CURRENT ISSUE IN BUSINESS

REGARDING TECHNOLOGY
Paper Topic : Online Businesses Growth In Indonesia

Arranged by :
Jovialdi - 2101635145
LA86 - Business Management

Bina Nusantara University

Bekasi
2020
 INTRODUCTION

Indonesia has become one of the countries that has the best success stories.
Despite facing economic turmoil in the 1997 Financial Crisis, Indonesia is
currently one of the countries with the fastest economic growth in the world. The
main focus of the economy is the export of goods such as textiles, cars, electrical
equipment, oil, and gas. Recently, the growth of Indonesia's digital economy has
also contributed significantly to the country's growth. It is estimated, there will be
50 million new internet users in Indonesia every 5 years because Indonesia is one
of the countries with the highest social media and internet users in the world.
According to the McKinsey report, Indonesia's e-commerce sector has
generated more than 5 billion dollars from the formal e-tailing business and more
than 3 billion dollars from informal trade. In Indonesia, e-tailing businesses
include Tokopedia, Bukalapak, JD.id, Lazada, and Shopee. In contrast, informal
trade involves buying and selling goods through informal means such as the use
of social media and messaging platforms such as WhatsApp and Facebook.
Things like this in Indonesia are commonly referred to as online shops (belanja
online). Unlike in other countries, informal trade or social trade is growing rapidly
in Indonesia. In fact, according to the latest data, social commerce accounts for
40% of all e-commerce sales in Indonesia. This shows that many large e-
commerce players such as Tokopedia and Lazada haven't fully penetrated the e-
commerce market in this country.
Among the reasons e-commerce has increased so rapidly in Indonesia is
the rapid increase of smartphone usage. Smartphones are far more affordable than
computers and laptops which make them easily accessible to most Indonesians.
There are about 70% of the country's internet users are smartphone users. The
McKinsey report highlights that almost 75% of online shoppers in Indonesia use
smartphones.
On the other hand, the growth of informal trade can be attributed to young
Indonesians who understand digital. Statistics show that Indonesian young people
are diligent users of social media. The country has the fourth largest number of
Facebook users in the world with 122 million people and has one of the largest
populations of Instagram users. Indonesia is also the fifth largest country in terms
of Twitter users. With so many social media users, it is not surprising that large
informal trade takes place in the country.

Indonesia's e-commerce sector is growing, the number of online sellers in

Indonesia has doubled every year for the past three years and reached a total of
4.5 million active sellers in 2017. About 99% of them are micro businesses and
half are online businesses only without a physical store. Meanwhile, e-commerce
in Indonesia will be even greater in the future. The Indonesian e-commerce
market is projected to grow eight times from 2017 to 2022 with total electronic
tail spending increasing from 5 billion dollars to 425 billion dollars. Social
commerce spending is expected to grow from 3 billion dollars to 15 billion to 25
billion dollars. As digitalisation is predicted to continue, the digital economy can
become one of the main pillars of the Indonesian economy in the future. This
certainly can be a good opportunity for every marketer to start his business with e-
commerce.
 PROBLEM IDENTIFICATION

