Analysis on the Impact of COVID-19 on B2B e-commerce Market in Indonesia

The outbreak of COVID-19 has brought about a new normal across all segments of the Indonesian economy.

Though many segments of the Indonesian economy were in the brink of recession, some new age segments including B2B e-commerce witnessed strong growth due to the changing customer preferences

The outbreak of COVID-19 has provided an impetus for the growth of B2B e-commerce in Indonesia.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

With social distancing as the primary method adopted to tackle the COVID-19 pandemic and the subsequent lockdown measures taken globally by governments, the mandated closure of brick-and – mortar stores has resulted in almost complete immediate dependence on digital sales. Completely different industry propositions are B2B and B2C e-commerce.

B2B transactions are more complex and have a higher price value than those in the B2C space, requiring a more complex collection of capabilities, such as product configurators and real-time inventory information, quote requests, and the flow of approval of procurement.

However, for B2B businesses, COVID-19 has increased the imperative need for digital platforms. According to a new McKinsey survey, on average, sales leaders now score digital channels about twice as significant as they were before the pandemic.

B2B e-Commerce in Indonesia is at an inflection point, starting from a low penetration rate and looks poised for exponential growth. B2B is now poised to catch up with a big market to capture, similar to B2C, which went through a rapid adoption period with many unicorns emerging (e.g. Tokopedia, Bukalapak).

Although the growth of B2B retail online has for some time seemed inevitable in Indonesia, COVID-19 has accelerated its timeline. The epidemic has forced changes in purchasing behaviour, with the consequences of modern social distancing standards and lockdowns being felt through physical outlets.

Market Share of B2B e-commerce compared to the total market by segment in 2020

Country	Internet Penetration (%)	Online Population	Market Share of B2B e-commerce (%)
China	65.6	914.1 Mn	66.74
India	50	696.7 Mn	56
Indonesia	58.3	175.4 Mn	26.4
Malaysia	83	26.69 Mn	62
Singapore	88.4	4.8 Mn	68
Philippines	72.7	73 Mn	58
Thailand	75	52 Mn	62
Vietnam	70	68.17 Mn	59.6

Market Overview

Indonesia’s B2B e-Commerce and digital logistics sector has become Southeast Asia venture capital’s new hunting ground. There were around 16 deals announced just in 1H 2020 totaling at least US$145 Million.

Indonesia, with an estimated population of 273.5 million by the middle of 2020, is the most populous country in Southeast Asia. As of 2019, the Indonesian economy, calculated in GDP terms, is the largest in the SEA.

The annual GDP growth of Indonesia stood at 5.03% in 2019, rising from US$ 932.45 billion in 2016 to US$ 1121.47 billion in 2019. At current rates, Indonesia’s GDP per capita stood at US$ 4,450 in 2019 and is significantly lower than that of its regional peers, such as Singapore and Malaysia.

In Indonesia, Internet penetration has risen significantly. In 2019, Internet penetration was 58.3% in Indonesia. The key reason for the sudden rise in Internet penetration has been mobile-based data services.

The rise in Internet Penetration is the primary factor driving the growth of the e-commerce segment in Indonesia.

The B2C segment contributes 35.8% of the total e-Commerce market size and the B2B segment represents 26.4%. Compared to its regional peers in Singapore, Malaysia, and Thailand, the B2B e-Commerce market in Indonesia is considerably smaller, but larger compared to that in Vietnam.

Industry analysts have projected a 59% CAGR between 2017-2022 for Indonesian B2B e-Commerce sales, around two times the growth rate for B2C e-Commerce over the same period and the outbreak of COVID-19 is expected to augur well for the B2B segment’s growth in Indonesia.

Market Risks

High Fragmentation of the market

Of the 60 Million Businesses in Indonesia, 58 Million of them are MSMEs indicating that the market is highly fragmented with multiple smaller players. As with the case of other fragmented markets the B2B E-commerce market comes with lower barrier for entry and higher competition.

In Indonesia, MSMEs don’t have equal access to sourcing, financing, logistics and other needs as they don’t have the economy-of-scale and technology to capture their data.

