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Jakarta Post

Analysis: Between opportunities and challenges of RI e-commerce

  • Nurul Y. Karunia

    The Jakarta Post

Jakarta   /   Wed, January 27, 2016   /  05:34 pm
Analysis: Between opportunities and challenges of RI e-commerce

The internet plays a big part in the lives of many people and digital developments continue to transform the connected world. Based on Internet Live Stats data, it is estimated that there were 3.36 trillion internet searches in 2015 around the world. This figure represents a 15.1 percent increase year-on-year (yoy) from 2014. Access to the internet has become more and more widespread in line with rapid developments in the smartphone industry. The internet penetration rate in the world stood at 46.4 percent in 2015, a significant rise compared to the 2010 figure of just 29.4 percent.

In terms of usage, Asia boasted the largest number of internet users in the world in 2015 at 1.6 billion, or 48.2 percent of the world'€™s total internet users. Meanwhile, in terms of penetration rates, North America led the way with an 87.9 percent penetration rate, followed by Europe with 73.5 percent and Oceania with 73.2 percent. Among 20 countries with the greatest number of internet users in the world in 2014, Indonesia, which settled in at 13th place, had the lowest penetration rate, with just 42.3 million people, or 16.7 percent of its population.

The increase in smartphone ownership and expanded access to the internet are likely to facilitate enhanced e-commerce. Based on the huge number of internet and mobile users worldwide, e-commerce is now thriving. The Asia Pacific region, in particular, is considered a key area for future growth and large populations. New communication and software developments are making it increasingly possible for retailers to offer a seamless shopping experience using all the available shopping channels (mobile devices, computers, direct mail, etc). Consequently, online security technology needs to be improved to provide users with protection and to maximize the benefits of e-commerce.

There are still great opportunities for growth in the online commerce market in Southeast Asia,
especially bearing in mind the region'€™s rapidly expanding number of internet users.

Approximately 61 percent of online consumers in Indonesia make purchases through their mobile devices. As purchasing power increases and internet penetration rates increase, the e-commerce market in Southeast Asia is expected to expand by 25 percent every year. The size of the e-commerce market in Indonesia is predicted to reach between US$25 billion and $30 billion in 2017, from $1.3 billion in 2013.

There are several challenges to e-commerce in Indonesia. Currently, the highest traffic for online shopping activities is recorded during '€œoffice hours'€. Online shopping traffic tends to be particularly high after employees finish their lunch break. Shoppers feel easier accessing e-commerce websites from their office rather than at home. This is likely because of slower internet connections at home. Furthermore, Indonesia'€™s consumers prefer shopping through older methods such as online messenger groups, online forums and social networking services. The challenge here is for e-commerce industry operators to take strategic steps aimed at educating the market about the awareness of e-commerce security.

The other challenge is related to limited payment services and logistics services. Many e-commerce players are still using manual payment methods including by manual bank transfers instead of using online payment service providers. In terms of logistics, delivery costs remain high. This is compounded by inefficient delivery services due to the poor transportation infrastructure found in many Southeast Asian countries, especially in an archipelagic country like Indonesia.

In order to spur e-commerce growth in Indonesia, a number of things need to be done.

First, expand internet access. Government funds should be used to expand internet availability, enhance inter-regional connectivity and raise public awareness. This will all help improve e-commerce growth in Indonesia.

Second, support the emergence of local operators. Even though there are numerous local players operating, the public often opt to user foreign services as people remain skeptical of the quality of services offered by local operators. Furthermore, a lack of finance, talent and support makes these local operators reluctant to take the plunge and compete in the market. To address this issue, there is a need for financial access to help prospective local operators, for example by providing loans or grants.

Third, strengthen online security. Many consumers are still hesitant about conducting online transactions. An apparent lack of clarity in regulations governing the security of online transactions is one of the factors behind the relatively low confidence that people have in performing online transactions. In addition, the public are still worried about cyberattacks, making them reluctant to perform online transactions.

Fourth, promote e-payments. Indonesia ranks among the countries in the world with the highest number of un-banked residents. This translates into a low level of e-payments by consumers who shop online. Only 4 percent of online consumers in Indonesia use online payments. Therefore, providing access to the majority of un-banked Indonesians to banking services is necessary.

Fifth, enhance the efficiency of logistics and commerce. In addition to upgrading transportation infrastructure, it is also important that logistics services are upgraded to a state of readiness. In this regard, e-commerce operators should cooperate with reputable logistics service providers in order to improve their delivery services.

Upon looking into the opportunities and challenges of the e-commerce market, it is evident that Indonesia has huge potential in the coming years despite constraints such as poor facilities and infrastructure. With more consumers relying more and more on their smartphones in their everyday transactions, the e-commerce market will further flourish.

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The writer is an industry analyst at Bank Mandiri

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