Global Business Guide Indonesia

Sign up for the GBG Indonesia Quarterly Business Intelligence Report for the latest news on your sector.
Sign Up
Business Updates | E-commerce Incoming; An Industry on the Rise

With annual sales that currently stand at an estimated $1-3 billion USD and are projected to clear $10 billion USD by the end of 2015 (Financial Times), Indonesia’s e-commerce market is fast becoming one of Asia’s most attractive destinations for investment.

Rising interest from both foreign and local players looking to enter the industry has however placed greater scrutiny on the lack of a comprehensive regulatory framework to govern online transactions. In the absence of clear laws, e-commerce companies already in and on the cusp of entering Indonesia have had to contend with rampant and often fearful speculation as to what is to be required of an e-commerce business operating in the country. Much of this can be traced back to the release of a yet to be implemented 2012 law that vaguely asserted that e-commerce companies in Indonesia would need to register a local .id domain as well as build data centres on Indonesian soil.

In spite of these concerns, Indonesia’s e-commerce industry motivated by the potential of a predominantly young population of 247 million people has powered on. Driven by the sustained success of local pioneers in online B2C and C2C, as well as the emergence of new start-ups and the entry of international players, the industry is well positioned to boom as the number of internet users in the country rises. Moreover, steps are now being taken to actively tackle legislative uncertainty that has in the past dissuaded further investment; a course of action that should facilitate the actualisation of Indonesia’s potential as a centre for e-commerce.

Building a Foundation for E-Commerce Regulation

Following on from the House of Representative’s decision to pass the new Trade Law in February (See Understanding Indonesia’s New Trade Law), 2014 stands to be a watershed year for the introduction of new government regulations that should address some of the uncertainty that plagues the e-commerce industry. As one of the many implementing regulations mandated by the Trade Law, the upcoming government regulation (PP) on e-commerce is expected to “to protect the interests of parties involved in electronic transactions and provide guidance in performing e-commerce”, as explained by Mr Bayu Krishnamurti, Deputy Minister of Trade (Hukum Online, 17th March 2014).

The soon to be introduced PP on e-commerce should not be anticipated as the piece of legislation needed to shed light on all of the fledgling industry’s grey areas. Already, there is reason to believe that it will steer clear of providing cut and dry details on the taxation of e-commerce transactions. What investors should instead glean from this development is that the Indonesian government has very much committed to focusing on this high potential industry. “The growth [in online transactions] is 300% faster than regular transactions using cash and the regulations have now become crucial,” said Trade Minister Mr Muhammad Lutfi, “creating the regulations has become a priority for the Trade Ministry” (Jakarta Post, 19th March 2014).

Within this context of greater government attention expected to expedite the expansion of an industry that has flourished despite a hazy regulatory atmosphere, it is important to take stock of specific areas in e-commerce with particular scope for growth. To be sure, Indonesia’s CAGR of 31.8% in the B2C market – which in Asia trails behind only China at 39.2% (Asian Venture Capital Journal, Volume 27 No 9) - dictates that opportunities and areas to enter are plentiful.

Online Opportunities Abound

Among the most promising areas of e-commerce in Indonesia is electronic goods, which offline have seen an increase in price between 10-15% since 2009 on the back of improved per capita purchasing power (See Indonesia’s Electronics and Home Appliances Sector). Local e-commerce site Bhinneka has for the last decade and a half established itself as the leading specialist in electronics. Having enjoyed considerable success through the sale of premium brand computers and gadgets, the company as of 2013 attracted 148,000 visitors on a daily basis (85% of which come to the website organically) and has since built upon its standing in electronics to diversify into home appliances, musical instruments and toys.

Part of this move towards diversification can be attributed to the entry of a new competitor, Lazada - a portfolio company of the e-commerce focused venture capital firm Rocket Internet. With the support of one of the world’s largest startup incubators and fuelled by $100 million USD in funding obtained in 2013, Lazada Indonesia has since surpassed Bhinneka in Alexa ranking, amassed a pool of daily visitors in excess of 250,000 people (Tech in Asia, 27th June 2013)  and is now positioned as one of the top e-commerce businesses in Indonesia despite only entering the country in 2012; a fact demonstrative of the present opportunity to quickly establish a substantial presence in a market with room for new major players.

