Indonesian e-commerce unicorn Tokopedia says it has started to implement its own “globalization strategy” by helping Indonesian merchants on its platform to export their products abroad.
“Right now it’s still at an embryonic stage, you will see more of that activity scale as we focus more of our resources and attention on that,” Tokopedia president Patrick Cao told DealStreetAsia on the sidelines of the Asia PE-VC Summit 2019 in Singapore.
The idea of the initiative, Cao explained, was to give Tokopedia merchants the benefit of the company’s resource, network, and connectivity to be able to sell to a broader market.
The move follows a similar strategy carried out by fellow Indonesia e-commerce company Bukalapak, which earlier this year launched BukaGlobal, a feature that aims to connect the global market with sellers on the Bukalapak platform.
However, differently to Bukalapak, Tokopedia does not offer the feature on its platform, preferring to keep the services offline. While Tokopedia has carried out some promotion of local brands to foreign markets on its platform, no cross-border transaction is facilitated on it. The Tokopedia platform, the company said, remains focused on serving the Indonesian market only.
Cao said that helping merchants sell their products abroad will be the full extent of Tokopedia’s globalization strategy for now, as the company is solely focused on going “deeper and deeper into the Indonesian market, not go regional or global.”
Its strong focus on the Indonesian market, Cao believes, is what sets Tokopedia apart from well-funded regional competitors like Singapore-based Lazada and Shopee, despite them investing heavily to build out strong local teams in the country.
“We are the beneficiaries of the fourth largest market in the world. So we don’t need to go elsewhere. They run centralized technology product leadership teams in Singapore. Everything is built in one place and translated. So if you take a Singaporean app and then translate it into Bahasa, you as an Indonesian would know very well that the customer journey is not as good. So that I think is also a key advantage,” Cao said.
At this point in time, Cao claims Tokopedia has “by far the highest quality unit economics business among e-commerce companies” in Indonesia. However, the company is not in any rush to chase breakeven point – a milestone currently pursued by Bukalapak which has seen it take bold efficiency measures over the last few weeks.
Cao said, in regards to revenue management, the company prefers to look at global peers for inspiration.
“You should look at our global peers, like Amazon, as an example. The cash flow that they generate, they reinvest into their business, so at times they show profitability. I think we always have the option to be profitable, it’s just that we choose to invest in growth and we will continue to do that in a sustainable manner,” he said.
Unlike other sectors where being a unicorn would probably make you an out and out leader, in e-commerce, almost all the big players are unicorns with heavy financial backing. Players like Lazada and Shopee are not from Indonesia but have spent a lot to build out strong teams here. For Tokopedia, do you think there is still an advantage of being a local player?
I would first start by saying that I don’t think capital is by itself an advantage. I really do believe that its all about customer-obsession and the whole product innovation. We only have a Bahasa application – no English version. Why does that matter? It matters because it demonstrates that we focus on one country, and one set of customers who by themselves are already very diverse, and have a diverse set of needs.
So if you think about the time and the resource, in which capital is included, everything is spent 24/7 obsessing about the Indonesian customers. And I think that’s the biggest advantage that we have because whether it’s me, our founders or our team, this is the only thing that we care about. I sleep for five hours a day. If I add another country, it’s not like I can take those five hours, and carve out two hours and distribute it across six countries, right? It’s just not something that I think is able to be replicated at scale especially for such a big but complex country like Indonesia.
If you compare us to our peers, which are unicorns, I think there are two big differences. Both of the companies that you alluded to are based in Singapore. While Singapore is a great country, the market is very small. We are the beneficiaries of the fourth largest market in the world. So we don’t need to go elsewhere. They run centralized technology product leadership teams in Singapore. Everything is built in one place and translated. So if you take a Singaporean app and then translate it into Bahasa, you as an Indonesian would know very well that the customer journey is not as good. So that I think is also a key advantage. So whether you are an unsophisticated internet user, and you’re shopping for the first time, what’s going to be easier for you? Indonesian product built by an Indonesian for Indonesia? Or a regional product that was built for Singaporeans or whoever, translated into Bahasa with a very specific set of assumptions that is not that relevant to the Indonesian customer?
