Indonesia is the biggest country in Southeast Asia, both in terms of population and GDP output.
With increasing urbanization, digitization, and disposable incomes, it’s predicted to become the leading force in ASEAN, accumulating many investments.
Compared to countries such as Singapore and China, the eCommerce market is still comparatively under-developed.
This leaves room for expansion, but also challenges related to product regulations, taxation, and incorporation, just to mention a few.
To give you a helping hand, we have written this guide where we explain the key information if you plan to enter the Indonesian eCommerce market.
- Market Entry Strategy
- Indonesia Market Entry Obstacles
- Market Entry Research
Market Entry Strategy
Entering a new market requires both time and finances. There are different levels of market entry strategies, depending on your level of commitment and sales goals. While some brands just want to dip their toes and take on a simpler approach, others have caster plans.
Below, I have listed some of the most common market entry strategies that companies use when taking on the Indonesian market.
Initial Marketing Campaigns
Indonesia has been a somewhat closed market until recently and many companies prefer to manage initial marketing campaigns at a start. In short, this means that you warm up the market and see if there’s an interest among local buyers.
Less research has been done about the Indonesian eCommerce market compared to the Chinese, for example. With plenty of other countries available in the ASEAN, some brands prefer to test the different markets to see where the greatest interest is.
Thankfully, websites like Lazada and Shopee allow exporters to sell products cross-border, giving them the opportunity to test the markets parallelly at a start.
Initial marketing campaigns can be done offline as well as online. For instance, it’s common that companies use LED screens in elevators and other public areas to promote market entries or new products.
Pop-events and other types of marketing are also proven to be successful, particularly with the help of key-opinion-leaders (KOLs) and vloggers, for instance.
The cross-border eCommerce market isn’t as big in Indonesia compared to China. Locals still preferably buy from local sellers and the C2C market is still dominant.
Tokopedia, the biggest eCommerce marketplace in Indonesia, does not allow cross-border sellers for the time being.
Tokopedia brings similarities to Taobao some time back in China, where locals primarily bought low-priced products C2C.
As a result, the only options you have when selling cross-border here are Lazada and Shopee, where the first one has advanced cross-border operations. For more information, it’s recommended to conduct a pre-market study that can help you with guidance.
Looking at shipping, you can either store your products in a fulfillment center in Singapore and Hong Kong, for instance. You can also use fulfillment centers in bonded warehouses in Indonesia, allowing you to be closer to the market.
Domestic eCommerce Operation
To sell on domestic eCommerce platforms like Tokopedia, you have to set up a local company or work with an importer. Large-sized companies often prefer the first option and not rarely have local entities registered already. Yet, you can also reach a larger market.
By setting up a local company, you can hire locals, which brings advantages. Domestic eCommerce operations also allow you to sell the products offline such as in supermarkets, stores, and restaurants, just to give some examples.
It’s difficult to allocate resources for domestic market entries in all ASEAN countries. Thus, each market should be studied well in advance and with robust market entry studies.
Indonesia Market Entry Obstacles
Below you can find some of the most common market entry obstacles when entering the Indonesian market. These can be found in other countries as well.
Sellers have to bear the costs of import duties and VAT. Duty rates in Indonesia vary from 0% to 40%, with the average duty rate at 10.89%. Some products are also duty-free and different regulations apply, depending on your country of manufacturing.
The VAT rate is comparatively low and 10% in Indonesia. That’s on par with China where the VAT is 9% at the moment I am writing this article.
Domestic sellers also have to bear the costs of incorporations in Indonesia. We will cover this topic in greater detail later in this article, explaining what kind of fees you have to pay as an exporter.
Product Standards & Labeling Requirements
Products have to follow local labeling regulations that differ depending on the products. The labels must be written in Bahasa Indonesian and follow certain structures. Besides, countries most often have their own specific safety marks.
China, for instance, has the CCC mark, the EU the CE mark, and the US the FC mark.
In Indonesia, the equivalent of these marks is the SNI mark, a mandatory mark used for products such as electronics, appliances, and textiles. It’s administered by the National Standardization Agency of Indonesia (BSN) and other authorities.
To read more about the mark, I recommend you visit BSN’s website. Here you can read about the various regulations and get in-depth information about the regulatory system in Indonesia.
Example A: Food Packaging
There are different acts that regulate food packaging standards. Examples of the most notable ones are:
- Government Regulation No.69/1999 on Food Labels and Advertisement
- BPOM Regulation No.31/2018 on Processed Food Label
- BPOM Regulation No.22/2019 on Nutritional Value Information on Processed Food Labels
- Law No.18/2012 on Food
The following information is generally needed on the labels:
- Product name
- List of ingredients used
- Net weight or net content
- Name and address of producer and importer
- Halal for those required
- Date and production code
- Expiry date, month, and year
- The distribution license number for processed food
- Origin of certain Food
Keep in mind that regulations change frequently and you must consult with a professional third party for up-to-date information.