In entering the e-commerce industry through the sale of electronic goods, foreign companies are advised to take note of the experiences of existing international ventures into Indonesia. Japanese online retail giant Rakuten when launching its e-commerce website Rakuten Belanja Online (RBO) found that the country’s lack of infrastructure was a major obstacle and decided to create its own delivery system instead of relying on third party couriers. Coming into Indonesia ready to invest in developing a reliable logistics system is therefore a must. In truth the need to undertake this type of investment opens the door to capital rich entities ready to work with startups that have been starved of investment as a result of the still sparsely populated venture capital community in Indonesia (AVCJ).

Online fashion retail is also positioned to expand in line with the twin momentums of rising internet use and a thriving consumer market. Though the market has already seen the entry of major players in online clothing websites such as Zalora (also a member of the Rocket Internet portfolio), this area still presents potentially lucrative opportunities to companies able to bring in the technology (or consultancy) needed by major Indonesian retailers and brands that are yet to offer their products online.

Other opportunities in online retail include babycare products; a subsector of the e-commerce industry that will benefit from an impending baby boom and catering to a generation of young parents more open to the online shopping experience. From a high cost goods perspective, there is scope to establish e-commerce businesses in property. Rising competition in this sector has influenced consumers to seek out alternative sources of information to better compare between different developers and real estate listings. E-commerce websites focused on property provide the aforementioned source of information and are also positioned to take advantage of rising demand for secondary homes in tourism hot spots, as they allow people to cast a wider net when searching for properties beyond their immediate city of residence.

Issues That Remain

Despite these many exciting avenues to explore e-commerce in Indonesia, it is important to keep in mind that the introduction of a clearer regulatory framework for e-commerce will not solve other issues inherent to the market. A problem faced by any business offering products online to Indonesian consumers is the lack of a payment system that is both efficient and suited to the market. Debit cards remain largely reserved for in-store transactions or payment via ATM, though initiatives by major financial institutions such as Bank Mandiri to facilitate the purchase of online goods using Visa debit cards at pre-approved websites are now being introduced. Compounding this issue is the low penetration of credit cards among Indonesians, which as of 2013 was recorded at less than 15% of the population. Companies entering Indonesia’s e-commerce industry must therefore be prepared to adopt less common payment services, such as pay upon delivery or payment via the use of phone credit (pulsa). Alternatively, e-commerce businesses could follow in the footsteps of leading C2C website Kaskus by developing their own in-house online payment system which operates akin to E-wallets and allows for transactions to be completed via direct transfer.

The issue surrounding payment for online products in Indonesia is symptomatic of the need to address the market’s bigger challenge: building trust and educating consumers. Though internet user growth has in recent years skyrocketed and is projected to rise from the current 72.8 million individuals to 112.6 million by 2017, only a small proportion of these people are carrying out online transactions. As noted by Mr Indrasto Budisantoso, CEO of Groupon Indonesia, less than 10% of internet users in Indonesia have purchased goods via e-commerce. Much of this trend can be explained by a general wariness of fraud. As such more needs to be done to raise awareness and establish a better understanding of safe methods of purchasing products online. This is particularly true in rural areas with the potential to become centres for e-commerce activity due to their limited access to major shopping outlets. 


Indonesia’s e-commerce industry is still in its early stages of development; investment is needed to fund the expansion of fledgling companies with huge potential as well as improve upon infrastructure such as payment systems and delivery services. This opens the door to firms ready to bring in capital and technology, willing to work with both local companies just starting out and more developed players looking to launch their own e-commerce arm. Moreover, the breadth of opportunities available in Indonesia is substantial. In addition to the major industries previously detailed, more specialised online shopping experiences such as cosmetics sampling services (i.e. Lolabox) have proven successful in a short amount of time. Making available online shopping via mobile platforms is one avenue to explore further, given the popularity of mobile browsing in Indonesia, whose citizens browse more than double the amount of pages on their handheld devices than consumers in the US and the UK.

Global Business Guide Indonesia - 22nd April 2014

icone share

Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)