Amazon Heating Up E-Commerce Competition in Indonesia

Penulis: Hari Widowati

18/9/2018, 19.19 WIB

Indonesia is the largest e-commerce market in ASEAN and the key for Amazon to win the competition with Alibaba and Tencent.

Mohamad Faizal Ramli |

Online trade (e-commerce) business competition in Indonesia is heating up with Amazon Inc's plan to enter the market. The US e-commerce giant will compete with two large corporations from China – Alibaba Group Holdings and Tencent Holdings – already operating in Indonesia. The e-commerce market in ASEAN is believed to contribute the highest growth for global e-commerce giants.

Finance Minister Sri Mulyani Indrawati revealed Amazon’s expansion plan in Indonesia. “I’m in talks with Amazon. It plans to enter Indonesia. I want to make sure it meets the regulations here, especially the readiness to pay taxes,” she said in Jakarta, Monday (8/17).

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If the plan goes well, Indonesia will become the second country for Amazon’s operations in Southeast Asia. Since November last year, it has been expanding in the region through its operations in Singapore, where it provides regular e-commerce logistics services: Amazon, Amazon Prime, and Amazon Prime Now.

When Amazon decided to enter Singapore, it was trying to keep up with the expansion of Alibaba Group Holding, which has already heavily invested in Southeast Asia. Alibaba is the strongest competitor for Amazon. The two companies have market capitalisation above US$ 1 trillion, and are deemed royal in investing for various acquisitions.

In 2016, Alibaba bought a majority stake in Lazada worth US$ 1 billion. A year later, Alibaba increased its stake in the Singapore-based e-commerce company to 83 percent with a capital injection of US$ 1 billion. Lazada operates in Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Southeast Asia is Alibaba’s most important market outside China.

According to global research and consulting firm CB Insights, Lazada used US$ 30 million-US$ 40 million of the capital provided by Alibaba to acquire Redmart, a provider of shopping services for daily needs in Singapore that rivals Amazon Prime Now.

Based on its financial report, Alibaba’s revenue from retail and international trade until the end of last year reached US$ 727 million, rising 93 percent over the same period in 2016. According to Alibaba, one of the main drivers of the growth was Lazada.

Alibaba’s expansion in Southeast Asia continued with investment in Tokopedia worth US$ 1.1 billion (Rp 14.7 trillion) through an F series funding round in mid-August 2017. Tokopedia Chief Executive Officer and Co-founder William Tanuwijaya said the investment from Alibaba would be used to build a research and development centre in Indonesia.

Tokopedia also wants to bring the best local and international talent to work in Indonesia, to support its mission for economic equality and prosperity through technology.

Indonesia is a strong reason for Amazon to offset Alibaba. Local e-commerce players have long believed the nation was on Amazon’s radar. McKinsey’s The Digital Archipelago research valued online commerce in Indonesia at US$ 8 billion per year.

Indonesia is the biggest e-commerce market in Southeast Asia. About 30 million people or 11.5 percent of the population have become e-commerce consumers. McKinsey predicts the number will grow to 30 percent of the total population with a total transaction value of up to US$ 65 billion by 2022.

Another reason is that Amazon services in Singapore turned out to be less attractive. According to a Singapore Business Review report, shopping services for daily needs (e-groceries) were only 2 percent of the total retail market value. Redmart already controls most of the e-groceries market.

Amazon has also not been able to shift the habits of Singaporeans, who prefer shopping in supermarkets and malls near their homes.

Amazon plan won't be easy. Besides Alibaba, it will also compete with Tencent Holdings, the majority shareholder of In Indonesia, operates through Tencent is also the largest shareholder of Sea Limited, the parent company of Shopee.

According to a Snapcart survey of 6,123 respondents in January 2018, Shopee is the most popular e-commerce platform in Indonesia. Snapcart Business Development Director for Asia Pacific Felix Sugianto said Tokopedia and Lazada were the second and third most popular. Shopee’s success is inseparable from its advertisements, which have featured heavily in various online and offline media in recent years.

Payment System

The tight competition of global players in the Indonesian e-commerce market will be followed by their payment systems. Alibaba, through Ant Financial, has the Alipay digital payment platform with 520 million users, and transaction value last year of US$ 6.5 billion.

Ant Financial is also collaborating with PT Elang Mahkota Teknologi Tbk (Emtek) for electronic wallet app DANA, which is available on the Blackberry Messenger (BBM) platform and has been downloaded by more than 100 million users.

Tencent has payment system service TenPay, popularly known as WeChat Pay, which has 800 million users in China. WeChat Pay services have been connected to Indonesia’s National Payment Gateway (GPN) through collaboration with local switching companies.

Alipay and WeChat Pay utilize QR codes for transaction payments. This method is touted as the future of payment systems in Southeast Asia even though implementation is not yet perfect. On 6 August, Tencent through opened its first cashless store at PIK Avenue, Jakarta.

Visitors shopping at the store do not need to queue at the checkout counter and can easily scan the barcodes before leaving. This can be done thanks to artificial intelligence technology, radio frequency identification (RFID), and consumer credit card data that has been saved into the account.

The concept of cashless stores was first introduced by Amazon as Amazon Go in Seattle, US. It also has a payment system Amazon Pay, which can be used for online transactions in the US, UK, Canada, India, Japan, and Malaysia. There are 33 million users of its QR code-based payment system.