With the start of the ASEAN Economic Community, Southeast Asia’s physical markets aren’t the only ones getting a trade boost. The e-commerce scene is seeing more cross-border trade too.

Indonesia is the rising star of Asia’s e-commerce sector because its sheer size and potential growth rates. They’re Southeast Asia’s most populous nation with over 230 million people.

You might assume Indonesia is oversaturated and not viable for global expansion because of their massive market. It seems logical at first, but uses wrong assumptions.

Despite Indonesia’s large population, low levels of economic development and internet penetration make the country more interesting than others for e-commerce.

Figures recorded from 2015 show that with an internet penetration rate of only 35%, the number of locals online will nearly double within five years to 63%. That means over 160 million Indonesians will have access to the internet by 2020

Similar to its neighbors in the region, Indonesia has “mobile-first” internet accessibility. This means people usually have their first online access through phones instead of computers.


Indonesia E-Commerce: Things You Should Know

Indonesia e-commerce has existed as a market for some time. But there are many factors which hinder growth. Online shopping penetration rates are still low, and so is the proportion of online sales to retail sales.

With some background information out of the way, here are four things firms entering Indonesia should know.


1. Widely Spread Out Market

Indonesia’s large area and immense population means problems reaching the right people in the right places.

The capital city of Jakarta has a dense population. However, most Indonesian citizens are evenly spread across the country. This leads to increased difficulty not only in terms of targeting the right customers, but also in terms of logistics and delivery.

Businesses entering Indonesia’s e-commerce scene must ensure logistics costs won’t be overwhelming. They might want to partner with local logistics companies and may even consider adding a variable delivery charge for purchases.


2. Favorable Demographics

Indonesia has young demographics with over half of the population between 15 and 45 years old. Not only are these young people earning disposable income, but they’re actually the ones driving the e-commerce market.

To capture a younger demographic, businesses must approach them in a way they’re receptive to. One quality of Indonesia’s youth is the desire of social approval for their decisions.

As such, businesses should ensure their products are socially acceptable in this conservative, majority Muslim nation.


3. Inadequate Payment Systems

Indonesia does not yet have an established player in the scene of mobile wallet and e-payments.

Unlike China where the majority of the online transactions take place via Alipay, most people in Indonesia pay for e-commerce through bank transfers. Indonesians are unaccustomed to paying via credit cards with only 5% of consumers having them.

That means businesses should factor in this aspect of the market, and will have to settle for the traditional means of either bank transfer or cash upon delivery. However, this also opens up another market for expansion if companies possess the capability.


4. Malls Still a Big Part of Life

Since internet access and online purchase penetration rates are low, most Indonesians make their purchases in physical malls.

A physical presence is still irreplaceable in Indonesia – at least for now. Firms have to remember that using physical touchpoints is still the best option for attracting customers to their online stores.

With Indonesia’s size and potential growth making it one of the best e-commerce markets in ASEAN, businesses must be prepared. They should consider the four factors above to capture customers’ wallets and succeed in the Indonesia e-commerce market.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Thailand, Cambodia, and several other places. Reid manages the world's first and only frontier market real estate fund and has been featured in publications such as Forbes, Property Report, the South China Morning Post, and Seeking Alpha. Get his free investment guide by clicking here.

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