BUKALAPAK 2077: The Future Pinduoduo of ASEAN's China (Part 1)
CODENAME:WARUNG - A 101 Primer of Indonesia's B2B E-commerce 1-Stop-Shop & the Warung Industry of Indonesia's ex-Tier 1 Cities
“To understand Bukalapak is to understand Indonesia.”
Maybe I’m being a little dramatic with the above statement - but the overarching point remains true. To obtain a comprehensive understanding of what Bukalapak’s future could look like, it is not enough to simply understand its present-day business alone. Rather, one needs to gain a true understanding of the business environment which Bukalapak resides in - from an industry, country (economics + political) & global perspective.
Most of the sellside reports that I’ve come across have only chosen to approach the analysis of Bukalapak from a micro perspective. This is unfortunate, because while they’ve provided excellent data on the business side of things, they fail to provide perspective from the bigger picture point of view - Indonesia’s place in a changing world order, and Bukalapak’s place within that country. As far as I understand, these provide necessary context to gain a proper comprehension of Bukalapak’s prospects.
In my view, there are five legs to the Bukalapak thesis that need to be understood in order to fully grasp the potential future share price trajectory of this fledging Indonesian e-commerce company. They are:
If this is your first introduction to Bukalapak, you’re probably wondering what a warung is. A warung can be loosely translated to ‘stall’ or ‘hawker’ - and Bukalapak is Indonesia’s answer to the B2B e-commerce version of the warung. These are basically the Indonesian equivalent of micro-businesses in India - many are managed by just one or two entrepreneurs, and represent hand-to-mouth subsistence enterprises for their managers to earn enough to feed their families. You can see one such example of a warung in the picture above - they barely resemble a traditional shop or storefront, and are for the most part just a push trolley decorated with items for sale or a small-format stall on the side of a road.
However, the warung sector represents a substantial market in Indonesia, as the vast majority of Indonesian businesses are warungs. By volume, >99% of Indonesian businesses fall under the broad official umbrella category of MSME (micro, small and medium enterprises); and if the India figures in the link above are any indication, there should be a similar 95:5 ratio between the number of micro businesses in Indonesia and the number of SMEs. This would subsequently imply that >99% of Indonesian businesses are actually warungs.
To illustrate, >50% of Indonesia’s present-day GDP resides within its Tier-1 cities - i.e. Jakarta, Surabaya, Bandung, Medan and Semarang. Notably, all of them except Medan are located on the central island of Java (next to Bali) - with Greater Jakarta alone contributing to >15% of the country’s GDP; while the island of Java contributes to >55% of the country’s GDP. This implies that the vast majority of Indonesia’s population who live in Outer Java operate subsistence businesses like warungs - and is where the country’s next chapter of GDP growth will stem from.
You may have noticed how Indonesia refers to its “Tier-1 cities” similarly to how China does. In contrast to the 5 aforementioned Tier-1 cities in Indonesia, China has 4 Tier-1 cities - i.e. Beijing, Shanghai, Guangzhou and Shenzhen. And just as the next chapter of China’s economic growth is widely expected to come from its ex-Tier 1 cities, so too is Indonesia’s next chapter of economic growth dependent on enabling the warungs in the Tier 2 and Tier 3 cities of its outer Java islands. This draws immediate parallels between Bukalapak and China’s Pinduoduo - which is also an e-commerce player that mainly targets growth in China’s ex-Tier 1 cities.
As we’ll discuss in the Macroeconomics section of this report later, you’ll take note that Indonesia today very much resembles China of the early-90’s, when Deng Xiaoping first took over the reigns of China - right down to the overthrow of Indonesia’s second President Suharto during the 1997 Asian Financial Crisis (AFC), and the Reformasi program which massively depoliticized and institutionalized the country’s political and economic infrastructure. There are also South Korean parallels to be drawn here - with the post-AFC undoing of the Suharto patronage system leading to a lesser GDP contribution by massive chaebol-like family dynasties and a democratization of the private sector.
Bukalapak and its other e-commerce competitors happen to be nicely positioned in the middle of Indonesia’s massive growth wave - with the country itself being squarely located in the Indo-Pacific, where the next generation of geopolitical priorities are shifting in favor of the greater ASEAN region. Most of you already know Indonesia as the 4th most populous country in the world and the world’s most populous Muslim-majority country - now add in its location on the axis of geopolitical influence, and it’s basically a mirror narrative to post-WTO China in 2001.
One last thing that I will mention is that this report is not intended to be a regurgitation of Indonesian e-commerce industry stats like how so many Bukalapak sellside reports have approached it (perhaps necessarily so). In the interest of brevity, I would first direct you to read other existing Bukalapak sellside reports for all the necessary industry context (e.g. like this excellent free CGS-CIMB Bukalapak report) - where you can find granular domestic e-commerce data such as market share, pricing comparisons between competitors and app UI ease-of-use. If you have access to a Bloomberg terminal, you can even download other excellent Bukalapak sellside reports by Credit Suisse, UBS, Jefferies & Bernstein to further bolster your statistics inventory.
However, my intention with this report is to build on top of their research and provide you with my own personal interpretation and analysis of Bukalapak - not to regurgitate what you can already find in the aforementioned sellside reports. We shall be covering areas of concern which these reports didn’t touch on (e.g. macroeconomics & the Salim Group’s influence) - in order to provide you with a more holistic 360° view of the pains and opportunities present in Bukalapak’s windshield. I would even dare suggest that you are unlikely to find a similar BUKA report like this one - which attempts to analyze the company’s prospects not just from the perspective of a changing global world order, but also a changing Indonesia. As we shall see later, politics is a very dominant force in the Indonesian business environment.
In this Bukalapak Part 1 report, we will first expound on the definition of Indonesia’s warung economy; and the competitive landscape of the Mitra B2B e-commerce industry in its ex-Tier 1 cities. The upcoming Bukalapak Part 2 report will explore the significant role that the Indonesian “chaebol” Salim Group will play in the e-commerce company’s future; and how that relates to the greater geopolitical narrative of the next generation’s Indonesia and Bukalapak’s role in it. Hence the title of this report, BUKALAPAK 2077.
Chapters (Part 1 & 2):
Mitra Bukalapak’s website (O2O market)
If you want to get up to speed on Indonesian macro, here are some impressive articles for your reading delight:
Download here for FREE: CGS-CIMB Bukalapak report!
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