1 CHAPTER I INTRODUCTION I.1 Background The growth of e-commerce has changed the retail industry all over the world in all product segments, and the smartphone & gadget is no exception. Over the past years, e-commerce platforms in Indonesia have grown rapidly popular as convenience to shopping for products, including smartphones. Indonesia is one of the Countries with the highest number of adoption on E- Commerce in the world. By 2019, Indonesia have 90% of Internet users from the age range 16-64 that had do the shopping transaction in E-Commerce (Index, 2019). Figure I-1 E-Commerce Activities in Indonesia Sources: Global Web Index (Q2 2019) The Ministry of Finance mentions that Digital Economic Transaction is projected to increase 20% to become USD 146 Billion by the year of 2025 (Nazara, 2022). Based on Statista Data, by 2025 Indonesia’s digital economy is on course to reach U$D 130 Billion by 2025, driven primarily by the E-commerce, Transport and Online Food sectors (Statista, 2023). 2 Figure I-2 Digital Sector in Indonesia by number of GMV Sources: Statista 4 major factors driven the high absorption of E-Commerce in Indonesia based on an article from Janio Asia (Katrina B. & Benedict L, 2023) : • Growing middle class with high internet and mobile penetration rates • COVID-19’s influence • Growing numbers of fintech and alternative finance options • E-Commerce Tech Investment in Indonesia Growing middle class with high internet and mobile penetration rates According to the World Bank, Indonesia successfully increased economic growth while maintaining the average annual growth rate of 5.6 percent of GDP, Indonesia Middle class also has been a major driver for Indonesia economic growth with the group consumption increasing to up to 12% per year since 2002 (World Bank, 2020). 3 Covid-19’s Influences When Covid-19 hit the world, it forced the world to adjust to everything they did in regular life including how they shopped. The strict lockdown regulations that limit the access of the public to the brick & mortar store become a blessing in disguise for e-commerce platforms in Indonesia. Based on the report from Google, Temasek, Bain & Company E-Commerce Sea 2020 Reports, 37% of all digital service consumers in Indonesia are new customers (Google, Temasek, Bain & Company, 2020). Figure I-3 New Digital Users on Lockdown Period Sources: Google, Temasek, Bain & Company After entering into Post Pandemic Phase, E-Commerce industry still be one of the main option for customer for shopping, Based on the report from Raydiant of Customer Behaviour on 2021, 48% of the customers had change their habit from usually purchase on brick & mortar store to the Online Shopping (Bisnis Indonesia, 2021). These findings are also strengthened by the survey result from McKinsey quote by CNBC Indonesia that 34% of Indonesia People frequently shop for foods thru Online, while the other 30% mention that they frequently shop for Home 4 Appliances thru Online. 72% from the total survey mention that they will keep their basic needs thru online even after the pandemic done (CNBC, 2020) Growing Number of Fintech & Alternative Finance Options E-Payment in Indonesia became the trend in Indonesia for the past couple of years. Increment of players in this sector made customers have many variative options to choose from. Fintech companies like Gopay, Ovo, Shopee Pay, Link Aja, Dana had exclusive collaboration with E-Commerce Platform and increased the usage of Fintech daily. Another rising features that been develop by fintech company nowadays is pay later, Gopay with Gopay Later Cicil & Shopee with their Shopee Pay Later had become one of the main options to the customers & help customers to increase their buying power that led to the increment of E-Commerce Industry in Indonesia E-Commerce Tech Investment in Indonesia The rapid growth of the E-Commerce Industry in Indonesia attracts many investors to invest in the E-Commerce Industry in Indonesia. Expedia made an investment to Traveloka with a total value of US$ 350 Million, Tokopedia in the end of December just received investment from ByteDance to require 75% of Tokopedia shares with the value of US$ 1.5 Billion. E-Commerce Industry growth in Indonesia also followed with the increment of each category. Based on Statista data that quote by Janio, here is the details of top 5 E- Commerce categories in Indonesia in 2021 (Statista, Google, 2021) : 5 Figure I-4 New Digital Users on Lockdown Period Sources: Janio Asia Growth in the Consumer Electronic Category in Indonesia E-Commerce dominated by Smartphones industry that produce must have item products that serve not only as the communication tools but also essential devices.