E-Commerce Market Indonesia: Online Retail Growing Strongly

Hadi Wenas, Chief Executive Officer (CEO) of MatahariMall.com, informed reporters that the online retailer (which is owned by the Lippo Group, one of Indonesia’s biggest conlomerates) has successfully expanded to 93 percent of Indonesian cities and districts, creating an online-to-offline business model. He explained that the company managed to grow rapidly because the webshop offers the best services, while it also constitutes a local player (with 80 percent of employees being Indonesian citizens).

Furthermore, its online-to-offline business model forms evidence of the company’s innovative efforts. Consumers in Indonesia can now easily buy goods online and pick it up at, for example, the local post office, train station, or shopping center. MatahariMall.com currently has a network consisting of 649 online-to-offline points spread across a large part of the archipelago.The online retailer has also been engaged in major discount offerings. For some of its products it slashed prices by a whopping 99 percent during the Idul Fitri celebrations in early July. Such moves have also been key to gain market share in Indonesia and compete with foreign online retailer giants such as Amazon.com and Alibaba.com.

In 2014 turnover in Indonesia’s e-commerce business was estimated to have reached IDR 150 trillion (approx. USD $11.5 billion). The Indonesian government targets to see turnover grow to at least IDR 1,500 trillion (approx. USD $114.5 billion) by 2020, particularly on the back of expansion of Indonesia’s Internet infrastructure. Recently, the government of Indonesia started with the construction of the Palapa Ring project. This project is one of the nation’s priority infrastructure projects and involves a huge undersea fiber-optic cable network that will offer faster broadband to the entire archipelago.

The Palapa Ring project should particularly support online businesses outside the island of Java. Currently, there is a rather big gap between the availability (and quality) of Internet between the islands of Java and Bali versus the rest of Indonesia (the further you go to the east of the country, the more difficult and expensive Internet usage becomes). The Palapa Ring project, expected to be completed by 2019, should close – or narrow – this gap.

Meanwhile, recently released joint research conducted by Google Inc. and Temasek Holdings Pte claims that Southeast Asia’s digital economy (which includes a variety of segments including e-commerce, online games, and online advertising) will surge to USD $200 billion by 2025. Indonesia’s digital market is forecast to account for 40.5 percent – or USD $81 billion – of this total market in the region. With an estimated USD $46 billion, Indonesia’s e-commerce sector will contribute most to the total. As such, the projection of Google and Temasek Holdings is not as optimistic as the projection of the Indonesian government.