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

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Opinion News - January 18 , 2014

E-commerce in Indonesia – Outlook, Prospects, and Challenges

Indonesia’s active internet population is developing extremely fast, currently 83.6 million users and it is projected to be 93.4million by 2015 (source: eMarketer 2013). The demographics are impressive pointing to a young populace with above 60 percent of internet visitors below 35. Vela Asia estimated the Indonesian e-commerce market at USD 2.0 billion in 2012 and USD 8.0 billion in 2013. The value is forecasted to reach USD 12 billion by the end of 2014 and USD 18 billion by 2015. Indonesia’s e-commerce potential is ranked number one in the South-East Asia (source: Vela Asia), however, despite this large potential, many road blocks are slowing down the industry. The main e-commerce challenges are: gaining costumer trust, unclear e-commerce regulations, complicated banking services, low investment in cellular networks, and last but not least underdeveloped and inefficient transport infrastructure.

How can one buy trust?

In 2013, there were 4.6million e-customers, about 8 percent of internet users and this contributing only 0.1 percent of total Indonesian retail.  The 2015 projection is 7.4 million online customers, around 10 percent of the total internet population. The foremost reason for avoiding purchasing on-line is the absence of customer trust (APJII 2012). Some pressing issues are fear of scams (34.6 percent), inability to see the products (21.5 percent), and high prices (13.8 percent). Reliable B2C online commerce companies such as Lazada Indonesia, Rakuten, eBay, Sukamart, Zalora Indonesia, and Groupon Indonesia grasp only 20 percent of e-commerce whereas social commerce gets 80 percent, this despite having no guarantee of quality or protection from fraud.

A great example of a successful B2C e-commerce company is Lazada Indonesia who has seen a 20 percent increase in monthly sales growth (source: e27), now having 400.000 visits per day and is targeting USD 6.0 to 7.0 billion in coming years. E-customers seem to trust more peer-to-peer online social platforms such as; Facebook which holds 50 percent share, Kaskus with 49.2 percent, and Toko Bagus with 13.6 percent (source: Veritrans&DalySocial 2012).

Vague regulators’ messages

Unclear governmental intentions regarding e-commerce have inevitably postponed investment decisions and definitely do not help boosting customer confidence. To this moment there is no agreement either on taxation or on any robust consumer protection regulations. From the start of 2013, the Trade Ministry has changed its rhetoric from a complete taxation on e-commerce to a complete scraping of VAT for Indonesian based e-commerce businesses.

Paying the e-bill

Efforts to entice and accommodate Indonesian customers have seen the bigger e-retailers offering between 4 and 14 methods of payment. The most popular are bank transfer (70 percent), Klik BCA (41 percent), credit card (30 percent), cash on delivery (24 percent), and Mandiri Internet (15 percent) (source: Veritrans&Daly Social 2012). A unique feature to the Indonesian market is that consumers often require a telephone confirmation for their order, adding to the business costs but gaining the desired consumer trust.

The penetration of banking services should provide consumers wider access to e-commerce. But it is important to draw the big picture. Despite the existence of many payment options for the e-bill only 19.6 percent of Indonesians had a bank account in 2011, compared to 66 percent in Malaysia and 72.7 percent in Thailand. Owners of debit cards in Indonesia are just 11 percent (source: the World Bank) and only five percent of Indonesians have credit cards (source: AKKI). As a result of the high credit card fees and complicated online bank systems, social commerce-consumers opt more for the traditional methods of payment such as cash on delivery. One of the more popular ways to pay for online purchases is via ATM direct transfer, however, the ATM distribution in the Archipelago is undersized. The Report Indonesia 2014 indicates that Indonesian banks primarily open branches in Java, BCA bank for instance has only 21 percent of its branches outside Java.

Another way to do online payments is through mobile phones. In 2014 there were in total 169.7 million mobile owners and for 2015 the projection hits 179 million (source: The Report Indonesia 2014). By 2012, 12.6 million e-wallet users and 50.000 cash out points existed. However, about 95 percent of the users were unregistered, implicating that most e-wallet balances were below USD 100.

In reality most e-commerce is done through social platforms making payment tracking and data collection hard, thus e-commerce potentially occupies a great part of Indonesia’s grey economy.

