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B2B ecommerce market in Indonesia to grow at 25% until 2023

The Market Size of the Indonesian B2B e-commerce Market is estimated to be worth USD 6.99 Billion in 2018 and is expected to grow at a CAGR of 25% to reach a Market size of USD 21.33 Billion in 2023.

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Definition / Scope

The B2B e-commerce market has been evolving rapidly owing to the pervasive impact of the global online ecosystem and changing nature of buyers. It comprises buying and selling of goods and services between companies via an online platform. The key offering is primarily a website, where an online market is created bringing together buyers as well as sellers of products or services. There is a significant shift in the B2B e-commerce market landscape as Ralali and Mbiz have targeted suppliers across the B2B e-commerce space.

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Market Overview

Indonesia is the most populous nation in SEA with a population of 262 million in 2017. Indonesia recorded the largest GDP in SEA in 2017. Indonesia’s GDP grew at a CAGR of 8.4% in 2017 growing from $932.45 billion in 2016 to $1,010.94 billion in 2017. Indonesia’s GDP Per-Capita stood at USD 3,569 in 2017 which is comparatively lower than its peers such as Singapore and Malaysia.

Indonesia witnessed an increase in the internet penetration to the tune of 58.3% in 2017. This sudden spike in the internet penetration is due to the offering of mobile-based data services. Indonesia, comprising more than 17,000 islands, is one of the largest archipelagos in the world. This makes it challenging to develop nationwide infrastructure, which lowers the Internet penetration in the country compared to that in some of its neighbouring countries.

Indonesia is witnessing strong growth in mobile services in 2017. The country has 412.7 million mobile subscriber identification module (SIM) cards in 2017, representing a penetration rate of 157.6%.

The Indonesian e-commerce market is estimated to be worth USD 21.2 billion and is forecasted to grow at a CAGR of 37.4% to reach USD 104 billion. The B2C segment contributes 35.8% of the total e-commerce market size and the B2B segment represents 26.4%.

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Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

Taxation

The Indonesian Government has recently levied taxes on each Goods sold. The recently legislated Regulation dated April 1, 2019 states that The regulation will compel those sellers and marketplaces making supplies worth IDR4.8bn (USD 337,000) or more a year to collect value-added tax on their sales to Indonesian consumers and remit these amounts to the tax authority. They must also levy luxury sales tax where appropriate. For those businesses whose turnover falls below the aforementioned IDR4.8bn threshold, their turnover will be subject to tax at 0.5 percent. Larger businesses will be obligated to pay corporate tax of 25 percent on their profits. The regulation also affects online retailers, businesses that sell through classified ads, those that offer daily deals, and those transacting with consumers through social media.

Weak Government Regulations

There exist no real government regulations that regulate the use of IT in the country. As such, this poses a big threat and a great uncertainty for most actors when deciding to pursue new technological initiatives. Most organizations are therefore, still a bit reluctant or not willing to be adventurous enough in their discovery for new technological innovations. Because of this unclear laws on IT, software piracy and other violations to electronic intellectual property are still a major issue in the country. Other instances of how Indonesian government regulations strict technology adoption can also be seen by the fact that they still require organisations to provide original printed invoice for official taxations. Therefore although Electronic Fund Transfer (ETF) is already a common practice among organisations, they still do not exchange invoices electronically with other capable trading partners.

Lack of Infrastructure

Insufficient Internet infrastructure is clearly a major difficulty in the technology adoption process in Indonesia. Internet speed in some places is still slow and Internet coverage remains very limited only to major urban areas. Moreover, in rural areas, Internet connection is still considered costly and can only be afforded by a small fraction of the population. This unfavourable condition has affected smaller suppliers and distributors in remote areas who have limited internet access in conducting business This is worsened by the fact that during peak hours, Internet connection becomes even more sluggish and less reliable. As a result, business processes that rely heavily on smooth Internet connection are affected. High-speed connection Internet is still considered expensive and a luxury. due to this unreliable Internet connection, frequent connection breakdown is inevitable, causing critical functions within organisations to stand still when the Internet is down, leading to an extensive amount of loss reflected in number of sales transactions missed.

