#Asia At a crossroad, will Indonesia follow the path set out by China or India?


Convergence Ventures Partner Donald Wihardja looks at trend in the two markets – and decides which direction Indonesia will take

ECAS 2016 - Donald Wihardja

At the recent Echelon Asia Summit 2016 in Singapore, Convergence Ventures Partner Donald Wihardja further explained his claim as to why Indonesia — as a blossoming digital ecosystem — is on its way to become the next China, instead of India, when being comparing the two markets.

“… We are at the point where India and China were in 2011. The question would be whether we are going up-and-down like India, or up-and-up like China. But of course I will make a case that we are going up and up,” he said.

Wihardja then began his speech by explaining about India. The country is growing rapidly with more than US$9 billion worth of funds being raised in 2015 alone, and an e-commerce market that is growing 92 per cent year-on-year in 2016 from US$12 billion in 2015, and which is expected to grow by ten folds by 2030.

But in Q1 2016, India experienced a massive drop in the amount of funds being raised, about one-third of the previous quarter. The average fund being raised per startup also decreased by 50 per cent.

“Everybody is saying that across India, investors are being cautious and tight-fisted. They want profit and they want it now,” Wihardja said.

While there are many arguments to explain why this happened, Wihardja believed that it has little to do with traction.

Also Read: In Indonesia, 12 VC firms join forces to set up investor association

“Some said compared to Indonesians, Indian [customers] tend to be more [of a] saver, while Indonesians are more lavish, spender. India also has lower GDP per capita … Therefore, although Indian tech startups are spending what they need to grow, the return is worth less,” he explained.

“It’s not the traction that is the problem … It’s the investor’s confidence, and therefore lesser ammunition for them to grow, going forward,” he concluded.

Meanwhile in China, despite slowing growth in manufacturing activity, investment in Internet business keeps on pouring in.

Early stage investment grew four times year-on-year from Q1 2015 to Q1 2016, and the government still commits “a huge amount of money” to keep on financing the sector’s growth.

“Chinese [startups] have done very well in beating its global competitors. So you could see that it has bolstered investors’ confidence that China will have a good chance to beat the more advanced American and world players,” Wihardja said.

Where does Indonesia stand in this situation?

When compared with China, Indonesia is still five to seven years behind, but there is good news when contrasting Indonesia with India.

“You will see that Indonesia and India are growing at the same trajectory in terms of retail percentage. Indonesia already has 0.6 per cent of retail [activities] on e-commerce, very similar to our Indian counterpart, and [this number will] almost double next year. We are in good track on that side,” Wihardja said.

There is also good news on the side of Internet penetration and online shopping percentage, where Indonesia is said to trail at steady pace.

Also Read: Baidu Indonesia teams up with Jakarta-based Convergence Ventures

There are many factors that led Wihardja to claim that Indonesia will be heading towards the direction of China, instead of India.

Not only are the numbers were uplifting — more Indonesians are on broadband and transacting online than before — but the ecosystem itself is also filled with local and foreign players and investors.

In Southeast Asia, Indonesia have the second highest funding activities in Q1 2016, with several deal milestones in the last few years.

“[The] most important [aspect] is that Indonesia has its own heroes. We always believe that the tech scene is all about finding the right heroes to look up to,” said Wihardja.

He cited the three giants Tokopedia, Go-Jek and Traveloka as these heroes, while also adding to the list Bukalapak and Sale Stock (which is believed to compete directly with Zalora).

“I’ve been spending 15 per cent of my time working with the government, and they’ve been incredibly supportive of digital economy. Our work in the past two years had only begun to materialise with the President announcing Digital Energy of Asia initiative,” he said.

“What it does is mandating across government, that e-commerce is the official strategy to empower SMEs growth. The government is not empowering tech startups per se; they are empowering SMEs through tech startups,” he closed.

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