The Indonesian e-commerce industry has enjoyed a strong growth streak in the past few years. While much of the growth has been concentrated within the island of Java, e-commerce players are starting to tap into the growth potential of the wider archipelago. A report by SIRCLO and Ravenry estimated that more than 50% of e-commerce gross merchandise volume (GMV) will be generated outside of Java by 2022.
Figure 1. E-commerce Spending Proportion by Cities (% of Total e-commerce spending)1
There are several ecosystem drivers for such rapid growth. Indonesia has enjoyed increasing internet penetration, a population with growing spending power and a huge investment appetite into the digital sector (SIRCLO & Ravenry, 2019). At the same time, e-commerce players themselves have been busy finding new ways to grow their market share and engage their users.
Online shopping festivals have become a yearly staple strategy by these players. Huge fanfare built around festivals like 12/12 (National Online Shopping Day), 11/11 (Singles’ Day), and 10/10 (Online Shopping Festival) drive significant GMV growth. Significant increase in engagements is apparent amongst current users during these periods.2 At the same time, new user acquisition peaks during these periods as well.
Growing beyond Java with online festivals
While e-commerce services have become more widespread amongst Indonesians living in Java, e-commerce is not as popular outside of this island. Online shopping festivals and the big discounts that come with them help e-commerce players target new customers from islands outside of Java. The 2019’s National Online Shopping Festivals, for instance, has seen increased e-commerce transactions in Papua, West Nusa Tenggara, Sulawesi, Bengkulu and Bangka Belitung.3
Figure 2. Outside Java Regions with increased transactions during Harbolnas 2019’s National Online Shopping Festival (% of transaction increment)
E-commerce players tend to concentrate their distribution hubs within metro areas in Java, making it expensive for people to purchase items and ship them outside Java. Big discounts during these one-off events help offset the expensive shipping costs, making e-commerce purchases a lot more attractive to these customers.
As a result of these events, outside-Java customers have been spending more on e-commerce in the past few years. Today, US$ 16 million worth of GMV is generated daily from outside-Java regions; up from US$ 1.3 million in 2015.4
Table 1. Generated Gross Merchandise Volume (GMV) of e-commerce transaction in outside-Java regions (in US$).5
|Average Generated GMV on normal days||$1,338,740||$3,914,301||$8,680,767||$9,624,986||$16,721,753||99.69%|
|Generated GMV during online shopping festivals||$19,989,051||$32,910,919||$59,897,872||$63,491,745||$94,600,000||50.41%|
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The e-commerce market for the outside-Java region is developing rapidly. The 2019’s online shopping festivals generated US$ 94 million worth of GMV from outside-Java regions. Millions of orders were packed and shipped to the customers. At least 70% of those shipments originated from Java regions, let alone festival days, even to fulfil shipping orders during non-festival days logistics service providers are already struggling to meet the demand for outside-Java areas
Beyond online shopping festivals - ensuring outside-Java customers’ loyalty
Undoubtedly, online shopping festivals have been able to acquire vast amounts of GMV and customers. However, with the absence of sufficient infrastructure, certain Indonesian regions will be inaccessible, goods delivery will take long hours and will ultimately lead to a higher cost of logistics services. In 2019, outside-Java customers spend 20% to 50% of their total basket size on shipping. Poor logistics infrastructure deemed as a significant hindrance of logistics service improvement.6 7
As an effort to growth hack the e-commerce expansion outside Java, e-commerce industry players have offered solutions to overcome logistics issues and reaching more outside-Java customers. One solution offered by Tokopedia is through establishing an intermediary along the e-commerce supply chain. The middlemen are dispersed throughout the country to reach a broader population, especially those who reside in outside-Java areas.
Besides industry players, the Indonesian government recognises that infrastructure is crucial to support the growth of e-commerce in outside-Java regions. Thus, we have seen infrastructure development in recent years; more roads, ports and airports are being built in outside-Java regions.10
Table 2. Recent Infrastructure development in outside-Java regions 11 12
|Port Kuala Tanjung||North Sulawesi||The five ports located across Indonesia together with Port Tanjung Priok in DKI Jakarta will be joined by the integrated network to improve sea logistics efficiency.13|
|Port Bitung||North Sulawesi|
|Port Ujung Pandang||South Sulawesi|
|Port Kijing||West Kalimantan|
|Nop Goliat Dekai||Papua||Operating since 2017|
|Mopah Merauke||Papua||Operating since 2015|
|Morowali||Sulawesi||Operating since 2018 14|
|Toraja||Sulawesi||Set to start its operation in 2020 15|
|Syamsudin Noor||Kalimantan||Set to start its operation in Q4 2019 16|
|Singkawang and North Kayong||Kalimantan||Plan to start construction in 2020 17|
|Trans Kalimantan||Kalimantan||Extends from West Kalimantan, East Kalimantan and North Kalimantan up to Indonesia - Malaysia borders|
|Trans Papua||Papua||Extends from Sorong to Merauke.|
|Nusa Tenggara road||Nusa Tenggara||Extends from East Nusa Tenggara up to Indonesia Indonesia-Timor Leste borders 18|
Online shopping festivals have been a significant driver of the outside-Java e-commerce market growth, doubling the regions' generated GMV each year. Logistics infrastructure challenges persist as a significant hindrance for the growth, and the Indonesian government has been thriving to develop logistics infrastructure in recent years. Apart from improved infrastructure by the state, e-commerce players have also been offering solutions to accelerate the outside-Java market germination. With an intermediary role spread across the country, sellers are able to send goods from multiple origins rather than concentrating their distribution hubs within Java's metro areas alone. The multi-origin solution is still relatively limited. Thus, e-commerce players might want to explore this opportunity further with the support of SIRCLO, as the leading e-commerce enabler in Indonesia. 19