B2B Landscape in Indonesia - DS/X Ventures

 B2B Landscape in Indonesia
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🚁 Executive Summary

1. The B2B e-commerce market in Indonesia is experiencing rapid growth, with the market estimated to be worth USD 21.2 billion and projected to reach USD 104 billion, driven by a compound annual growth rate (CAGR) of 37.4%.
2. The shift from B2C to B2B e-commerce provides opportunities for micro, small, and medium enterprises (MSMEs) to connect directly with business suppliers, addressing supply chain challenges and facilitating transparent pricing and faster logistics.
3. The B2B e-commerce market in Indonesia is expected to reach $30 billion by 2025, presenting significant potential for startups and various categories of B2B solutions, including SaaS, fintech, logistics, healthcare technology, cybersecurity, AI, human resources, and energy technology.
4. Key opportunities in the Indonesian B2B market include delivering seamless omni-channel experiences, optimizing supply chain processes, tapping into the potential of rural areas and micro-enterprises, and offering transparency and efficiency through B2B marketplaces.
5. Challenges in the B2B landscape include sourcing, delivery, and managing working capital, technological integration, security and privacy concerns, regulatory compliance, currency volatility, and financial risk management.

In addition, the SaaS segment is projected to reach $409.40 million in revenue in 2023, with a CAGR of 11.58%, while the B2B FMCG industry in Indonesia is experiencing digital transformation, presenting opportunities for faster data validation, omnichannel growth, data security, privacy protection, and flexible financing solutions tailored to the needs of MSMEs.

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🏦 Industry Background

The B2B landscape in Indonesia is rapidly growing and evolving, particularly in the realm of e-commerce. The Indonesian e-commerce market is estimated to be worth USD 21.2 billion, with a compound annual growth rate (CAGR) of 37.4% expected to reach USD 104 billion. During the COVID-19 pandemic, there has been an increase in B2B transactions in online marketplaces as people have shifted towards online purchasing. Bank Indonesia recorded that e-commerce transactions in Indonesia reached Rp 401 trillion in 2021 and are expected to increase by 31% to Rp 526 trillion in 2022.

The rise in online shopping has led to a shift in the business model from B2C (business to customer) to B2B (business to business). This shift provides opportunities for micro, small, and medium enterprises (MSMEs) to directly connect with business suppliers. The B2B marketplace in Indonesia introduces solutions and innovations to address supply chain challenges, such as stock supply gaps, price transparency among intermediaries, and logistical limitations, which facilitates transparent pricing and faster logistics for MSMEs.

The B2B e-commerce market in Indonesia was valued at $1.5 billion in 2018 and is projected to experience a remarkable compound annual growth rate (CAGR) of 50-55%, reaching a staggering $30 billion by 2025. The momentum of digitalization in SMEs is a key factor opening up significant potential for B2B Commerce development in Indonesia and Southeast Asia. However, the B2B landscape also faces several challenges such as sourcing, delivery, and managing working capital. Integrating systems, security and privacy, regulatory compliance, and currency volatility are also significant challenges. Despite the challenges, the B2B landscape in Indonesia continues to grow, and many startups have emerged to cater to the growing market.

There are several categories of B2B startups, including but not limited to:

• SaaS
• Fintech (Financial Technology)
• E-commerce
• Logistics and supply chain management
• Healthcare technology
• Cybersecurity
• Artificial intelligence and machine learning
• Human resources and talent management
• Energy and sustainability technology

Each category offers various opportunities for innovation and disruption within the B2B landscape.

💹 Market size & forecast

• The Indonesian e-commerce market is estimated to be USD 21.2 billion and is expected to grow at a compound annual growth rate (CAGR) of 37.4% to reach USD 104 billion. The B2B segment represents 26.4% of the overall market.
• During the COVID-19 pandemic, there has been an increase in B2B transactions in online marketplaces as people have shifted towards online purchasing. Bank Indonesia recorded that e-commerce transactions in Indonesia reached Rp 401 trillion in 2021 and are expected to increase by 31% to Rp 526 trillion in 2022.
• The rise in online shopping has led to a shift in the business model from B2C (business to customer) to B2B (business to business). This shift provides opportunities for micro, small, and medium enterprises (MSMEs) to directly connect with business suppliers.
• The B2B marketplace in Indonesia introduces solutions and innovations to address supply chain challenges, such as stock supply gaps, price transparency among intermediaries, and logistical limitations. This facilitates transparent pricing and faster logistics for MSMEs.

