[New Report] Menjamur: The race to digitise 65M small businesses in Indonesia

Over the past few years, we have seen many startups looking to “digitize/enable/empower” the more than 64 million micro, small and medium enterprises (MSMEs) in Indonesia. Many of these founders have subsequently raised a significant amount of money to pursue their business models: B2B supply chain, bookkeeping, financial services and so on. 

Every time a sceptical investor from outside Southeast Asia approaches us, their first question is almost always “Are there really more than 60 million MSMEs in Indonesia?” And there’s also the key question – “Do these startups have a sustainable business model or monetization method?”

The answer is actually quite complex, and nuanced. We deep-dive into the MSME industry and the players catering to these MSMEs in Indonesia in our new report – Menjamur: the race to digitise 65M small businesses in Indonesia. 

You can download a copy of the report here.

Here’s a short preview of what to expect in the report:

1. Majority of businesses in Indonesia are micro enterprises

According to government statistics, 98.7% of businesses (64.6 million) are micro-enterprises. However, if you work out the math, the Ministry’s statistics will translate to 600 businesses in one village which is only possible if you include seasonal vendors and freelancers as businesses (which is quite common in Indonesia). 

According to the compilation of expert perspectives, they observe that the number of ongoing MSMEs oscillates between 10 to 12 million or slightly above.

2. Digitizing MSMEs is a US$63.3 billion industry

Based on our on-the-ground research, the total enterprise value opportunity of digitising MSMEs in Indonesia will mainly be in supply chain (US$47.3 bn), followed by financial services (US$14.3 bn) and Software/ Saas (US$1.7 bn) 

 

1. Software/SaaS: US$1.7 billion
2. Supply/distribution: US$47.3 billion
3. Financial services/lending: US$14.3 billion

 

3. MSMEs in Indonesia broadly fall under four categories

The four major types of MSMEs are Warung Grosir, Warung (Toko) Kelontong, Warungs and Pedagang Kaki Lima. Warung Grosir and Warung (Toko) Kelontong are the 2 types of MSMEs targeted by startups because they have higher AoV. 

4. Understanding the major brands that sell basic necessities ( “Sembako”) in Indonesia 

MSMEs mainly sell staples and knowing the trend of what people buy is useful. Rice, sugar, cooking oil have always been constant. New goods that are now considered staples are instant noodles and cigarettes. 

5. Online channels are a new way of shopping for staple goods

Earlier, people used to go to stores – be it retail chains, convenience stores, wholesale shops, etc. to get their groceries and supplies. Recently, a new way of shopping has emerged – through online retail channels such as WhatsApp, TikTok, Facebook, etc. and ecommerce platforms like Shopee, Tokopedia, etc.

6. Many startups catering to MSMEs got funding during the pandemic

A significant amount of investment has been made on startups catering to digitize the 64 million MSMEs in Indonesia. Many players actually got acquired by slightly bigger players to offer a range of services for MSMEs (to add value to their customers to increase stickiness).

7. Monetization from serving MSMEs is a tricky business

Startups have identified quite a number of ways by which they can monetize from MSMEs. However, in reality, there are quite a number of drawbacks to the model:

1. The services offered by startups should add value to MSMEs for them to continue using their services. Just increasing efficiency won’t make business owners pay for the services.
2. Moreover, it is difficult to earn good margins from serving MSMEs. There’s a lot of effort and cost involved in setting up the infrastructure and personnel. This is why many of these startups also cater to corporates and other large businesses. 

If you would like to know more about MSMEs and the business dynamics in the drive to digitise micro, small and medium enterprises in Indonesia, check out our new report – Menjamur: the race to digitise 65M small businesses in Indonesia. You can get a copy here.