Alternative to Latin America: why Indonesia is interesting for tech entrepreneurs

Little is said about this country yet: it is less fortunate than the LATAM region, which has been hotly discussed in recent months. The market here has not yet been attacked by “moved” businesses, and the audience demand is already high.

We are talking about Indonesia — market of opportunities, where Bali — only its tourist side. Petr Markov, founder of Anabar, talks about the local marketplace market and shares his experience: the company is entering the country’s market right now.

E-Commerce in Indonesia is actively growing: the island structure of the state leaves its mark on logistics and the cost of goods, and online shopping, according to McKinsey&Company, allows residents to save from 15 to 25% of the budget.

For technology services that simplify the routine of online sellers and buyers, today is the best time to enter the Indonesian market and position yourself well for the future.

The experience of more developed countries suggests which IT solutions will be especially needed, but when scaling, it will obviously be necessary to take into account national characteristics.

For most Russians, Indonesia — this is, first of all, Bali — place of power for tourists, not entrepreneurs.

Bali — only one of almost 18 thousand Indonesian islands, where a total of 270 million people live, to whom you can sell your product or service if you know the specifics of consumption in this country.

If you have already been to Bali, it is a mistake to assume that you understand the behavioral patterns of Indonesians and can easily build a business here. It’s like measuring Russia by St. Petersburg: in the regions, checks, purchases, and competition are different. And the pace of life, work and transactions, networking varies greatly.

Why it is beneficial to study Indonesia

I admit that before 2019, not only had I not been to Indonesia, but I knew nothing about this country at all. Why are we actively preparing to enter this market in the summer of 2022?

The answer is quite simple:

• No one perceives Indonesia as a serious place for business interests.

This means that the competition here is much lower than in Europe, the USA and other tasty countries, and the investment to start is much less. At the same time, this economy is among the top 20 largest in the world: presence in the region is a very far-sighted step.

• ECommerce is growing confidently in the country, there are a lot of marketplaces, but the market is not yet mature.

This means there is a lot of room for innovation and time to take leadership positions.

• Indonesia has the world's fifth largest working-age population, with annual middle class consumption growing steadily at around 12% per year.

The size of this group is also growing (in 2030 it will be 118 million people), as is the Indonesian economy. Growth is 5% per year, in the coming years the country has a chance to surpass Russia's GDP.

• Indonesians believe that a foreign product — a good product, which means you need to buy it or at least take a closer look at it.

There is a great interest in the West, the Europeans, which plays to our advantage.

Our business interest

We are developing a service for analytics and sales management on marketplaces, so Indonesia looks like a particularly interesting destination for us.

Living in an island state during a pandemic, Indonesians especially fell in love with online shopping: marketplaces saved the country's economy during the pandemic: 93% of the population used them.

In the first year of the pandemic alone, about 138.1 million people made online purchases, and since then their number has been constantly growing.

In May 2022, we made the assumption that entrepreneurs who sell goods on marketplaces to residents of scattered, sometimes very remote islands, would be willing to buy a service that would help them predict demand, analyze the dynamics of popular items and minimize the risks that imposed by the specifics of such sales.

To explore this new market, we outsourced a product team to conduct in-depth research before launch and understand:

• are there similar services in the country;
• will the new product be in demand;
• nuances of local e-commerce to adapt the service during localization.

We deliberately did not study the market on our own, because we wanted to buy speed, experience in such research and relieve our team before we decided to enter a new market.

The nuances of communication with Indonesians in field research, business communication and marketing

The fact is that in Indonesia they speak neither Russian nor English.

According to the EF English Proficiency Index, the country ranks 80th in terms of English language proficiency in the world (Russia, for comparison, ranks 51).

You need to know Bahasa — local language, understand the local culture and communicate with respondents correctly in order to obtain truthful information.

In addition, it is important to understand where to look for these same respondents and what to ask them.

I’ll clarify right away that:

• there are many ethnic groups in the country, this must be taken into account in business communications when choosing a polite form of address.

General recommendation: state the position first, then the last name.

It’s more difficult with a name: in addition to the full and short ones, as we are used to, one person can have several names (for example, family, official, or given at birth)

• Indonesians, like the Japanese, will not tell you no.

