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Indonesia’s E-Commerce Industry Grows Rapidly

The end goal is to certify e-commerce companies in Indonesia.

Indonesia, e-commerce
Women use their smart phones at a cafe in Jakarta, Jan. 3, 2018. VOA

With more than 140 million Internet users, Indonesia’s e-commerce industry has grown rapidly in the past decade, leading to calls for more government regulation in the sector.

“It’s a new industry so it’s growing very fast. [E-commerce] started booming in 2010 and since then some of the players that started during that time have become unicorns,” said the chairman of Indonesia E-Commerce Association (IDEA), Ignatius Untung, referring to startup companies that are valued above $1 billion.

The Indonesian Ministry of Industry estimates the value of the digital industry at $100 billion, and in 2020 the government expects it will increase to $130 billion.

Creating new unicorns

Untung said the consumer base for the e-commerce industry continues to grow as there are a continuously increasing number of Internet users in Indonesia, although they are still concentrated in the cities. In a market conducive enough for digital companies to thrive, Indonesia has managed to establish several unicorns.

Phone, e-commerce
This picture taken in Jakarta on Dec. 12, 2018 shows a website of Tokopedia on a mobile phone selling tickets. VOA

One of them is Tokopedia, an online marketplace. In 2017, the startup company received a $1.2 billion investment from Alibaba, the massive online retailer in China. Priscilla Anais, the CEO Office Manager of Tokopedia, said the Gross Merchandise Volume or total sales value of goods sold through the marketplace has increased by four times in the past year.

“Now we have more than 90 million active users monthly and have reached 93 percent of all districts in Indonesia,” she told VOA via email.

But the value of Indonesia’s biggest online marketplace is still far below Gojek, a ride-hailing app, that has received $1.2 billion in investment from several companies, including Google and Tencent holdings. The Indonesian startup has a company value of $ 4 billion. Other unicorns include Traveloka, an online travel startup, and Bukalapak, an online marketplace.

Lack of regulation

Despite the digital economy in Indonesia growing rapidly and receiving support from the government, Untung said clear regulations are still needed. “For example for online payment, or e-wallet. There are players that have the platform and consumers but when they apply for a permit for e-wallet, it was declined. But there are others that don’t have the platform but received the permit. So we should make it clear, what are the criteria,” he said.

E-commerce, Indonesia
A man plays with his mobile phone in front of a cellular provider’s advertisement with a Facebook logo in Jakarta, March 22, 2018. VOA

Untung also mentioned the issue of online ojek (motorcycle taxi). Motorcycle taxis are especially popular in big cities in Indonesia, such as Jakarta, where traffic is often congested.

The former Transportation Minister Ignasius Jonan, issued a notification letter in 2015 banning online motorcycle taxis.

But in December 2015, President Joko Widodo, said online transportation cannot be banned because people need it.

“With so many people using ride-hailing app, and motorcycle taxi, who can ban it now?” Untung said.

According to the Indonesian Consumers Agency Foundation (YLKI), 84 percent of Jakarta citizens use the service of online transportation.

Nevertheless, Untung lauded the e-commerce roadmap that was established through the Government Regulation No. 74/2017 under the Coordinating Ministry of Economic Affairs.

Indonesia, e-commerce
Hasan (right), along with two Ojera riders, is at the base of the motorcycle taxi in Cibiru Wetan village, Bandung regency, West Java, Oct. 25, 2018. VOA

Samuel Pangerapan, the director general of informatics application at the Ministry of Communication and Information Technology said the roadmap was made to prepare an ecosystem that can transform the country to a digital economy era.

“We are addressing issues such as connectivity, infrastructure that can support digital transformation, and the regulations. President Jokowi has instructed us to conduct a study and find out all the things that can interfere with digital economy,” he told VOA.

Human resource remains a problem

Untung said one of the biggest problems many e-commerce companies in Indonesia are facing is human resources. “Supply is low, but demand is very high,” he told VOA. Untung added that some companies decided to import skilled workers from overseas or acquire companies to be able to use their service.

“So we’ve started to think how can we have good human resources. The association is thinking to start a vocational school, we also reach out to universities and tell the younger generation that a career in digital economy is possible,” he said. “A lot of young people still don’t know where they want to go after they finish high school. And many Indonesians are still thinking that becoming doctor, engineer, or pilot, is still the ultimate dream.”

