Bukalapak looks abroad as e-commerce growth in Indonesia plateaus

Bukalapak's Fajrin Rasyid at DEALSTREETASIA's Indonesia PE-VC Summit 2019 in Jakarta. Photo: Ipsita Ray/DEALSTREETASIA

Bukalapak’s overseas pivot is coming at a time when e-commerce growth in Indonesia is beginning to hit a hard ceiling. 

“…Yes, there is potential that (e-commerce) growth is not as fast as before,” said Fajrin Rasyid, president & co-founder of Bukalapak. “That is why we are expanding into other services, not because we want to leave e-commerce, but because we want to explore areas close to e-commerce so we can help the industry.”

In May, the Indonesian e-commerce unicorn launched BukaGlobal, a new platform which connects its more than 4 million Indonesian sellers to international buyers. Singapore, Malaysia, Hong Kong, Taiwan and Brunei Darussalam have access to the platform today, with the Middle East likely to join this growing customer base in the near future. 

It’s been beefing up its host of platform services too. 

Today, Bukalapak features range widely from video content (BukaNonton) to bike-sharing (BukaBike). It’s been exceptionally busy on the fintech front, with its e-wallet (BukaDana), mutual funds (BukaReksa), credit payment (BukaCicilan) and lending (Modal Mitra) services all rolled out in the last 12 months. 

Rasyid kept mum about how long the company could sustain itself until its next fundraising but said it has previously spoken with Chinese and US investors to raise capital. 

“…the US-China trade war is one of the things that may benefit VCs and startups in this region… In fact, we did talk to some investors from both. We do speak with investors from the US and some from China,” said Rasyid.

Bukalapak faces cut-throat competition in Indonesia, with multiple players vying for a share of Southeast Asia’s largest market. Its most prominent local rival is Tokopedia, which recently announced a record $1.3 billion in gross merchandise volume (GMV) for its Ramadan sales alone. 

Tokopedia also has some well-heeled investors, including Alibaba, Sequoia Capital India and SoftBank Vision Fund which led its last $1.1 billion round in December, valuing the company at $7 billion.

While Bukalapak isn’t doing too badly itself – its investor lineup includes GIC, Ant Financial and Mirae Asset-Naver Asia Growth Fund – there is only so much cash burning one can do before the sector kills off a player or consolidates. 

Rasyid is determined that Bukalapak is not going to be the casualty here. Not now anyway.

“The company is growing fast. That’s what we are focusing on at the moment. I see the company growing in many sectors that we are entering into – online, offline, fintech,” said Rasyid. “I see Bukalapak as a standalone company in the near future.”

Edited excerpts of an interview with Fajrin Rasyid, president & co-founder of Bukalapak:

There’s a lot of talk about your international expansion. Different reports are saying different things. One report said you’re entering the Middle East. Another said you’re eyeing ASEAN. What is it?

So essentially we are expanding into Southeast Asia, in five countries to be exact – Singapore, Malaysia, Brunei, Hong Kong, and Taiwan. This is confirmed, meaning that if you are in Singapore or Malaysia, you can actually buy something on Bukalapak. Right now this is still one way, meaning that products from Indonesia will be sold to those five countries. 

This is the first phase of our expansion, meaning that there is potential in the future that we can do this in other countries in Asia or the Middle East. Why the Middle East? Because both Indonesia and the Middle East have large populations. There might be similarities in terms of types of demand and products like Islamic fashion, halal foods and so on. But as it is now, we are still launching in Southeast Asia, and we announced this about one month ago. We have not finalised the other markets that we plan to expand into and when yet. 

But what about preparing the logistics, technology and backend support for the expansion?   

We have experience in partnering with logistics companies, so we’ve partnered with over 10 logistics companies in Indonesia, companies like GOJEK, Grab, traditional companies like Tiki and the likes of that. When we talk about expansion, we are also looking for the right partners. In the current five countries that we’re operating in, we are partnering with a logistics startup called Janio, which has a specialisation in cross-border logistics. We want to also assess the capability of these partners before deciding to enter the market.

As for your move abroad – why now? You could say there’s still so much left in Indonesia to do. 

There is always much to do in Indonesia. But if we keep saying that, we’re never doing to do this, right? As it is now, the focus is still Indonesia. The focus meaning the majority of resources, people, are still in Indonesia. This is similar to the other new features that we develop like fintech or financing. We always start small, and then try to experiment small, and then see from there if it makes sense economically and whether it shows good performance. Then we’ll know whether it makes sense for us to invest more, which will involve us investing more resources. So I guess there’s always the question of trial and then see from there because otherwise, we will never start, right?

Do you see expansion as a way for you to differentiate yourself from your competitors perhaps? Because Tokopedia has not yet gone abroad or at least expressed plans to do so.