With more than 60 million MSMEs in the country, only less than 8% of them are digitally-ready. This disparity in the adoption of technology creates noise in the B2B E-commerce adoption in Indonesia.

Security Concerns

The primary concern when it comes to B2B e-commerce is security. Since financial transactions are the backbone of B2B e-commerce, if not the entire intent of it, the e-commerce party could be spoiled by any hesitation on the part of the client when it comes to making online payments. 45% of Indonesians shop online at present.

The problem of someone being able to spring a security breach is one major issue. It’s not all about getting hacked on an e-commerce website. The fire could start in any corner.

Hacks can take place through the payment gateway, malware-infected user machines, or a supplier of shopping cart software that exports vulnerabilities to the environment.

Top Market Opportunities

Growth Avenues from MSMEs

Indonesian Micro, Small and Medium Enterprises (MSMEs), which account for 57% of GDP, are ready to come online in droves for the shift from offline to online for the B2B sector, thereby opening up new avenues of growth opportunities for the B2B segment in Indonesia.

A CLSA survey of MSMEs in the retail industry found that 90% of “Mom and Pop” retailers want to buy products online, but only 18% actually do so.

Start-ups such as Bizzy Digital, an offline-to-online technology platform, have created products based on offline distributors and offline retailers that allow them to move gradually into the online universe step by step.

Transition to Marketplace Model

As buyers of diverse business products scramble and search for new ways to purchase goods and services online as a result of disruption of supply chains by the global COVID-19 pandemic, they are turning increasingly to marketplaces.

In the pandemic, it is noted that Indonesia’s B2B sites use marketplace models to host third-party listings that they used to quickly add personal protective equipment (PPE) to their collection without sourcing inventory, without buying wholesale stuff, without handling product information, says a Forrester Report.

Monetization avenues for B2B platforms

Monetization avenues are much more diverse for B2B platforms than for B2C and do not rely solely on a simple commission model for the selling of goods. B2B platforms can make money from a variety of ancillary deals including financing, insurance, data and insights, merchandising, marketing and advertisement, and digital goods.

In similar markets, there is evidence that the value-added services revenue share is often higher than the sales commission fees, possibly leading to a shorter path to profitability relative to B2C e-Commerce.

Market Trends

Increase in online shopper penetration

Consumers turn to online and mobile shopping to purchase goods, everyday needs, and other items in the face of lockout regimes and store closures.

A recent survey by Deloitte in the study revealed that due to COVID-19, a double-digit proportion of online shoppers were purchasing more digitally, and some of them followed the practice during the outbreak for the first time.

As a result, the proportion of retail sales generated by e-commerce is growing and is expected to hit one third by 2024.

Increasing Foreign Direct Investments

A large portion of financing behind top marketplaces comes from large international venture capital and private equity funds that bring significant experience in e-commerce from their portfolio of investments.

Global investors’ focus on Indonesia has accelerated market growth, providing the funds needed to conduct aggressive marketing to entice new consumers to their platforms.

Tech companies also invest this funding in providing loss-leading products, which has successfully attracted customers onto online platforms.

Despite an unclear regulatory environment and lack of coordination between the central and regional governments, the government is moving towards a more open economy and enhancing the ease of doing business in Indonesia by cutting down procedures, permits and costs.

The new Indonesia 2016 Negative List replaces the previous 2014 Negative List. 35 business sectors are open for 100% foreign investment, including e-commerce (marketplace) business with investment value of more than IDR100 billion (approximately US$ 7.5 million).

Rising demand for PPEs and Sanitizers

Demand for EPP in Indonesia is growing with the increasing number of corona virus cases. Demand for PPE items has increased 1000-2000 fold, according to UNICEF. The annual demand for coveralls and gowns sourced from Indonesia did not reach 50,000 units earlier in 2017-2019.

However, the current demand for these goods for three months is around 500,000. Similarly, for various types of facemasks, the annual average procurement source previously was not more than 25,000 units, but now it has surpassed 2 million due to this target outbreak.

Also, the demand for alcohol based sanitizers has shot up by 2 times in Indonesia, the sudden spike in demand for PPEs and Sanitizers acts as a catalyst for the B2B e-commerce industry in the short term.