Moreover, few people even admit that they do not understand or do not know how to answer your question: they strive to save face when dealing with foreigners.

No one will interrupt you; on the contrary, they will listen with an expression of full attention, understanding and interest, even if this is completely wrong.

This is often confusing and leads to a dead end.

• 90% of Indonesians adhere to Islam, this leaves a big imprint on communication and business activity.

There is a ban on pork and alcoholic beverages; You must not show your feet or the soles of your shoes, turn your back to the elderly, or touch the heads of children and adults.

It is important to monitor the calendar of religious holidays and take these features into account in communication, marketing, advertising messages, and demand structure.

Features of the local marketplace

The study took almost six weeks. As a result, we turned to the FirstBITLab product studio of the First BIT company because we learned that they already had similar experience and had resources and local contacts, as well as an understanding of how to conduct in-depth interviews.

We found 600 employees of companies who are responsible for sales on marketplaces, experts talked to 110 of them in Jakarta and other regions and conducted 11 in-depth interviews using two methodologies: Custdev and Jobs to be done.

As a result of the research, we learned

• The most popular are eight marketplaces, among them, for example, Tokopedia and Shopee;
• Marketplaces have hundreds of separate delivery zones and, unusually, the remote buyer pays for the delivery of goods.

Delivery costs vary greatly depending on the zone.

• It is more profitable for a buyer to order goods on the marketplace from a seller in his location: delivery will be much cheaper;
• Sellers are forced to work with resellers to ship their goods to distant islands;
• Sellers have a high demand for sales automation, competitive analysis and smart supply management;
• Sellers really need geo-arbitrage;

If they know which goods are in demand in which locations, they will be able to purchase wisely and minimize downtime and warehouse costs.

• There are no services that can fill this need;

There are only built-in tools on marketplaces that do not cover all the “wants” sellers.

• There are fewer computers than telephones;

A convenient mobile interface is critical for the demand for the service.

• Indonesian entrepreneurs do not need all the functions of our service, but they will need to develop several new tools.

How to work in the country: information for foreign business

In Russia, delivery costs — seller's headache. It doesn’t matter to the buyer where he buys conditional mittens from: from a neighboring city or a remote region, it will not break his pocket.

In Indonesia, the buyer pays for shipping, this is a significant game changer.

I will not describe all the conclusions and insights, but we managed to obtain very useful commercial information and make our first sale.

Based on the results of the study, we decided to enter this region and created a detailed plan for adapting both the product itself and its promotion.

But entering this market is not so easy. There are several features of operating a foreign business in Indonesia that need to be taken into account.

We are faced with the following:

• The law is designed in such a way that you cannot work in the country without a local legal entity, and in order to register it, you need to fulfill quite serious requirements, including hiring a local general director.

Foreigners cannot be participants in a standard legal entity; they will need to fill out a special form and pledge the authorized capital five times more than for local founders.

However, you can open a so-called Representative Office, which will work in Indonesia on behalf of a legal entity opened, for example, in Singapore.

For this type of LLC, you need approximately $20 thousand. For the Indonesians themselves, $3.5 thousand is enough.

• When registering a company, you will need, among other things, a local phone number, an Indonesian bank account and a local domain.

But to become a subscriber, you will have to confirm that you live, work or build a business here. It is difficult to understand the algorithm for processing documents: the conditions for locals and foreigners are completely different.

• So far we have not been able to connect the local GPN payment system or get a fancy local domain.

But I’ll immediately clarify that the usual story for Russians, “the shorter the domain, the cooler,” does not work in Indonesia. Thus, even Google has a third-level domain in Indonesia.

Conditional Anabar.id — not so “cool”, but getting Anabar.co.id, — difficult and prestigious, because for this you need to pass many different tests.

In general, I would like to note that the business acumen and speed usual for Moscow are not present in the region. The Indonesians can easily surpass the St. Petersburgers in their leisurely manner — Just kidding — Brazilians.

All decisions will be made only after long conversations and multiple meetings, for which it is not considered shameful to be late, unless, of course, you are a foreigner.

The difficulties we encounter in the process of registering a company are not very frustrating, because as a prize we will receive a business in a country with a large (and growing) economy and a population that actively buys goods online.