Founder and CEO of Indonesian e-commerce firm Tokopedia, William Tanuwijaya, poses for a photograph at Tokopedia headquarters in JakartaIndonesia is the fastest growing internet economy in Southeast Asia, with e-commerce being the major contributorIndonesia's large consumer market is a growing attraction for overseas players such as Lazada and Shopee
The odds were against them. Online payments were a tough sell in a country that ran mostly on cash transactions, while the sheer size and geographic spread of Indonesia would mean huge headaches for delivery logistics. And then there was the competition, with well-funded global giants such as eBay and Japan's Rakuten already in talks with local partners to enter the market.
From the early 2000s, improvements in communications and infrastructure and the growth of the country's economy had led to a rapid expansion of modern retail chains across Indonesia. Changes were happening but they were slow. The internet would change this. Even so, the sector is undervalued. E-commerce accounts for just a fraction of total retail sales, with estimates ranging from 5 to 10%. But while there is much room to grow, the same obstacles that Tokopedia's Tanuwijaya faced in 2007 still exist.Indonesia is the world's second-largest cash-based economy, after India. Bank penetration is low, and an estimated 96% of Indonesians do not own credit cards, even as credit cards remain the most popular e-commerce payment method.
In rural areas in particular, a simple parcel delivery may need to navigate mountains and vast bodies of water. Even if a parcel arrives near a destination, it may still have to contend with a lack of formal addresses and even street names. Such poor logistics infrastructure leads to higher shipping costs, especially outside the most populous island of Java.
Tokopedia uses a network of 11 third-party logistics companies, which cover up to 65% of its deliveries. It has also been working on providing merchants with warehousing facilities to store goods and reduce delivery costs. In 2019, the company launched TokoCabang, which it describes as a smart-warehouse network powered by artificial intelligence and demand prediction that helps merchants scale up distribution.