Overall, I think we are always trying to innovate. We do this for the sake of our customers. If it turns out to be a differentiator, then it is a bonus and for us, what matters is the innovation and our customers. So when we launched our mutual fund product, for example, it was innovative because we were the first to do that, and we’re happy to be that. But again, the focus launching the mutual fund product was because there was demand from our merchants. They were saying that they had made this money through sales on Bukalapak and they wondered if they could invest this somewhere instead of putting the money in the bank.

This was similar for BukaGlobal. Before we got into this, we had people asking if we could deliver to Singapore, Malaysia and we kept saying, “No, not yet.” These queries kept increasing in numbers and it came to a point where we decided, okay let’s do this and see how it goes.

But why would the Middle East want to consume products from Indonesia? I’m sure there are plenty of options for them within the region itself. 

First I want to clarify that we have not finalized that we will go to the Middle East. It is a potential market for us and we have not finalised it. But the question based on what we have seen so far, I think there is potential for fashion and apparel. It has been known that Indonesia is somewhat more creative than the Middle East. I mean, just in general, you can see how Indonesian Muslims do fashion compared to the Middle East, we are probably more colourful and creative. That is just one example, right? And obviously, that is a hypothesis and is something that has yet to be addressed. 

Is BukaGlobal going to be a separate app from Bukalapak? Or under the same one?

Right now there is a BukaGlobal section in the Bukalapak app. This isn’t available for all merchants yet. Because in order to send your products out of the country, you have to be from Jakarta.  

Do you intend to continue keeping it in one single app? Or do you plan to spin it into another app?

So it depends on the response again. It may be a different app. We could also find more ways to introduce a multi-language feature.  All these things are possible in the future. 

So you have to focus on localisation moving forward then? Because you’re also in five different markets. 

Yes.

Is cash burn a significant concern for you because now you’re entering five different markets, so you’re likely going to burn in all five markets too.

The big focus is still Indonesia. We don’t want to spend big resources to do this at the moment. But if it’s growing fast and it’s generating good revenue and numbers, we can put more resources there. It will also become the story that we want to tell investors when we do the fundraising.

Does this mean you’re fundraising?

We’re not in a rush but we’re open to discussing. 

You’ve raised comparatively less capital vis-a-vis your competitors. While your last round was not disclosed, how long do you think your current runway will last? When will you need to raise more capital for all these expansion plans?

I cannot say how long our current runway will last. I think it’s good for every company to reach eventual profitability so that is something that we want to pursue as well. 

So where are you on that?

I cannot give the actual data. But based on our revenue model and trajectory, I believe that we are, if not the most, among those close to profitability.

Is there a time-frame when you see yourself being profitable?

We are discussing between that and growth, right? Because one of the things that always makes it harder is if you want to grow into different sectors, and then potentially invest more. This is not just capex, but also in terms of human resource and stuff like that, which then makes the road to profitability longer than what we predicted before. So that always comes into the strategic decision. At the moment, we have not yet decided.

Considering the kind of capital that you need, there aren’t many players who can join your cap table. I’m referring to players big enough to write a $100-300 million cheque right away. What options does this leave you with? Chinese investors? Western strategics? 

Well, I guess, the US-China trade war is one of the things that may benefit VCs and startups in this region and actually we can try to go into both. China will probably shift the investment from the US to other regions and vice versa for the US. So we’re now actually open to talk to – in fact, we did talk with some investors from both. We do speak with investors from the US and some from China as well. 

Is your current objective about expanding user base?

I guess both user base, and usability as well. Right now we have 50 million users. And we can see the growth in terms of the user base. But obviously out of this 50 million, there are people who only do transactions.

The reason why I ask this is that it’s very competitive in Indonesia, but your user growth has been pretty stagnant in terms of engagement, transactions etc. Are you beginning to see yourself hit a ceiling in Indonesia, which is driving you to look overseas? 

When we talk about just the e-commerce side, yes, there is potential that growth is not as fast as before. That is why we are expanding into other services, not because we want to leave e-commerce, but because we want to explore areas close to e-commerce so we can help the industry.

What about the prospect of consolidation happening in Indonesia? Do you see that happening soon? There was also a lot of talk about Amazon coming in.

First of all, we don’t see Amazon coming at the moment, at least not for the next 12 months or so. As with many other competitors who enter and quit the market, and we have seen a few of them in the last few years, I guess what matters is innovation. The more competition there is, the more it will push us to innovate better, and better serve our customers. I guess that’s always the key in any market, and it doesn’t change with whoever comes into the market. 

On consolidation in the e-commerce space – yes, it is scattered. But that is why we are not just looking at the e-commerce market. E-commerce economy represents 5 per cent of total retail, but we’re looking at 100 per cent. That is the reason also why we recently expanded into offline with mom-and-pop stores and warung and mitra program. We have now partnered with over 1 million offline merchants and suddenly we look at a market that’s much bigger, 20 times bigger than the market we see now. This makes the situation a little tricky in the sense that should we consolidate now? Or should we wait until this market really grows big in the future?