The Smartphone revolution

Indonesia is currently the 9^th largest smartphone user in the world. It is estimated to reach 57.7 million in 2014 and 71.6 million for 2015 (source: APJII), and expanding to above 100 million by 2017 (source: eMarketer 2013). Smartphones are the most popular device for connecting to the internet (65.7 percent), followed by desktops (52 percent), notebooks (45 percent), and tablets (1.9 percent) (source: APJII). Regulators and operators, however, are slow to satisfy the speed demands of the smartphone users. The e-commerce company Rakuten underlines how expensive home internet hinders the time buyers spend online. Contrary to this, Lazada stressed that most people do e-shopping through their mobile phones, and this coincides with the massive amount of time people spend travelling.

A drawback for the smart phone industry is that cellular networks in Indonesia are jam-packed, and revenue per user is just eight cents per megabyte, among the lowest globally, which has a direct effect on upgrading weak network infrastructure. Smartphone users still experience low download speeds, low quality, and irregular coverage limiting access to internet services. The good news is, mobile broadband penetration is high at 31.9 percent and expected to be between 40-70 percent by 2018 and with minimum speeds of 2 Mbps (source: The Report Indonesia 2014).

No road, no boat, no address code...

One of the major pluses for e-commerce is that anybody, from anywhere, can order anything, never leaving their home. But Indonesia has 6000 inhabited islands spanning 5000 km from west to east. And this island country is served by only 700 ports all suffering from underinvestment. Waiting time in port is between 6.4 days and 10 days. Of all roads: 8.1 percent are national, 11.5 percent of provincial, 80.7 percent are district roads, and 0.2 percent are toll roads. Logistics contributes 27 percent of the country’s GDP in comparison with the other Asian countries which range from 19 to 22percent (source: The Report Indonesia 2014).

Although Indonesia is illustrious for its poor infrastructure, e-commerce can reach even the furthest point of the Archipelago, of course with a certain additional price and time delay. E-retailers give between two and six days for delivery and prices vary significantly depending where the order is to, the type, size, and weight of a product. The last certainly will push the delivery price up and for regions where wealth is not comparable to that in Java it will obstruct a large number of customers to pursue e-retailing.

Indonesia, get ready!

Indonesian e-retailing has some challenges ahead, but as a new retail channel it should improve ways of doing business. It will challenge current retailer practices and open new doors to SMEs. How it evolves is hard to forecast especially with changing technologies, legislation and consumer habits. New trade agreements such as the ASIAN could see foreign interests reaching more Indonesian consumers very easily and Indonesian businesses expanding to new market. Based on global trends, business’ that embraced e-retailing saw substantially higher growth, so the question is are e-retailing businesses ready and where do they want to be?

BSD News – September 30, 2014

Gong Xi Fa Cai - 2566

MANAGING DEMOGRAPHIC BONUS APPROPRIATELY

The perception of the old people about the concept of “many children a lot of substance” is no longer valid. Because in the modern era, what is important is not the quantity, but the quality. Now, many families bear greater burden because they had more than two or three children.

Population growth without being balanced with mature planning and preparedness will cause population explosion and a burden on the state. Moreover, Indonesia is the fourth most populated country in the world after China, India, and the United States.

Currently, the Indonesian population is about 253 million people. If referring to the population census in 2010, the total population of Indonesia is 237.million people. Compared to the 2000 census results, over the last decade, Indonesian population increased by around 32 million people, or an average of 3.2 million people per year with population growth rate (LPP) of approximately 1.49%.

In 2013, the number of Indonesian population is around 250 million people. With a large population and high LPP, in the coming decades, Indonesia will face an interesting and challenging population dynamics. Indonesia is predicted to experience a demographic bonus from 2020 to 2030.

Demographic bonus is a condition where the productive population (15-64 years) is greater than or approximately 70% compared to the younger population (under 15 years) and elderly (65 years and above) or unproductive population at 30%. At the peak of the demographic bonus, Indonesian demographic condition is that among 100 productive population there were 44 young and elderly population. To that end, this demographic bonus becomes one of Indonesia’s strength that should be managed maximally.

