Indonesia Digital Economy

Indonesia may, at first glance, seem like a daunting place to start a business. But as one of the world’s fastest growing economies boasting a large and young population with high internet penetration, Indonesia remains an appealing choice for Singapore firms looking to expand overseas. E-commerce is an especially attractive and burgeoning sector, as online shopping becomes increasingly popular among Indonesian consumers. But how exactly can Singapore companies gain a foothold in Indonesia’s e-commerce landscape — finding promising opportunities while avoiding pitfalls and efficiently overcoming challenges?

Those were the questions that e2ecommerce Indonesia 2017 in-market workshop sought to address, a programme focused on providing end-to-end (e2e) commerce insights into Indonesia’s digital economy. Seven Singapore firms, including IT company Eprom Data Systems, clothier Creative Moms Asia and sports and lifestyle retailer Triple, traveled to Jakarta for five days in October to gain first-hand market knowledge about Indonesia’s digital economy. During the programme, they heard from several market experts on topics ranging from tax regulations to logistics to marketing strategy. The participants also gained insights into the Indonesian consumer; heard success stories from Singaporean and Indonesian companies that have thrived in the country; and participated in a trade show where each firm was introduced to several Indonesian companies to forge ties and unearth business opportunities.

It was a fruitful and eventful programme for the participants involved. Here are the key takeaways from the five-day event:

After India and China, Indonesia is currently the third fastest growing economy in the Group of Twenty. It’s also forecasted to be one of the world’s biggest economies by 2030.

Indonesia also has an enormous population of 260 million and a rapidly-growing middle class.

Speaking at the in-market workshop, Mr Azman Jaafar of RHTLaw Taylor Wessing said the country boasts a large, young and “disruptor” talent pool.

When it comes to e-commerce, the opportunities in Indonesia are particularly tantalising. By 2020, the archipelago nation’s e-market is estimated to be worth some $130 billion U.S. dollars.

Internet penetration is currently at 132 percent and there are more than 173 mobile phone users in the country. There are additionally about 92 million active users on social media platforms like Facebook, YouTube and Twitter.

With most Indonesian consumers using mobile to make online purchases, the e-commerce market is very much mobile-first — which has allowed retailers in Indonesia to focus on creating exemplary mobile functionality, thus offering unique opportunities for firms to dominate the retail space.

Indonesians love online shopping -- but not for everything
Indonesians “love to buy through e-commerce” for several reasons, said William Hadibowo, vice-president of customer management at BliBli.com. Cost and time saving are major factors, as is convenience.

Mr William Hadibowo underscores how Indonesians appreciate the increased variety and value-added services that e-commerce sellers can provide.

However, though e-commerce is growing in popularity, brick and mortar stores are still valued — particularly for more expensive goods. Items priced below $100 tend to do better on e-commerce; but for items above $100, customers still seem to prefer going to physical stores or shopping malls to do their shopping.
Mobile is king
Mr Edwin Chayadi of Facebook Indonesia shared how central a role mobile plays in the country’s e-commerce sector. Currently, a whopping four in five online purchases happen on mobile. And Indonesian consumers are becoming increasingly discerning and demanding of their mobile shopping experiences.

Forty percent of consumers will abandon a site if it doesn’t load on their phones in 4 seconds, said Mr Chayadi. Fifty percent say they would purchase more from a site if the user experience was more efficient.

“Mobile is your new store front,” advised Mr Chayadi. “Provide fast and frictionless mobile experiences to your customers.”
Use social media to your advantage
According to Mr Rahul Dixit, a digital marketing expert at GfK, 86 percent of Indonesians have used social media in the past week. Facebook (54 percent penetration) and Instagram are particularly popular, as is YouTube.

Instagram stories are becoming an increasingly effective way to engage customers, said Mr Chayadi of Facebook.

Mr Dixit suggested that company’s use their own audience to create content and also tap into the networks and expertise of social media influencers and bloggers.
Choose your distribution hub wisely
Carefully consider regulations, restrictions and infrastructure when choosing a distribution hub in Indonesia.

That was the advice of Mr Grover Anastatius de Souza of Vision Empire, a Singapore-based eyewear retailer with more than 600 outlets in Indonesia and a strong online presence.

Vision Empire, which uses drop shipment, chose to set up their distribution hub in a free trade zone in Batam. The zero percent import duty, said Mr Anastatius de Souza, was a major draw. /p>

There are also good and cost-effective warehousing solutions in Batam, he added. Manpower is also readily available and affordable.
Understanding logistics for your e-commerce strategy
Mr Hariadi Zakri of Singapore-based logistics company Quantium Solutions shared some insights into import duties and tariffs, as well as the customs clearance process in Indonesia.

Mr Zakri said items under US$100 can be imported into Indonesia without import duties, tax and VAT.

The lead time for delivery from Singapore to Jakarta is typically about two days. Parcel theft is rare, Mr Zakri noted, though misdirected deliveries have been known to happen. Working with a trusted in-market logistics partner can be helpful, Mr Zakri said, to avoid and overcome some of these potential hiccups.
Setting up your business
There are two legal entities permitted for foreigners in Indonesia: 1) a foreign investment limited liability company (PT PMA) and 2) a representative office (KPPA).

Mr Azman of RHTLaw Taylor Wessing sharing on the types of legal entities permitted for foreigners in Indonesia, as well as the capital requirements for foreign investments in e-commerce.

There are also capital requirements for foreign investments in e-commerce, namely:
- Foreign investors may invest 100% in e-commerce sector if the minimum capital of the foreign capital investment company is at least 100 billion rupiah (approximately US$7 million)
- In the event the foreign capital investment company’s capital is less than 100 billion rupiah, the foreign investor can hold a maximum of 49% of the shares.
Also take note of Indonesia's negative investment list, which limits foreign investments in certain areas of the Indonesian Standard Classification of Business Fields (KBLI).

Doing business in Indonesia, as is the case with any overseas venture, comes with its share of challenges. But Indonesia can also be a great choice for Singapore firms looking to expand their e-footprint abroad, as discussed above. The Indonesian government has also committed to improving the ease of doing business in the country, and positive changes are well underway.

Here are some tips and tricks shared during the e2ecommerce workshop to help companies get a leg-up in their Indonesian journey:

An understanding of Bahasa Indonesia is not necessary but would be huge boon. While English can be used in the corporate world, understanding the local language will be enormously helpful in communicating with staff at an operational level.

Go “old school” in your business dealings. Trust and strong relationships are still king in Indonesia. Having a physical presence in-market helps in the development of forging good partnerships and earning trust.
Traffic might be challenging at times but plan smart and you can avoid inefficiencies. Many locals arrange meetings in a central location and have clients come to them.

Features

Indonesia

Liberalisation of the Economy