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Indonesia's Tokopedia beefs up one-day delivery, holding off Amazon

Loss-making unicorn to invest in logistics companies to cover 17,000 islands

Tokopedia CEO William Tanuwijaya speaks to the Nikkei Asian Review on May 31 in Tokyo.(Photo by Kotaro Igarashi)

TOKYO -- Tokopedia is defending its position as Indonesia's top e-commerce player against an expected onslaught from foreign rivals by extending one day delivery to nearly all products in one of Asia's most logistically challenging markets.

 Tokopedia, which is backed by Alibaba Group Holding and SoftBank Group's $100 billion Vision Fund, will also begin acquiring minority stakes in local companies to expand the range of services on its platform and lock in potential partners.

These moves come as Indonesia's e-commerce industry prepares to take off -- gross merchandise value is expected to grow more than fourfold to $53 billion by 2025, bigger than its major Southeast Asian peers combined. Amazon, which entered Singapore two years ago, is reportedly setting its sights in Indonesia while competitors such as Alibaba's Lazada and Tencent Holdings-backed Shopee are investing heavily in the country.

"We focus on Indonesia," Tokopedia founder and CEO William Tanuwijaya told the Nikkei Asian Review in an interview in Tokyo, bucking the trend of major Indonesian technology companies which are starting to enter other Southeast Asian markets. "Our mission is really to solve the Indonesian customer problem. And we see the room for growth is still tremendous."

Others have seen that room, too, and online retailers from around the world and closer to home are either moving into the country or will likely do so soon.

But Tanuwijaya, who founded Tokopedia 10 years ago after working at an Internet cafe in Jakarta, has taken an unexpected lead over foreign giants by tackling the nuts and bolts of expanding online commerce across Indonesia.

E-commerce operators around the world compete fiercely on delivery times -- Amazon recently announced plans to shorten its two-day shipping for Prime members to one-day delivery. Doing something similar in Indonesia, where Amazon has yet to enter, would be a major challenge given that the archipelago of 17,000 islands spans 5,000 km from east to west. 

Tokopedia already offers same-day or one-day shipping for 65% of the products sold on its platform, Tanuwijaya said, by using a network of 11 logistics companies that provide deliveries. By using artificial intelligence to predict demand, he aims to increase the figure to 90% "maybe in the next two to three years."

Tokopedia is a marketplace that holds no inventory of its own, and sellers ship their goods only after receiving an order from the customer. If Tokopedia can predict that a customer in Jakarta will make an order, it can recommend that a coffee seller in a distant province have some of its stock stored at a warehouse close to the buyer in advance. Tokopedia would be able to collect a fee from the warehouse operator.

In the future, Tanuwijaya said, this business can be expanded beyond Tokopedia's online mall. More than 5 million sellers are registered on Tokopedia, but that is just a fraction of the estimated 60 million small and midsize businesses in the country.

"Some businesses do not want to do e-commerce, it is OK," he said. "Our goal [is] how we can help different offline businesses -- farmer, fisherman, wedding organizer and so on." For example, Tokopedia could offer the same warehousing service described above to farmers selling vegetables to restaurants.

To accelerate the plan, Tokopedia plans to start acquiring stakes of up to 30% in potential partners, including logistics companies and offline businesses. Tanuwijaya confirmed that the company is in talks to invest in Bridestory, a website that lets users look for wedding services. He has not allocated a budget for the investments, saying they "will be driven by serendipity" and that financial returns are not the goal.

These ambitious plans come even as Tokopedia has yet to turn a profit. Tanuwijaya declined to disclose the scale of its revenue or losses, and said he has not set a timeline for when he will take the company public.

Tokopedia has been able to prioritize growth mainly due to the support of major backers: Alibaba Group Holding and the SoftBank Vision Fund, which each led a $1.1 billion funding round in 2017 and 2018. Tanuwijaya said he will continue to look for "key shareholders that will continuously support Tokopedia in the long-term vision and mission." But it remains unclear how many companies would invest at its rich estimated valuation of $7 billion.

Meanwhile competition continues to heat up. Shopee, the e-commerce unit of Tencent Holdings-backed Sea, has spent heavily offering free shipping in Indonesia and other Southeast Asian markets. Lazada, owned by Alibaba, has built its own warehouses, delivery vehicles and private label merchandise. Local players like Bukalapak are also making a push to do business with physical retailers. 

Indonesia is the only major Southeast Asian country where neither Shopee nor Lazada is the most popular service, according to data from iPrice and App Annie. Tanuwijaya says Tokopedia's biggest challenge is not to become too comfortable.

"Now [that] we have become a leader in the market, this is actually scaring me a lot because once we become a leader we become complacent," he said.

Nikkei staff writer Akane Okutsu contributed to this story

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