Shift in demand from brick-and-mortar retail to e-commerce

In Indonesia, the COVID-19 crisis has led individuals to dramatically restrict physical interactions.

Together with the stringent confinement steps introduced in Indonesia, self-imposed social distancing to prevent contagion has placed a significant share of conventional brick-and – mortar retail essentially on hold, at least temporarily which is driving the sales of B2B e-commerce platforms in Indonesia.

Credit Gap of MSMEs

The embedded finance opportunity in B2B e-Commerce is particularly significant. There is an approximate US$ 166 Billion credit gap for Indonesia’s MSME segment in addition to the broad digital payments potential.

Traditional banks have generally stayed away from the MSME market, with the exception of Bank BRI, which has historically been distinguished by a lack of conventional collateral and no history of banking.

Disruption of Supply Chain

The outbreak of COVID-19 is contributing to increases in demand for some products such as PPEs and Sanitizers , while also disrupting supply chains with restrictions on transportation and closures of establishments.

The Indonesian Government introduced nationwide transportation restrictions from April 2020 to September 2020, which affected the supply of Products during COVID-19.

A survey by the Supply Chain Management Institute found that nearly 75% of companies in Indonesia have already reported delays in the supply chain.

Parity in growth across product categories

The effect of the COVID-19 crisis on e-commerce is not uniform across product categories or sellers.

In Indonesia , there has been an rise in demand for products related to personal protection (e.g. disposable gloves), home activities, groceries or ICT equipment, while demand for products related to travel, sports or formal clothes (e.g. suitcases, bridal clothes, exercise bags, etc.) has declined.

Due to the parity in the growth across several product categories the sales of certain product categories is steeply affected.

Industry Challenges

Managing demand-supply disruptions

During the coronavirus outbreak, B2B e-commerce businesses experience a rise in demand for certain products such as essential goods and PPEs. Owing to restrictions relating to transport and company shutdowns, this may have some significant consequences for the supply chain.

It is important to plan the web site to manage heavy traffic and sales. In addition, businesses can also attempt to view real-time pricing and stock levels to help assist consumers in their purchasing decisions.

Fragmented Logistics sector

With multiple intermediaries leading to over-investment, underutilisation, unreliable service levels, and high costs, the logistics segment in Indonesia is wide and highly fragmented.

As they finally look to address these long-term systemic challenges, a number of quality start-ups are arming themselves with significant resources.

Technology Trends

The emerging technologies in the B2B e-commerce segment in Indonesia includes

Artificial Intelligence

Nowadays, more and more online stores integrate the so-called conversational commerce. They integrate AI chatbots and text-to-speech recognition technologies to help customers make purchasing decisions.

However, in 2018 the conversational commerce trends are also expanding to B2B markets, and it goes much deeper than chatbots. e-Commerce strategists use AI as a part of B2B sales strategy because of its ability to predict sales, optimize prices, and calculate discounts based on similar customer profiles.

Modern technologies such as cloud computing and the availability of software APIs have made AI more accessible to all types of businesses, including B2B e-Commerce companies.

Mobile Commerce Trends

According to recent Google statistics, half of modern B2B search queries originate from smartphones. The same statistics report that 80% of B2B buyers in Indonesia are using mobile technologies at work. In other words, mobile search is growing.

Most B2B e-commerce sites are optimized for mobile, and if they’re not, they soon will be. More and more companies will be developing mobile-first websites as well as apps to support their offerings.

Regulatory Trends

B2B E-commerce remains governed by a complex set of laws and regulations in Indonesia. Some laws and regulations that apply to the e-commerce sector include:

Law No. 11/2008 on electronic information and transactions (ITE Law). This law, which was intended to promote open and fair electronic commerce, has been criticized as creating investor uncertainty by failing to define key terms.
Law No. 7 /2014 on trade.
Bank Indonesia Regulation No. 20/6/PBI/2018 regarding E-money.
Minister of Communications and Information Technology Circular Letter No. 5 of 2016 on the Limitations and Responsibilities of Platform Providers and Merchants in E-Commerce Using User-Generated Content Platforms. This circular letter established safe harbor protections for, and obligations of, e-commerce platforms for user-generated content and product offerings.
Minister of Communications and Information Regulation No. 23 of 2013 regarding Domain Name Management.

