Gov't Wants More Local SMEs in E-Commerce to Reduce Inequality

Indonesia might force local e-commerce sites, like Alibaba-backed Lazada, Softbank's Tokopedia and Bukalapak to offer a certain amount of goods from local small and medium enterprises, a minister said on Monday (29/05). (B1 Photo)

By : Jakarta Globe | on 7:25 PM May 29, 2018
Category : Business, Economy

Jakarta. Indonesia might force local e-commerce sites, like Alibaba-backed Lazada, Softbank's Tokopedia and Bukalapak to offer a certain amount of goods from local small and medium enterprises, a minister said on Monday (29/05).

The plan is part of government efforts to ensure that the country's 55 million SMEs benefit from the country's growing digital economy, and in the process, help reduce inequality here.

"We have been urging them [online marketplaces] to sell more domestic products, especially from SMEs," Trade Minister Enggartiasto Lukita said at a seminar in Cirebon, West Java.

The government has been making calls to online marketplaces, because up to 95 percent items sold on Indonesia's online shops raging from clothes, kitchen utensils to smartphones and laptops, are imported, the minister said, exacerbating the country's trade deficits and stifling local producers.

In the retail industry, the Trade Ministry since 2013 has required that 80 percent of all goods sold must be produced locally.

The ministry initially planned last year to impose the same rule for online sellers. But, it decide to postpone the plan in February, saying that local producers may not be able to handle a huge jump in demand coming from online platforms.

Local e-commerce sites had also voiced their concerns about the rule, saying that often imported items are repackaged by local businesses and currently, there is no clear cut rule to classify such items.

Still, Minister Enggartiasto said the plan remains on the table and that his ministry is still figuring out how much room the online sellers need to give to local products.

"We have told them once [to accommodate more local products], and we will ask them once more soon. If it's not implemented, I will issue a regulation requiring a certain amount of items offered and sold on [online platform] to be local products," he said.

Indonesia's e-commerce market size — which only include sales of physical goods from business to customers — is estimated at $8.6 billion this year, according to global statistics portal Statista. That is about 2.4 percent of the country's $350 billion retail market. The portal also estimated that Indonesia's e-commerce market will grow by almost 18 percent annually and reach $16.5 billion in size by 2022.

Inequality

Seeing the potential, the government insisted that more local SMEs take part in the e-commerce market, Enggartiasto said.

While currently responsible for half of Indonesia's jobs and economic activities, the small business are facing pressure with competition from large corporations and imported goods, a condition which the government fears could exacerbate inequality problems in Indonesia. According to government data, Indonesia's gini ratio, which measures income inequality level, is now at 39.5, worse than the 28.9 it saw in 1999.

"I want to stress here that if we do not help small businesses, then inequality, social jealousy, will only brewing up the potential for social conflicts that we will no longer able to control," Enggartiasto said.

The government is now looking into a system implemented by Toko Ono shop, that using digital technology to cut out middlemen in goods distribution chains, to see if it could be adopted by small businesses nationwide. Toko Ono is a pilot project initiated by Lippo Group founder Mochtar Riady, which allows farmer's small shops to order products directly from manufacturers using digital platforms.

Mochtar said that Toko Ono platform will soon also enable farmers to directly supply modern retailers and consumers.

"Farmers sell their crops through maybe four to five intermediaries, so they get prices that are always much lower than market prices. However, if the farmer buys everyday necessities, it goes through various mediators as well so he ends up buying the most expensive item. That's what makes the farmer poor," said Mochtar.

The Jakarta Globe is affiliated with Lippo Group

 

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