E-commerce, a waking giant in Indonesia

Indonesia is a fascinating country! People may disagree in light of the rupiah’s recent performance or the current-account deficit or the interest rate increase or, indeed, the slowing down of the property price. But honestly, do we feel the pressure when we travel around Jakarta or any other large cities in Indonesia, or when we stroll about any of the numerous mushrooming shopping centers?

The answer is no! We still feel vibrant dynamic enthusiasm from the young as Indonesia’s demography bonus, in which the dependency index (ratio between children/elderly vs. productive age) is at its lowest level. This means that there are more people in the working age group compared to those that need support (children and elderly).

A recent Forbes article mentioned that the city with the highest number of tweets in the world was not London, New York, Sao Paolo or Tokyo (although these cities are in the top five), but Jakarta! And second to Jakarta as the Twitter capital of the world, at number six, ahead of Los Angeles and Paris, is Bandung! This phenomenon is the tip of the iceberg in the Internet and e-commerce world.

Today, according to the Indonesia Internet Association, the number of domestic Internet users is around 80 million and this number is expected to double in just three years time. A big driver of this growth will come from cell phones and smart devices, with many having their first Internet interaction via these devices rather than the traditional PCs or laptop computer.

Additionally, many Indonesians go “straight to social”, which means that social media acts as the first gateway to the Internet. This makes a lot of sense, as Indonesia has the fourth largest number of Facebook users in the world.

Indonesia’s year-on-year Internet user growth is among the fastest in the world. In three years time this “virtual country” will have doubled in size with an additional 80 million members. Countries could not even grow that fast.

There are obvious changes to patterns of media consumption, especially among the youth, which are often referred to as the Y Generation, often turn to the Internet as a resource for news rather than traditional media.

This, however, is just the start. Next, these citizens of the virtual world will go online to look for entertainment, search for job opportunities, socialize with friends, have meetings with clients, educate themselves, do their shopping and hunt for bargains.

Considering the burdens of schedule and traffic in big cities, it makes a lot of sense for urban
people to prefer the convenience of the Internet. Currently, there are more SIM cards than there are people in Indonesia.

The contribution of the Internet to gross domestic product (GDP) has also seen an upward trend. A study by Deloitte shows that from 2011 to 2016, its contribution to GDP grew from 1.6 percent to 2.5 percent.

Faced with these patterns and statistics, those that run “offline” businesses posit the question: Is this bad news for my business? Will my business be threatened?

The answer is no! This phenomenon could turn out to be advantageous if addressed in a correct and positive way. Almost every business can benefit from the rise of e-commerce. The basic underlying logic is while the people of today and of the future will spend more and more time in the virtual world, we continue with our real activities in the real world.

Of course this requires adapt ability. Airlines, for example, have evolved. They realized that people still want to travel and, thus, utilized the Internet to cut down on unnecessary distribution costs, while at the same time increasing customer satisfaction through the offering of a simplified purchasing system. We are also witnessing major banks offering new services to cater for Internet-savy users with features that mostly start with an “e”: e-transfer, e-banking, e-cash, e-money, e-branch, e-whatever.

Other industries may not yet be feeling the pressure but I would suggest they take the bull by the horns before it is too late.

The next question often raised by business owners surrounds the subject of cost. To which I would say -  it can even be free! We are already seeing young small- medium-enterprises (SMEs) offering their products and services through the virtual world, starting from social media and online shops.

For almost all businesses, optimizing Internet utilization saves money and adds efficiency. Remember that real people will always need to do real activities.

The e-commerce industry in Indonesia is also not without its own challenges. Among the active Internet users in Indonesia, there are more people that haven’t done online transactions than those that have. The first challenge for our e-commerce industry is building trust. This need is justifiable since e-commerce is considered something new.

The second challenge is to build a seamless payment infrastructure. Traditionally, e-commerce in developed countries relies on credit cards as the preferred payment method. This cannot be the case in Indonesia since credit card penetration is much lower than Internet penetration.

The writer is CEO of Groupon Indonesia, a daily deals site based in Jakarta.

Opinion News - January 16, 2014