Tech giants bet on growth of Indonesian logistical sector

Domestic technology companies, including Alibaba Group, Tencent Holdings and JD.com Inc (JD), have poured billions of dollars into Indonesia’s e-commerce sector and logistics in recent years.

Alibaba has invested at least $6 billion into nearly every aspect of Indonesian e-commerce, including Lazada. Lazada uses Alibaba’s inventory management systems and has tied up with ride-hailing companies, often using their motorbikes to deliver goods in a country with creaking infrastructure and traffic-clogged cities.

The payoff could be huge. It is a market forecast to grow from about $7 billion last year to $63 billion by 2027, according to Morgan Stanley.

“Indonesia, both in terms of the customers and behavior, is a very unique challenge and we need to adapt,” said Florian Holm, co-chief executive at Lazada Indonesia.

Lazada and Tokopedia, in which Alibaba is also an investor, dominate Indonesia in customer traffic, with more than 117 million monthly website visits each, according to data from e-commerce aggregator iPrice.

Alibaba doubled its investment in loss-making Lazada to $4 billion in April, underscoring its global ambition in e-commerce.

Between the investment and the rewards lie enormous complexities.

The World Bank has said logistical costs swallow up about one-quarter of Indonesia’s GDP, citing bottlenecks in supply chains, long dwell times in ports and lengthy trade clearances.

Lazada has opened warehouses in places like Balikpapan, on the coast of Borneo, to avoid hauling everything from Jakarta. Holm said that had reduced shipping costs by 90 percent.

Competitive pressure is growing. Chinese competitor JD arrived in Indonesia in 2016.

Indonesia’s e-commerce sales are set to rise from 3 percent of retail activity now to 19 percent by 2027, Morgan Stanley estimates. The same report said there were 159 million smartphones in Indonesia at the end of 2016, and that could rise to 275 million by 2021.

Indonesia’s young population and room for improvement in transportation and communications add to the prospects for growth, the bank said.

That has attracted other Chinese

have companies, stakes which player such in owns SEA. Indonesia’s as Tencent regional Tencent ride-hailing and e-comerce Holdings, JD provider Go-Jek, while JD has invested in online travel company Traveloka. But Usman Akhtar, a partner at Bain & Co in Jakarta, said Indonesian firms such as Blibli, backed by a unit of the Djarum group, remain a force. “I would not characterize Indonesia as turning into a replica of China’s e-commerce market, at least not yet,” said Akhtar, referring to how JD and Ali ibaba dominate in China. Kusumo Martanto, who heads Blibli, told Reuters that the company had seven warehouses in Indonesia with seven more planned, and said it was important for local e-commerce companies to compete against Chiese players.