The digital archipelago: How online commerce is driving Indonesia’s economic development

| Report

Indonesians are among the world’s most avid users of social media, in a country with a rapidly growing digital ecosystem of online commerce, ride-sharing services, media distribution, financial services, and more. While these factors have created significant business opportunities and new jobs, improved access to services, and promoted greater connectivity with global society, Indonesia must still overcome several challenges to become a truly digital economy.

The total online-commerce market will reach $55 billion to $65 billion by 2022.

While many reports have examined the recent growth of digital in Indonesia, none has offered a comprehensive, end-to-end look at its impact on the real sector—the part of the economy that produces goods and services—and on the country as a whole. McKinsey Indonesia has undertaken research to explore the impact of online commerce (defined as consumers buying and selling physical goods online), now an $8 billion-a-year sector that affects local manufacturing directly. This report explores the dynamics of the digital economy through the lens of online commerce, spelling out priority measures necessary to unlock Indonesia’s broader digital economy.

Indonesia’s online commerce accounts for at least $8 billion in consumer spending (Exhibit 1). In 2017, the country had about 30 million online shoppers, approximately 15 percent of a total adult population of 195 million.

We examine the socioeconomic impact of that market, today and five years from now, by evaluating its financial benefits, the benefits to buyers, and the impact on job creation and social equality (Exhibit 2). Our forecast indicates that online-commerce sales will grow eightfold, with formal e-commerce reaching $40 billion and social commerce up to $25 billion by 2022. Thirty percent of this activity will involve new consumption that would not have occurred otherwise, and the market will support up to 26 million full-time-equivalent jobs in 2022. In addition to raising revenues, online commerce can have a broader social impact: for example, we found that 35 percent of online sales are generated by women and that online commerce has led to savings of 11 to 25 percent for customers outside Java.

By 2022, online commerce could directly or indirectly support up to 26 million full-time-equivalent jobs, representing some 20 percent of the total workforce.

Overall, five key success factors that underpin thriving online-commerce ecosystems elsewhere indicate that Indonesia has room for improvement in all areas: reliable logistics and infrastructure; seamless, secure, and scalable payment opportunities; a digital-commerce ecosystem for professionals and for micro, small, and midsize enterprises; a strong talent pool; and a healthy investment climate.

Digital Archipelago

Indonesia’s online commerce journey

Take a look into the largest online commerce market in Southeast Asia.

To overcome the challenges facing Indonesia in online commerce, priority moves include resolving logistical bottlenecks, encouraging more cashless payments, and getting more micro, small, and midsize enterprises online. Ultimately, Indonesia can apply the lessons learned from online commerce to boost its broader digital economy.

The successful digitization of Indonesia’s economy will rest on the ability of the public and private sectors to fill the country’s yawning talent gaps, on the ability of midsize companies to bulk up so they can take better advantage of the global export opportunities that digital platforms offer, and on the government’s ability to encourage transparency in the digital arena, particularly by creating a digital impact index. Addressing these fundamental issues will enable Indonesia to truly harness the power of the digital economy.

Download The digital archipelago: How online commerce is driving Indonesia’s economic development, the full report on which this article is based (PDF—4.7MB).

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