Indonesia’s e-commerce industry holds major promise, says Lazada

Indonesia’s vast consumer market and high penetration of internet users have created the right cocktail for rapid e-commerce growth, says Lazada

PUBLISHED : Monday, 16 October, 2017, 12:27pm
UPDATED : Monday, 16 October, 2017, 10:28pm

Lazada, one of the largest e-commerce platforms in Southeast Asia, is expecting online sales in Indonesia to experience one of the highest growth rates in the next few years owing to the country’s high penetration rate of internet users and demand from a huge number of potential customers.

“China’s e-commerce market is approximately 15 to 20 years ahead of that in Indonesia, so the country holds huge growth potential,” said Duri Granziol, co-chief executive of Lazada Indonesia.

As China has “better roads and highways”, as well as other infrastructure facilities compared to countries in Southeast Asia, a comprehensive e-commerce ecosystem similar to that in China has just started to emerge in this region, said Granziol.

Although Southeast Asia is a fragmented e-commerce market with a low percentage of e-commerce activity compared to total retail sales, growth in broadband and mobile connectivity combined with consumer openness to online retail buying means there is huge potential, according to consulting firm Research and Markets.

Major players in the region include Lazada and Singapore-based Sea, backed Shopee, both of which have been competing head-to-head in the e-commerce market.

In 2016, Lazada saw its gross merchandise value reached US$1.3 billion, which was slightly ahead of Shopee’s US $1.2 billion, according to Bloomberg.

“Lazada and Shopee may continue to battle for share most heavily in Indonesia, where they both have a large presence,” Matthew Kanterman, an industry analyst at Bloomberg Intelligence wrote in a recent note.

Founded in 2012, Lazada now has operations in six Southeast Asian countries including Thailand, Malaysia, Philippines, Singapore, Vietnam and Indonesia. The company recently received an additional US$1 billion in funding from Alibaba Group in addition to US$1 billion it received in April 2016, making the Chinese e-commerce titan the majority stake holder of the young company.

The investment is an important part of Alibaba’s plans to engage the fast growing Southeast Asian retail markets which could be the new growth engine for the company.

As such, Lazada and Aliexpress, an offshoot of Alibaba that mainly caters to its international buyers, helped Alibaba’s group turnover abroad grow 136 per cent in the first quarter of the year compared to a 57 per cent growth rate for its home market during the period.

“There are at least 150 million customers who live outside the two or three main cities in Indonesia who have developed retail infrastructure, but these customers still have huge demand for online goods,” Granziol said. “With relatively fast GDP growth in the country and tech savvy and sophisticated customers just like in China, the growth rate for e-commerce in Indonesia could be explosive.”

Lazada’s newly launched Taobao selection channels in Indonesia are another reason why the company is positive about its growth prospects.

“We have three million items from Taobao going live online already, and we are ramping up our efforts to add an additional five for a total of eight million Taobao items,” Granziol said.

Alibaba owns the South China Morning Post.