One of our discussions at Startup Asia Jakarta 2014 explored how Indonesia can learn from developed startup ecosystems overseas. During the panel, Tech in Asia had the opportunity to compare three very different ecommerce markets to the world’s largest archipelago: Japan, Silicon Valley, and China. The session featured Sonita Lontoh, founder of the Silicon Valley Asia Technology Alliance, Takeshi Ebihara, founding general partner at Japan-based Rebright Partners, and James Tan, managing partner at China’s Quest VC.
Tan said that Indonesia is only about five years behind China in terms of the strength of its startups, which could mean that more tech giants, IPOs, and maybe even a “unicorn” or two could emerge in the archipelago’s near future.
Perhaps Indonesia could learn from China during this period of early growth. While the US is the most developed tech startup ecosystem in the world, China is still considered to be an emerging market, according to Bloomberg. Only separated by India in terms of market size, Indonesia and China have striking similarities.
In no particular order, here are five reasons Indonesian ecommerce investors and entrepreneurs should be taking their cues from China’s blueprint.
1. The online retail space is still small, but showing signs of maturity
In 2007, China’s total spending for online retail was around US$8.25 billion. Fast forward to today, China’s online spending is projected to reach nearly US$360 billion next year. Experts predict that by next year Indonesian ecommerce will become nearly an US$11 billion industry, similar to the early eshopping days of China.
The Indonesia Ecommerce Association (idEA) believes that in the next five years, the number of online shoppers will grow from 15 million to about 75 million in Indonesia, which is about 30 percent of the entire population.
See: How Indonesia’s Tokopedia can learn from Alibaba
2. Telcos are getting in the ring
According to Gordon Orr, Asia chairman at McKinsey and Company, China’s state-owned telcos brought broadband internet to tens of millions of new homes each year, which quickly grew the nation’s internet coverage and allowed the middle class to browse online from their homes rather than having to go to internet cafes.
That’s now happening in Indonesia too. A recent report states that the Indonesian telecom sector has settled into what looks like a healthy development phase. Their broadband subscriptions are growing, and telcos themselves are taking a vested interest in the nation’s startup scene. But unlike the China of the past, Indonesia’s broadband renaissance is taking place on mobile devices and data plans as well as home internet connections.
See: Indosat CEO Alexander Rusli on Indonesia’s startup scene
3. Cash is king, for now
In 2011, China’s credit card system was still considered to be in its early days of development, stated a Deloitte study from that year. As a result, most online shoppers prefered to pay via cash on delivery (COD), just like in Indonesia today. However, idEA claims that the archipelago’s preference for COD is sharply dropping, having plummeted from 62 percent of the nation’s online shoppers down to just 25 percent between 2013 and 2014. The drop indicates Indonesia’s rapid switch to payment methods like online transfers, SMS payments, and mobile banking.
4. Consumers are ready to spend
Orr continues by saying:
By the mid-2000s, China’s middle class was rich enough to be shifting its spending from necessities to optional spend, but still value-driven enough to want to look for a bargain. These consumers had often bought their home and were now looking to purchase items to fill it.
In Indonesia, the market is seeing a similar consumption-driven economic expansion (proportional to the country’s size, of course) hovering around a six percent annual growth. Optional spending is at an all-time high. In the next six years, Indonesia’s middle class affluent population will reach 141 million people, according to the Boston Consulting Group.
5. Hot marketplace sites
In the early and mid-2000s, the most widely-used ecommerce model in China was consumer-to-consumer (C2C) marketplaces, the most popular of which is Alibaba’s Taobao.
Then in 2008, Alibaba gave birth to Tmall, a business-to-consumer (B2C) marketplace for major brands and larger merchants. Taobao still brings in more sales than Tmall, but a seismic shift is under way as consumers begin to prefer buying from larger online merchants.
The same consumer-to-consumer stage setting exists today in Indonesia, and some believe that local marketplace portal Tokopedia could be the archipelago’s own Taobao, having recently received a US$100 million investment from SoftBank and Sequoia Capital, two early investors of Alibaba.
However, Rocket Internet’s Lazada is arguably the most formidable contender in Southeast Asia’s B2C ecommerce race, and it could drive Indonesia towards a Tmall-like market faster than Tokopedia.
Over the weekend, Lazada announced a EUR€200 million (US$250 million) round of funding, signaling that its already strong position in the region will only further solidify in the coming year.
Those are some key similarities, but what of the differences between China’s ecommerce growth and Indonesia’s potential? Drop your thoughts in the comments section.
This post 5 reasons Indonesia should use China as an ecommerce blueprint appeared first on Tech in Asia.
5 reasons Indonesia should use China as an ecommerce blueprint
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