E-Commerce Use and Its Challenges in Indonesia

Posted on 30/08/2011 by Yuli Wahyuningtyas

 

With around 237 million inhabitants,[1] Indonesia is the fourth most populated country in the world.[2] This contributes to Indonesia’s potential as a large market for various products. Would this potential market take the benefit of internet use?

Overview on Internet Use in Indonesia

Internet literacy in the country shows growth in the last decade. From only 1% of the population in 2000, the number of internet usage took a leap in 2007 to 8.9% and keeps increasing to 12% in 2010. [3]  From relying on Warung Internet (Internet Café) to access internet in the beginning of internet use in Indonesia, nowadays, users also get internet access at work, home, and universities. However, in contrast to other countries in South East Asia where 67% users get internet access from home, 66% Indonesians still rely on Warung Internet  due to  the lack of high speed internet at home.  An interesting trend is the increasing reliant on mobile internet, where according to Ac Nielsen Survey in 2011, 48% internet users in Indonesia use mobile phones to access internet. The number will climb to an additional of 5% within 12 months.[4]
In public sector, the use of internet in public administration for better services to public was initiated in 2001 with e-Government concept following the enactment of the Presidential Directive No 6/2001 on Telematics.[5] In private sector, internet use for commercial purposes has been increasingly popular in the country since the introduction in 1995.[6] However, the percentage is less than the use of internet in general. There are only 21% online consumers aged >15 years old and only 1% above 50. Many Indonesians use internet for social networking purpose, like Facebook (7.8% of population or 63.15% of total Facebook online users)[7] and Twitter (20.8% of population).[8]

E-Commerce in Indonesia

Looking at the numbers above, one question might be how big is the potential of Indonesia for e-commerce market?  According to a survey conducted by Daily Social in 2011, Indonesians still show hesitation to use internet for commercial purpose. Among respondents in Jakarta, mainly students, aged 20-30, 38% (244 respondents) use internet to check and compare price and finally purchase the product online. Recommendations from friends and family are still a decisive factor for doing online transaction (60%).[9]

Whether recommendation from friends in the social network plays a role and if it does, how big the influence is, is subject to further studies. However, it makes sense to see the tendency to use Facebook, for example, to promote a product. Maybe, it will not contribute directly to online purchase, but it helps to create awareness within the network about the existence of the product.

Challenges

Some challenges are indicated as homework to be done to support the growth of e-commerce in Indonesia. First of all is the lack of reliable and affordable internet connection that enables users to conveniently do online transactions. Losing internet connection while doing the payment, for example, is the last one wants to happen. Internet speed is also a concern for consumers.
Another problem is the payment method. Whilst users can browse products and compare prices over internet, online payment is not always possible to do. Bank account transfer and cash on delivery are still the main payment methods being used.[10]

Apart from convenience and sufficient technical support for e-commerce, consumers also deal with security problems. The increase of cybercrimes and the lack of legal protection for consumers are seen as crucial problems. The protection under the Consumer Law Protection of 1999[11] and the Law on Information and Electronic Transaction of 2008[12] might have answered some questions, but in practice, these still leave problems concerning law enforcement matters.

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[1] Population by Age Group and Sex 2010, http://www.bps.go.id/aboutus.php?sp=1

[2] List of Countries by Population, http://en.wikipedia.org/wiki/List_of_countries_by_population

[3] Indonesia Internet Usage and Telecommunication Reports, http://www.internetworldstats.com/asia/id.htm

[4] Indonesia the Most Reliant On Mobile Internet Access Across South East Asia: Nielsen, http://id.nielsen.com/news/Release110711.shtml

[5] Current Status and Issues of E-Government in Indonesia, http://www.aseansec.org/13757.htm

[6] Indonesia Internet Usage and Telecommunication Reports, http://www.internetworldstats.com/asia/id.htm

[7]Facebook in Asia: Total Users and Age Groups [Latest STAT], http://www.greyreview.com/2010/03/02/facebook-in-asia-total-users-and-age-groups-latest-stats/

[8] Indonesia Recognized as Worlds Biggest Twitter Addict, http://asiancorrespondent.com/38839/research-proves-indonesia-is-worlds-biggest-twitter-addict/

[9] Daily Social Research on How Indonesia’s Youngsters Use E-Commerce, http://dsresearch.net/wp-content/uploads/2011/05/dsresearch-ecommerce-may11.pdf

[10] Peak of Growth of E-Commerce in Indonesia Is Estimated in 2013,  http://econetwatch.com/e-commerce/peak-of-e-commerce-growth-in-indonesia-is-estimated-in-2013/

[11] Law No, 8 of 1999 on Consumer Protection.

[12] Law No. 11 of 2008 on Information and Electronic Transaction.