So capital is merely a resource and a tool that we are a beneficiary of to be able to continuously invest in growth and to really build out the Indonesian market for Indonesian consumers.
So has Tokopedia closed the doors on overseas expansion for the next five years or is there a possibility you might consider it? Maybe to help Indonesian merchants export their products abroad?
Our strategy is firstly evolution – to evolve the business, to serve our customers better. Secondly, it is localization, so we go deeper and deeper into the Indonesian market, not go regional or global. But, that being said, as we build and help serve the merchants better, as they scale with our platform, by having better data tools to be able to sell nationwide, and leverage data to produce better products, then we would very much like to support them to export. So that’s our globalization strategy, which is taking a local merchant or brand or entrepreneur and giving them the benefit of our resource, network, and connectivity to be able to sell to a broader market, but again as an Indonesian merchant and brand.
When will you launch this?
We have already launched it. I think if you explore our platform you would be very surprised at the many things that you could do that are not obvious.
But again, if you take an individual merchant like our own President, he used to sell furniture in Solo. Back then, he could sell hyperlocally, but now with e-commerce, you can sell nationwide, but with the right global partners you can sell globally. I think that is the way we fulfill our mission to democratize commerce through technology in Indonesia.
Right now it’s still at an embryonic stage, you will see more of that activity scale, as we focus more of our resources and attention on that.
What about vertical expansion? Are there plans to tap into new verticals beyond commerce?
I define commerce as online, offline, on-demand and services. If it is a core part of commerce, or if it is an enabler, to support commerce, then that is something that we may focus on. For example, bikes and mobility, we would rather leave it to our friends at Grab and Gojek, who are our logistics partners because that is not core to our business and its not core to the mission of commerce.
You had talked on stage about IPO, and said that there needs to be three things to align for a company in order to go public: a path to profitability, a healthy market, and the right corporate governance structure? For Tokopedia, which of the three is currently still missing?
I don’t think we’re missing anything. We are very advanced in all three and a number of other variables, but I think it’s a constant work in progress, and the way we look at it is, there are a lot of stars that need to align for you to contemplate a successful listing and I think because we still have work to do there, and because I don’t think it’s the right time, then we will let you know when those stars align.
You recently announced acquisitions of Bridestory and Parentstory. Will there be more of such deals coming up?
I think really depends, first on how synergistic it is to Tokopedia, and secondly, it depends on the founder. In the case of Bridestory, we have been planning to work with Kevin (Mintaraga, Bridestory co-founder) and his team on the services offered anyway, but in our conversation and relationship we found that an acquisition would be a better fit, as opposed to a minority investment, and so we went down that path. And you’ve also seen us do a number of minority investments in strategic verticals and we will continue to do that as long as it is strategic.
Do you have a specific allocation for these kinds of investments?
Not really. We don’t run a corporate venture arm. Everything we do has to be strategic and we are fortunate enough to have the resource to do that. But you’ll see us do a number of things around core commerce and infrastructure as a service, as it makes sense.
Tokopedia announced its last funding last year. How much runway will it give you and when do you plan to start to raise for your next round?
Quite a bit of runway. We’re actually very capital efficient, especially relative to our peers. And the way we think about funding is it’s about bringing on new partners. So I think when we find new partners, strategic or financial, that bring a certain element of benefit to us, our customers and merchants or even our board, that’s when we will consider whether or not we will take their capital.
Where is Tokopedia in the path to profitability? At the moment, is your focus still on growth or are you starting to look at how you start to make profits?
I think we have to do both. Our unit economics are improving significantly and relative to our peers in Indonesia, we are by far the highest quality unit economics business among e-commerce companies.
Any timeline for profitability?
You should look at our global peers, like Amazon, as an example. The cash flow that they generate, they reinvest into their business. At times they show profitability, but I think we always have the option to be profitable, it’s just that we choose to invest in growth and we will continue to do that in a sustainable manner.