Photo by Eko Herwantoro on Unsplash

Photo by Eko Herwantoro on Unsplash

Asia PE VC Summit 2020: The realities behind Indonesia’s big market opportunities7 min read

Based on insights from the 2020 Asia PE-VC Summit, we pull the curtain on Indonesia’s big market opportunity and the challenges founders need to navigate the country

When it comes to growing a billion-dollar tech company in Southeast Asia, Indonesia is near-unavoidable, if at least an option on the table. But with the massive market opportunities come unique challenges in competition and localization. Navigating these challenges is key to reaping the big advantages of being in a big market. 

In this year’s Asia PE-VC Summit hosted by DealStreetAsia, our founding managing partner Yinglan Tan joined FinAccel CEO Akshay Garg and OVO (PT Visionet Internasional) CEO Jason Thompson on the “Indonesia: Does Big Market Mean Big Advantage” panel moderated by Ardi Wirdana.

They chat about what it takes to make it big in Indonesia, the market opportunity in rural cities, winners post-pandemic, Indonesia’s fintech space, and the future of the country’s startup landscape. 


(1) Big markets provide a massive advantage, but also offer challenges with more potential competitors (from both bigger players and emerging startups) and localization, given the diversity of the market.  

(2) Companies with strong distribution-first business models are able to navigate the challenges of localization in Indonesia’s massive rural economy. 

(3) With new regulation for banks and the movement of regional giants into fintech, more consolidation in the fintech sector can be expected, as local champions emerge, similar to how the lending landscape in China played out.  

(4) Factors of startup production — talent, capital, regulation (licenses) — are much more available in Indonesia now than ever before, lowering barriers to growth for startups in the market. 

Does big market translate to big advantage?

Indonesia Panel on Dealstreet Asia's 2020 Asia PE VC Summit
Indonesia Panel on Dealstreet Asia’s 2020 Asia PE VC Summit

The short answer is yes, and no. It depends on the school of thought. 

There’s one school of thought that places a higher value on markets than founders, where a B team in an A market will perform better than an A team in a B market. As Yinglan put it, “In a big market, even pigs can fly.” 

At the same time, there are founders who are able to define big markets. When a market is just starting to develop, it’s not obvious that it will be big. “In the early days of Gojek, nobody really imagined that the two-wheeler gojeks could be expanded to foods, groceries, parcels…so I think the imagination needs to be there,” Yinglan says. In this case, the key is to expand into high-margin, large adjacencies, creating a reservoir that not only captures but retains users over a long period of time. 

While being in a big market has its obvious pros, the same size also produces cons, including more space for competition — which could be a tough barrier to entry — and the need to localize depending on how diverse the market will be given its size. 

Such is the case for Indonesia, founders face enormous market opportunity but also competition and localization challenges as they expand across the market. Thus, the decision on whether to expand within Indonesia or go regionally earlier on also depends on the sector. As OVO’s Jason Thompson puts it, In a low-governance sector, like media or content, it might be better to regionalize, but in a high-governance sector like banking, it’s better to focus and localize. 

“In the early days of Gojek, nobody really imagined that the two-wheeler gojeks could be expanded to foods, groceries, parcels…so I think the imagination needs to be there,” Yinglan says.

Localization Challenge: Beyond Jabodetabek 

One of the reasons for the presence of immense localization challenges lies in the vast landscape that is Indonesia’s rural economy, beyond the major urban areas like Jabodetabek (Jakarta Metropolitan Area). Over recent years, founders have recognized the potential in 2nd, 3rd, and 4th tier cities, especially as smartphones and mobile applications became more accessible. And for FinAccel’s Akshay Garg, this development is a “one-way highway” and we can expect “way more penetration in access” of all kinds of services. 

According to Yinglan, many of Insignia’s fast-growing companies like fintech company Payfazz and social commerce company Super are actually emerging in the rural cities. It’s not unlike what happened with Meituan, where they developed the rural cities around the urban cities. It’s ultimately a matter of being distribution-first instead of product-first. We see this in Payfazz leveraging on agent networks to drive adoption for their digital financial services and then in Super using a similar model of agent networks to create a hyperlocal supply chain delivering FMCGs to rural communities. 

Listen to our chat with Super CEO Steven Wongsoredjo on building hyperlocal supply chains for rural Indonesia >>>

Listen to our chat with Payfazz CEO Hendra Kwik on building the Google Play for fintech apps in rural Indonesia >>>

COVID has only served to accelerate this adoption, but it’s also two-headed as people have had to think twice about their consumption due to depression in spending. So ecommerce platforms for example have had to shift their SKU focus to more pressing needs for their target consumers. 

Competition challenge: Fintech consolidation

Another challenge apart from localization is competition. And in the fintech sector, many regional tech giants like Sea, Grab, and Gojek have recently been leveraging on their existing massive distribution to invest in future growth (at least initially in payments). 

This coincides with the rebundling of banking services as fintechs see this as a more sustainable way to acquire and retain customers over time. “The first wave of fintech was really about unbundling of bank operations…What [fintechs] quickly realized there was lots of CAC, the standalone [product] has no stickiness and network effects,” says Yinglan. “What we’re starting to see is a rebundling of services, [where you can] acquire a customer and upsell and there’s more regulatory coverage…This is a better way for companies to build over time.”

Together, the movement of unicorns and decacorns into fintech, alongside the expansion of single-serve fintechs into ecosystem models will lead to more consolidation and acquisition events in the future, even among traditional banks. 

“If you look at the story in China in lending, there were a few thousand P2P players that were all decimated with the regulatory change whereas the larger platforms tend to be more resilient, this movie will play to a similar extent in Indonesia,” adds Yinglan. In Indonesia, regulators have already begun to push for smaller banks to enter mergers or increase their performance. As Jason put it, the sector is getting a balance of regulatory growth and market growth with moves from the Bank of Indonesia.

“If you look at the story in China in lending, there were a few thousand P2P players that were all decimated with the regulatory change whereas the larger platforms tend to be more resilient, this movie will play to a similar extent in Indonesia,” adds Yinglan.

Indo or SEA? That is the question

Over the course of the development of Southeast Asia’s startup ecosystem, two types of fairly large companies have emerged. First is the SG-headquartered company with regional operations, like Sea Group or Grab. The other is Indonesia-headquartered but focused primarily on the Indonesian market, like Tokopedia. 

Listen to our conversation with a Singaporean market launching in Indonesia >>> 

Whether a company should go for one or the other, the bottom line is to build the company in a space big enough for it to grow, and this depends on the nature of the business vis-a-vis how scalable the business model is. Even if a complex reservoir with multiple cross-pollinating use cases is built (think super app), if it’s built on dry land with no rainfall (i.e. no users) or a small lake or river, its growth is doomed to be limited.

On the other hand, if a reservoir is built on a vast body of water blessed with rainfall but isn’t able to make the most out of storing the collected water, its growth will also be limited. Market (i.e. the resources needed for growth) and model (the path to growth) need to work together for companies to grow big and endure. 

Read more about The Reservoir Principle and how think about building enduring companies >>>

As Yinglan puts it, “the real opportunity is to build in a large enough market,” pointing back to one of the two schools of thought on the advantage of big markets. And in the case of Indonesia, “the raw material required is much more available than five or ten years ago — more engineers, more talent, more returnees, more regulation friendly, and more capital — all the factors for production which spell the future of Indonesian landscape.” 

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