Top Market Opportunities

Omni Channel Ecommerce Experience

According to a study by Forrester Consulting for Accenture, B2B buyers, driver by omni channel B2C buying experience, expect the same experience for B2B ecommerce as well. 49% of buyers still do work related purchases on B2C websites. This presents a huge opportunity for B2B ecommerce platforms to develop a competitive advantage. B2B customers expect instant online payment options (instead of purchase order or invoices, typically the norm for B2B sales), enhanced search functionality, ratings, personalized recommendations, automated pricing optimization, etc The successful B2B ecommerce platform of the future will be the one which provides an omni channel (integrations with wholesalers and distributors) and automated buying experience.

Online Payment Options

One of the biggest challenges of the traditional B2B trade is also one of the biggest opportunities when it comes to B2B Ecommerce. Traditional B2B transactions involve a cumbersome process incorporating sales and purchase invoices. Processing an invoice costs approximately 14 $ today. For companies that process hundreds of thousands of invoices, this represents a significant expenditure. With Online payment and order processing options this process becomes simpler and represents a significant cost-cutting opportunity. So the successful B2B marketplace of the future will incorporate a highly advanced and secure online order generation and payment processing interface.

Social Selling

Instead of just being “salesy,” B2B salespeople should be active on social media, where they can provide insights on their business, connect directly with leads in the process, focus on problem solving, ask questions, and form personal relationships. This is called social selling, which isn’t necessarily one of the new e-commerce trends, but rather, one that is just now being emphasized over other tactics. Unlike social media marketing, social selling involves building personal relationships with prospects rather than increasing brand awareness. Just be closer to people, and you will be surprised by rapidly growing conversion.

Market Drivers

Increasing smartphone and internet usage

One of the major drivers for the adoption of B2B ecommerce in Indonesia are the increased usage of mobile platforms which are providing app-based solutions for customers’ problems. Indonesia is expected to increase its internet users to 143.26 million by 2017. Rise of cheap smartphones and tablets coupled with the presence of innovative payment solutions such as Doku, Indomog, Veritrans and others have been the major contributors to online commerce market of Indonesia. The presence of liberal government legislations has also supplemented the expansion of B2B e-commerce in the country. Messenger groups are one of the most preferred platforms for online shopping in Indonesia B2B e-commerce market. Indonesia B2B E-commerce market has attained a small but significant share in the global online commerce market over the past few years. Since the Industry is at its nascent stage, the revenue generated by the local and global companies is expected to increase, which is likely to bolster the share of sales of online products in the overall market.

Rapid Digitalization of Core Industries

Digitization in the supply chain ecosystem, especially with regard to traders, wholesalers, dealers, retailers and consumers using apps and other platform-driven methods hold the key to stickiness and growth in the space. Adoption will not be imminent, but since the whole supply chain is technology driven,Over the next 3-5 years, digital app platforms are going to seamlessly manage market inventory in this segment.They currently use secondary and tertiary supply chain digitization in the FMCG segment, but this will soon change. Technology is helping manufacturers by introducing products into the market within a short span of time, compared to traditional markets in the past. Secondly, high quality no-name brands are becoming brands overnight and challenging the status quo and demanding market share and customer recall. Demand generation is now changing and the cycles of consumption are shorter; so inventory needed by sellers is reducing, just in time manufacturing is also on the rise because the cost of logistics is going down. credit leveraging will continue to drive volume for the market, even as the face of B2B e-commerce as it undergoes major transformation.

Increasing Foreign Direct Investments

A large portion of financing behind top marketplaces comes from large international venture capital and private equity funds that bring significant experience in e-commerce from their portfolio of investments. Global investors’ focus on Indonesia has accelerated market growth, providing the funds needed to conduct aggressive marketing to entice new consumers to their platforms. Tech companies also invest this funding in providing loss-leading products, which has successfully attracted customers onto online platforms. Despite an unclear regulatory environment and lack of coordination between the central and regional governments, the government is moving towards a more open economy and enhancing the ease of doing business in Indonesia by cutting down procedures, permits and costs. The new Indonesia 2016 Negative List replaces the previous 2014 Negative List. 35 business sectors are open for 100% foreign investment, including e-commerce (marketplace) business with investment value of more than IDR100 billion (approximately USD 7.5 million).

