Key drivers of the eCommerce market in Indonesia

According to, 2018 saw Indonesia’s economy increasing 5.17 per cent, up  0.1 per cent on the 2017 growth figure of 5.07, marking the country’s fastest growth rate since 2013. The archipelago nation is the largest economy in Southeast Asia and one of the fastest growing economies in the world, with the economy focusing on export goods such as textiles, automobiles, electrical appliances and oil and gas.

Indonesia’s digital economy has contributed significantly to this growth” says, with internet users at 132.7 million, constituting 50% of the population.  Of this number, 130 million people access some social media platform, in a country ranking third globally in terms of number of hours consumed on the online platforms.


Source. McKinsey & Company: The digital archipelago: How online commerce is driving Indonesia’seconomic development

A Mckinsey report states that Indonesia’s online commerce, driven by 30 million shoppers,  accounts for at least $8 billion in annual consumer spending.  Of this, formal e-tailing constitutes US$5 billion and social ecommerce (or the buying and selling of goods through social media platforms such as WhatsApp and Facebook) constitutes over US$3 billion.  The formal and informal ecommerce sectors have an equal market share of the 30 million online shoppers, each claiming 10 million online shoppers, with the balance of 10 million shoppers using both social and formal ecommerce options. By 2022 this total online commerce market is expected to be valued between US $55 – $65 billion.

The formal e-tailing sector consists of global players such as eBay and Amazon as well as local e-commerce players such as JD, Lazada, Shopee and Tokopedia.

The Formal Market

The Archipelago economy’s formal e-tailing market is growing quickly:  Gross Merchandise Value increased from around US $1 billion in 2015 to US $3 and $5 billion in 2016 and 2017, respectively.  The McKinsey report cites that Indonesia’s formal e-tailing represented 3 percent of total retail sales in 2017, compared with 10 percent in Singapore, where the online commerce market is more developed. Regardless of the size of market, Indonesian acquisitions mirror that of purchases in more developed online commerce markets such as China and the United States, with electronics being a particularly popular commodity among Indonesian consumers.

The informal e-Commerce market

McKinsey estimates that  the social-commerce market is valued to be at least $3 billion, although there are some experts who value this market as high as $5 billion.  It involves the product being listed on the social platform and the seller holding the inventory.  A third-party service may deliver the goods, or the seller or buyer may be involved in the actual collection or delivery.  Payment may be in cash, bank transfer or another agreed upon method.

Driving forces behind the e-Commerce economy

Growing investment in online commerce Indonesia accounted for $5 billion, or 38 percent, of investments in internet companies made in Southeast Asia from 2015 to 2017. Of that amount, online commerce platforms attracted the most money—about $3 billion—led by companies such as Bukalapak, Matahari Mall, and Tokopedia. Investors are lured by a growing economy with a rapidly rising banked population and a young, digitally attuned population.

  1. Government Regulation

 McKinsey reports that the Indonesian government has offered its support for the development of the digital economy, including implementation of various programs and the adjustment of corresponding regulations. McKinsey lists government activities related to the digital economy to include the following:

  • Supportive government policies: Government activities related to the digital economy include the following: National broadband development (Palapa Ring). This is a high-priority infrastructure program for the government, with three sections (west, central, and east) in construction and a budget of more than $21 billion. It is scheduled to be completed in 2019.
  • Allowing foreign direct investment: Indonesia’s 2016 Negative List6 stated that online commerce (marketplaces) would be open to 100 percent foreign direct investment if the investment exceeded 100 billion Indonesian rupiah (about $6.8 million).
  • Implementation of e-procurement: The government established the Lembaga Kebijakan Pengadaan Barang Jasa Pemerintah (LKPP), or Government Procurement of Goods and Services Agency, to develop an e-procurement program for goods and services. Total orders processed are estimated at $3.7 billion a year.
  • Establishment of relevant associations and initiatives: The government started or revamped several agencies to support the digital economy, including Bank Indonesia’s fintech office in 2016, the IDX Incubator by BEI (Indonesia’s stock exchange) in 2017, and BE KRAF (the Creative Economy Agency) in 2015.
  • Development of an online commerce road map: The government launched its online commerce road map in 2017, with provisions covering funding, taxation, consumer protection, education and human resources, logistics, communication, cybersecurity, and implementation.

2. Mobile and Data

Mobile-first:  With smartphones being a more affordable option than desktop PC and laptops, 70 – 80 per cent of internet traffic runs through mobile connections, says the McKinsey report, with almost 75 per cent of Indonesia’s e-Commerce consumers using mobile devices in comparison to Malaysia’s 62 per cent and United States 39 per cent.

Affordable Mobile Data: McKinsey reports that Indonesia’s mobile data is among one of the lowest in the world, at half the cost of the Southeast Asian peers. This has facilitated a large mobile subscriber base of about 180 million people, with about 106 million (40 percent of the population) owning smartphones.

This trend of smartphone penetration is expected to continue rising as approximately six million people per annum become part of the banked population.  Additionally, more people are able to own a smartphone as device prices continue to fall with several products having already approached the threshold of sub-$100 prices.

Ease and affordability: The online environment levels the commercial playing field, making it easier for smaller players to  the online and set up an online business and claim a slice of the market.  Doubling in number every year for the last few years, Indonesia’s e-tailers reached a total of 4.5 million active sellers in 2017. According to the Asian Post, about 99 per cent of these sellers are microenterprises and 50 per cent are online-only businesses with no physical store presence.

Informal Commerce:  Indonesia’s digital savvy youth have facilitated the growth of informal commerce.  Statistics illustrate the amount of Indonesia’s Facebook and Twitter users being the fourth and fifth largest in the world, respectively.  Social commerce is an organic evolution of these numbers.


 3. Impact and Outcomes of e-Commerce Market

McKinsey anticipates that Indonesia’s online commerce market will grow eightfold over the period of 2017–2022, which will have socioeconomic impact in four major areas:

  1. Financial benefits: more than $20 billion in new retail revenue, contributing 2 – 3 per cent of GDP.  This is equivalent to Bali’s’ GDP in 2018;
  1. Job creation: 26 million supported primarily at micro, small and medium enterprises (MSMEs);
  1. Buyer benefits: consumers in non-Java regions will enjoy a savings of 11 – 25 per cent by shopping online;
  1. Social equality: Apart from the financial benefits, ecommerce is impacting on communities outside of Java. One area in particular is that of gender parity.  This is illustrated by McKinsey’s research findings that online commerce facilitates women with more equal access to the economy. Subsequently, the share of women-generated revenue in online commerce stands at more than twice that of traditional commerce.


Original source: McKinsey & Company, “The digital archipelago: How online commerce is driving Indonesia’s economic development”

Source: Asian Post –

As a country with 269.54 million people, Indonesia has the largest population in Southeast Asia.  This is further driven by the fact that Indonesians are incredibly digital savvy and 50% of the population under 30 have contributed to the growth in the country’s commerce sector over recent years.

The online commerce ecosystem is increasing in both number of players and complexity. McKinsey forecasts that consumer spending in the sector will grow eight-fold, rising to $55 billion–$65 billion (social and e-tail commerce) by 2022.

This in turn will impact on many other industries, including directly and indirectly supporting 26 million full-time jobs, representing 20 per cent of the workforce.  With its projected impact on social and economic upliftment, digital commerce has great potential to be a unique driver of Indonesia’s digital economy.




Indulge in Indonesia's eCommerce.

Let us help you hit the eCommerce market in Indonesia and take advantage of the growing online economy.