Writer: Jessica Febriana
Digitalization, along with the recent Covid-19 pandemic fosters the use of e-commerce or online commerce globally. Based on Statista Digital Market Outlook (2023), Indonesia’s e-commerce comprised 70.1 million users in 2017 and projected to reach 221 million users in 2025. The users’ interests are mostly dominated by Fashion, Electronics and Beauty, Health, Personal and Household Care. In another light, these preferences reflected the 53% population of gen Z and millennial consumers, making consumption moving towards digitally oriented.
Figure 1. E-commerce Users in Indonesia 2017-2025* (millions)
E-commerce Sites in Indonesia
Online purchases due to the pandemic have risen in various e-commerce platforms both business-to-consumer (B2C) and business-to-business (B2B). Based on International Trade Administration, B2C dominates the Indonesian e-commerce market, such as the giant regional players such as Shopee and Tokopedia. Shopee dominates the e-commerce market with a total gross market value (GMV) of 14.2 billion USD in Indonesia. As shown in the graphic below, in the second quarter of 2022, Tokopedia had the highest number of visitors, with 158.35 million visitors, followed by Shopee, Lazada, Bukalapak and Blibli. On the other hand, Ralali.com and Bhinneka are the leading companies in the B2B sector. Although B2C has been the main focus for the past five years, Deputy Trade Minister Jerry Sambuaga predicts that the B2B market is expected to grow to 21.3 billion USD by 2023.
Figure 2. Top 5 Most Visited Sited E-commerce Sites (Quarter II 2022)
Indonesia’s E-commerce Market
Indonesia is indeed a highly desirable market for e-commerce. According to the International Trade Administration, Indonesia’s e-commerce market became the ninth largest in the world with a value of 43 billion USD in 2021. Furthermore, Google, Temasek Holdings and Bain & Company show that the annual gross merchandise volume (GMV) of the e-commerce market in Indonesia reached 59 billion USD in 2022, rising 22% from 2021. Interestingly, GMV was forecasted to reach 95 billion USD by 2025. This indicates annually rising activities of goods sold through a customer-to-customer (C2C) marketplace. It is no surprise that Indonesia’s digital economy is primarily driven by e-commerce.
Figure 3. GMV of E-commerce Market in Indonesia 2019-2025*
Source: Google, Temasek Holdings, Bain & Company (e-Conomy SEA 2022 Report)
Based on BPS Statistic eCommerce 2022 Report, e-commerce businesses dominated by Wholesale and Retail Trade, Repair and Maintenance Cars and Motorcycles category, accounted for (39.10%). Then, followed by Provision of Accommodation and Food and Beverages (19.98%) and Processing Industry (17.18%). Not only small and medium companies but big retailers such as PT Matahari Department Stores, are moving to the online market. The digital platform MatahariStore.com has launched, and more big players are taking advantage of online market platforms to boost their market base. This suggests heightened competition in Indonesia’s digital economy. The recent merger of Gojek and Tokopedia demonstrates how major startups are strategizing to dominate Indonesia’s lucrative but uncertain market. The government is attempting to strike a balance between regulating and facilitating the sector’s development.
Figure 4. Percentage of E-commerce Business by Category/Field in 2021
Source: Central Bureau of Statistics Indonesia
Investment in E-commerce Market
However, a positive trend in e-commerce is stimulated with positive investment as well. As Indonesia remains an attractive investment destination, research from Mckinsey and Company showed that between 2015 and 2017, Indonesia received approximately 38% of total ASEAN venture capital funding, which is more than its relative contribution to ASEAN’s total GDP of 36%. Additionally, e-tailing, defined as the buying and selling of physical goods through an online platform that facilitates transactions by displaying products and enabling payment and delivery, accounted for nearly 3 billion USD of the funding.
Figure 5. Southeast Asia Internet-company Investments 2015-2017
Source: McKinsey & Company (2018)
Figure 6. E-tailing Investment in Indonesia (Billion USD)
Source: McKinsey & Company (2018)
Indonesia’s Ministry of Trade has also shown efforts to strengthen the ecosystem for Small and Medium Enterprises (SMEs) through cooperation with a number of e-commerce-based companies. In 2021, collaboration with e-commerce based companies, Goorita and ARISE+ Indonesia, to empower SMEs to enter international markets has been done. Director of Export Development Cooperation at the Directorate General of National Export Development (PEN) Marolop Nainggolan mentioned that e-commerce is a strategic medium in global trade. Together with ARISE+ Indonesia Program, hopefully it will be able to provide more support for technical e-commerce activities.
Opportunities and Advantages of E-commerce Business in Indonesia
Indonesia’s population structure itself is a favorable environment, comprising over 270 million headcount dominated by 15-64 years old. Millennials and Gen Z stand out from this population group which further reflects the technology-savvy individuals. Based on the Indonesian Internet Service Providers Association (APJII), Indonesia’s Internet penetration rate increased and reached 78.19% throughout 2022-2023. This drives higher online spending per capita and is expected to grow more in the future.
Chiefly five years ago, the Indonesian government has been initiating means of support for the e-commerce industry. The Indonesian Ministry of Trade has organized a National Online Shopping Day (Harbolnas) to promote e-commerce usage and increase the trade of domestic products. This implementation ranges from 2018-2021,longs to strengthen the domestic market and increase exports. Later, its transactions recorded a total of 18.1 trillion Rupiah (US$ 1.16 billion) in 2021 or a 56% increase over the previous year. Back in 2017, Indonesia adopted the E-commerce Roadmap (2017–2019) to ensure a structured growth of Indonesian e-commerce in the efforts of assistance to Small and Medium Enterprise (SME) as well as start-ups and advancing infrastructure in rural areas. Later in 2018, the government launched the Online Single Submission or OSS platform which simplifies the process for businesses to obtain licenses and permits required for operating e-commerce platforms. The outcome desired was to improve Indonesia’s ranking on the World Bank’s Ease of Doing Business Index. Furthermore, since 2021, the Indonesian government has been working on a blueprint for the digital economy with a particular emphasis on accelerating the implementation and transformation of this sector in the country. The Indonesian government is expediting the digital transformation of the e-commerce sector, recognizing its significance as a survival strategy for Southeast Asian MSMEs amidst the pandemic, and acknowledging the emerging importance of digital financial services as a crucial facilitator.