Example B: Clothing Labeling
Clothing products must, like any other products, be labeled in Bahasa Indonesia. According to regulations, the following information should be included on labels:
- Brand name/product name
- Fiber content
- Care instructions in words (can be supplemented by symbols)
- Country of origin
- Importer name and address
Products such as leather bags and shoes have additional requirements that should be studied well in advance. The BSN regulated the labeling of clothes.
Market Entry Research
This is an overview of the different points that are important for market entry strategy
Indonesia might not have as many eCommerce websites as China, but it’s important that you spend sufficient time for analysis to detect the most suitable ones. As informed, this can be part of your initial marketing strategy as well.
Most eCommerce marketplaces don’t allow cross-border sales except for Lazada, and Shopee. This puts obstacles to exporters who wish to sell in the market without the need of setting up local entities and registering products.
Below you can find the most popular eCommerce marketplaces and what differences they bring.
Lazada is the biggest eCommerce website in Southeast Asia and was founded in 2012. While most locals know about the website in Southeast Asia, increasingly more foreigners hear about it as well.
Lazada’s cross-border eCommerce capabilities are some of the strongest and it can be worthwhile trying the Indonesian market by selling here. The only drawback of selling on Lazada is the product restrictions in place for cross-border sellers.
For instance, products such as supplements, food, and drinks cannot be sold cross-border. Hopefully, this will change in the coming time as the demand for foreign products increases.
Shopee is the biggest rival of Lazada and available in most ASEAN countries. On the contrary to Lazada, Shopee generally has a slimmer assortment of foreign products.
Having said that, many locals prefer Shopee thanks to the low shipping costs and promotions available.
Shipping lead times can be short as well, with direct deliveries.
Worth mentioning is that Shopee has vast plans to enter the South American market and further expand its footprint worldwide. You don’t necessarily have to exclude one another, but can sell on both websites.
Tokopedia is a local eCommerce marketplace that was launched in 2009. As mentioned, it brings similarities to Taobao in China some years back as it still caters to primarily C2C sellers.
Tokopedia has received a large amount of funding in different rounds from companies like SoftBank and Alibaba, the owner of Lazada. It recently surpassed Tokopedia as the most visited eCommerce marketplace in Indonesia.
Tokopedia might not be your best option as a foreign seller due to the preference of buying from local sellers. The products are primarily in the low- to medium-price segment as well.
Prior to entering a new market, it’s crucial that you understand the setup costs required. For instance, everything from incorporations, import tariffs, initial marketing, and setup fees charged by marketplaces.
The setup costs will also differ depending on your level of commitment and what sales channel you use. Selling cross-border might require fewer registrations and you won’t have to set up a company in Indonesia.
However, cross-border sales also result in higher shipping costs, longer shipping lead times, and product restrictions. Thus, you have to weigh the benefits of each option and make a final judgment.
By importing the products to Indonesia, you can sell the products both offline and online, which increases potential sales volumes.
Competitor Price Analysis Research
You should conduct sufficient competitor price analysis before entering any new markets. Simply analysis can be made by checking similar products on Tokopedia and Lazada, for example.
Some service providers can also visit local stores on your behalf to see what products are sold offline.
Keep in mind that prices can differ greatly between countries, depending on the import tariffs charged and the potential sales margins.
Shipping & Logistics
The sales channels used will also determine your logistics setups and costs. If you sell cross-border, you can stock the products in Hong Kong, for example, which comes with certain benefits.
First, you can use Hong Kong as your fulfillment hub and ship products to other countries. Hong Kong is renowned for having a developed fulfillment industry, catering to the mainland Chinese market as well as other countries in Asia.
Yet this also comes with some drawbacks such as costlier and longer shipping lead times. If you sell domestically, your option will be to stock the products in Indonesia, offering lower shipping costs.
This will give you an advantage over sellers that aren’t capable of importing the products to Indonesia.
To import products and sell domestically, you have to set up a local entity or work with a local partner. The first option is often preferred among medium-sized and large companies with long-term sales goals and that want flexibility.
Not to forget, by opening a local company you will also be able to hire local staff.
The following requirements apply to foreigners who wish to incorporate in Indonesia.
- At least two shareholders
- Rp. 2.5 billion paid-up capital
- Commercial address
- At least one resident director
- At least one commissioner
The following documents and items are needed:
- Company Name
- Deed of Establishment
- Certificate of Company Domicile
- Tax Registration Number (NPWP)
- Business Identification Number (NIB)
- Commercial licenses and other relevant documents