Alibaba, Tencent and Other Chinese Giants Wound Up in Indonesia
Southeast Asia, as a rapidly developing emerging region, has always been a popular destination for Chinese enterprises to begin their global ambitions. In this region, Indonesia has the largest land area, economic scale and population, so it is often one of the focal points of expanding enterprises.
From Alibaba and JD.com, who are already familiar with e-commerce gameplay and eager to find new markets, to Tencent, who dominates the social app environment via its WeChat program but has not been able to establish a successful e-commerce business, as well as ByteDance, the popular company that entered the mainstream through its short video sharing and livestreaming app TikTok and Douyin, all hope to get a piece of this huge market. And, despite investing large sums of money in this country, it has been difficult for big platforms to make money.
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Indonesia’s huge population gives an impression of a promising market. According to statistics by OOSGA, a supply chain intelligence platform, there are 158.6 million e-commerce users in Indonesia with an annual consumption of $53.81 billion, while the per capita consumption is $339. At the same time, 63.8% of consumers place orders through their mobile phone.
In 2016, Alibaba acquired e-commerce firm Lazada, which is headquartered in Singapore. The company’s business model is similar to Tmall’s in that it broadcasts a business’s image and helps guide merchants to advertise their brands. At the same time, another platform, Shopee, also emerged in Indonesia and has received support from Tencent so it too can offer low prices to consumers.
However, no matter Lazada, Shopee or local giant Tokopedia, it has not been easy to generate profits. On August 30, Indonesian tech giant GoTo, the parent company of Tokopedia, announced its financial results for the second quarter and the first half of the year, showing that the net loss in the first half of the year more than doubled, reaching nearly $1 billion.
The direct cause is logistics. “Indonesia is composed of more than 17,000 islands, and more than half of the population lives on Java and Sumatra. The transportation of these two islands relies on railways and roads. In other places, the population is too scattered and the distance between islands is very long. It is impossible to build bridges, so it can only rely on air transportation and ships, which is inefficient and the cost of e-commerce is extremely high.” An e-commerce practitioner told Chinese social media Xiaguangshe.
JD.com, Shopee and Lazada have all launched self-built logistics services. However, the high costs and the generally low customer unit price in the local area make it more difficult for platforms and merchants to make money. In addition, Indonesia’s sales channels are scattered, which makes it difficult for some merchants who want to spread their goods on a large scale to find agents with complete coverage, reasonable prices and reliability.
In addition to the difficulties caused by geographical conditions, the Indonesian government introduced many restrictions on cross-border e-commerce. At the beginning of 2021, the Indonesian customs tax policy on imported goods was adjusted, and the threshold was lowered from $75 to $3, so as to protect local sellers. According to media reports, Indonesia’s protection of its textile industry may be one of the reasons why Chinese fast fashion giant SHEIN withdrew from the Indonesian market.
However, the attitude of the Indonesian government is becoming more open. In recent years, the country has made a lot of efforts to improve the business environment. Furthermore, China has become Indonesia’s largest trading partner for the ninth consecutive year. Since 2019, China has become Indonesia’s second largest source of foreign capital. In November this year, the Jakarta-Bandung high-speed railway invested by Chinese enterprises has just been put into trial operation. The country shows promise with opportunities for those willing to embrace the challenges presented to them in this vast market.