Indonesia, e-commerce
Indonesian domestic workers attend a computer class during their day off at the Sekolah Indonesia Singapura (Indonesian School) in Singapore, Dec. 12, 2010. VOA

Pangerapan assured that the government will also tackle the issue of a lack of skilled workers. “We definitely need to prepare a workforce that will be able to handle digital transformation,” he said.

Also Read: Road Safety At The Core of Women Empowerment For This Indonesian Startup

Untung also mentioned that the e-commerce association has started a roadmap to provide better protection for consumers. The end goal is to certify e-commerce companies in Indonesia.

“So let’s say a grade A e-commerce is one that has enough resources, they have people to handle complaints and have a guarantee of service. And then we’ll start to educate the consumers, please shop at e-commerce that have better grades. After that we will encourage the players to improve their service,” he said.

He added that he has targeted the certification program to be launched in 2020. (VOA)

Next Story

Amazon Optimistic on Stable e-commerce Policy from India

Amazon is looking at a good quarter during the Diwali holidays

Amazon, online retailer, Drones
The Amazon warehouse in San Fernando de Henares is seen during a 3-day walkout to demand better wages and working conditions, on the outskirts of Madrid, Spain. VOA

Amazon is hopeful that the Indian government would release a “stable predictable” e-commerce policy that would allow the retail behemoth keep investing and creating jobs in the country.

The commerce ministry is currently in the process of finalising the national e-commerce policy and multinational firms have raised concerns over certain provisions of the draft policy.

“Our engagement with the Indian government makes us optimistic about partnering and collaborating to seek a stable predicable policy that allow us to continue investing in our technology and infrastructure,” Brian Olsavsky, Senior Vice President and Chief Financial Officer (CFO) at Amazon, said late Thursday.

The draft policy proposes to set up a legal and technological framework for restrictions on cross-border data flow and also laid out conditions for businesses regarding collection or processing of sensitive data locally and storing it abroad — which is a cause for concern among major players in the market.

The new Indian norms on foreign direct investment (FDI), which came into effect on February 1, prohibit e-tailers from selling products of companies in which they have stakes, despite both Amazon and Walmart seeking a six-month delay in their implementation.

As per the new norms, online marketplaces such as Flipkart and Amazon have been barred from selling products of companies where they hold stakes and the government has also banned exclusive marketing arrangements that could influence product prices.

These changes have a direct impact on, for instance, the US giant Walmart, which recently acquired a 77 per cent majority stake in the Indian e-retail major Flipkart.

Amazon has been forced to remove an array of products from its India website in order to comply with the new regulations.

Amazon, New york
A delivery person pushes a cart full of Amazon boxes in New York City, U.S., Feb. 14, 2019. VOA

Keeping this in mind, during an earning call with analysts after the company posted mixed results for the second quarter (Q2) 2019, Olsavsky said that a favourable e-commerce policy in India would “help us to create jobs and scale local businesses”.

Under its global selling programme, Amazon expects e-commerce exports from India to reach $5 billion by 2023.

“In India, we continue to see growth in programmes for both sellers — for our sellers and delivery partners. In the last 18 months, we’ve doubled the number of paid Prime member, which we’re very excited about.

“We’ve invested a lot in our global selling programme, which helps Indian sellers not only reach customers in India, but also in other geographies around the world,” Olsavsky noted as Amazon posted $63.4 billion in revenue with $2.6 billion in net income for the second quarter (Q2).

Also Read: PUBG Mobile Lite Launched for Indian Market

The Amazon executive said the company started “Amazon Flex” in India which helps its local partners to deliver packages, gives them jobs, grows the company’s delivery capacity for sellers and increases the speed of delivery.

“So it’s a win-win. We’ve also introduced package-free shipment programme in nine cities. This is going to be a big part of our shipment zero programme, a vision to make all Amazon shipment net carbon zero,” emphasised Olsavsky.

Amazon is looking at a good quarter during the Diwali holidays.

“The events we have for Diwali were all in Q4 last year, some of them are in Q3 this year based on the timing of the holiday. So, that’s factored into our revenue growth rate for the quarter,” Olsavsky said. (IANS)