The e-commerce sector has been growing all over Southeast Asia, and
Indonesia will take the lead. Specifically, Indonesia’s e-commerce market size
reached $12 billion in 2018. The three largest Southeast Asian e-commerce
platforms – Lazada, Shopee, and Tokopedia – all have a significant presence in
Indonesia’s digital economy. Collectively, these three have grown over seven
times larger since 2015, with other growing players like BukaLapak and BliBli
not far behind. However, while there are already some big players, there’s still
room for growth. Indonesian consumers popularly use e-commerce as a way
to access commodities not available in local stores. As such, e-commerce
adoption will continue to rise as long as this sector develops faster than
conventional retail.
If McKinsey's projection is accurate then it would mean the value of
Indonesia's e-commerce market is to rise nearly eight-fold between 2017 and
2022. In 2017 Indonesia's e-commerce market was valued at USD $8 billion. This
figure refers to the gross merchandise value (GMV) of goods and services that
were purchased online from e-commerce and socio-commerce platforms.
Meanwhile, Indonesia had only about 30 million online shoppers, or
approximately 15 percent of its total adult population of 195 million individuals.
Through the formal e-commerce platforms McKinsey estimates the GMV at USD
$40 billion by 2022 on the Indonesian market. Meanwhile, regarding the socio-
commerce platforms (for example Instagram and Facebook) the GMV is
estimated to reach up to USD $25 billion.
There are a couple of factors that support rapid growth of the e-commerce
sector in Indonesia. Firstly, smartphone and internet penetration is continuously
rising. Secondly, Indonesia has a big population that sees its purchasing power
strengthening amid robust macroeconomic growth. Thirdly, Indonesia has a
young and tech savvy population, meaning they rapidly adjust to new technology.
However, McKinsey also detects several challenges for further growth of
the e-commerce industry. Firstly, due to infrastructure bottlenecks logistics costs
are high. Secondly, in terms of non-cash payment infrastructure Indonesia is still
in the early stages of development (there is a lack of seamless, secure, and
scalable payment opportunities). Thirdly, there is a strong need to enhance the
nation's talent pool. Fourthly, the investment climate has to be made more
conducive.
Despite these challenges the e-commerce market of Indonesia is expected
to take giants steps in the coming years. While currently e-commerce sales only
account for 5 percent of the nation's total retail sales, this figure is expected to rise
to the range of 17 - 30 percent in the next five years. This would be a great asset
to the economy because it generates employment opportunities.
 DISCUSSION AND RECCOMENDATION

In addition to the benefits, e-commerce also has a negative impact.

According to Chairul Tanjung (Indonesia), the government needs to be aware of
the negative impacts that may arise from the rise of online businesses. This
internet-based business can risk increasing the number of unemployed in
Indonesia. Because, according to him the process of buying and selling
transactions or service providers without establishing conventional physical stores
does not require a lot of human resources. With the increase in unemployment,
there is an increase in inequality between the more prosperous middle-class
people and the lower-middle-class people who are increasingly living. Apart from
that concerns also come from the future of e-commerce. Consumer dependence on
the ease of online / online technology is predicted to reduce conventional workers
a lot because it will be replaced by computer and robot technology.
However, Indonesian government recently has announce a new regulation
for this businesses (e-commerce). It causes many speculation and protest from e-
commerce industry executives. Indonesian e-commerce industry executives have
criticised new regulations requiring online vendors to obtain government permits,
saying the mandatory procedures would sharply increase costs and stifle the
country’s booming e-commerce market. Under a new law introduced last week,
all online storefronts, currently estimated at over 10 million, need to seek a permit
from authorities in order to sell their goods. The law also requires online
marketplaces to store information in local data centers and for domain names to
reflect Indonesia.
Trade minister Agus Suparmanto (Indonesia) told reporters on Monday
that the regulation is intended to protect consumers and businesses, and promised
that “everything will be made easier”, as the procedures to comply with the law
can be done online and will be free. But e-commerce platforms and online
vendors warned that the regulation will discourage small businesses from
expanding online, as many entrepreneurs fear the permits could be used to tax the
industry.
 The new regulation comes as Indonesia’s internet economy is growing at a
break-neck speed, buoyed by rising smartphone use. It is expected to triple to
$133 billion by 2025, according to a recent report by Google, Singapore state
investor Temasek Holdings and global business consultants Bain & Co.
Tokopedia, Indonesia’s biggest e-commerce player and backed by SoftBank
Group Corp and Alibaba, said that the policy “will hamper the growth of small
and medium enterprises”, as many vendors will hesitate to start businesses online.
The regulation could also lead small sellers to shift to social media sites such as
Facebook which are not mentioned by the new regulations
 BIBLIOGRAPHY

https://blog.mtarget.co/the-growth-of-e-commerce-in-indonesia/

https://www.indonesia-investments.com/id/news/todays-headlines/mckinsey-
expects-great-growth-for-indonesia-s-e-commerce-market/item8959

https://greenhouse.co/blog/indonesia-digital-economy-prospects-after-2020/

https://www.reuters.com/article/indonesia-ecommerce/indonesia-e-commerce-
execs-say-new-rules-may-choke-booming-online-growth-idUSL4N28K1J1