Market Insights: E-commerce Enablers in Indonesia - Opportunities Amidst the Absence of Dominant Players
7.5 Degree
7.5 Degree is a digital media platform dedicated to focusing on the emerging economies of China and Southeast Asia.
Written by Jun
Article Highlights:
Indonesia, Southeast Asia's largest e-commerce market, has naturally become a battleground for e-commerce enablers. As the Indonesian e-commerce sector accelerates, the number of service providers increases, and they are increasingly adopting specialized and tailored strategies. However, compared to other Southeast Asian markets, entering the Indonesian e-commerce arena poses slightly higher barriers, compelling e-commerce enablers to focus more on local intricacies. In this context, do Chinese players have a chance in the Indonesian e-commerce enabler scene?
E-commerce Enablers in Indonesia Must Embrace Deeper Localization
In June of this year, Ascential Edge provided data indicating that the estimated total transaction volume for e-commerce platforms such as Shopee, Tokopedia, Bukalapak, and Lazada in the Indonesian market is approximately $84.2 billion. Statista's predictions indicate that the revenue from Indonesia's e-commerce market will reach approximately $45.28 billion in 2023, with a compound annual growth rate (CAGR) of 10.41% from 2023 to 2027. By 2027, market revenue is expected to reach $67.3 billion.
The development of Indonesia's e-commerce market is well-supported and conditioned. Despite the global economic uncertainties, Indonesia maintains one of the G20's most rapid economic growth rates. Beyond its economic stability, the demographic landscape of Indonesia offers a significant potential for e-commerce growth. Indonesia's millennial and Gen Z consumers, accounting for 52% of its 270+ million population, are a driving force. Indonesia not only possesses Asia's third-largest mobile user base but also boasts the second-largest TikTok user community, with over 100 million users aged 18 and above, trailing only the United States.
McKinsey's survey reveals a fascinating trend within Indonesia's blooming digital economy, the majority 85% of businesses primarily function as distributors or resellers, with only 15% focusing on selling their products.
Certainly, the demand in the fiercely competitive e-commerce market extends beyond resellers and distributors. These enablers offer end-to-end solutions to e-commerce sellers, including managing official stores, digital marketing promotions, creative services, customer service management, supply chain management, and fulfillment. By entrusting these responsibilities to professional e-commerce enablers, sellers can not only reduce operational costs but also improve efficiency, allowing them to focus their efforts more on business growth and expansion.
The growth of e-commerce enablers in Indonesia gained momentum around 2017. Presently, within the Indonesian e-commerce enabler landscape, there is a diverse range of players offering a wide range of operational services and vertical players who specialize in specific areas like supply chain management or marketing promotions.
Notably, Indonesia's recent efforts to further protect its local businesses, make cross-border e-commerce models impractical within the country. As of July this year, Indonesia's Ministry of Trade announced revisions to regulations concerning online trade, including a rule that restricts the minimum price of imported goods on the country's e-commerce platforms to no less than 1.5 million Indonesian rupiahs (approximately $100). Back in 2020, Indonesian customs implemented new tax standards for cross-border goods, lowering the threshold from $75 to $3, with adjusted tax rates.
Chinese sellers operating in the Indonesian e-commerce market have embraced local models, and companies involved in the e-commerce supply chain must also adopt a localized approach. From this perspective, local e-commerce enablers have the upper hand. However, for Chinese e-commerce enablers to capture their portion of the market, they must also immerse themselves in Indonesia's specific needs. It is known that establishing a company in Indonesia generally requires documents including director and shareholder ID photos and passport scans, lease agreements or land deeds, foreign nationals' overseas permanent addresses, notarized signatures, and more.
Lack of Dominant Top Players, Rapid Growth Since 2017
e-commerce enablers in Indonesia primarily revolve around platforms such as Shopee, Lazada, Tokopedia, Bukalapak, Blibli, and TikTok, offering a wide range of operational services to e-commerce sellers.
