Indonesians embrace online shopping, with some reservations.

Online Shopping Up…

Indonesians are shopping online more frequently, especially through portable devices like smartphones.

However, there is still plenty of room for growth. The value of internet-based sales in 2010 was $US230 million, only 0.1% of Indonesia’s Gross Domestic Product.Deloitte

Some factors unique to Indonesia that make online shopping attractive to local consumers are:

– It’s much easier and faster than driving to a store
It saves time and money to shop online; it avoids the country’s notorious traffic jams, difficulty finding a car park, uses no petrol and is less stressful. Indonesian internet speed is also below average, but slowly improving.

– There is clear pricing
Prices in Indonesian stores for e.g. electrical goods are negotiable, with the price tag (if there is one) merely a guide or starting point. While some people like to bargain and get the best price, others with less time prefer the simplicity of fixed prices. Clear pricing also makes it easier to compare different brands with similar products.

– There is less time wasted
Indonesian shops seem to be prone to their items being frequently out of stock (kosong). If this happens on an online store, it is more likely to say so, or just not let you purchase the item.

…But Online Payment Flatlining

However, consumers only rarely pay for these products online.

Credit cards not accepted here

Many of Indonesia’s large online retailers (above) also do not offer credit card payment. Why?

– Customers are slow to trust the retailer
Indonesia has earned a reputation for credit card fraud.expat.or.id Customers therefore prefer payment on delivery, known locally as “cash and carry”. This allows customers to pay after they have checked the product matches the description; they do not need to request a refund if the product is defective or not what they ordered.

– Relatively low use of credit cards
Less than 10% of Indonesians have a credit card. Indonesia is still very much a cash-based economy.

– Inadequate online payment infrastructure
Possibly related to the previous points, no major online payment system offers payment in Indonesian Rupiah.

Rupiah pariah?

A company that wants to offer online credit card payment in Rupiah has few options; many put it in the “too hard basket” and only accept payment by bank transfer or ATM. As an example, many Indonesian domestic airlines only recently introduced online booking and payment, and even then only for Indonesian credit cards. Some smaller airlines still do not offer it at all.

Winners And Losers

Despite an unpredictable local postal service, Indonesian courier companies have struggled in the past; for example, TNT ceased domestic delivery in 2010. However, the growth of online shopping/offline payment has been a boon for couriers, increasing their revenue signficantly. Their employees not only deliver the items, but also collect payment from the client. Jakarta Post

Travel agents also often have their own “courier” who zips around town on his motorcycle, home delivering passengers’ tickets and collecting cash payments.

However, a travel agent is also an example of retail companies that need to change to remain relevant and successful. Their clients used to need to visit a travel agency in person, but now their clients can book flights direct with an airline or online travel agency.

Another example is music shops. Around the world, digital downloading of CDs and DVDs is now more popular than physical CDs, even when excluding piracy. However, no such systems (e.g. iTunes, Netflix) are available yet in Indonesia.

In conclusion, there are still many business opportunities for e-commerce in Indonesia. With some local knowledge and understanding of local culture and habits, both foreign and local entrepreneurs have the potential to do very well.

For Indonesian residents, Google Indonesia recently set up a free web-hosting service: Bisnis Lokal Go Online. Companies that enrol get a free __.web.co.id address as well as free AdWords promotion and hints/tips for increasing traffic/hits.