The Impact of Indonesia’s Growing Digital Economy towards E-Commerce Industries

by | Oct 28, 2021 | Market Research | 0 comments

What impacts could the positive growth of Indonesia’s Digital economy provide upcoming E-commerce Industries?

Source: The Jakarta Post

The development of Indonesia’s digital economy has shown positive growth in the upcoming decade. Digital economy by definition refers to a broad range of economic activities that use digitized information and knowledge as key factors of production. To optimize the country’s digital economy, several things should be considered. Among them are telecommunications, infrastructure, and digital consumer protection. 

With this issue in hand, what are the impacts of the growing digital economy on e-commerce businesses? What are international e-commerce businesses that were able to penetrate the Indonesian market? Read this article to find out more!

Overview of Indonesia’s Digital Economy and E-Commerce Industry

According to Indonesian Minister of Trade, Muhammad Lutfi, the growth of the Indonesian digital economy will grow eight times from IDR 632 trillion to IDR 4,531 trillion. One of the most contributing factors for this growth is the e-commerce industry, namely 34% more impactful or equivalent to IDR 1.900 trillion. As a result of this, Indonesia is projected to have a bigger GDP (Gross Domestic Product) than ASEAN country’s digital economies, with a value of 55% or IDR 417 trillion by 2030.

A study by McKinsey stated that Indonesia is a digital-first nation, which means that Indonesians are among the world’s most enthusiastic users of digital technology, not to mention that it is also one of the countries that have the most number of billion-dollar tech startups in Southeast Asia. Statistics show that 30 million Indonesians today are transacting online, creating a market of at least USD 8 billion, and could grow up to USD 40 billion upwards in the next five years. Online commerce, or e-commerce, is seen to dominate 60% of the market and is usually dominated by products revolving around electronics, fashion, health, and beauty. 

It is enlightening to see the doubling numbers of online sellers in Indonesia for the past three years, with 50% being online-only businesses with no physical store presence. This would be an opportunity for Indonesian MSMEs to enter the digital economy as it allows them to enter the global supply chain. Trends revolving, improving broadband access, rising adoption of online platforms, and ownership transition to a more digitally friendly generation are main factors in the involvement of MSMEs in Indonesia. 

The Indonesian government is also working its ways to fully support the digital economy to maximize the GDP of the country. Some government interventions to the Indonesian digital economy are the development of national broadband and the allowance of foreign direct investment.

Impacts of Indonesia’s Digital Economy on the E-Commerce Industry

E-commerce has respectively improved business values by fundamentally changing the ways products are conceived, marketed, delivered, and supported. With Indonesia’s good digital economy, there is no doubt that it could bring benefits to upcoming e-commerce companies. Among them are reduced costs for business, lower barriers for entry, and greater personalization.

  1. Reduced costs for business

A digital economy enables firms to cut out a factor in the retail chain and instead of spending their expenditures on indirect costs like buildings and factories, businesses could use computing technology to operate their day-to-day businesses, which helps the company save costs.

  1. Lower barriers for entry

In addition, the aspects of a good digital economy make it easier for new firms to enter. Entrepreneurs have an opportunity to create a new product that challenges traditional firms, since the digital economy has brought many new services which weren’t possible before, such as home deliveries for groceries and clothes shopping. 

  1. Greater personalisation 

Lastly, a digital economy could help provide variety in the products provided. This is an important aspect in businesses as businesses that embrace personalization have an opportunity to create a differentiated proposition that may command a price premium and improve consumer traffic and conversion. It could also help improve efficiency and pave a path to sustainable growth. 

International E-Commerce Platforms Who Had Successfully Penetrated the Indonesian Market

There are more than 10 e-commerce marketplaces in Indonesia including local and international marketplaces. However, several international e-commerce platforms have successfully penetrated the Indonesian market. Among them are:

  1. Shopee

Shopee is an online marketplace based in Singapore, which is currently one of the market leaders of e-commerce in Indonesia. According to Statista, in the first quarter of 2021, the number of Shopee’s monthly visitors in Indonesia amounted to approximately 127.4 million users. Shopee is currently valued at USD 14.2 billion and a growth of 128% from 2019.

  1. Zalora

Zalora is one of the largest e-commerce sites in Southeast Asia specializing in fashion. It was established in 2012 and is a part of Global Fashion Group from Luxemburg, but headquartered in Singapore. According to Statista, in the first quarter of 2021, Zalora was the most visited B2C e-commerce website for fashion with approximately 2.9 million monthly web visits. It was valued at USD 110.2 million in 2019, and is still growing ever since.

  1. JD.ID

JD.ID, or known as Jingdong is an electronic commerce platform based in China and headquartered in Beijing. According to Statista, in the first quarter of 2021, the number of JD ID’s monthly visitors amounted to approximately 4.06 million. As of now, JD is seen to be worth USD 112.85 billion. 

Future Prospects of Indonesia’s E-Commerce Industry

The ongoing pandemic has forced us to move from our comfort zones and unlock innovations based on accelerated technologies. Before the pandemic, the Indonesian market of e-commerce was 75 million and grew into 85 million during the pandemic. More data showed that Indonesia’s e-commerce sector has doubled every year for the past three years and is projected to grow eight times by 2022 (this was mostly contributed by tech-savvy populations). 

It is no doubt that Indonesia is a particularly attractive e-commerce market, given the amount of screen time that averages 3.9 hours per person per day on mobile internet and the high buying power of consumers, an international e-commerce company would thrive in Indonesian markets with the right guidance. 

Enter The Indonesian E-Commerce Industry with BRIGHT Indonesia 

Indonesia certainly has a large number of internet users which could contribute to the overall performance of the e-commerce industry. So, if you are an International brand trying to enter the Indonesian market, you need the right local partner to assist you. 

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

  1. Assist you in expanding and developing your business by identification of potential partners.
  2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arranging business meetings, and acting as a liaison.
  3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net.

*This article is written by Aurellea Dashaliva

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