Indonesian homegrown e-commerce platform Tokopedia was founded in 2009, while Bukalapak and Blibli were established in 2010. Lazada entered the Indonesian market in 2012, and Shopee, founded in 2015, ventured into Indonesia in 2016. Content-commerce giant TikTok made its debut in the Indonesian market as recently as 2021. The gradual enrichment of the Indonesian e-commerce landscape has laid the foundation for the development of service providers.
Initially, SIRCLO, the pioneer of e-commerce operational services in Indonesia, stood out as a market leader. The company began providing SaaS tools to assist small and medium-sized enterprise (SME) sellers in online sales in 2013. In 2017, SIRCLO embarked on business transformation by launching Sirclo Commerce, offering retail brands support for selling products on platforms like Shopee and Tokopedia. With a decade-long presence in the local scene, SIRCLO has evolved to provide tailored operational services for various brands, catering to both individual entrepreneurs and enterprise-level solutions.
SIRCLO has secured multiple investments from East Ventures, with the most recent funding from Qverse in July this year, the amount of which remains undisclosed. To date, SIRCLO has amassed a total funding of USD 132.7 million. Currently, SIRCLO serves over 150,000 brands with its online business development services.
By 2017, the Indonesian e-commerce enabler landscape witnessed a surge in local service providers, along with the entry of Chinese players. According to Oliver Yang, Founder and CEO of Jet Commerce, this period was a window of opportunity for the development of the Indonesian e-commerce enabler industry.
Jet Commerce, from its inception, pursued a strategic presence across the entire Southeast Asian region. Today, Jet Commerce has established subsidiary companies in local markets, including Indonesia, Vietnam, Thailand, the Philippines, and Malaysia. Jet Commerce offers specialized operational services characterized by "one-stop, localization, and regional synergy." It maintains official certification as a service provider for both Shopee and Lazada, collaborating with over a hundred brands.
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Over the past two years, the rapid growth of TikTok e-commerce in the Indonesian market has spawned numerous e-commerce enablers growing alongside it. In February 2021, TikTok launched TikTok Shop as its first Southeast Asian destination. TikTok's e-commerce recorded the highest GMV of around $6 billion in 2021, with over 70% of this GMV coming from Indonesia. In the first half of 2022, TikTok Indonesia achieved an average monthly GMV of $200 million, compared to the UK's average monthly GMV of $24 million. During the Ramadan promotional period, TikTok Indonesia saw a 493% increase in order volume and a 92% increase in GMV.
SeaHub Media, headquartered in Indonesia, is one of the representative players in this category. SeaHub Media is a TSP (TikTok Service Provider) and MCN (Multi-Channel Network) company that provides one-stop marketing and promotion solutions based on the TikTok platform for global brands. SeaHub Media not only handles operational management for TikTok's official account but also supports brands with operational management through endorsements from top influencers and official accounts, enabling brands to achieve rapid sales upon entering the market. Phil, Founder and CEO of SeaHub Media, has stated that in the crowded Indonesian market, the combination of comprehensive TSP and MCN services and the ability to provide one-stop solutions to brands are among SeaHub Media's core strengths.
Unlike the e-commerce enabler landscape in China, Europe, and other markets, there is no absolute dominant player in Indonesia's industry at present. However, early entrants like SIRCLO and fast-growing players like F-Commerce should not be underestimated. F-Commerce formed its core team in Indonesia in 2021 and ventured into comprehensive TikTok operational services in December 2021. As a result, it has repeatedly emerged as the leading TSP service provider.
Meanwhile, several foreign players are also optimistic about the growth potential of the Indonesian e-commerce market. Companies like aCommerce, SCI Ecommerce, Intrepid, iStore iSend, F-Commerce, and the Indonesian branch of Pongo are entering the Indonesian e-commerce operational services market. Notably, Pongo helped the Chinese lingerie brand Ubras break into the Indonesian TikTok market through live streaming.
