian consumers. Complex local operating discusses fundamental changes that may occur in the conditions, combined with a difficult customs and next 12 months that could give them unprecedented regulatory environment, have created obstacles for access to Indonesia’s 100 million-plus internet users. businesses looking to sell their wares in the archipelago. E-commerce offers the possibility of much easier access by lowering or eliminating many of these hurdles, making it possible to access Indonesia from afar. E-commerce in Indonesia: A guide for Australian business 03 ASIA’S NEXT GIANT: INDONESIA’S E-COMMERCE LANDSCAPE Indonesia has long trailed its larger regional rivals, Amplitude’s in-house research undertaken for this China and India, in terms of e-commerce market size report found that customers in Indonesia’s Tier 2 and sophistication. But after many years of watching cities account for an increasingly large proportion of international and local companies compete in the two e-commerce transactions as residents take advantage larger markets to its north, Indonesia is now enjoying of the wide choice of products previously unavailable some of the global spotlight. International investment to them. into the market is hitting all-time highs as an array of global internet giants jockey for position in the world’s Despite recording significant year-on-year growth fourth most populous country. of 60-70 per cent since 2014, the Indonesian e-commerce market is still relatively small Complex local conditions have often resulted in (US$8 billion) compared to regional pace-setter, China, Indonesia being deprioritised by global firms looking with sales of US$692 billion.4 In 2016, Indonesia’s to access Asian consumer markets, particularly given e-commerce sales as a percentage of total annual the size and comparative ease of selling products into retail sales amounted to 1.6 per cent, compared to China. The positive trends outlined below suggest 13 per cent in China.5 a review of this attitude is warranted. Australian businesses have an unprecedented opportunity These percentages suggest there is still room for to test the market for their goods via e-commerce growth in the Indonesian e-commerce market, which sales channels and at much lower risk and cost than is likely to be led by the ongoing transformation ever before. of the industry via high levels of investment and industry consolidation. Building off of a small base: size and growth of the market A swift evolution: The four drivers of Indonesian e-commerce growth Indonesia’s e-commerce landscape experienced investment of at least US$2.5 billion over the last three The growth of e-commerce over the last five years has years, paving the way for businesses to list and sell been primarily driven by four structural changes in the their products online.2 In 2015 there were 18 million industry. First, the increase in smartphone penetration online shoppers in Indonesia; Google and Temasek made possible by the availability of low-cost devices. expect this to grow to 119 million by 2025.3 Second, an emerging middle class with a larger portion of disposable income is being targeted by leading Underpinning the growth in online transactions in e-commerce companies.6 Third, at least US$2.5 Indonesia are local e-commerce giants (such as billion of foreign direct investment in e-commerce Lazada, Tokopedia and Bukalapak) that provide platforms by leading Chinese and Western firms, businesses with a platform to set-up an online specifically via significant joint venture or partner storefront, accept transactions and, in Lazada’s case, relationships, for example, Lazada-Alibaba, Go-Jek- warehouse and deliver goods to customers. Tencent-KKR, Tokopedia-Alibaba and Shopee-Sea 7 Growth in the customer base of major e-commerce (formerly Garena). Fourth, the accelerating evolution companies is shifting outside Jakarta as logistics of payments infrastructure that is enabling customers and smartphone penetration continue to improve. without bank accounts (unbanked consumers) to make online purchases. 04 E-commerce in Indonesia: A guide for Australian business Smartphones are central to Indonesia’s accelerating telecommunication companies continue to modernise e-commerce growth.