By Cindy Silviana and Ed Davies
JAKARTA (Reuters) - In a warehouse on the outskirts of Indonesia's capital, supervisors at e-commerce company Lazada use bikes or electric scooters to zip around a floor the size of four soccer fields, where up to 3,000 staff pack and dispatch goods around the clock.The warehouse is one of five that Lazada has opened across Indonesia to cut costs and expand its reach in an archipelago whose 17,000 islands are sprinkled across an area bigger than the European Union.
Lazada uses Alibaba's inventory management systems and has tied up with ride-hailing companies, often using their motorbikes to deliver goods in a country with creaking infrastructure and traffic-clogged cities.
The payoff could be huge. It is a market forecast to grow from about $7 billion last year to $63 billion by 2027, according to Morgan Stanley.
Lazada and Tokopedia, in which Alibaba is also an investor, dominate Indonesia in customer traffic, with more than 117 million monthly website visits each, according to data from e-commerce aggregator iPrice.
Alibaba doubled its investment in loss-making Lazada to $4 billion in April, underscoring its global ambition to secure a bigger share of the e-commerce market.
Between the investment and the rewards, however, lie enormous complexities.
The World Bank has said logistical costs swallow up around a quarter of Indonesia's gross domestic product, citing bottlenecks in supply chains, long dwelling times in ports and lengthy trade clearances.
Lazada has opened warehouses in places like Balikpapan, on the coast of Borneo, to avoid hauling everything from Jakarta. Holm said that had in some cases reduced shipping costs by 90 percent.
Competitive pressure is growing. Another Chinese heavyweight, JD.com, arrived in Indonesia in 2016. And the U.S. giant Amazon, which opened a warehouse in Singapore last year, may be prepared to dip a toe into the Indonesian market soon.
Indonesia's e-commerce sales are set to rise from 3 percent of retail activity now to 19 percent by 2027, Morgan Stanley estimates. The same report said there were 159 million smartphones in Indonesia at the end of 2016, a number that could rise to 275 million by 2021.
Kusumo Martanto, who heads Blibli, told Reuters the company had seven warehouses in Indonesia with seven more planned, and said it was important for local e-commerce companies to compete against Chinese players.
Indonesia's communications minister, Rudiantara, said there was no conflict of interest in Ma's role, describing him as a "guru" who could help sell the country's potential.
But some policies seem to be turning toward Ma's home turf.
Caterine, a 30-year-old housewife who lives west of Jakarta, used to shop in conventional stores once a week, but after her baby was born six months ago, she has been shopping online two to three times a week for convenience.
Morgan Stanley said delivery times of all types across Indonesia are down to about 3 days from 10 days, while deliveries in big cities can take 24 hours or less.
While in urban areas delivery times have greatly improved, other parts of Indonesia's e-commerce supply chain are still inefficient, said Willson Cuaca, co-founder of East Ventures, a tech investment fund.
"To send goods from point A to B, the logistics company needs at least two modes of transport," he said, referring to the complications of operating across so many islands.
Amazon, by contrast, prefers to control its own supply chains from start to finish. But entering a market like Indonesia could require it to revisit that strategy.
Much of the U.S. giant's international focus has been on developing its business in India, even though some view its entry into Singapore last year as a stepping stone for expansion in the region.
"At this moment, I believe it is trying to test the market, by selling products through third-party sellers," said Daniel Tumiwa of the Indonesian e-commerce Association.
"E-commerce is a global and borderless business, so we have to prepare and do continuous improvement to make our customers happy," Zhang said.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)