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

Indonesia is the rising star of Asia because its sheer size and potential growth rates. This makes it attractive for e-commerce and crucial for investors and retail businesses to understand the Indonesia e-commerce market.

Because Indonesia is the most populous country in ASEAN with over 230 million people, some might assume it’s oversaturated and not viable for international expansion.

This may seem logical. But it’s based on wrong assumptions. Despite having a large population, low levels of economic development and internet penetration make the country more interesting than most for e-commerce.

Figures recorded from 2015 show that with an internet penetration rate of only 35%, the number of internet users in the country is expected to nearly double within five years to 63%. This means by 2020, there will be over 160 million people in Indonesia having access to the internet.

Similar to most ASEAN countries, Indonesia has “mobile-first” internet accessibility. This means that most people have their first access to the internet 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. Penetration rates for online shopping are still low. So is the proportion of online sales to retail sales. With some background information out of the way, there are 4 things businesses wanting to enter Indonesia should know.

 

1. Widely Spread Out Market

With a large area and immense population, there’s an issue of reaching the right people in the right places. The capital city of Jakarta has a dense population. Yet the rest of Indonesian citizens are evenly spread throughout the country. This leads to increased difficulty not only in terms of targeting the right customers, but also in terms of logistics and delivery of products.

Businesses interested in entering the e-commerce scene need to ensure that logistic costs will not be overwhelming. They might want to partner with local logistic companies and may even consider adding a variable delivery charge for purchases.

 

2. Favorable Demographics

Indonesia has young demographics with more than half of the population between 15 and 45 years old. This means huge potential should the market be successfully captured. Not only are these young people earning disposable income, but they are also the ones who are driving the e-commerce market.

To capture the young demographic, businesses have to approach them in a way they’re receptive to. One quality of Indonesia’s youth is the desire of social approval for their decisions. So to capture this market, businesses should make sure their products are socially acceptable.

 

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. With only a 5% penetration of credit cards, Indonesians are unaccustomed to paying via cards.

This means that 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 a yet another market for companies if they have the capability.

 

4. Malls Still a Big Part of Life

Since internet access and online purchase penetration rates are still low, most Indonesians still make their purchases in physical malls. Businesses have to keep in mind that physical touchpoints will still be the best options to attract customers to their online stores. For now, a physical presence is still irreplaceable in Indonesia.

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

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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