Other Key Market Trends

Focus on Global

In addition to their existing customer base, businesses are reaching out to international prospects. This involves offering their products in local currencies at prices that are suitable for the local market, using the preferred local payment methods, and ensuring that the entire customer experience complies with local regulations.

Companies that expand to a global market can scale more quickly because they are selling to an exponentially wider market. It’s difficult to do, but more B2B businesses in Indonesia are taking a crack at it than ever before.

Market Size and Forecast

The Indonesian B2B e-commerce Market is valued at US$ 5.5 Billion in 2019 and is poised to witness strong growth due to the rising demand from various end-user segments and is expected grow at 59% in 2020 to reach a market size of US$ 8.75 Billion.

The Market Revenue is set to increase on the following scenarios

Scenario	Impact in Growth	Increase in Market Revenue	Estimated Market Size in 2020
Delayed Curve	+44%	US$ 2.42 Bn	US$ 7.92 Bn
Fast Recovery	+38%	US$ 2.09 Bn	US$ 7.59 Bn
Profound Recession	+32%	US$ 1.76 Bn	US$ 7.26 Bn

Market Size based on Application

The Healthcare segment will dominate the B2B e-commerce Market in Indonesia in 2020 owing to the steep demand for such products; it is expected to witness strong growth both in terms of market share and growth rate.

It is expected account for 22% of the market share and is set to witness a growth rate of 79% in 2020 which is expected to increase the market size from US$ 1.21 Billion in 2019 to US$ 2.17 Billion in 2020.

The Personal care segment is expected to witness significant growth due to the increasing awareness among consumers regarding personal hygiene. This segment is poised to account for 10% of the market share and is valued at US$ 550 Million in 2019 and is projected to grow at 67% to reach US$ 918.5 Million in 2020.

The Home & Kitchen segment accounts for 18% of the market share and is estimated to be worth US$ 990 Million in 2019 and is expected to grow at 59.2% in 2020 to reach a market size of US$ 1.57 Billion in 2020.

The Consumer Electronics segment constitutes 16% of the market share and is valued at US$ 880 Million in 2019 and is poised to grow at 62% to reach a market size of US$ 1.42 Billion in 2020.

The Sports & Fitness Equipment segment holds 5% of the market share and estimated to be worth US$ 275 Million in 2019 and is projected to grow at 61% to attain a market size of US$ 442.75 Million in 2020.

The Industrial segment accounts for 14% of the market share and is estimated to have generated revenues to the tune of US$ 770 Million in 2019 and is projected to witness a slowdown of 12% in 2020 to reach a market size of US$ 677.6 Million in 2020.

Fashion segment constitutes 6% of the market share and US$ 330 Million in market size in 2019 and is poised to see a decline in sales to the range of 7.5% to attain a market size of US$ 305.25 Million in 2020.

Automotive segment accounts for 4% of the market share and generated revenues to the tune of US$ 220 Million in 2019 and is expected to witness slowdown to the range of 18% to reach a market size of US$ 180.4 Million in 2020.

Book & Stationary segment constitutes 1% of the market share and US$ 55 Million in market size in 2019 and is poised to see a decline in sales to the range of 14% to attain a market size of US$ 47.3 Million in 2020.

The other segments accounts for 1% of the market share and is estimated to have generated revenues to the tune of US$ 55 Million in 2019 and is projected to witness a slowdown of 16% in 2020 to reach a market size of US$ 46.2 Million in 2020.

