Rapidly Developing E-Commerce Sector Changes the Traditional Way of Doing Business in Indonesia
E-commerce – which refers to the activity of electronically buying (or selling) products through online services or over the Internet – has been developing rapidly in Indonesia over the past decade. More and more Indonesians have started to shop online, forcing many offline retail players to adapt and innovate their business models in order to survive in this new and challenging environment where two newcomers, both tech startups and both e-commerce platforms, have developed into a unicorn (Tokopedia and Bukalapak) which is a startup that is valued above USD $1 billion.
What are the advantages of online shopping? Offline shoppers need to (physically) walk from one store to the other in search of specific products (such as toys, clothes, cosmetics, and groceries). This requires energy and time. While it can be fun and a form of relaxation to spend an afternoon, or evening, shopping with friends in a shopping mall, it can also be an inefficient act when your time is limited (for example due to a busy work schedule). Moreover, a city such as Jakarta is well known for its huge traffic congestion, hence it is possible to get stuck in traffic for hours before you reach a specific offline shop in a mall.
Having access to an e-commerce website where you can find almost any product through a simple search query while sitting on a comfortable sofa or while lying in bed, is a great solution (it is energy and time efficient). Moreover, once ordered and paid (actions that can be done online as well) the products are transported to your location (and at relatively cheap costs; sometimes even for free).
Meanwhile, a lot of Indonesian consumers love online shopping because often attractive promotions and discounts are offered. While it is true that offline retailers also frequently offer attractive discounts to shoppers (especially since the arrival of these online rivals), you can often find a cheaper price online for the exact same product. The secret here is that many online players have less operational costs as they may not need to own, or rent, a physical store (and therefore require fewer workers), hence allowing to set a lower price.
Savings can in fact become quite substantial in those dense urban areas because physical retailers face higher costs for land and labor, while parcel shipping costs are low because logistics hubs are nearby.
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This article discusses the following:
• Online shopping; consumers and business-owners are increasingly shifting to the Internet as it is more efficient in terms of money, time and energy. This development also has important implications for the economy, and even for social development (including women empowerment).
• A description of the characteristics of the "average Indonesian e-commerce shopper".
• The Indonesian government is experiencing trouble to regulate e-commerce (pushing it into the formal economy) and generate tax revenue from it. Therefore, it recently issued Government Regulation No. 80/2019 on Trade via Electronic Systems.
• In an effort to protect the local manufacturers, the Indonesian government also decided to lower the threshold at which it begins to impose import taxes on consumer goods that are sold via e-commerce platforms.
Read the full article in our January 2020 edition