One of your competitors, Lazada, already owns its own logistics. Tokopedia, we hear, has been buying up logistics startups. Are you interested to acquire any too?

At the moment, we are not. I don’t deny that there is the possibility of this in the future, but because the market itself is still growing fast, I see that the logistics market is also scattered. There are so many players and no clear winner at the moment. So right now we choose to partner instead with many of these logistics parties and see whether there are going to be any winners. Potentially we can have a tighter collaboration.

But don’t you see yourself as being set back somewhat on this front compared to your competitors?   

I guess that’s one way to look at it. But the other way you look at it is also what if they don’t pick the winners? What happens if eventually the player who emerges the winner is someone else, right? So there is also a chance of something like that. That’s why at the moment, we are still waiting because right now, it’s too early to say who’s going to be the winner in this market.

Have you made any other acquisitions or picked up stakes in other companies?

We do. I mean, we are open. In fact, we did. I forget which ones we published, but we did do some of them.

How many companies do you have stakes in altogether?

Still small. That’s not our priority. Less than 10? It’s not many compared to GOJEK, for example. But again, it’s not our main priority.

But when you say less than 10, are these acquisitions or minority stakes?

We have [done] both.

Is there any ratio or split between the two?

Right now, a little bit more of acquisitions. 

What kind of acquisitions make sense for you at this stage of your growth?

I guess for us, we are not like VCs or investors, right? We are looking at companies that can have synergy with the company here.

Everybody’s trying to be a fintech player, getting into payments and wanting to be a super app. Where are you placed in your fintech business and where do you see this growing? 

We see ourselves more as ecosystem players in the sense that we are not creating a software app. We are in the retail space. By retail, I mean there is the online marketplace, there is the offline world, right? Do we have fintech? Yes. But fintech for us is complementing retail itself. We started getting into financing because a majority of the merchants in our ecosystem are SMEs and they needed financing. A majority of these SMEs are also looking for a way to put the money into investment products. Eventually, we will also offer this to the buyers, not just the merchants, but essentially, the core itself is still retail. And that’s why some of the features that we do are always within this ecosystem. 

Is your fintech business larger than your e-commerce business? 

Currently, the biggest is still e-commerce. 

But do you foresee it growing to such a stage where it will eventually overtake your e-commerce business? 

It is difficult to estimate it now because obviously when you start from a small base, it grows faster, right? But to what extent, we have yet to see. I believe that at least in the near future, our e-commerce arm will still be bigger, because fintech itself is added on top of the platform.

But you’ve also added a lot of other products like mutual funds, gold and equities. Indonesians are not at that stage where their disposable income allows them to engage in such investments. So what made you enter these spaces now?

Yes, you are correct that maybe Indonesians do not invest a big amount in this sector. But what if we lower the entry barrier into this space? Right now the growth of our investment products is amongst the fastest across all segments of the company. Gold, for example, grew almost 10x this year, mutual funds grew almost 3x compared to 2018. Why? Because suddenly, the barrier-to-entry is very, very low. Although it is correct that the ticket sizes for investment are not big – maybe only about 500,000 rupiah or about $35, compared to the usual ticket sizes for mutual funds, but at least it shows that there is a potential there and that more Indonesians are willing to try this.

Hopefully, by showing them the potential in the future, they can increase the ticket size. That’s why the regulator is happy with us. Sometimes we have joint promotion events, because they believe this will help them achieve their financial inclusion goal.

How is your advertisement business growing? It’s a huge area of potential revenue for players like Amazon. 

Yes, for e-commerce companies like Amazon or Alibaba, the two biggest revenue generators are always advertising and commissions. Advertising is growing but right now, we don’t charge a commission yet. We do have some other revenues but the biggest one is advertising. 

Do you plan to do commissions?

None of our competitors are charging commissions in the market yet, so we potentially won’t do so in the near future. Shopee charges in Taiwan, and maybe in its other countries, but not in Indonesia. The growth in Indonesia is still big, with plenty of competition – that’s why no one is charging yet. 

Where do you see Bukalapak in 2020-21? Do you see consolidating into a larger e-commerce player? Or becoming a much bigger standalone player? Do you see Chinese strategics coming in to take an exit?

The company is growing fast. That’s what we are focusing on at the moment. I see the company growing in many sectors that we are entering into — online, offline and fintech — and I see Bukalapak as a standalone company in the near future.

You are among one of the few unicorns in Indonesia. Where do you see the next unicorn coming from? How many unicorns do you see in Indonesia?

Another three to five unicorns maybe in two to three years.  

So double the number of unicorns in Indonesia now? 

Yes. A few will be from fintech definitely. Like P2P lending and stuff like that. Some of them, as you know, are already in the valuations of hundreds of millions, so there’s a lot of growth. The other sector, I would guess, is healthtech.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.