E-Commerce Powers Businesses in Indonesia’s Fast-Growing Digital Economy

A woman examines a credit card while sitting in front of a laptop.
Currently, only 13% of Indonesia's MSMEs have started to integrate technology into their operations. Photo credit: iStock/Kanawa_Studio

This article is published in collaboration with Lazada

Over the next 5 years, e-commerce will be key to growing Indonesia’s internet economy estimated to reach $124 billion and continuing comprehensive digital support, especially for micro, small- and medium-sized enterprises (MSMEs) will be essential to sustaining growth, said a recent Lazada study.

These and other findings were released in December as part of a two-month study, “Accelerating Indonesia’s Digital Economy through eCommerce.” Lazada commissioned advisory firm YCP Solidiance to conduct the study with the support of the Indonesian eCommerce Association (iDEA).

While Indonesia’s digital economy is already rapidly growing because of the nation’s surging internet penetration rate and the fast adoption of smartphones, the study found that there are still challenges that prevent MSMEs from fully benefiting and contributing to the burgeoning market. All the large corporations have shifted from analog to digitized systems, with 90% applying technology to improve core business processes, although only 55% have digitally transformed. 

A infographic showing the state of digital economy in Indonesia.

On the other hand, only 13% of MSMEs have begun integrating technology into their operations.

Addressing the gap is vital because MSMEs are the backbone of Indonesia’s economy, accounting for more than 98% of all businesses. In 2019, these small but powerful businesses contributed 58% to Indonesia’s gross domestic product and provided jobs for 85% of the working population.

While more than 80% of the MSMEs polled acknowledged that embracing digital technology is important, many face roadblocks on the path to digitalizing, such as the lack of access to digital infrastructure, financing, and technology know-how. All these are reinforced by a reluctance to change.

This is why e-commerce platforms are critical in helping Indonesian MSMEs to digitize and digitalize. Such platforms provide access to a variety of operational support and resources. These platforms also offer help in financing, logistics, innovation, marketing, and market access, thus enabling MSMEs to tackle everyday issues that stymie their inclusion and advancement in the country’s digital economy. 

Enter Lazada. “Lazada’s vision is to accelerate economic progress in Southeast Asia through commerce and technology,” said Lazada Indonesia’s chief marketing officer, Monika Rudijono. “Through this study, we want to better understand the journey and the building blocks of companies and MSMEs towards digital transformation as well as how we as an e-commerce platform can support these needs.”

The study found that 92% of Indonesia’s digitalized MSMEs agreed that e-commerce helped ease their logistics operations, while 94% said sales improved as a result of digital commerce promotions. The MSMEs also agreed that their presence on e-commerce platforms enabled them to reach a national audience.

Indonesian eCommerce Association Chairman Bima Laga noted the use of e-commerce has grown so much in the last few years and that the pandemic accelerated online activities and businesses’ shift to digital operations. “With the right policy and execution, e-commerce holds a significant role in driving MSMEs to grow together with e-commerce. For us, e-commerce and MSMEs are one entity if we talk about digital transformation.”

Aside from providing a stable digital infrastructure, e-commerce platforms can offer key building blocks to spur MSMEs that have begun digitizing. They can also help large corporations looking to fully integrate digital technologies into their core competencies and business strategies.

For example, to help companies attain digital growth and all-round transformation, Lazada not only provides onboarding orientation for new merchants but also advanced training for those wanting to leverage the platform’s many features. Sellers can use the platform to access peer learning, mentorship and networking events. The platform also automates customer and seller services, guide sellers on data utilization and offline-to-online conversion, and other key building blocks, all in one centralized location.

Rudijono said: “Through Lazada Indonesia’s technology and e-commerce ecosystem, we are ready to provide support for businesses, both large companies and MSMEs, so that they can develop their business in a sustainable manner and reach the next stage of digital transformation. We hope that through the synergy in accelerating this digital transformation, Indonesia’s digital economy system will continue to develop rapidly and contribute to supporting the Indonesian economy.”

This article was first published on LazBeat, Lazada's news hub.  ​​​​​​​