MINT- The New Emerging Markets:

IndonesiaCBS 2015 Barcelona

October 29, 2015

www.intersticeconsulting.com

Agenda

I. Prospects for e-commerce in Indonesia

II. Comparing the relative opportunity

III. Advice on entering the Indonesian e-commerce market

I. Prospects for e-commerce in Indonesia

Indonesia’s place in the world

Some key facts

Source: populationpyramid.net

World’s 4th most populous country Archipelago > 18K islands Largest Muslim country Dutch colony from 1800-1945 Median age of 28 Population growth rate of 1% annually 44% of the population already live in cities

Major population centres

9.8 million

2.8 million

2.1 million

1.5 million

1.6 million2.4 million

Bandung .

One of the largest economies

Source: IMF

Some images of Jakarta

Some images of Jakarta

Some images of Jakarta

Retail sales

Source: AT Kearney

Retail sales declined slightly from $337 billion in 2013 to $326 billion last year Total retail sales area grew 14.5% as retailers continue to be drawn to Indonesia’s large population and growing middle class The government recently announced plans to invest a record $22 billion in infrastructure projects, which will help improve retail infrastructure

$326 billion in 2014

3.5% CAGR2011-2014

Major foreign retailers have arrived

Major foreign retailers such as The Body Shop, Uniqlo and Galeries Lafayette are drawn by the immense size of the Indonesian market However, AT Kearney research ranks Indonesia only 12th out of 30 emerging markets for retail friendliness Constraining factors include inefficient import processes, weak transport infrastructure, and

Indonesian and ASEAN Internet users

Source: UBS (2014)

Calculations of Internet users and penetration

State of online retail

Sources: SingPost, idEA, UBS

Of the roughly 75 million Internet users in Indonesia last year, around 5.9 million had shopped online

UBS Research on Indonesian e-commerce (2014) E-commerce conversion rate of 0.3% Average order value of US$23.31

The Indonesia E-commerce Association (idEA) estimates that e-commerce will triple from $8 billion in 2014 to $25 billion by 2016.

Factors underpinning e-commerce

“Leapfrogging” of bricks & mortar retailers

in the regions

Youthful population

Mobile and smartphone penetration

Intensive users of social media

Growing spending power

Indonesian market characteristics

Language

Popular social media platforms

Mobile

C2C e-commerce

Investment restrictions

State of online retail

Source: MarkPlus Insight

Indonesia’s “Cyber Monday”

OLX

Kaskus

Tokopedia

Blanja

Lazada

Rakuten

Zalora

JD

II. Comparing the relative

opportunity

Indonesia vs. the West

Source: populationpyramid.net

Indonesia within MINT

GDP per capita in US$ at PPP (2014) $16,950 $10,517 $5,911 $19,226

GDP per capita in current US$ (2014) $10,230 $3,492 $3,203 $10,530

Total GDP in current US$ (2014) $1,282.7 billion $888.5 billion $568.5 billion $799.5 billion

Average GDP growth (2011-2014) 2.9% 5.7% 5.2% 4.5%

Sources: World Bank, populationpyramid.net

Indonesia within MINT

Source: World Bank

Household final consumption expenditure (annual % growth)

Indonesia within MINT

Source: World Bank

Household final consumption expenditure per capita (constant 2005 US$)

Indonesia and the wider ASEAN region

E-commerce market size

($ billion, 2013)

Indonesia and the wider ASEAN region

Source: UBS (2014)

Estimates of ASEAN market potential

Why Indonesia?Indonesia has the most immature online market in ASEAN, with only 31% internet penetration, but also has by far the largest population, leading shopping websites achieve 121m traffic hits per month currently, the largest in the region

Some more local competitors

Source: idEA

III. Advice on entering the Indonesian e-commerce

market

Adjust expectations to an emerging market mindset

Source: Presta E-Commerce, UBS

Typical e-commerce conversion rates:USA => 3%ASEAN => 0.3% - 1.6%

Marketplaces for customer acquisition

Work with established marketplaces to build brand recognition and leverage online consumers

As business grows, additional options to improve profitability and efficiency become feasible

Optimizing local storage and fulfillment Direct marketing to existing customers

Adapt to Indonesian consumers

Risk-averse and brand-loyal: 63% of Indonesian consumers only buy products from brands they already know (McKinsey).

Acutely price sensitive, driven by promotions and discounts

Value social and personal approach

Leighton Peter Prabhu Managing Partner lsp.prabhu@intersticeconsulting.com Twitter: lsp_prabhu Mob +65 8447 0069 (Singapore)

Contact information

Interstice Consulting provides market entry support to foreign enterprises expanding to Southeast Asia. Typical services include: company registration and administration, search for business partners, digital marketing strategy. Through our associated co-working project in Singapore, “The OutPost”, we also offer flexible office facilities to our clients.