Indonesian ecommerce hots up

As internet penetration and consumer spending grow rapidly in Indonesia, ecommerce in the country is starting to take off.

Indonesia’s unique geography – with 240m people spread over 6,000 islands stretching 3,000 miles east to west – poses big difficulties for online retailers but also big opportunities.

Rakuten, the Japanese ecommerce group with ambitions to challenge the global dominance of Amazon and eBay, is among a growing number of investors trying to tap into Indonesia’s online market.

After launching an Indonesia-focused online marketplace last year in a joint venture with local media tycoon Hary Tanoesoedibjo, Rakuten said that sales have been growing by “double digit percentages” on a month-to-month basis.

“I’m a strong believer in the Indonesian economy and in the internet shopping business in Indonesia,” said Hiroshi Mikitani, Rakuten’s founder and chief executive, on a promotional trip to Jakarta on Monday.

The company, which like other Japanese groups is keen to find international alternatives to slow growth at home, won’t reveal its Indonesian sales numbers.

But since the official launch in June last year, the number of merchants selling their wares on Rakuten.co.id has grown from 60 to 400 and the number of products available has expanded from 40,000 to more than 300,000.

While mobile phones and other electronic gadgets are among the top-selling items, food and drinks sales are increasingly rapidly, according to Ryota Inaba, who leads Rakuten in Indonesia.

Most developed world consumers only use the internet to make relatively expensive purchases but the lower delivery and running costs in Indonesia make it feasible for companies like Japan’s Nissin Foods to sell Rp49,000 ($5) boxes of instant noodles via Rakuten.co.id.

The key challenges in Indonesia according to Mikitani, one of Japan’s most outward-looking chief executives, are the slow internet speeds, poor physical infrastructure and a lack of trusted online payment systems.

Rakuten estimates that of Indonesia’s 50m internet users, only 1.4m have made ecommerce transactions.

But the market expanded by an average of 56 per cent per year between 2006 and 2011, according to Euromonitor data cited by brokerage house CLSA, the fastest in the region. And Rakuten has seen its sales outside Jakarta grow from 10 per cent to 45 per cent since last June as it has moved into fast-growing second-tier cities.

With a bright future expected for the industry, Tanoesoedibjo, who runs Indonesia’s biggest media group, is not the only tycoon trying to expand into the internet business.

Last year, Martin Hartono, the scion of the family that controls the Djarum cigarette group and Bank Central Asia, took a stake in kaskus.com, one of Rakuten’s major rivals, through his tech investment fund.

But although the growth prospects in Indonesia are clear, it’s no guarantee of success. After a failed joint venture with Chinese search giant Baidu.com, Rakuten knows that international tie-ups are not easy.[]

The Financial Times

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