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Indonesian FMCG sector gets digitally empowered

Image courtesy: www.techinasia.com

According to an international management consulting firm, Indonesia is on the road to digital transformation. Embracing digitalisation would help the country reach new levels of economic growth, adding an estimated US$150 billion to its gross domestic product by 2025.

One area that is ripe for digitalisation is the fast-moving consumer goods (FMCG) sector, which runs on a fragmented and convoluted supply chain. Moreover, as the country constitutes 40% of Southeast Asia’s (SEA) total population of 664 million people, research says that with relatively young and productive individuals currently comprising the nation’s biggest demographics, the country has a growing base of captive consumers for FMCG in the region. Therefore, Indonesia is an extremely important market for the FMCG sector within SEA.

Several start-ups have tried to digitalise the sector, but the going has not been easy. Companies have come up against roadblocks like the digital divide and conflicts with incumbent distributors. Considering this, a business-to-business FMCG marketplace firm is trying to tread down a different path. With over 300,000 merchants across 500 cities in Indonesia using its platform, they processed US$1 billion in transactions in 12 months as of March 2020 – 2% of the US$50 billion that is transacted in the country’s FMCG space annually. It has also raised US$35.9 million from investors to date.

The firm decided to take a combined online-offline approach given that a lack of knowledge and awareness is one of the biggest barriers to digitalisation in Southeast Asia, They said that most start-ups aim to resolve the challenges faced by the FMCG sector by focusing only on providing digital solutions for transport and commerce. However, the FMCG market is hard to penetrate as traditional wholesalers and retailers are not familiar with technology and prefer traditional methods of distribution and trading.

One of their alternative approaches is to tackle the challenges in the FMCG supply chain. According to the firm’s chief technology officer, their programme works as a marketplace where wholesalers can list their products and where retailers can purchase through an app. They added that they are not displacing any of the existing industry stakeholders in the FMCG industry, but they build the tools and the platforms for these stakeholders to run more efficiently.

In response to this, the B2B marketplace also runs a program to educate merchants on the merits of digitalisation. This process continues even when traders become members. The company provides training on business digitisation, helping merchants plan shop inventory, conduct faster transactions, and determine the best prices for their goods. Currently, the firm has over 600 people in its business development team spread across more than 500 cities in Indonesia.

They also intend to build an ecosystem to support the merchants on its platform. On top of its marketplace services, the platform also incorporates delivery and payment offerings as well as a logistics feature, which was launched after the firm received feedback from merchants that delivery was a particular sticking point.

The firm’s payment services, meanwhile, is their answer to the relative nascence of the digital payments sector in Indonesia, which is a significant barrier to the digitalisation of more traditional suppliers and retailers. They also said that the payment infrastructure in the country is not fully developed yet, so they provide escrow services to help sellers and buyers transact.

Accordingly, an international report says that technology and innovation can further help the country along with its business sectors to recover from the effects of the pandemic. Lockdowns have channelled many people online for shopping, learning, entertainment, and working, accelerating the shift to digital services. Simultaneously, companies are pushing ahead with internal digitisation for staff, customers, and suppliers, for instance, enhancing supply-chain visibility, offering digital learning experiences, and providing new channels to customers.

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