Source: Vantage Market Research

• The B2B e-commerce market in Indonesia was valued at $1.5 billion in 2018 and is projected to experience a remarkable compound annual growth rate (CAGR) of 50-55%, reaching a staggering $30 billion by 2025.
• During the webinar session titled "Membedah Potensi Pertumbuhan B2B Marketplace di Indonesia" organized by Xendit in collaboration with Majalah Investor, The Deputy Minister of Trade, Jerry Sambuaga expressed optimism regarding the growth of B2B e-commerce market value in Indonesia. It is predicted that the market value will reach US$21.3 billion in 2023. This projection signifies a noteworthy opportunity, particularly for the contribution of micro, small, and medium enterprises (MSMEs).
• Quoting B Capital VP Strategy & Operation, Karl Noronha, the momentum of digitalization in SMEs is a key factor opening up significant potential for B2B Commerce development in Indonesia and Southeast Asia. B Capital is one global venture capitalists that also allocates funding for Indonesian startups—one of their investment hypotheses is in the area of B2B Commerce.
  • According to Noronha, the B2B sector in material/construction has a large Serviceable Available Market (SAM). B Capital estimates it to be around $33 billion internally, but this could be conservative considering the government's announcement of over $460 billion in infrastructure projects to be completed by 2026.
  • B2B commerce services are also increasingly focusing on catering to the procurement needs of traditional small shops ('warungs').
• Several B2B platforms have emerged in Indonesia to cater to the growing market. Examples include Ula, Ralali, Mbiz, Bizzy Group, and GudangAda. These platforms focus on innovative solutions to shorten the supply chain, improve logistics, and connect sellers and buyers effectively.

👁 Opportunities

• A study conducted by Forrester Consulting in collaboration with Accenture reveals that B2B buyers, influenced by their seamless omni-channel B2C buying experiences, now anticipate a similar level of experience when engaging in B2B e-commerce. Surprisingly, the study finds that 49% of buyers still opt to make work-related purchases on B2C websites.
• One of the major obstacles in traditional B2B trade also presents a significant opportunity in the realm of B2B e-commerce. Traditional B2B transactions often entail a complex system of sales and purchase invoices. For businesses dealing with a large volume of invoices, this expense can be substantial. However, with the advent of online payment and order processing solutions, this process becomes much simpler and offers a remarkable cost-saving potential.
• Growth drivers of Indonesia’s digital economy to either B2B or B2C companies;
  • The untapped potential of rural areas
  • A growing middle income class begets growing economic benefits
  • The great revolution of micro and small enterprises
  • Bringing large and medium enterprises into the digitalization era
• The optimization of supply chain processes presents a significant opportunity for B2B businesses. Streamlining inventory management, improving logistics and transportation efficiency, implementing demand forecasting systems, and utilizing technology like blockchain for enhanced traceability and transparency can create a competitive advantage.
• B2B marketplaces offer transparency in costs by eliminating middlemen in transactions and enable efficient logistics. This transparency and efficiency make B2B marketplaces attractive for businesses, particularly among MSMEs. There is still significant room for growth and many gaps in the market.
  • Based on Celios' research, the food and beverage sector has the highest penetration rate in digital adoption (71%), followed by the services sector (including education, health, financial services, media, etc.) (68%).
  • Currently, only about 20 percent of SMEs have implemented business process digitalization and the use of digital tools and analytics. However, over 30 percent of SMEs are in the process of preparing for the implementation of business process digitalization and the use of digital tools and analytics.

⛈ Challenges

• Around 70-80% of retailers in Southeast Asia, including Indonesia with its 17,000 islands, face challenges in sourcing, delivery, and managing working capital. The unique geography and underdeveloped logistics network in Indonesia lead to longer delivery times and unpredictable outcomes for delivering goods.
• B2B marketplaces face a challenge when it comes to efficiently onboarding a large number of sellers onto their e-commerce platforms. With the market being flooded with numerous sellers, individually onboarding each one becomes a difficult and time-consuming task. To reduce the workload, these platforms require a streamlined process that allows for quick account creation and seller onboarding.
• Technological aspect
  • Integrating Systems: B2B businesses often team up with multiple partners and suppliers. The big challenge here is getting different technology systems to work together smoothly. When there's a mismatch in data formats, communication protocols, and tech infrastructure, sharing information between business partners becomes tricky.
  • Security and Privacy: In B2B, companies exchange sensitive and confidential data. Keeping this information safe is a major concern. Businesses have to guard against cyber attacks, data breaches, and the risk of leaks that can damage trust and reputations between partners.
  • E-commerce and Backend System Integration: B2B companies that want to tap into the benefits of e-commerce must blend their online platforms with existing backend systems. This means synchronizing stock, managing orders, handling payments, and dealing with complex business processes.
  • Adopting New Technologies: Exciting advancements like artificial intelligence (AI), the Internet of Things (IoT), data analytics, and cloud computing offer great potential for B2B businesses. But the challenge lies in understanding and embracing these new technologies and smoothly incorporating them into current operations.
  • User Experience: B2B businesses also face the challenge of delivering a user-friendly experience. In today's interconnected world, business users expect easy-to-use interfaces, seamless transactions, and effortless access to product and service information. Meeting these expectations is crucial.
• Financial and payment
  • Risk Management: B2B transactions involve financial risks such as late payments, non-payment, and credit default. Assessing and managing these risks effectively can be demanding, especially when dealing with diverse customers and suppliers. Implementing robust credit risk assessment processes, utilizing credit insurance, and establishing clear payment terms and contracts can help mitigate financial risks.
  • Regulatory Compliance: Adhering to regulatory requirements and compliance standards, including taxation and financial reporting, is essential for B2B businesses in Indonesia. However, the complex and ever-changing regulatory landscape can be challenging to navigate, especially for international businesses. Staying updated with regulations, engaging professional advisors, and implementing robust internal controls are crucial to ensure compliance.
  • Currency Volatility: B2B businesses involved in international trade may face challenges related to currency fluctuations. Exchange rate volatility can impact pricing, profit margins, and overall financial stability. Employing effective currency risk management strategies, such as hedging or forward contracts, can help mitigate the impact of currency volatility.

