During Tech in Asia, I had the opportunity to write about tech trends in Indonesia, Vietnam and Thailand, without moving from Singapore. This time, I went to Jakarta for real, and met a dozen entrepreneurs and support services such as Ubifrance to discuss about the opportunities in digital marketing and social media in Indonesia.
The market overview and its figures is definitely tempting. With almost 250 millions people, it’s the 4th largest country in the world behind China, India and the US, way bigger than Brazil to take one comparison. The most interesting figure is about the middle-class: almost 150 million people, with 1.5 million more every year. Of these, 20 to 40 million make the upper middle class which is so interesting for luxury, travel and consumption goods.
Internet penetration is growing fast, mobile penetration is 92% of the population (20% of smartphone users) with key specificities, notably still powerful Nokia handsets (getting caught up by Android though). You can dig more such figures online easily at We are SocialÂ to begin with.
Creating a company in Indonesia: not easy, but not impossible
Setting foot in Jakarta is of course recommended for a long-term business in the country. Officially, a private limited company (PT) will cost between 300 000 and 800 000 USD in capital and a few months of red tape. Oh, and 100% of the capital will have to be Indonesian. Unofficially, though, you can waive this “fee” within a few years span, and you can also find other ways to set up your company (look for PMA for foreign owned companies). With a good consultant, bet on 1 500 to 2 000 USD to set up the company, and around 500 USD per month of tax/legal stuff.
Depending on your industry, check also the BKPM website, which coordinates foreign investment in the country, especially the latest list of “negative investment”, you will find there industries where you can not open a business (legally), such as alcohol (it’s the biggest Muslim country in the world).
The business etiquette is always key to achieve deals. Indonesians are overall business-friendly people, but as a foreigner, keep in mind that you are in a very protectionist country, which knows its growing influence and power, and will not make it easy for you to access its wide market. At least two infrastructure companies I’ve met had to either pay to get the deal (not making any money on the first deal – and it’s not corruption-related), and transfer completely the technology to a local manufacturer for aircrafts parts.
Corruption, of course, is both a cost, an uncertainty and an opportunity if you find yourself in the “good” networks (which can change). An average 20% additional fee is spoken of, but for some markets, especially when government companies are involved, the kickback can go up to 90%. How to manage this? Well, make your quotation in a way that these 90% don’t mix with your cost and revenue model. Don’t expect any help or money from the government as you could find in Singapore for instance.
Intuitively, you would come to Jakarta for business, as it’s the biggest city in South-East Asia with about 30 million people in the Jabodetabek megalopolis. 50-60% of the business and value of Indonesia are concentrated in this huge urban sprawl.
However, just as in China, a bold choice would be to bet on 2nd & 3rd tier cities, such as Surabaya (a rich city), Bandung (where you will find good engineering skills at the Institut Teknologi Bandung), Bali of course if you target wealthy foreigners from Europe, Australia, China, and other ASEAN countries.
Digital agencies in Indonesia: not quite it yet
The focus of interactive agencies is still much on quantity (of fans, followers), which you can buy easily pretty much like anywhere in the world. Consequently, the average engagement rate on Facebook is quite low, with less than 0.2% (Social Bakers, April 2013 Indonesia report), to be compared with 0.34% in Singapore, 0.3% in France or 0.37% in Mexico (same source).
Digital or social media agencies can be sorted in three types:
- Â local and basic ones, usually very poor on customer service, with no insight on the market and a difficulty to plan
- “indo ++” of medium range mainly on lead generation through paid search and campaigns
- big local agencies with whom to negotiate a monthly fee for content, community management and contest apps from times to times
Overall, the market for communication and marketing is still nascent, with two big misses on training and planning, as Indonesian agencies don’t seem able yet to project their clients on a long-term strategy or manage complexity with technology innovation, changing regulations. Insights too are missing. An alternative to these agencies is possible with external consultant, “rented” on a medium-term basis (full-time for 3 to 12 months) to digitize completely the brand, and then rely on agencies for the execution of campaigns.
Â E-commerce and online payment: yes you can!
I initially came to check a few things on e-commerce, as I’m more and more working on this, and the whole region is bubbling with deals and startups/SMEs getting their hand on a very lucrative market, estimated to 3.2 billion USD just for 2010, growing 20-50% year-on-year. The market of e-commerce is made of 4 types of actors:
- B2C websites on the eBay model, such as Blibli.com, multiply.com, Plasa.com, with secure payment and often home delivery
- classifieds, but you can’t really track deals are most are made offline. You can check websites such as Berniaga.com, Kaskus.com)
- Daily deals and coupons/vouchers websites, such as DealGoing.com
- E-commerce specialists on niche markets, with to name one the opening of Luxola for beauty/cosmetics
What do Indonesians buy online? Gadgetry, a lot, notably on electronics, and more and more, fashion/beauty items.
Online payments are usually said to be a hurdle in Indonesia, with 100 million bank accounts and about 67 million debit cards and 4 million credit cards. You can actually overcome it in a few different ways:
- credit/debit cards for the upper middle class, provided you can gain their trust (with a 24/7 customer support for instance)
- online payment with 2c2p, equivalent to Paypal, but with the possibility to generate a unique invoice code offline to be paid for at 7/11
- cash on delivery, as again, trust for e-merchants is low after years of scams, this time, you will have to put trust into your costumer and delivery guy
Logistics is still a key issue, as Jakarta is the only capital city in South-East Asia without a mass-transit system such as a metro or a rail network, or even a reliable bus network. Traffic jams make transportation either long (a few hours) or dangerous (ojek and motorbikes). Loss due to traffic are deemed to be around 20% of sales. Check out SGE’s slides on e-commerce in South East Asia for more info.
All in all, I really suggest readers who can afford a trip there to visit, network and talk with on-the-field entrepreneurs, not the tech guys, not the agencies, but people building real b2c businesses in brick and mortar and that will help you know more about unofficial economics, logistics issues and know-how of the trade in Indonesia