Navigating Shifting Trends, Heavily Influenced by Live Commerce
As the Indonesian e-commerce market continues to grow, there are ample opportunities for both established players seeking to expand their footprint and new entrants looking to gain a foothold. However, seizing these opportunities requires a keen observation of market trends and demands. The Indonesian e-commerce operational services sector has exhibited several trends, including a focus on technological innovation, fine-tuned and customized services, and the transformative impact of social commerce.
Technological Innovation: In recent years, Indonesian e-commerce enablers have increasingly emphasized enhancing their core competitiveness through technological innovation. They not only offer operational services but also provide SaaS tools and data tools to assist e-commerce merchants. For example, SIRCLO has adhered to a principle of continuous technological innovation, introducing services like Sirclo Commerce and Sirclo Connexi to provide professional services to businesses and brands. Intrepid Group Asia also emphasizes providing digital technology services for businesses to formulate more precise marketing strategies.
Catering to the Needs of Small and Medium-Sized Sellers: In addition to vertical operational players specializing in supply chain or marketing promotion services, some comprehensive enablers have started to emphasize fine-tuned and customized services to attract brands and merchants. Indonesian e-commerce operators have gradually shifted their focus toward catering to the needs of small and medium-sized e-commerce sellers. For example, SIRCLO offers different solutions for individual entrepreneurship and large enterprises.
The Rise of DTC Enablers: Companies like Praktis, founded in 2017, recognized the demand for operational services from D2C (Direct-to-Consumer) brands. Praktis believes that nearly 60% of Indonesia's GDP is contributed by SMEs, but D2C sellers still struggle to compete with larger brands. To break through in an increasingly competitive market, D2C brands have an urgent need for operational services.
Praktis offers services that cover raw material procurement, production, fulfillment, and logistics. It leverages its technology and data-driven platform to handle other aspects of business operations, ensuring the smoothness of merchants' supply chains. Praktis believes that many Indonesian SMEs face various challenges when expanding their businesses, such as difficulty in finding reliable suppliers, weak negotiation capabilities, high labor costs, and high fixed costs. Therefore, Praktis has aggregated procurement and processing to help businesses achieve economies of scale.
TikTok Driving TSP Growth: With TikTok's rapid development in Indonesia, businesses' demand for digital marketing and influencer marketing has been on the rise. In Indonesia and across Southeast Asia, e-commerce platforms introduce various shopping events. Services that specialize in digital marketing or live commerce have become increasingly necessary for sellers. In 2022, Jet Commerce inaugurated its live commerce center in Indonesia, becoming a prominent TSP (TikTok Service Provider) for the year.
TikTok Shop currently boasts over 2 million Indonesian sellers, and the sales volume of TikTok Indonesia's small shops is significantly higher than in other Southeast Asian markets, with a reported average monthly GMV of USD 200 million. This is expected to attract more e-commerce sellers and operational service providers to the platform. Furthermore, e-commerce platforms themselves are launching corresponding services. For instance, Sea Group, the parent company of Shopee, has recently expressed its intent to strengthen its live commerce division. In the era of content commerce, operational service providers equipped with high-traffic conversion capabilities and innovative digital marketing skills are poised to seize more market opportunities.
However, the Indonesian e-commerce operational services industry also faces several challenges. Firstly, logistics-related services need improvement. Many operational service providers are responsible for orders and logistics, making enhancing the logistics experience for users during their shopping process a vital aspect of their operations. Some operational providers collaborate with third-party logistics companies to serve businesses and consumers more efficiently, but this can squeeze profit margins to a certain extent. Additionally, finding locally proficient professionals in digital technology remains a challenge.
Moreover, large e-commerce platforms like Lazada and Shopee have started placing greater emphasis on the branding development of their sellers. As these platforms introduce fully managed models, Indonesian operational service providers will face increased pressure in this promising market. Maintaining a competitive edge in the long term amidst competition is no small feat, and sustaining cooperative relationships with brand sellers to achieve revenue growth in the rapidly growing operational service industry is a long-term endeavor.
*In this article, the currency USD (United States Dollar) is represented using the symbol "$."