Improved Customer Experience

Customer expectations formed in B2C settings have carried over to the B2B purchasing arena. Businesses must deliver superior customer experiences to stay competitive. Implementing effective B2B ecommerce platforms enables them to make that happen. Organizations can provide business buyers with relevant information and services to support their purchasing needs. Providing product-related information and offering personalized self-service buying portals can dramatically enhance the B2B purchasing experience.

Reduced Costs

Gartner predicts that, by 2018, 40 percent of B2B digital commerce sites will use price optimization algorithms along with configure, price, quote (CPQ) tools to dynamically calculate and deliver product pricing. B2B buyers are demanding CPQ capability because of the complexity of the products being purchased, multi-site requirements, and fluctuating prices throughout any given quarter. They want to be able to take advantage of end of quarter deals and leverage their buying power across all channels based on their distinct business situation.

'Increased Ordering Efficiency'Bold text

Many businesses are transitioning to B2B ecommerce to improve their ordering efficiency. Streamlining cumbersome paper-based processes frees up buyers to spend more time making the most cost-effective purchasing decisions. An electronic-based purchasing process is also essential to support the just-in-time needs of most businesses today. Electronic Data Interchange (EDI) remains as the most frequently used technology in B2B ecommerce. The format standardizes digital communication between trading partners and serves as the medium to exchange electronic documents such as purchase orders and invoices as well as messages and status updates.

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Market Restraints

High Technology Cost

Within the technological context, high cost of technology is found to be one of the main obstacles when deciding to adopt new B2B EC technology initiatives. Some particular examples of this cost barrier to B2B EC technology adoption include: 1) The reluctance of smaller suppliers (Manufacturers) to pursue Barcode technology when they find out that there are service fees required by the retailers and other necessary investment costs involved. This has caused smaller suppliers sometimes to withdraw their decision to adopt the new technology. 2) The high price of PDA unit was found as a major difficulty.

Incompatible Culture

Culture cannot be underestimated in its impact on technology adoption in developing countries. It is beyond the control of an organization. Its values, perceptions, and principles related to general business conduct, have been established long over time within a certain society. It is found that there was a certain degree of resistance among the salesmen when the PDA system was first introduced. This was experienced by both manufacturers and distributors. Salesmen often resisted to change and refused to go out of their “comfort zone”. This might relate to the general culture of Indonesian people who are a bit more conservative (also in terms of technology) and pretty cautious when new findings require them to change their usual habit or way of working. Because of this, people often feel that their old way of working is better and less complicated, thus making them less enthusiastic about new technology venture. People are sceptical and already have a certain pre-judgment that “new things” are not good for them. Secondly, the importance of face-to-face communication and personal networking are also strong characteristics of East Asian culture that are still ingrained in every aspects of conducting business. In Indonesia, it is still very important and preferred to meet directly face-to face with business partners when it comes to business relations. Good relationship with partners sometimes goes beyond the technology itself and can guarantee greater success than technology alone.

Security Concerns

Security is the main concern when it comes to B2B e-commerce. Since financial transactions are the backbone of B2B e-commerce, if not the entire purpose of it, any hesitation on the part of the customer when it comes to making online payments could spoil the e-commerce party. 45% of Indonesians currently shop online. One large issue relates to the problem of anyone being able to spring a security leak. It is not just about an e-commerce website getting hacked – the fire could start in any corner. Hacks can take place via the payment gateway, user computers infected with malware, or a shopping cart software provider that is exporting vulnerability into your environment.

Payment issues

The mode of payment is different as B2B deals in bulk sales, it is definitely not the exchange process, where one pays the amount directly to the vendor. It is a partial payment or credit B2C offers B2B, where after sales the pending amount gets cleared. Thus the delay or failure of payment could affect the business process. Also as there exists security issues with the different modes of payment particularly Credit/Debit Card payment and Internet/Mobile Banking could induce security flaws associated with these payment modes affects the uptake of online payment for B2B transactions.

