With a population of 284 million, Indonesia is one of the largest and most promising markets globally. Google’s Southeast Asia economy report highlights the archipelago as Southeast Asia’s most prominent digital economy, boasting a Gross Merchandise Value (GMV) of US$82 billion in 2023. E-commerce alone is expected to grow at a Compound Annual Growth Rate (CAGR) of 15%, reaching US$82 billion by 2025.
While many startups have risen and grown in Indonesia, making it the Southeast Asian country with the second highest venture capital investment after Singapore, international players have also been aggressively eyeing the market.
In e-commerce and ride-sharing, prominent international players like Shopee, Lazada, and Grab have been competing with local heroes such as GoTo, Tokopedia, and Blibli and expanding their reach.
However, with profitability as the new focus in the wake of the latest global economic changes, these tech unicorns have moved away from merely growing market share to sustainable and profitable growth.
GoTo is a classic example. The local unicorn expanded into markets such as Vietnam and Singapore at the peak of its growth. However, it announced its exit from Vietnam in September, with reports also suggesting that the tech giant may soon exit Singapore, while other companies such as Grab and SEA had earlier undertaken their restructuring efforts.
Nonetheless, with a current internet business penetration that is still far below developed markets like US and China, much of the Indonesian market remains underpenetrated. Large portions of the Indonesian archipelago are still out of reach for many of these companies due to logistical challenges.
Those who successfully convert these challenges into opportunities can win this market.
There is a misperception that e-commerce is an asset-light, purely online business. When e-commerce emerged in the 1990s and 2000s, most of the companies outsourced logistics to third-party players.
However, as e-commerce companies gained volume and economies of scale, they became more vertically integrated. Tech giants like Amazon in the US and Alibaba in China have demonstrated this by investing heavily in logistics infrastructure and managing a large chunk of their supply chains in-house.
In Southeast Asia, Lazada, a subsidiary of Alibaba Group, and Shopee, under Sea Ltd., have made substantial capital investments in logistics and digital marketing, recognising that effective distribution in Southeast Asia is critical to unlocking the online market. These in-house logistics divisions—Lazada Logistics and Shopee Express—allow them to manage their warehousing, inventory, delivery, and customer service more effectively. They are gradually applying the same playbook to build their distribution capabilities in Indonesia.
However, local companies have a crucial advantage here: the understanding of the market, consumers, and their preferences.
When we look at businesses that are primarily online in nature, such as online travel, local companies such as Traveloka and Tiket are ahead of larger global players such as Booking.com and Expedia. These home-grown players’ understanding of the local market helps them tailor more specific offerings.
Gojek, Tokopedia, and Blibli–who may lack the massive financial war chests of their global competitors–can emulate this strategy and capitalise on their understanding of the language, culture, and consumer behaviour to win the market.
Additionally, local players should invest in the necessary logistics infrastructure (distribution centres, warehouses, and delivery systems) within the country itself, as without these investments, the country’s ability to scale and compete is severely limited. Local players must also build an ecosystem of services for consumers, increasing their share of wallets and the services they can use, as well as working to understand local needs and tailor offerings for the local market.
Indonesia is the world’s largest archipelago, consisting of over 17,000 islands, of which approximately 6,000 are inhabited. While e-commerce companies have concentrated their efforts around Jakarta and other major cities, there is immense untapped potential in the country’s tier 2 and tier 3 cities.
As of 2023, about 79.5% of Indonesians have internet access, and yet, a significant portion of the population in smaller cities remains underserved. The Indonesian Internet Provider Association (APJII) reports that around 170 million people in these regions have limited access to e-commerce services due to logistical challenges.
Starting as a ride-hailing company, Gojek has been increasing the variety of services it offers consumers on its app. These services include transport and logistics, food and shopping, payments, daily needs, and news and entertainment. Such super-app approaches ensure they get a larger share of consumer spending and create brand loyalty.
Grab also takes a super-app approach, moving from ride-hailing to include e-commerce, food delivery, and mobile payments. This helps increase customer spending and stickiness.
Understanding the local needs and tailoring the products are equally crucial to win Indonesia. Local tech giants such as Gojek, Tokopedia, and Blibli have long realised this.
For instance, Tokopedia focuses heavily on local sellers and caters specifically to local market needs, leading to a strong connection with consumers. It also established strategic partnerships with companies such as JNE, J&T Express, and SiCepat for logistics, OVO for payment processing, and Telkom for digital infrastructure.
As a result, Tokopedia has become one of Indonesia’s most prominent e-commerce players, with a 35% market share. It commands a presence in 99% of cities, lists 1.8 billion products on its platform, and boasts over 14 million registered merchants.
Cash on delivery (CoD) is the other crucial factor. CoD is common in the country as many consumers still remain unbanked or underbanked. E-commerce and delivery companies that provide cash collection safely and securely as part of e-commerce delivery have gained an edge.
Expanding too quickly into foreign markets without a solid domestic foundation is risky and could lead to failure. The lesson for Indonesia’s internet players is to dominate their home market first before setting their sights on the global stage.
While the international players may have deeper pockets, local companies can create a dominant position by extending their physical reach to the wider Indonesian population, their digital reach to a broader array of services, and their market reach to a larger audience with localised offerings.