Application	Growth (%)	Market Size (2019)	Market Size (2020)
Healthcare	+ 89%	US$ 1.21 Bn	US$ 2.17 Bn
Personal care	+67%	US$ 550 Mn	US$ 918.5 Mn
Home & Kitchen	+59.2%	US$ 990 Mn	US$ 1.57 Bn
Consumer Electronics	+62%	US$ 880 Mn	US$ 1.42 Bn
Sports & Fitness	+61%	US$ 275 Mn	US$ 442.75 Mn
Industrial	-12%	US$ 770 Mn	US$ 677.6 Mn
Fashion	-7.5%	US$ 330 Mn	US$ 305.25 Mn
Automotive	-18%	US$ 220 Mn	US$ 180.4 Mn
Book & Stationary	-14%	US$ 55 Mn	US$ 47.3 Mn
Other	-16%	US$ 55 Mn	US$ 46.2 Mn

Market Outlook

The Indonesian B2B e-commerce Market is estimated to be worth US$ 5.5 Billion in 2019 and is expected to attain significant growth due to the rising demand from various end-user segments and is expected grow at 59% in 2020 to reach a market size of US$ 8.75 Billion.

The Healthcare and Personal care segments are expected to witness strong growth due to the increasing demand for products such as PPEs, Sanitizers and other healthcare products.

The other segments such as Industrial, Fashion, Automotive, Book & Stationary are expected to witness a slowdown in demand which is expected to affect the bottomline revenues for these segments.

The Factors such as Increase in online shopper penetration, Increasing Foreign Direct Investments, Rising demand for PPEs and Sanitizers and Shift in demand from brick-and-mortar retail to e-commerce are expected to propel the growth of the segment during the period.

Technology Roadmap

The industry players are laying hopes on innovation as a key differentiator for the marketing of their Product Portfolio. The key players such as Bizzy, Ralali, Tajima, Indotrading, Indonetwork, electronic city, Mbiz and Kawana Lama are inculcating new age technologies such as Artificial Intelligence (AI), Virtual Reality (VR) and Augmented Reality (AR) to improve customer experience and customer service.

The market players are focusing on introducing Modern cloud-based B2B e-Commerce solutions integrated with order management systems, which makes them able to sync order processing across all channels and ensure great customer experiences.

The large investments made by the players on the R&D of new product categories is expected to pay heed to the segment in the form of innovation in the long run.

Distribution Chain Analysis

The Primary participants in the Supply chain of Indonesian B2B e-commerce are Sellers, Buyers and end-consumers.

The Sellers may include both Foreign & Domestic Players wherein the Foreign Sellers may include Manufacturers and Trading Company while Domestic Sellers may include local manufacturers, Importers and Distributors.

The Buyers may include Re-sellers, Corporate Buyers and SME Buyers. The Re-sellers may include the online portals such as Lazada.com, blanja, Bhinneka, tokopedia, Bukalapak, blibli, olx.

Corporate Buyers may include corporates who buy in bulk quantities and sell products under their labels.

SME Buyers are the small and medium players in the market who buy and sell on behalf of their clients or under their own labels

End-Consumers are the people who use or consume the product or service. The wholesaler sells the product to its customer (the retailer) and not to the end consumer. And the retailer sells the product to their customers who are the end consumers.

Competitive Landscape

B2B e-commerce market players include suppliers, manufacturers and distributors. The major players in the Indonesian B2B market include Bizzy, Ralali, Tajima, Indotrading, Indonetwork, electronic city, Mbiz and Kawana Lama. Companies focus more on providing an enhanced user experience as part of their growth strategy.

The B2B e-commerce market in Indonesia is characterized by intense competition, leading to increased pricing pressures and at the same time creating avenues for increased profitability and inculcating improved customer relationships.

Competitive Factors

The market is highly fragmented owing to the presence of several small and medium sized companies operating globally. Companies are particularly focusing on mergers, acquisitions, and joint ventures or collaborations to hold a competitive position.

Moreover, the players are focusing on enhancing their market presence by adopting various growth strategies to help them expand their business geographically and enhance their offerings in a particular region. Additionally, companies are focused on providing an enhanced user experience as part of their growth strategy.

Key Market Players

Bizzy helps merchants make the shift to online and meet the logistical demands of B2B business customers, by integrating multiple shipments from multiple vendors, known as ‘crossdocking’, through the fulfillment centre of partner aCommerce.

Ralali is an e-commerce company operating B2B online marketplace for local trade connecting suppliers and buyers, starting with Industrial and MRO categories then expand to Office supplies, Automotive, Medical, Agriculture, Home & Building, Hotel & Restaurant Equipment, and many more.