Industry Challenges

Underdeveloped Logistics

As an archipelago nation composed of over 17,000 islands, the prospects for transportation companies in Indonesia are huge. Yet, compared with its regional neighbours, Indonesia’s logistics industry remains underdeveloped, and so too does its warehousing market. Costs are a factor holding back the sector’s development, and indeed the entire transportation sector as a whole. In warehousing’s case, it’s land prices that are causing an issue. Rents in Greater Jakarta, for example, float around $6-7 per square metre at the moment, and are expected to enjoy moderate, single digit growth in the coming years. The trouble is land prices have risen 300% in recent years, making building on speculation a potentially risky business.

High Fragmentation of the market

Of the 60 Million Businesses in Indonesia, 58 Million of them are MSMEs indicating that the market is highly fragmented with multiple smaller players. As with the case of other fragmented markets the B2B E-commerce market comes with lower barrier for entry and higher competition. In Indonesia, MSMEs don’t have equal access to sourcing, financing, logistics and other needs as they don’t have the economy-of-scale and technology to capture their data. With more than 60 million MSMEs in the country, only less than 8 percent of them are digitally-ready. This disparity in the adoption of technology creates noise in the B2B E-commerce adoption in Indonesia.

Technology Trends

Artificial Intelligence

Nowadays, more and more online stores integrate the so-called conversational commerce. They integrate AI chatbots and text-to-speech recognition technologies to help customers make purchasing decisions. However, in 2018 the conversational commerce trends are also expanding to B2B markets, and it goes much deeper than chatbots. eCommerce strategists use AI as a part of B2B sales strategy because of its ability to predict sales, optimize prices, and calculate discounts based on similar customer profiles. Modern technologies such as cloud computing and the availability of software APIs have made AI more accessible to all types of businesses, including B2B eCommerce companies.

Mobile Commerce Trends

According to recent Google statistics, half of modern B2B search queries originate from smartphones. The same statistics report that 80% of B2B buyers are using mobile technologies at work. In other words, mobile search is growing. Most B2B e-commerce sites are optimized for mobile, and if they’re not, they soon will be. More and more companies will be developing mobile-first websites as well as apps to support their offerings.

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Regulatory Trends

E-commerce remains governed by a complex set of laws and regulations in Indonesia. Some laws and regulations that apply to the e-commerce sector include:

  • Law No. 11/2008 on electronic information and transactions (ITE Law). This law, which was intended to promote open and fair electronic commerce, has been criticized as creating investor uncertainty by failing to define key terms.
  • Law No. 7 /2014 on trade.
  • Bank Indonesia Regulation No. 20/6/PBI/2018 regarding E-money.
  • Minister of Communications and Information Technology Circular Letter No. 5 of 2016 on the Limitations and Responsibilities of Platform Providers and Merchants in E-Commerce Using User-Generated Content Platforms. This circular letter established safe harbor protections for, and obligations of, e-commerce platforms for user-generated content and product offerings.
  • Minister of Communications and Information Regulation No. 23 of 2013 regarding Domain Name Management.

Other Key Market Trends

Focus on Global

In addition to their existing customer base, businesses are reaching out to international prospects. This involves offering their products in local currencies at prices that are suitable for the local market, using the preferred local payment methods, and ensuring that the entire customer experience complies with local regulations. Companies that expand to a global market can scale more quickly because they are selling to an exponentially wider market. It’s difficult to do, but more B2B businesses are taking a crack at it than ever before.

