Indonesian eCommerce represents a big opportunity for companies looking for a substantial new market to enter. While Indonesia is less developed than some of its Southeast Asian neighbors, it makes up for this in sheer size. Indonesia is the world’s most populous island nation, and 4th most populous nation in general. Its population is more than 270 million. As the country develops both economically and in eCommerce terms, this will represent a huge and largely untapped market.
In this article we’ll give a brief introduction to this unique country and to the state of eCommerce there.
Indonesia is home to around 300 distinct ethnic groups speaking over 700 languages. Islam is the dominant religion, with 87.2% of the population belonging to the faith.
About 40% of the population is aged 39 or younger. The growth in population is expected to see the number of people in the middle class rise from 89 million in 2016 to 92,400,000 in 2020. Indonesia is also a rapidly digitizing country, and is expected to add 50 million new internet users between 2015 and 2020. Social media use in Indonesia is among the highest in the world, with 98% of Internet users in Indonesia having social media accounts and mobile traffic to online shops also on the rise.
GDP growth is on the rise. This has been led by fast-developing cities and a middle class that is expected to make up around 50% of the population by 2020. Indonesia’s GDP has risen from 1,015.54 billion USD in 2017 to an expected 1,050 billion USD in 2020. Experts predict the country’s GDP per capita will grow from 4,130.66 USD to 4,567 USD over the same period. This makes Indonesia the largest economy in Southeast Asia and the 16th biggest in the world.
Indonesia’s huge population and domestic consumption base make this country a favorable platform for economic growth and investment potential. Therefore it is becoming a key location for regional offices of multinational companies looking to move into the Southeast Asian market. This makes Indonesia attractive to investors and is one advantage of operating a business in the country.
Foreign Direct Investment
In 2016, the government relaxed restrictions on foreign direct investment (FDI) in more than previously restricted 30 areas, including eCommerce. Such efforts have made it easier for foreign investors to enter the Indonesian market in these sections, and has made Indonesia a more attractive investment location overall. FDI investment has continued to increase as a result, jumping 14% between 2018 and 2019 to reach 23.4 billion USD.
However, with the World bank ranking Indonesia 73rd for Ease of Doing Business and 63rd for Logistics Convenience, it is clear that challenges remain.
eCommerce in Indonesia
eCommerce in Indonesia has a large number of shoppers (230 million), an impressive penetration rate (86%), but only a small share of the country’s total retail sales (4.4%). As such, though it is already a big business opportunity for eCommerce players, the country has a great deal of development potential yet to come.
Indeed, Indonesia’s population of more than 260 million makes the potential for growth considerable, and there are millions of new online shoppers every year. These characteristics make Indonesia one of the most popular eCommerce markets in the world. Indonesia has attracted the attention of global and local companies pursuing profit, and eCommerce is currently in a stage of rapid development.
Top eCommerce Platforms in Indonesia
Regional giant Lazada has in recent years lost its place in the top three eCommerce platforms in Indonesia. This is in large part due to the meteoric rise of its mobile-oriented regional rival Shopee. But domestic challengers have had an even bigger impact. Tokopedia and Bukalapak show the strength of homegrown eCommerce platforms. They demonstrate impressive sophistication for a country that’s still lagging behind some of its neighbors in this area.
Cross-Border Market Entry
Cross-border selling is an alternative to selling through local agents or distributors. It frees companies from facing local restrictions on foreign ownership in different industries. It also means they don’t have to establish a local entity prior to market entry.
Indonesia allows direct cross-border eCommerce sales. This means that foreign companies can directly sell to local consumers without establishing legal entities in Indonesia through complicated terms.