Because, if it is not prepared, it will become a threat to the country because its impact could cause social unrest ranging from increase of poverty rate and unemployment. To deal with the demographic bonus, improvement of human resource quality is a major concern. In short, the demographic bonus can be a boon for the Indonesia people, on condition that the government must prepare a high-quality younger generation, improve human resources through education and training, health, provision of jobs, and investment.

In a world Bank’s research of December this year with a subtitle “2014 development Policy Studies” stated that in the next decade, Indonesia will have some factors which, if accompanied with a good policy, can be a great driver of growth, i.e. demography with large number of workers, urbanization trends, as well as the development in China.

However, Indonesian economy is also facing the risk of slowing growth in the long term, because the growth was lately supported by favorable external environments, i.e. high commodity prices in 2003-2011 accompanied by low global interest rates since 2009.

To that end, the Indonesian economy should grow above 5% in order to avoid serious unemployment problem. In the long term, economic growth above 5% is required so that Indonesia will become a high-income country in 2030. This is because the growth is still unevenly distributed. The proof is that from 1999 to 2012 poverty rate fell from 24% to 12%. However, 65 million people are still living between the national poverty line (USD 1.25/day) and the global poverty line (USD 2/day).

It is important for Indonesia to accelerate economic growth through increase of labor productivity because it will bring more value to the workforce, reduce vulnerability to loss of jobs, and strengthen the competitiveness of the private sector. Indonesia needs to create more jobs in manufacturing and services sectors.

Not less important is the need to cover the shortage of skills of human resources so that it requires enhancement of educational quality at level all levels, as well as expansion and improvement of the quality of training centers. Graduates of educational institutions and workers should be equipped with technical skill and appropriate behavior (discipline, reliability, cooperation, and leadership).

It is done through productivity increase through structural or sectoral changes in Indonesia that requires improvement of labor function, capital, and land markets. There should also be a consistent industrial strategy which is implemented in cooperation with the private sector.

In 2020-2030, Indonesia will have about 180 million people in productive age, and unproductive age of around 60 million people, or 10 productive-age people who have 3-4 unproductive-aged people as dependents, so it will increase public and national savings.

What shall be done and prepared for the demographic bonus is improvement of educational quality for the betterment of the Indonesian nation. Based on the wealth of natural resources (SDA) and human resources, the development of national education is something very important for the sake of empowerment of Indonesia’s demographic and geographic potentials.

In developing a qualified generation, development of a competency-based curriculum should be integrated and comprehensive with the main focus on knowledge, aptitude, skills, attitude, independence and creativity, and values that are reflected in thinking and acting habits.

Besides being equipped with education and good health services, the values of Pancasila (the five basic principles) and national awareness should be instilled to create a generation with good morality and patriotic. Increasing number of productive population must be accompanied with increase of quality in order to compete in work or create jobs.

Moreover, Indonesia has entered the global free trade, including with China, and will face the ASEAN Economic Community (AEC). So that Indonesia does not lose in competition or is not a burden on the state due to demographic bonus. So, besides human resources development through quality education and health services, the next strategy is to create new business by continuously educate young entrepreneurs, provide assistance, and open markets.

Creating new business is better than creating workers so that there will be a growing number of entrepreneurs archive the ideal amount, i.e. 2% of the total population. Improvement of the quality of education to create a qualified generation and create jobs through entrepreneurship is the answer to the demographic bonus challenge.

Demographic bonus will be enjoyed by Indonesia in 2020-2030, where at that time the productive age population above 15 years and below 65 years is very large. While, the number of population aged under 15 years and above 65 years is very small. This number will certainly be very beneficial to Indonesian economy, because economic production will work more optimally, while consumption slowed.

Because the national economy is now facing economic dualism, where there is a wide disparity between sectors, especially between agricultural sector and other sectors. The large number of workers absorbed in the agricultural sector has not been able to create prosperity. While, workers in the manufacturing sector and mining services earn high income.

Not only that. Other indicators that illustrate the imbalance are the gini ratio of Indonesia which is now at level 0.41. This figure illustrates the distribution of welfare in Indonesia which experienced imbalance. In 1999, the ratio only reached 0.30, which shows that income imbalance in this country is very low.