Market Size and Forecast

Indonesian B2B ecommerce Market Size

  • USD 6.99 Billion – The estimated market size of the Indonesian B2B e-commerce Market in 2018
  • 25% - The expected CAGR of the Indonesian B2B e-commerce Market in the forecast period 2018 to 2023
  • USD 21.33 Billion – The expected market size of the Indonesian B2B e-commerce Market in 2023.
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Market Outlook

  • USD 2.3 Billion – The estimated Market size of the Indonesian Fashion & Beauty B2B e-commerce Market in 2018
  • 18% - The estimated CAGR growth of the Indonesian Fashion & Beauty B2B e-commerce Market in the forecast period 2018 to 2023.
  • USD 5.26 Billion – The expected Market size of the Indonesian Fashion & Beauty B2B e-commerce Market in 2023
  • USD 2.64 Billion – The estimated Market size of the Indonesian Electronics & Physical Media B2B e-commerce Market in 2018
  • 24% - The estimated CAGR growth of the Indonesian Electronics & Physical Media B2B e-commerce Market in the forecast period 2018 to 2023.
  • USD 7.74 Billion – The expected Market size of the Indonesian Electronics & Physical Media B2B e-commerce Market in 2023
  • USD 1.42 Billion – The estimated Market size of the Indonesian Food & Personal Care B2B e-commerce Market in 2018
  • 30% - The estimated CAGR growth of the Indonesian Food & Personal Care B2B e-commerce Market in the forecast period 2018 to 2023.
  • USD 5.27 Billion – The expected Market size of the Indonesian Food & Personal Care B2B e-commerce Market in 2023
  • USD 1.67 Billion – The estimated Market size of the Indonesian Furniture & Appliances B2B e-commerce Market in 2018
  • 23% - The estimated CAGR growth of the Indonesian Furniture & Appliances B2B e-commerce Market in the forecast period 2018 to 2023.
  • USD 4.7 Billion – The expected Market size of the Indonesian Furniture & Appliances B2B e-commerce Market in 2023
  • USD 1.46 Billion – The estimated Market size of the Indonesian Toys, DIY & Hobbies B2B e-commerce Market in 2018
  • 25% - The estimated CAGR growth of the Indonesian Toys, DIY & Hobbies B2B e-commerce Market in the forecast period 2018 to 2023.
  • USD 4.46 Billion – The expected Market size of the Indonesian Toys, DIY & Hobbies B2B e-commerce Market in 2023
  • USD 3.4 Billion – The estimated Market size of the Indonesian construction equipment, industrial supplies, heavy duty machinery B2B e-commerce Market in 2018
  • 22% - The estimated CAGR growth of the Indonesian construction equipment, industrial supplies, heavy duty machinery B2B e-commerce Market in the forecast period 2018 to 2023.
  • USD 9.19 Billion – The expected Market size of the Indonesian construction equipment, industrial supplies, heavy duty machinery B2B e-commerce Market in 2023
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Technology Roadmap

Cloud-based B2B e-commerce

Modern cloud-based B2B e-Commerce solutions provide integration with order management systems, which makes them able to sync order processing across all channels and ensure great customer experiences. Other features and trends in the eCommerce industry include Just-in-Time (JIT) availability with customizable purchasing workflows, automatic replenishment, multi-warehouse shipping, and returns management.

Distribution Chain Analysis

The Primary participants in the Supply chain of Indonesian B2B e-commerce are Selllers, Buyers and end-consumers.

`The Sellers may include both Foreign & Domestic Players wherein the Foreign Sellers may include Manufacturers and Trading Company while Domestic Sellers may include local manufacturers, Importers and Distributors.

The Buyers may include Re-sellers, Corporate Buyers and SME Buyers. The Re-sellers may include the online portals such as Lazada.com, blanja, Bhinneka, tokopedia, Bukalapak, blibli, olx.

Corporate Buyers may include corporates who buy in bulk quantities and sell products under their labels.

SME Buyers are the small and medium players in the market who buy and sell on behalf of their clients or under their own labels

End-Consumers are the people who use or consume the product or service. The wholesaler sells the product to its customer (the retailer) and not to the end consumer. And the retailer sells the product to their customers who are the end consumers.

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Competitive Landscape

B2B e-commerce market players include suppliers, manufacturers and distributors. The major players in the Indonesian B2B market include Bizzy, Ralali, Tajima, Indotrading, Indonetwork, electronic city, Mbiz and Kawana Lama. Companies focus more on providing an enhanced user experience as part of their growth strategy. The B2B e-commerce market is characterized by intense competition, leading to increased pricing pressures and at the same time creating avenues for increased profitability and inculcating improved customer relationships.