IndoTrading.com is a company and business directory website, not a buy-and-sell website. This site is established to help marketization of SME’s products and services online locally, as well as internationally.

It provides some sophisticated marketing services to help business owners to compete digitally, such as Search Engine Optimization, Google AdWords, etc. Besides promoting, it also provides Web Design and Hosting service, all to enhance business growth of its clients.

Electronic City is a company selling electronic products that was founded on November 1, 2001 . The company is one of the largest electronics sellers in Indonesia.

Electronic City also launched an e-commerce platform through the Company’s official website in an effort to strengthen the Company’s image and capture consumers who prefer to buy products online.

Mbiz.co.id is specifically designed to simplify B2B (Business to Business) transactions that will fulfil your needs. With thousands of products and categories available coming from numerous certified vendors in Indonesia, we offer integrated e-procurement system to facilitate the process of approval and product purchasing in your company.

The company also eases procurement process to give our clients flexibility of product purchasing wherever and whenever they are.

Kawan Lama Sejahtera is a company providing industrial equipment located in Meruya Kembangan West Jakarta, Indonesia. This company provides a variety of industrial equipment ranging from household appliances to workshop tools.

In 2011, with the development of information technology and online business in Indonesia, PT. Kawan Lama Sejahtera launched its new business unit, Kawan Lama Online.

This site aims to accommodate the needs of the vast market in Indonesia by bringing ease of transactions, completeness of products and excellent service making this site grow fast.

Strategic Conclusion

The outbreak of COVID-19 (Coronavirus Disease) pandemic has altered the way businesses operate and has impacted almost all the sectors of the economy of Indonesia.

Though many segments of the Indonesian economy were affected and recession is witnessed in the economy, which shrank by 5.32% in the second quarter of 2020, some new age segments witnessed strong growth due to the changing customer preferences, one such segment which witnessed significant growth rate is the e-commerce segment and B2B e-commerce in particular.

The B2B e-commerce segment in Indonesia is poised to grow at 59% and this growth is primarily driven by factors such as Increase in online shopper penetration, Increasing Foreign Direct Investments, Rising demand for PPEs and Sanitizers and Shift in demand from brick-and-mortar retail to e-commerce.

Growth Avenues from MSMEs, Transition to Marketplace Model and Monetization avenues for B2B platforms are the new avenues offering lucrative opportunities in the B2B e-commerce segment of Indonesia.

References

https://www.northridgepartners.com/content-news/rise-of-indonesia-b2b-e-Commerce-digital-logistics
https://e27.co/is-covid-19-the-catalyst-b2b-e-commerce-needed-20200622/
https://www.bloomreach.com/en/blog/2020/03/coronavirus-the-implications-for-b2b-commerce.html
https://www.digitalcommerce360.com/2020/08/31/covid-19-drives-more-business-to-b2b-marketplaces/
https://www.sana-commerce.com/blog/b2b-e-Commerce-covid-19-challenges-opportunities/
https://www.infinitiresearch.com/thoughts/b2b-e-Commerce-business-continuity-coronavirus
https://oroinc.com/b2b-e-Commerce/blog/effect-of-covid-19-reopening-on-b2b-e-Commerce/
https://www.accenture.com/_acnmedia/PDF-126/Accenture-The-New-World-of-B2B-Sales-1.pdf
https://www2.deloitte.com/be/en/pages/covid-19/articles/customer/e-commerce.html
https://www.mckinsey.com/industries/advanced-electronics/our-insights/a-post-covid-19-commercial-recovery-strategy-for-b2b-companies

Appendix

COVID-19 – Coronavirus Disease
B2B – Business-to-Business
B2C – Business-to-Consumer
MSMEs – Micro, Small and Medium Enterprises
FDI – Foreign Direct Investment
UNICEF – United Nations International Children’s Emergency Fund
PPEs – Personal protective equipment
AI – Artificial Intelligence
VR – Virtual Reality
AR – Augmented Reality
API – Application Programming Interface
SME – Small & Medium Enterprises
R&D – Research & Development