But, since 2010, the income gap is increasing. Even 2011-2013, the gini ratio rose to 0.41. The increase of imbalance in the last 10 years cannot be ignored, because it will be a boomerang for the Indonesian economy in 2020-2030.

Through a focused, structured and systematic education, the younger generation will make Indonesia ready to compete at the regional (ASEAN) as well as global levels to prevent Middle Income Trap (MIT) or failure. In conclusion, demographic bonus must be used properly and should be understood as a condition where the government receives as blessing.

There is a number of government priority agenda, which in general, are appropriate to prevent demographic catastrophe, namely improvement of human resource quality and improvement of productivity and competitiveness of the nation. It is done through ambitious and serious mental revolution or structural reform. (E)

Business News - December 17, 2015

FOLLOW UP OF THE CASE OF CHINA’S 22 ILLEGAL FISHING BOATS CAME TO NOTHING

The Minister of Maritime and Fishery Susi Pudjiastuti admitted she had not followed up tackling of the case of arresting 22 boats from China at Arafura sea sometime ago. MKP had smelled out something fishy in the fishing ground of Arafura sea. MKP also claimed of being consistent with follow up of the lunch meeting with China’s Ambassador to Indonesia as joint action I permit moratorium policy. “I don’t know what the latest situation is like; we just see them in our AIS tracking system” Minister Susi disclosed to Business News through short message [12/12].

KKP was using transponders to detect 22 China’s ship which caught fish. Application of traceability of illegal led to China. Although the observation was run Arafura seas. Surveillance was also exercised with support of VMS application. The ships hoisted Indonesian flag but from INDESCO over Automatic Identification System in was seen they hoisted double flag to deceive. “AIS was linked to satellite for ships above 300 GT. Singapore, a small country had AIS, all ships must be transponder installed so a case like the 22 Chinese boats will not happen again.”

MKP also referred to Article 1 point 3 of the Maritime and Fishery Law in regard to the status of ship ownership. The rule was clear that loading and unloading must be done in administrative harbor. “or else permit could be withdrawn. The Law was based on logic, we cannot possibly permit transshipment”.

Other incident were the case of KM Manokwari I II and III i.e. abuse of SIKPI, and SIPI. MKP had already instructed the Dit. Gen PSFKP Asep Burhanuddin to withdraw SIKPI, When ship owner submitted SIPI they have signed comply to terms and conditions “After moratorium I wish permit to be withdrawn”

“I also had met an operator who did not respect my position as officer on duty. As Minister of KMP they had lied to me. They claimed that their catch was only 50 tons per year, meaning only 200 kilograms per day. As far as I know ships of 5 GT at Pangandaran West Java could carry 500 kg to 1 ton of fish. They are an example of uncooperative people, and have no respect for us”

On the other hand, MKP promised to communicate with the sailors. The spirit of an AIP Sea Academy graduate was contradictory to the fact that some Indonesian sailors had died in Korea sea. “I am most disheartened that many of our sailors died in the cold water in Korea. Ironically our seas are warm and many foreign sailors are enjoing it. We are the ones who should enjoy the warmth of our own sea waters.”

MKP also promised to step up inspection at sea. Now control at sea would be equal to control overland. MKO had heard many fishermen from Cirebon West Java who were willing to be stationed in territorial border zones. “They could be sea guards and at the same time fish”

The Law of Maritime and Fishery which included rules on zoning, must be on the side of fishermen. The Law of zonation did not permit to restrict fishermen’s movement and fishermen tend to move from one region to another. “No restriction allowed. The President said that we have been ignoring the sea for too long. We must not wait any longer before attending to fishermen”

The number of fishermen who died when they struggled for life at sea were not small. Meanwhile there were businessplayers including ship owners who weer having facilities for illegal fishing. There was even an incident when big size ship net-creased small fishermen’s boat. “Now not anymore. Now traditional fishermen dare to challenge big ships in net-creasing. No fooling about fighting illegal fishing. We [MKP] do not wish to be subject to mockery that our strategy would b short-lived. The President would issue a Presidential decree to ensure sustainable effort to troubleshoot illegal fishing” (SS)

Business News - December 17, 2015