Competitive Factors

Some of the Competitive Factors in the Indonesian B2B e-commerce Market include:

Competitive Pricing

Competitive pricing is the process of selecting strategic price points to best take advantage of a product or service based market relative to competition. This pricing method is used more often by businesses selling similar products since services can vary from business to business, while the attributes of a product remain similar. This type of pricing strategy is generally used once a price for a product or service has reached a level of equilibrium, which occurs when a product has been on the market for a long time and there are many substitutes for the product.

Customer Service

Customer service is generally considered reactive - a customer reaches out because they need help or have questions. Great customer service has the potential to convince your existing customers to stay and even refer their family and friends, expanding the customer base. The Offering of Value-Added Services such as Consulting would boost the morale of the customer and can increase brand loyalty, customer advocacy, and bring increased revenue.

Key Market Players

The Key Market Players in the Indonesian B2B e-commerce Market includes:

Bizzy helps merchants make the shift to online and meet the logistical demands of B2B business customers, by integrating multiple shipments from multiple vendors, known as ‘crossdocking’, through the fulfillment centre of partner aCommerce.

Ralali is an e-commerce company operating B2B online marketplace for local trade connecting suppliers and buyers, starting with Industrial and MRO categories then expand to Office supplies, Automotive, Medical, Agriculture, Home & Building, Hotel & Restaurant Equipment, and many more.

IndoTrading.com is a company and business directory website, not a buy-and-sell website. This site is established to help marketization of SME’s products and services online locally, as well as internationally. It provides some sophisticated marketing services to help business owners to compete digitally, such as Search Engine Optimization, Google AdWords, etc. Besides promoting, it also provides Web Design and Hosting service, all to enhance business growth of its clients.

Electronic City is a company selling electronic products that was founded on November 1, 2001 . The company is one of the largest electronics sellers in Indonesia . Electronic City also launched an e-commerce platform through the Company's official website in an effort to strengthen the Company's image and capture consumers who prefer to buy products online.

Mbiz.co.id is specifically designed to simplify B2B (Business to Business) transactions that will fulfill your needs. With thousands of products and categories available coming from numerous certified vendors in Indonesia, we offer integrated e-procurement system to facilitate the process of approval and product purchasing in your company. The company also eases procurement process to give our clients flexibility of product purchasing wherever and whenever they are.

Kawan Lama Sejahtera is a company providing industrial equipment located in Meruya Kembangan West Jakarta , Indonesia . This company provides a variety of industrial equipment ranging from household appliances to workshop tools. In 2011, with the development of information technology and online business in Indonesia, PT. Kawan Lama Sejahtera launched its new business unit, Kawan Lama Online. This site aims to accommodate the needs of the vast market in Indonesia by bringing ease of transactions, completeness of products and excellent service making this site grow fast.

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Strategic Conclusion

With a fast growing economy and uprising household incomes, the B2B e-commerce market may not be saturated for several years. Remember the high consumer confidence index (120, 4th globally) and mobile internet penetration (47%). With the development of infrastructures in B2B e-commerce value chain, B2B e-commerce players who can provide higher-quality customer experience will take advantages in customer acquisition and retention. The main focus should be on building trust with consumers, including sufficient choices of products, quality of products, quick delivery, user friendly user interface (UI) and secure payment methods. That said, the risks embedded along the entire consumer journey should be mitigated or even removed, simply because the integration of all links in the value chain contributes a big part of customer experience.

Appendix

  • B2B - Business to Business
  • B2C - Business to Consumer
  • GDP - Gross Domestic Product
  • USD - US Dollar
  • CAGR - Copounded Annual Growth Rate
  • IDR - Indonesian Rupiah
  • FMCG - Fast Moving Cosumer Goods
  • EDI - Electronic Data Interchange
  • CPQ - Configure, Price, Quote
  • PDA - Personal Digital Assistant
  • SME - Small and Medium Enterprises
  • MSME - Micro, Small and Medium Enterprises
  • AI - Artificial Intelligence
  • JIT - Just-in-Time
  • MRO - Maintenance, Repair and Overhaul
  • UI - User Interface


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