Amazon’s US$600mil push into Indonesia will change the e-commerce landscape

By Masyitha Baziad June 21, 2016

Great time for Amazon to enter the market, will win the war
Incumbents will face challenges, need for innovation and agility

Amazon’s US$600mil push into Indonesia will change the e-commerce landscape

GLOBAL e-commerce giant Amazon.com Inc will be bringing a US$600-million war-chest into Indonesia with its designs on the country’s e-commerce market, according to a report in Kompas.com yesterday (June 20).

And if US$600 million sounds like a lot, that mouth-watering investment amount is only for its first year of operations, according to Daniel Tumiwa, chairman of the Indonesia E-Commerce Association (idEA).

Details are sketchy, especially on the US company’s timeline. When queried by Digital News Asia (DNA), Daniel said that the story has not been confirmed but that he had “heard it through the grapevine.”

Amazon has yet to respond DNA’s request for more information.

However, the thought of Amazon entering Indonesia has already caught analysts’ attention, and they believe it could completely change and challenge the e-commerce landscape in the country.

“Now is the time to strike for Amazon,” said Andrew Milroy, senior vice president of digital transformation at Frost & Sullivan Asia Pacific.

It had never been the right time before, and consumer readiness might still be an issue, he told DNA by phone – but Amazon might actually boost the country’s infrastructure, and boost people’s confidence in online shopping.

“Amazon has all it takes in the e-commerce sector: The experience, the resources, the brand, and the variety of products. Its entry into Indonesia can actually help the e-commerce sector even more,” he added.

According to Milroy, e-commerce in North Asia is bigger and more prominent than in South-East Asia, mainly because more people had credit cards and were willing to shop online.

READ ALSO: Japanese e-commerce hangover forming in SEA?

According to World Bank data from 2014, only 36% of Indonesians older than 15 had bank accounts. The country itself is home to 6% of the world’s unbanked population.

“There are still more people who are not willing to shop online and who do not have credit cards – this is the actual challenge for e-commerce in the country,” said Milroy.

Heightened competition

Amazon’s US$600mil push into Indonesia will change the e-commerce landscape Incumbents like Lazada and even local players such as Tokopedia, OLX, and Bhinneka need to prepare themselves as the market sentiment will definitely shift to the newcomer, argued IDC Indonesia senior market analyst Mevira Munindra (pic).

“Amazon’s entry into Indonesia will put tremendous pressure on, and test, Indonesian e-commerce companies to a higher level,” she said.

“It will speed up the pace of the industry; in order to survive, the other companies really need to push their current standards higher,” she told DNA via email.

Amazon’s reach, and strong brand recognition and reputation, will also be strong currency, according to Mevira.

“We believe there are many loyal Indonesian customers who would even wait longer to purchase products via Amazon,” she said.

“The brand is well-known for its complete services on one-platform, its credibility, and its great customer experience, so it will be really interesting to see how it rolls and competes in our local market,” she added.

When asked about regulatory challenges Amazon may face coming into this market, Mevira said it would not be a problem since the e-commerce sector has been opened up for foreign investors.

“When they bring in big investments, create jobs, open in-country offices, and are willing to pay taxes, then it is going to be smooth sailing for them in Indonesia,” she said.

“Amazon might want to quickly look at forming partnerships in the country, especially in logistics and payment, which pose the greatest challenge for e-commerce.

“When the market is ready, there is a big chance that Amazon will build its infrastructure for fulfillment and delivery inside the country, which is known as one of its cost-leader strategies when it expands internationally,” she added.

READ ALSO: Logistics and payments holding back SEA e-commerce boom: Bain report

Lured by loosening e-commerce regulation

Amazon’s US$600mil push into Indonesia will change the e-commerce landscape Indonesia has the biggest population in the South-East Asia, making it an attractive market not only for an e-commerce giant like Amazon, but also for many other foreign companies, according to Frost & Sullivan’s Milroy (pic).

But “a lot of foreign companies are not in Indonesia right now because of the strict regulations in most sectors in the country,” he said.

“However, the recent negative investment list revision and the Indonesian Government opening up the e-commerce sector all act as a welcome mat for Amazon,” he added.

The Government recently opened up the country’s e-commerce sector to foreign investors, as part of its economic reform agenda.

Under the new regulation, 100% foreign ownership in e-commerce is allowed with a minimum investment of Rp100 billion (US$7.5 million), or if the business creates more than 1,000 jobs.

READ ALSO: Indonesia moves to open up e-commerce sector to foreign investors

Indonesia’s Investment Coordinating Board (BKPM) reported that in the first quarter of this year (Q1), foreign investors pumped in US$5.29 million into e-commerce, with a total of 24 projects in Indonesia.

Last year, Indonesia’s e-commerce industry attracted a total of US$19 million worth of foreign investments with a total of 67 projects.