JD.com, Alibaba’s Lazada square off in Indonesia
BEIJING: To foretell where JD.com Inc is going to expand in Indonesia, follow the mobile phone towers.
Wider mobile coverage means more consumers starting to shop online, so the Chinese e-commerce company tracks their construction to decide where to market its web store and set up delivery centers.
JD has four warehouses in the archipelago, with plans to build another three by the end of the year.
Staffing has almost tripled to about 400 people in the past 12 months. Within five years, the Beijing-based company plans to have refrigerated trucks delivering fresh food and frozen goods to homes.
“E-commerce is a no-brainer and it’s going to happen,” said Zhang Li, head of JD’s operations in Indonesia.
He’s going up against Lazada, which is seeking to build its own web-shopping empire across Southeast Asia and is controlled by Alibaba Group Holding Ltd, JD’s main rival in China. And all eyes are on Amazon.com Inc’s regional ambitions, as it looks for new growth outside of Japan and India, its two main markets in the hemisphere.
JD and Alibaba are betting that they can combine know-how and delivery skills learned during rapid growth in China. At stake is the future of e-commerce in a country of 261 million and a rapidly expanding middle class.
Building out a delivery network in a country with more than 13,000 islands isn’t going to be cheap, but the opportunity is huge: just 1% of retail sales in Indonesia were online as of late 2016, according to McKinsey & Co, compared with 17% in China last May and 8.5% in the US recently.
“Everyone is looking here,” said Christian Winata, an analyst at East Ventures. “Indonesia is about five years behind China, so the next three to five years will be very key for us because we’ll see all the infrastructure built in the past year or two start to work.”
One of the main challenges is that most Indonesians pay in cash. Only 36% of adults have a bank account, compared with 69% in the Pacific and East Asian regions, according to the World Bank’s Global Findex.
Most online orders tend to have small values, cutting into the profitability of each delivery.
“It’s a big point of friction,” said Donald Wihardjia, a partner at Convergence Ventures. “It hurts the conversion rate; from my experience you get 40 to 60% conversion losses from someone saying ‘I will buy’ to completing the purchase.”
Cash-based payments also make it harder to handle large transactions, increasing the risk of theft for delivery drivers.
Indonesia’s notoriously out-of-date network of airports, highways and seaports are another complication. Sending a two-tonne truck laden with goods within the island of Java costs 5.1 million rupiah, according to Deliveree, an app that helps companies book freight transport. But book the same truck to Sulawesi island, and the price more than triples.
“In the US, Amazon talks about next day shipping,” says PT Kudo Teknologi Indonesia co-founder Albert Lucius, whose company facilitates e-commerce in rural areas and was bought by Grab, a ride-hailing company. “But here in Indonesia we’re talking about one to two week’s shipping and even sending things within Jakarta could be three to four days.”
Still, that hasn’t stopped JD’s rivals from pushing into Indonesian e-commerce.
Florian Holm, Lazada Indonesia’s co-chief executive officer, is also betting that superior service will attract more customers.
Lazada was founded in 2012 by Germany’s Rocket Internet SE, which made its name in Europe by rapidly iterating copycat versions of successful US web businesses for local markets, often before the original company moved in. Now, it’s owned and controlled by Alibaba.
“Lazada very much believes that we can really crack this market and drive penetration of e-commerce much further with better logistics solutions,” Holm said. “You need a local strategy with local execution for every single country.”
For Li, JD’s chief in Indonesia, Lazada is also a customer, because J-Express also handles packages for Lazada.
He’s betting that offering delivery services to rivals will give the company the scale it needs to justify infrastructure costs.
“Indonesia makes a lot of sense because of its size,” Li said. “Yes, there’s a big problem with the infrastructure here. So what’s the solution? You build it.”