☁️ SaaS

• Revenue in the Software as a Service segment is projected to reach US$409.40m in 2023.
• Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 11.58%, resulting in a market volume of US$634.50m by 2027.
• The average spend per employee in the Software as a Service segment is projected to reach US$2.88 in 2023.
• In global comparison, most revenue will be generated in the United States (US$135,100.00m in 2023).
• In Indonesia, the highest number of total investment deals occurred in 2021, with a total of 21 investments. These are the investment deals in the Indonesia SaaS sector over the years.

Source: Internal analysis

💨 FMCG

• The digital transformation has brought significant changes to the B2B FMCG industry. A study conducted by CELIOS and GudangAda indicates that 60% of micro, small, and medium enterprises (UMKM) in Indonesia have benefited from digitalization, such as easier supplier search and reaching customers.
• The B2B FMCG ecosystem in Indonesia has become more comprehensive and aligned with the increasing digital adoption by UMKM players. The study highlights the growth of services such as point-of-sale systems, financing, and the overall growth of UMKM in the middle segment, showcasing the potential of B2B FMCG in Indonesia.
• There is significant potential for B2C FMCG volume escalation in Indonesia in 2023, driven by the potential of UMKM businesses, increasing internet users, and government support in improving financial inclusion. CELIOS predicts a 25% growth potential in B2B business transactions this year.
• Predicted Trends in 2023:
  • One-stop solution systems for faster real-time data validation, enabling principals to keep up with market developments.
  • Omni-channel approach as a means for B2B FMCG to grow rapidly.
  • Increasing demand for data security and personal privacy protection due to the growing number of businesses using digital B2B platforms.
  • Demand for one-stop financing with flexible tenors tailored to the needs of UMKM.

Source: Celios X GudangAda

🌆 Indonesian B2B Players

⚡️ Conclusion

• The B2B landscape in Indonesia is rapidly growing, particularly in the realm of e-commerce, which is estimated to be worth USD 21.2 billion, with a compound annual growth rate (CAGR) of 37.4% expected to reach USD 104 billion.
• The B2B e-commerce market in Indonesia was valued at $1.5 billion in 2018 and is projected to experience a remarkable compound annual growth rate (CAGR) of 50-55%, reaching a staggering $30 billion by 2025.
• The momentum of digitalization in SMEs is a key factor opening up significant potential for B2B Commerce development in Indonesia and Southeast Asia.
• There are several categories of B2B startups in Indonesia, including SaaS, Fintech, E-commerce, Logistics and supply chain management, Healthcare technology, Cybersecurity, Artificial intelligence and machine learning, Human resources and talent management, and Energy and sustainability technology.
• B2B marketplaces offer transparency in costs by eliminating middlemen in transactions and enable efficient logistics. This transparency and efficiency make B2B marketplaces attractive for businesses, particularly among MSMEs.
• The rise in online shopping has led to a shift in the business model from B2C (business to customer) to B2B (business to business). This shift provides opportunities for micro, small, and medium enterprises (MSMEs) to directly connect with business suppliers.
• The optimization of supply chain processes presents a significant opportunity for B2B businesses. Streamlining inventory management, improving logistics and transportation efficiency, implementing demand forecasting systems, and utilizing technology like blockchain for enhanced traceability and transparency can create a competitive advantage.
• The landscape for B2B industry in Indonesia is still hugely powered by Commerce and SaaS sector. But please keep in mind, there are a lot of untapped market in some Indonesian rural areas that need digitalization, especially B2B.

🥳 Authors

Wulan Pangestika Investment Research wp@dsx.vc

Michael Cleavant Investment Analyst mc@dsx.vc