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Indonesia’s E-Commerce: A New Engine of Growth?
Yose Rizal Damuri (CSIS)
Siwage Dharma Negara & Kathleen Azali (ISEAS-Yusof Ishak Institute)
Symposium on E-Commerce, ASEAN Economic Integration, and Competition Policy & Law
Singapore, 16 March 2017
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Key Messages
• E-commerce in Indonesia is growing and taking larger portion of sales• Several factors have boosted e-commerce performance in Indonesia, e.g.
massive development of related infrastructures• E-commerce is perceived as an alternative marketing channel for SMEs• The government remains ambivalent towards the development of e-
commerce• Want to see it growing with a very high target, while expecting e-commerce to foster
SMEs• But remain cautious to its impact on traditional retails, international trade, industrial
development, and taxation
• Challenges are still abundant for future development• Consumer and data protection, lacks of reliable payment system• SMEs access to various enabling factors remain limited, e.g. access to financing
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Rapid growth but still relatively small
• Retail e-commerce in Indonesia has been growing rapidly• While it is still small compared
to other countries, it grew by around 30% annually during the last five years
• The proportion to retail sales is still small but increasing
• The government targeted the online transactions to reach US$130 billion (2020)• More than 30 times increase
of 2015 figures
Source: Statista
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Factors Supporting E-Commerce Development: Demography
• Largest market in SEA
• A growing middle class (135 mill by 2020)
• Young population: 70 per cent of the population is under the age of 40
• Big share of population aged 15-34
Source: CIA World Factbook
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Factors Supporting E-Commerce Development: Growing Internet Penetration
32.0
22.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2010 2011 2012 2013 2014 2015
Percentage of Population using internet
Urban Rural National
18.40%
24.40%29.20%
18.00%
10.00%
75.80% 75.80%
54.70%
17.20%
2%0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
10 - 24 yo 25 - 34 yo 34 - 44 yo 45 - 54 yo 55 + yo
Age Composition & Penetration (2016)
2016 Composition 2016 Penetration
Source: Susenas 2014 Source: APJII
Rising internet penetration (36 million in 2010, 93 million in 2015)
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Supported by growing number of mobile internet and payment tools
6578
93105
122146
8 1422
36 36 433647 55
6885 93.4
9.4 8.7 7.7 10.1 9.9 10.4
243.8
279.8
312.3331.7 341.9 341.5
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015
ATM Debit Credit Cards E Money Cards Internet User Fixed Line Subscribers Cell phone subscribers
Source: Susenas 2014
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Infrastructure: Networking Fiber Optic Palapa Ring
• Indonesia Broadband Program: Palapa Ring designed to bring greater internet speed and parity
• Aims to provide broadband access to every district by 2019
• Previously delayed for more than 10 years (AFC, 2008 crisis, etc.).
• Since 2016, govt guaranteed financing, backed by SO Bank Mandiri
Source: Ministry of communication and information technology
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Existing submarine cables, facing geographical challenges
Source: submarinecablemap
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Uneven Distribution of Internet Penetration across Region
0
10
20
30
40
50
60
0
