Techblog
Online retailing in Indonesia: What SMEs should know
Indonesia is predicted to become the largest e-commerce market within the next year or so. Here’s what SME retailers should know about online commerce in the Southeast Asian archipelago.
E-commerce is booming in Indonesia along with everything digital. The world's fourth-largest country by population already boasts a Facebook population of 65 million users. Jakarta is also the world’s keenest consumer of content on Twitter and Indonesians are reported to spend the most time on-screen. With cheap smartphones readily available in the country, these trends are only set to accelerate further.
Indonesia’s e-commerce boom only set to grow
According to the Boston Consulting Group, Indonesia’s middle class affluent population will reach 141 million people in six years. The Indonesia E-commerce Association (idEA) predicts the number of online shoppers will grow from 15 million to about 75 million in Indonesia, (from 3 per cent to 30 per cent of the population) in the next five years.
A TNS online shopping study claims 46 per cent of internet-using Indonesians who have never shopped online, expect to make their first e-commerce purchase in the next 12 months. These consumers shop largely in fashion (78%), electronics (43%), books and magazines (39%) and groceries (24%).
What this means is that retailers can only expect e-commerce spending to increase exponentially in the coming years.
A maturing e-commerce ecosystem, albeit with multiple challenges
A measure of Indonesia’s readiness for explosive growth is the fact that B2C and C2C platforms are now becoming established. Homegrown brands like Tokopedia and Lazada Indonesia are leading contenders in Southeast Asia’s B2C e-commerce race. There are however, a few challenges that online retailers will face.
There are several known logistical issues pertaining to deliveries beyond Java and the other main islands. Insufficient digital infrastructure, poor state of roads, transportation modes and high logistics costs are all factors for SMEs to consider.
Payments are also a potential e-tailer headache. Cash on delivery is still extremely common for e-commerce shipments in Indonesia, and payment services are highly regulated. The payment fraud problem in Indonesia is arguably the most serious facing the sector, with 35 per cent of Indonesian e-commerce transactions identified as being fraudulent - this is the highest in the world and deters even native consumers from buying online.
In a bid to overcome as many of these challenges as possible, the idEA is working with the Indonesian government on a roadmap to ease barriers to e-commerce growth, with infrastructural improvements, cashless modes of payment and increased funding support and protection for newer SMEs that join the market.
Top tips for e-tailers expanding into Indonesia
1. Get involved in local social media
Social media accounted for nearly 27 per cent of Indonesia’s e-commerce transactions in 2014. “The birth of local startups like LakuBgt and Onigi, which assist businesses selling on these social platforms, is another indicator that the archipelago’s social commerce sector is growing rapidly,” according to TechinAsia. “Surprisingly, the highest percentage of online shoppers in Indonesia would rather buy from messaging apps like Blackberry Messenger or Line.” SMEs can stand to achieve better market presence by marketing via social media channels.
2. Target Indonesians beyond the capital
Second-tier cities, remote towns and rural areas lack malls or modern retail in general, which is driving e-commerce demand, says Adrian Li, founder and managing partner at VC fund Convergence Venture, a venture capital fund that invests in early stage technology ventures in Indonesia. “People in Indonesia are buying online because they cannot buy the goods offline.”
This means that there is significant demand for goods that are sold online outside major cities like Jakarta and Java, and e-tailers can benefit by targeting consumers beyond urbanised areas.
3. Speak the lingo and build trust quickly
Making a website accessible to Indonesian buyers is a must as Bahasa Indonesia is one of the most widely spoken languages in the world. Even adding the word “belanja” (shopping) to a company name can increase a site’s approachability. Language skills are also vital as Indonesians are risk-averse and slow adopters of new products and technology, according to McKinsey and Co. SMEs should work with the understanding that the locals prefer channels that allow interaction with sellers and other customers - like forums and social networking sites – which reassures buyers who can ask questions and receive recommendations from a real human before committing to a purchase.
There may be several challenges facing SMEs looking to capitalise on Indonesia’s e-shopping space, however business’ should bear in mind that the potential for growth is exponential in the country, and could in time to come, become Asia’s top market for online retail.