<p style="text-align: justify;"><img class="alignnone size-full wp-image-2297" alt="Post - e-commerce big bang graphic" src="http://redwingconsulting.com/wp-content/uploads/Post-e-commerce-big-bang-graphic.jpg" width="700" height="200" /></p>

<h4 style="text-align: justify;">Indonesia is poised to become a major player in e-commerce in the next few years, with estimated total market revenue ranging from US$3bn (baseline scenario) to US$10bn (upside scenario) by 2015, representing growth rates of 3X to 10X from the current level. This outlook is capturing the attention of major e-commerce players and investment groups across the globe, particularly in the light of the spectacular growth achieved in the e-tailing sector in China during the past five years.</h4>
<h5 style="text-align: justify;"><b>As in China, large e-commerce players with deep pockets are emerging</b></h5>
<p style="text-align: justify;">Both Indonesia and China are coming of age as economic powerhouses at a time of profound digital disruption, whereby convergent Internet and wireless technologies are enabling the reinvention of traditional wholesale and retail distribution models and unlocking new underserved consumer segments.</p>
<p style="text-align: justify;">Indonesia exhibits remarkably similar market and customer dynamics to those evident during China’s e-commerce growth spurt, which in turn holds the promise of very attractive growth and valuations for those investors taking a long term view of the corresponding opportunity in Indonesia.</p>
<p style="text-align: justify;">Take a look at two of the leading Indonesian e-commerce providers for an indication of the overall potential and pace of change within the sector:</p>

<ul>
	<li>Tokobagus has grown a large merchant and customer franchise through the integration of broadcast advertising and social media marketing.</li>
</ul>
<ul>
	<li>Lazada has reached critical mass within a year of launch and has already attracted next stage growth funding from internationally-renowned investors.</li>
</ul>
<p style="text-align: justify;"><img class="alignnone size-full wp-image-2298" alt="Post - e-commerce big bang table" src="http://redwingconsulting.com/wp-content/uploads/Post-e-commerce-big-bang-table.png" width="601" height="362" /></p>

<h5 style="text-align: justify;"><b>The development of e-commerce in China points the way for Indonesia</b></h5>
<p style="text-align: justify;">The growth drivers for the e-commerce category in China in the past five years are closely mirrored in Indonesia:</p>

<ol style="text-align: justify;">
	<li>The emerging middle class have increasing spending power and growing influence over the way in which companies go to market with their products and services. There are currently circa 74 middle-class and affluent consumers (MACs) in Indonesia, and this number will double by 2020, to roughly 140 million. During that period, 8 to 9 million people will enter the middle class segment each year.

<img class="alignnone size-full wp-image-2296" alt="Post - e-commerce big bang chart" src="http://redwingconsulting.com/wp-content/uploads/Post-e-commerce-big-bang-chart.png" width="652" height="354" /></li>
	<li>This prosperity boom is not confined to the primary metropolitan areas (i.e. Jabodetabek, Surabaya, Bandung and Medan), but is spreading to the secondary and tertiary cities of Java, Sumatra and Sulawesi. Currently there are 25 communities in Indonesia (both cities and regencies) with MAC populations exceeding 500,000, a figure that will more than double by 2020.</li>
	<li>Increasing access to mobile broadband services drives e-commerce growth. The expansion of Indonesia’s connected society is accelerating, with the number of web users rising from 55 million in 2012 to 125 million in 2015.</li>
</ol>
<p style="text-align: justify;">These growth drivers have important implications for the ‘style’ of e-commerce that will emerge in Indonesia:</p>

<ul>
	<li>While Java will dominate sales from a volume perspective, there will also be huge opportunities in secondary and tertiary cities, where traditional “bricks and mortar” retailers and malls are less widespread due to scale economics.</li>
	<li>The middle class segment places great emphasis on recommendations and endorsements from their social circles when purchasing goods and services. Hence e-commerce providers will be required to create an effective social media strategy to engage with these consumers.</li>
	<li>Most new internet users in Indonesia will access the web predominantly via mobile phones or tablets, and will have different purchasing habits (such as frequent impulse purchases) than desktop or laptop users.</li>
</ul>
<h5 style="text-align: justify;"><b>Three distinct types of merchants are attracted to e-commerce</b></h5>
<p style="text-align: justify;">E-commerce brings a different set of economics to retailing, in terms of geographical reach, the low cost of setting up a simple online store, and its ability to target small niches of demand. These three factors will drive the demand from merchants to participate in e-commerce marketplaces or to set up their own online presence.</p>
<p style="text-align: justify;">Three main types of merchant will underpin e-commerce growth in Indonesia:</p>

<ul style="text-align: justify;">
	<li>Large corporations, both domestic and international, who are seeking to build a broad nationwide presence in Indonesia as the growth of second and third tier cities boosts aggregate consumer demand.</li>
	<li>Small and medium businesses (SMBs), including start-up and early stage enterprises, who want to target the large middle-class consumer market without the cost of setting up wide-area physical distribution and retailing networks.</li>
	<li>Home-based entrepreneurs making online sales of low-value items to fellow Indonesians. The more active of these individual merchants will establish e-tailing market places as their trading volumes grow.</li>
</ul>
<h5 style="text-align: justify;"><b>The current momentum of the e-commerce category is set for a further boost</b></h5>
<p style="text-align: justify;">Additional public and private investment is anticipated in the short-to-medium term:</p>

<ol style="text-align: justify;">
	<li>A number of major investments (typically USD20m+) into Indonesia from international e-tailing players are expected before the end of 2013. These new entrants are likely to partner with local companies to form operating entities - in order to minimise the time to market and to comply with pending government regulations in respect of electronic trading.</li>
	<li>To expand nationwide Internet penetration and hence the addressable e-commerce market, the government’s strategic plan has aggressive targets for nationwide broadband rollout.</li>
	<li>The realization of the ASEAN Free Trade Area (AFTA) in December 2015 will promote greater economic integration, borderless trading and infrastructure connectivity. In turn, this will further open up the e-commerce market opportunity in Indonesia to regional operators.</li>
</ol>
<h5 style="text-align: justify;"><b>Challenges remain, but the growth prospects for the sector are hugely positive </b></h5>
<p style="text-align: justify;">With the ever-improving logistics and payment systems being developed in Indonesia, online shopping is rapidly becoming a mainstream retail channel. The future outlook for the sector is extremely encouraging from an investment perspective.</p>
<p style="text-align: justify;">Four developments planned for the next 12 to 18 months will move the e-commerce sector into a period of rapid and sustained growth:</p>

<ul style="text-align: justify;">
	<li>Implementation of industry-wide payment solutions that connect all major financial institutions in real time and which over time will migrate all settlements to the online environment.</li>
	<li>Tighter integration of infrastructure and logistics networks - warehouse space, trucking routes, connected fleet vehicles, IT systems, etc. - in order to drive supply chain efficiencies and to enhance the customer experience.</li>
	<li>The ability of holders of debit cards and prepaid bank cards to purchase goods online. There are 67 million debit card holders versus 4.3 million credit card holders, so this would increase the online purchase user base by a factor of 16X.</li>
	<li>The introduction by the mobile phone companies of mobile payment solutions to enable the purchase of low-value goods via a mobile account and to facilitate payment authorisations through a mobile phone.</li>
</ul>
<p style="text-align: justify;">Now that China’s e-commerce boom is maturing, expect Indonesia to become an increasingly publicised e-commerce growth story - not only within Southeast Asia, but across the globe.</p>
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