2
4
6
8
10
12
14
16
18
Ace
h
Wes
t Su
mat
era
Jam
bi
Ben
gku
lu
Ban
gka
Bel
itu
ng
Jaka
rta
Ce
ntr
al J
ava
East
Jav
a
Bal
i
East
Nu
sa T
en
ggar
a
Ce
ntr
al K
alim
anta
n
East
Kal
iman
tan
Ce
ntr
al S
ula
wes
i
Sou
thea
st S
ula
we
si
Wes
t Su
law
esi
No
rth
Mal
uku
Pap
ua
Internet users (mill) Penetration rate (%)
Source: APJII (2015)
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10.00
20.00
30.00
40.00
50.00
60.00
Ace
h
Sum
ate
ra B
arat
Jam
bi
Ben
gku
lu
Ban
gka
Be
litu
ng
DK
I Jak
arta
Jaw
a Te
nga
h
Jaw
a Ti
mu
r
Bal
i
Nu
sa T
engg
ara
Tim
ur
Kal
iman
tan
Te
nga
h
Kal
iman
tan
Tim
ur
Sula
we
si T
en
gah
Sula
we
si T
en
ggar
a
Sula
we
si B
arat
Mal
uku
Uta
ra
Pap
ua
Per Capita GRDP (Rp million), 2013
Source: BPS
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The Landscape of E-commerce in Indonesia
• E-commerce has just recently developed in Indonesia
• It started with simple marketplaces/classifieds where sellers can only advertise their products• Buyers and sellers make contact
directly• The transactions is normally conducted
through e-mails, phone calls or messaging
• Several integrated platforms started to grow by early 2010s• Especially when some big providers
offer integrated services of online transactions
• Turning point in the development of e-commerce in Indonesia
Source: Bede Moore, Lazada Indonesia (2016)
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VC firms mostly linked to major conglomeratesLaunch date Backing Significant investments in
Venturra Mid 2015 Riady (re-incarnation of Lippo Digital Ventures)
GrabTaxi, HappyFresh, Bridestory, Munchery, RuangGuru, First Media ISPLippo also invested in MatahariMall, Lazada
SMDV Mid 2015 Widjaja (Sinar Mas Digital Ventures)
HappyFresh, aCommerce, FemaleDaily, MyRepublicISP
Convergence Ventures
Nov 2014 Bakrie Path, Qraved, YesBoos, MBDC media
Emtek Nov 2014 Sariaatmadja Bukalapak, PropertyGuru, Kudo, Hijup, BoboBobo
2010 Hartono (Djarum) BliBli, Kaskus, Daily Social, InfoKost
Skystar Capital Dec 2013 Kompas Gramedia Group SCOOP, Bridestory, Hijup
Source: Bede Moore, Lazada Indonesia (2016)
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E-commerce and SMEs
• The development of e-commerce is believed to offer significant chances in retail and distribution for SMEs
• New potentials for the creation of networks, and cross-border activities• Enabling companies to compete with
larger firms, while encouraging the creation of new businesses and to the innovation
• But the proportion of firms using email and have websites is still small• Necessary conditions to be connected to
the network and to take advantages of e-commerce
32.27%
17.11%
46.21%
35.83%
Used email Had Website
Firms using Internet and e-mail, Indonesia 2009 & 2015
2009 20092015 2015
Source: World Bank Enterprise Survey
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Despite all the development… only 7% of Indonesian buys online
51%
82% 87%
58%75%
58% 64%68%
6%
3% 2%
5%
4%
4%
12% 6%38%
11% 7%
30%10%
33%14% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
China India Indonesia Malaysia Philippines Singapore Thailand Vietnam
Consumers purchase behavior (2014)
Offline Store Phone Online
Source: Google Barometer
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Most people use internet for social media….
3.9%
8.4%
11.3%
27.8%
35.1%
45.1%
73.5%
82.0%
Others
Financial facility (e-banking)
Online trading
Sending and receiving e-mail
Doing school assignments
Entertainment/games
Searching information/news
Social Media
Source: Susenas (2014)
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Some infrastructures are just not sufficient….
