Interview: Florian Holm
How do you assess the progress of Indonesia’s e-commerce and retail sector?
FLORIAN HOLM: The development of the e-commerce sector overall has been rapid. In the Indonesian market we see a very diverse landscape with strong international, regional and local players. Every sector is covered and the customers have a lot of choice. The market is also competitive, which is beneficial to the sector. E-commerce is generally very positive for Indonesia. It boosts digital growth and innovation, and the government has started to accept it as a major driver of economic growth. It creates work and encourages the development of small and medium-sized enterprises.
The future will see more consolidation and fewer players as the market becomes more mature. Traditional retailers will also feel more of an impact from online operators. At the moment we are still in a phase where e-commerce is a small part of the total retail sector. We are currently focusing a lot on logistics. The big challenge for the future will be to make daily consumer products available to all layers of society. GO-JEK and Grab offer delivery options, but Lazada also has its own express service. This will place more pressure on the offline retail sector.
What is needed to expand growth in the sector further across the archipelago?
HOLM: The internet penetration rate, the growth of users finding their way online and the general rise of digitalisation lie ahead for e-commerce, in my opinion. Faster speeds and lower costs will help, but our biggest challenge is not the number of people using the internet, it’s how we serve the areas outside of Java and other bigger cities. These locations have major potential, with growing demand and economic activity. However, the shipping rates between the cheapest and most expensive areas of Indonesia differ 50-fold. You can ship in Java for $0.50, while if you go outside to the Moluccas, for example, it costs $25. If I have to pay $25 to ship 1kg of t-shirts, then it is very difficult to make it a viable option for customers, even if everyone is online and has credit cards.
Infrastructure improvements would definitively help the e-commerce sector. We not only need easier transport and logistical opportunities outside Java, but also improvements on the island itself. It is important to be close to the customers. At present, we are solving the problem by building warehouses, as it is more economically viable than shipping from island to island. Lazada serves 80% of the population with its express delivery, while we serve very remote areas by working closely with third-party logistics firms. We are trying to build the logistical backbone to enable us to serve these remote areas cheaper. This is the only way to operate effectively in Indonesia.
How would you compare Indonesia’s e-commerce sector to the rest of the region?
HOLM: Compared to the other countries in South-east Asia, we have more challenges on the infrastructure side, and bank and credit card penetration rates are also low. The majority of transactions are cash on delivery. It is working well, but it can result in some challenges. However, the e-commerce sector itself is developing faster in Indonesia than in other countries.
We also profit from the development of other digital services. It can simply be described as digital education: when people are accustomed to using their mobile phone to order food, travel or transport, it makes them more likely to buy online, and can also boost the use of e-wallet systems among customers. Indonesia has a young and tech-savvy population helping the digital economy grow. These advantages are already attracting foreign investors to the country. We have seen Chinese companies expand their influence here recently, which is not a problem, but an opportunity. China is the leading market in terms of online shopping, and its know-how will have a positive impact on Indonesia.
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