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Indonesia – New Rules, And Worries, For E-Commerce Companies.

3 June, 2013

 

 

E-commerce in Indonesia is still in its early stages compared to more mature markets like Europe and North America. Nevertheless, the online shopping sector has grown rapidly in Indonesia in recent years and this is expected to continue as it attracts more entrepreneurs eager to tap into the power that e-commerce gives them to reach customers not only in Indonesia but globally.

 

According to data from the Ministry of Communication and Informatics, in 2012 the value of e-commerce transactions in Indonesia was around Rp 120 trillion, or about US$12.3 billion at the current exchange rate. That is almost double the value of e-commerce transactions in 2011, which stood at Rp 63 trillion.

 

Indonesia is touted by e-commerce players as a fast-growing market with huge potential, given the country’s population of more than 240 million and economic growth that has been above 6 percent in recent years. Lazada, one of the fastest growing e-commerce companies in Indonesia, saw its revenue grow by at least 20 percent month-on-month in 2012, and Maximilian Bittner, the CEO of Lazada Southeast Asia, told The Jakarta Post that he expected to sustain that pace through this year. He also told the newspaper that Indonesia had become Lazada’s number one source of revenue in the region in just a year.

 

To accommodate online business players and this fast-growing sector, the Indonesian Government late last year issued Government Regulation No. 82 of 2012 regarding the Implementation of Electronic Transactions and Systems (“GR 82″). This is an implementing regulation for Law No. 11 of 2008 regarding Electronic Information and Electronic Transactions, which was issued on April 21, 2008. GR 82 basically sets out the obligations for electronic system providers, including individuals, government institutions and companies, e-commerce companies included.

 

It is likely that GR 82 will be followed by other regulations that will provide more detail on the implementation of the e-commerce business in the country. The Government has said it plans to issue new regulations on e-commerce that will provide a clearer roadmap for the sector. Azhar Hasyim, director of e-business at the Ministry of Communication and Informatics, confirmed to The Jakarta Globe that they were considering new regulations for the registration of electronic systems that would affect e-commerce.

 

The major requirement in GR 82, and the one that all e-commerce business players should take note of, is that every electronic system provider operating in Indonesia must be registered in the country and have a data center and disaster recovery center here. The new regulations, which according to Azhar are likely to be implemented later this year, would re-emphasize this requirement that electronic system providers register in Indonesia.

 

This requirement is aimed at helping the government control or access the relevant data in the event a consumer inside or outside Indonesia encounters trouble while engaging in online business or shopping. The Ministry of Communication and Informatics says that in the past few years it has received a large number of complaints from e-commerce consumers in Indonesia and abroad about websites with “dot-com” domain names (1). It says there is little it can do because the websites are not registered with the Indonesian Government and the Government does not possess data on e-commerce websites with foreign domain names. If the data is located outside the territory of Indonesia it is difficult for the Government to obtain such data.

 

However, for a number of reasons many e-commerce players remain reluctant to register in Indonesia and locate data centers and disaster recovery centers in the country. One concern is the availability of a reliable power supply in Indonesia (2) with the sole provider being state-owned electricity company PLN. It seems likely that major online business players such as Google, Facebook and BlackBerry will be hesitant to rely on PLN as the lone power supplier for their data centers. There will also be concerns about protecting data centers from natural disasters such as earthquakes and floods, which are not uncommon in Indonesia.

 

The discussed new regulations would also require e-commerce players to operate their platforms using an Indonesian “dot-id” domain name. Azhar explained that the purpose of this was also to help the government control and track e-commerce websites, and ultimately ensure they are not operating outside the legal framework of the country (3).

 

Although the new regulations have not been issued, online businesses are already concerned about the “dot-id” requirement. The CEO of GoIndonesia, Yusuf Ijsseldijk, told Metro News he worried the requirement could curb the growth of the e-commerce industry in Indonesia. While there are few details about the proposed “dot-id” requirement, it is probably safe to assume that the process for e-commerce players to obtain a “dot-id” domain name would take additional time. The “dot-id” requirement could also prevent Indonesian e-commerce sites from competing on a global level.

 

E-commerce companies that existed prior to the issuance of these new regulations would be exempt from the requirement that they operate under a “dot-id” domain name. They would be allowed to continue operating under “dot-com” or any other domain name. However, they would still have to register in Indonesia and have a data center in the country.

 

The purpose behind GR 82 and the discussed new regulations seems to be to protect the interests of consumers and to provide legal certainty to e-commerce business activities in Indonesia. Azhar told The Jakarta Globe that the regulations would help prevent fraud and improve consumer trust in online shopping services, which would benefit the industry.

 

In practice, it seems likely that e-commerce businesses would have trouble implementing the requirements in GR 82 and the discussed new regulations, considering the lack of facilities for e-commerce business players to create proper data centers in Indonesia. And the obligation to use a “dot-id” domain name could cause hesitation among investors thinking about starting an e-commerce business in Indonesia.

 

It is also apparent that the existing and expected regulations on e-commerce in Indonesia are more focused on practical matters, while the actual operations of e-commerce businesses themselves have not been specifically regulated. Any stipulations on e-commerce transactions, however, will likely be scattered across a number of regulations rather than gathered in a single piece of legislation.

 

The confusion and general consternation that the issuance of GR 82 and the discussed new regulations have caused among e-commerce business players and the Government itself should not be a great surprise, considering that e-commerce in Indonesia is still very young. And with e-commerce growing so rapidly in Indonesia it is unlikely that this is the last time these kinds of issues will emerge as the Government puts in place a regulatory framework for the sector

 

1- http://finance.detik.com/read/2013/03/22/200449/2201623/4/situs-dagang-online-domain-dotcom-banyak-penipuan

2 – http://property.okezone.com/read/2013/03/26/55/781708/index_news.html

3 – http://www.thejakartaglobe.com/business/indonesian-government-to-regulate-online-shopping/581592

 

SSEK

 

For further information, please contact:

 

Saprita Tahir‚Äč, Soewito Suhardiman Eddymurthy Kardono
sapritatahir@ssek.com 
 

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