36.70%
14.20%
7.50%
2.50%
1.60%
0.70%
0.00% 10.00% 20.00% 30.00% 40.00%
via ATM
Cash on Delivery (COD)
Internet banking
Credit cards
SMS banking
E-money
Payment methods
0%
20%
40%
60%
80%
100%
120%
0
2
4
6
8
10
12
14
16
18
Singapore Thailand Malaysia Vietnam Indonesia
Speed (Mbps) Q1-2016
Proportion of IP Address with Speed > 4Mbps
Source: APJII (2016) Source: Akamai – State of the Internet Connectivity Report 2016
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And consumers still don’t trust online shopping…
56
36
35
35
34
30
22
9
8
8
0 10 20 30 40 50 60
Online shopping has a fraudulent image
I cannot try/test the product
Payment is not safe/convenient
Price is higher
Product quality is not reliable
Unsatisfactory sales support
I don't know how
Online shopping has a low-end image
Products are not available online
Poor after-sales service
Source: McKinsey (2013)
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Current regulations
• Law No 8/1999 on consumer protection• Law No 11/2008 on information and electronic transaction• Government Regulation No 82/2012 on electronic system and transactions• Law No 7/2014 on trade (Article 65 and 66 on e-commerce)• Presidential regulation No 44/2016 opens e-commerce business for foreign
investment • DG Tax circular No 6/2015 which sets the taxes to be paid by e-commerce
business• Financial Services Authority (OJK) regulation no. 77/2016 regarding
Information Technology-Based Money Lending Services, e.g. peer-to-peer lending (P2P lending)
• Draft government regulation on e-commerce
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Policy IssuesPolicy Areas Possible Issues Illustrative Cases
Competition-related - Definition of relevant market- Winner takes all- Definition of anti-competitive
behavior
- Web-based vs traditional transport services- Acquisition of platforms to increase market share- Some e-commerce platforms might use
consumers’ profiles and characteristics for other services they offer
Consumer protection - Fraudulent activities in C2C and B2C marketplaces
- Risky payment mechanism
- Complaints about quality of goods, or delivery time
- Especially in using credit cards on unsecured services
International trade - Cross-border e-commerce- Impact to domestic industry and
start-up services
- Tariff application for such imported goods
Taxation - Taxing internet-based economic activities
- Problems if the services is supplied cross-border,e.g. Google case, Amazon
Data protection and traffic
- Freedom of data flow and privacy
- Requirement for localization of data centers
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Policy direction
• Law No 7/2014 provides legal base and certainty for e-commerce business
• Need operational framework to provide consumer protection and protection for Indonesia’s national interests
• Govt regulation provides operational and implementation framework
• More Perpres and Permen to come: Need harmonization among various regulations (vertical and horizontal)
• How about Perda (local govt regulations)?
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Government departments & regulators
1. Coordinating Ministry of Economic
Affairs
2. Ministry of Communication and
Information
3. Ministry of Trade
4. Ministry of Industry
5. Head of Creative Economy (Bekraf)
6. Ministry of Finance
7. Bank Indonesia
8. OJK (Financial Service Authority)
Enforcement? Coordination across ministries and govt agencies remains challenging
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Economic Package XIV: E-commerce Roadmap…
Released Nov2016
1 Funding (1) KUR for platform developers(2) Grants for business incubators facilitating start-ups(3) USO (universal service obligations) funds for digital MSMEs and e-commerce
platform start-up(4) Angel/seed capital (5) Crowdfunding(6) Opening of DNI (Negative Investment List)
2 Taxation (1) Tax cut for local investors investing in start-ups(2) Streamlining of tax permits and procedures for ecommerce start ups whose
revenue is under Rp 4.8 billion/year(3) Tax standardisation for e-commerce
3 Consumer protection
(1) Government Regulation on Commercial transactions through electronic system(2) Regulation harmonisation(3) Trade payment systems and sales of government products/services through e-
commerce(4) Incremental development of national payment gateway(5) Digital certification for e-commerce (recently announced)
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4 Education & workforce
(1) Campaign to increase ecommerce awareness(2) National incubator programs(3) E-commerce curriculum(4) E-commerce education to consumers, business players, and law enforcement
5 Logistic (1) Use of National Logistic System (Sislognas); (2) Strengthening of local/national courier companies(3) Development of logistic data for MSMEs(4) Development of logistics from rural to urban areas
6 Communicationinfrastructure
Development of communication infrastructure through broadband networks
7 Cyber security (1) Development of national monitoring system in e-commerce transaction(2) increase public awareness about cyber crimes(3) Developing SOP related to consumer data, certification for consumer data and
security
Economic Package XIV: E-commerce Roadmap
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Next Steps
• How to balance between consumer protection, national interest and security vis-à-vis the need to keep innovation progress and promote fair competition
• Need more accurate data and information (including cross border transaction flow and value)
• Next step: looking at study cases and conducting in-depth interview with relevant actors, e.g. platform providers, merchants, regulators
• Recommendations for future research: improving database
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THANK YOU