Electronic Commerce

Despite the proliferation of internet service providers and coverage of cellular operators services in recent years, several factors hinder the growth of electronic commerce in Indonesia. To effectively support an open telecommunications infrastructure, the new law No. 11/2008 on the Electronic Information and Transaction (signed by the President on April 21, 2008) needs at least nine government regulations which until now have not been implemented. In fact, the law is currently under review by the Indonesian legislature as it was used against Prita Mulyasari, an Indonesian housewife jailed for complaining through e-mail about poor medical service she received. The case sparked an immense outpouring of public support for the accused and open criticism of the defamation law.

The lack of a clear policy and enforcement of the law, has promoted a de-facto cartel on the submarine fiber-optic cable connection to the internet backbone (via Singapore, Malaysia and Hong Kong/ Japan/ Taiwan), a monopoly provision of fixed landline service by PT Telkom and PT Indosat. Several private companies, which have a license to deploy competing backbone networks, found a lot of regulation obstacles to operate it successfully. This has not helped to lower the cost of internet access. The government’s tender on WiMAX resulted in eight winners, but each of them is required to connect to the high-cost backbone network. The GOI’s policy to extend rural telephony and basic internet access to 30,000 villages has not yielded significant market opportunities. Local competitive bidding on the Universal Service Obligation (USO) and WiMAX operators have been announced.

Several companies and telecommunication operators have won the tender, but most of them have yet to pay for the high “upfront-fee” bid. In addition, the terms, conditions and implementation of the tenders have discouraged potential investors and vendors as the Wimax operators have to comply to local content of at least 30 percent (for CPE) and 40 percent (for Base Station).

Despite the proliferation of low-cost netbooks, a low level of computer ownership by both businesses and individuals and high costs of internet access still hinder the growth of Electronic Commerce, especially in smaller cities.

In the past few years, Indonesian cellular operators have been actively looking for more content and business models to earn more revenues. Mobile-banking features could become a popular solution of small to medium business transactions if the security of electronic transactions is assured. All cellular operators are offering some kind of internet access overlay into their existing voice networks, or deploying new 3G Base Stations co-located or as a replacement of the 2G BTS. The social and business applications, which do not require a high speed internet access, have been offered at a low cost and even bundled to sales of new low cost QWERTY handsets.

The popularity and lower costs of interactive communication via social networks like Facebook and Twitter, have produced other kind of handsets (Blackberry lookalike smartphone such as Nexian, Blueberry, Redberry, Vitell with QWERTY keypad) and services (low-cost bundled voice and data packages) to fulfill the fast growing market. The usage of cellular handsets as a terminal for online transactions will be further advanced by the availability of 3G service. The success of Blackberry and Blackberry lookalike handsets could pave the way for the success of similar handsets and services, but the services are managed and routed on local servers, like Android handsets.

Pricing

Given the competition that American suppliers face from foreign competitors, product pricing must take into account the costs of delivery, distribution, advertising, and image. Since product pricing is one critical factor in determining success, market research is a useful tool. This includes studies of both consumer preferences and competitive practices. Pricing is best developed with advice from local distributors, who are well attuned to the factors at play in the specific market. U.S. companies may conduct their own market research, obtain information from the U.S. Commercial Service, or contract with private research firms.

Sales Service/Customer Support

One critical aspect of a product’s successful launch and sustainability is customer support and after-sales service. Some U.S. firms face difficulties providing this support due to distance from the U.S. and the costs of maintaining product support facilities.

Although some local distributor partners normally establish such mechanisms, firms should be prepared to invest substantial amounts of capital and manpower into making their local partner a first-class service provider. Regardless of a company’s international reputation, Indonesian consumers value a firm that can provide on-the-ground customer support. They expect to have their needs handled locally with quick turnaround times.

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