Indonesia`s Legacy: Venture to Digital Economy
Category: Column By : Aroon Pardede Read : 148 Date : Monday, September 04, 2017 - 12:25:29

Indonesia's consumer spending is on the increase again, after several years of weakness. This increase in spending is driven by several factors, one being the emerging digital economy. Technologies such as broadband mobile internet and the availability of low-cost smartphones enabling people from different social economic class to gain access to information, and enable for easier trade among citizens, organization and countries. This new economy, signified by consumer-centric and technology-driven transactions has grown quite rapidly. In 2012 the value of global ecommerce transaction is $1 trillion and it is expected to be doubled by 2020. In Indonesia alone, the government has set ambitions target for ecommerce transaction to reach $130 billion by 2020 from $14 billion in 2014.

This sheer size and significant growth potential for Indonesia digital economy market has attracted major players, such as Uber. E-Commerce giants like Alibaba and Amazon have made forays into Southeast Asia. Simultaneously, local startups have developed significant presence as well. Grab, Go-Jek and Traveloka have successfully scaled up their businesses despite competition from larger global players. These players have a better understanding of the local market, thus providing products and services more suitable for the local market.
Aside the new local startups, the growth potential of the digital economy also attracts well-established business groups, such as Djarum, which has invested into Kaskus, the largest online forum in Indonesia, and Blibli.com, an online marketplace. Lippo group, has established Mataharimall.com, with an online-to-offline (O2O) model which links its online presence with the Matahari brick-and-mortar stores.

Even though the digital economy shows great potential, major challenges remain:
Payment. Last year, only 17 million credit cards and 128 million debit cards were in use in a country of more than 250 million. Nearly half of all debit card transactions are for ATM cash withdrawals. The government is pushing for more non-cash transactions, and total retail non-cash transactions increased 58% in 2016.

Logistics. Indonesia's huge size poses a significant logistical challenge. The good news is President Joko Widowo's administration is building new toll-roads, and upgrading sea and airports, which should lower the logistics and distribution costs.

While established groups like Djarum and Lippo might have a local advantage, one should note that the digital economy requires a different structure, culture and behavior to accommodate e-commerce's fast pace. These should be robust enough to navigate the complex challenges, and yet still be agile and flexible enough to adapt, respond and anticipate the rapid changes. In the end, these groups have a huge potential to become leading digital economy players in the country, and possibly in ASEAN.  



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