The COVID-19 pandemic has become a vital part of Southeast Asia's e-commerce boom, with Indonesia experiencing one of the most significant changes due to its strong consumer base throughout the archipelago. Indonesia is already the region's most prominent digital economy, taking over 40 percent of the market share with five dominant unicorns; Gojek, Tokopedia, Bukalapak, Traveloka, and OVO, spearhead their digitalization journey.
During 2020 alone, the country has recorded over USD 44 billion of online market sales, or equivalent to a 72 percent growth of the digital economy's total value. The development owes its success to Indonesia's rising smartphone and internet penetration, alongside a rapidly growing middle-class population taking more than 65 percent of the total residents in the country. In addition, the country has recently become an active investment destination sought after by prominent investors such as Sequoia Capital, Softbank, Tencent, and other well-known venture capitals with its dynamic startups' landscape.
The five leading commerce startups in Indonesia are currently competing to grab the most market share through massive marketing campaigns and consolidation with strategic and financial players. Shopee, for example, has recently taken the first position in the segment by recording over 260 million transactions during the second quarter of 2020 through its solid backing by SEA to promote the business throughout the nation. The pandemic has also created a set of new characteristics developed in Indonesian consumer behavior to become more price-sensitive as uncertainties regarding the economic condition linger, requiring e-commerce businesses to double down on price-heavy promotions to survive in the tight competition.
The competition has resulted in the significant consolidation of many e-commerce players to further step up their position in the competitive advantage. Gojek, the country's leading ride-hailing and food delivery platform, has recently finished one of the country's first mergers with Tokopedia, the second-largest e-commerce platform, in 2021. The combined company, "GoTo," came out of the mergers with a valuation of USD 18 billion, making them the highest valued startup in the country.
Other e-commerce players have also consolidated to gain a stronger position in the market. Bukalapak, the third most visited e-commerce platform behind Shopee and Tokopedia, is in the process of merging with Singapore's Alibaba-backed e-commerce platform, Lazada.
With the ecosystem gaining colossal traction and financial backing, Indonesia faces several challenges stemming from the lag in infrastructure development. The country has yet to establish stable internet connections throughout the nation's areas, leaving islands and the rural regions left behind without internet coverage. The nation also ranks 105 out of 130 in the World Economic Forum index for its infrastructure and digital content pillar, showing Indonesia's urgent need for network improvements to compete with the neighboring countries and catch up with the robust growth of the digital ecosystem.
Additionally, the growth of e-commerce requires logistics infrastructure to cater to the demand for timely delivery throughout the country. However, Indonesia's archipelago terrain poses a higher level of complexity that the industry players need to tackle to overcome the surging orders.
With the growing internet-savvy demographic, Indonesia possesses the necessary elements to transform its challenges into opportunities. However, the country would need to resolve fundamental issues to facilitate the ever-increasing digital ecosystem to realize its full potentials.
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