The fight between Indonesian start-ups and foreign giants

JAKARTA (ANN/THE STRAITS TIMES) – Indonesia’s homegrown startups face an uphill battle against well-funded foreign rivals, leading to significant valuation declines for the country’s biggest unicorns, GoTo and Bukalapak, throughout 2024.

Investments in local startups are down by about two-thirds from a record high of $3.5 billion annually in 2020 and 2021, according to a November 2023 joint report from venture capital fund AC Ventures and Bain & Company.

Analysts emphasize that the current crisis is putting enormous pressure on Indonesian companies to innovate, reduce cash burn and achieve profitability.

GoTo, a combination of ride-hailing giant Gojek and e-commerce leader Tokopedia, has seen its share price fall 55% this year, currently valued at IDR 60 trillion on the Indonesian stock exchange.

Meanwhile, leading e-commerce unicorn Bukalapak also saw a 33 percent decline, reducing its market capitalization to IDR 14 trillion.

Both companies have lagged significantly behind the broader Indonesian stock index, which is down just four percent in 2024.

Experts believe that the weak results are due to strong competition from larger regional competitors and the slow pace of innovation.

Key rivals such as Shopee and Sea Limited-owned Grab have significant financial backing, regional dominance and aggressive expansion strategies.

Sea, listed on the New York Stock Exchange with a market capitalization of $43.6 billion, and Grab, valued at $14 billion on Nasdaq, are using their profitability in other markets to expand market share in Indonesia.

Henry Pranoto, a senior equity analyst, pointed to the advantages of a U.S. listing for these rivals, allowing them to raise funds more easily than local exchanges. That disparity underscores the challenges Indonesian companies face when confined to domestic market conditions.

Moreover, Bukalapak’s cautious approach with a large cash reserve of IDR 20 trillion has raised concerns among investors. Analysts criticize the company for its apparent reluctance to invest in technological progress and effectively expand the reach of e-commerce.

The struggles of these early Indonesian unicorns highlight broader problems in the country’s tech startup ecosystem. Observers note that many local technology companies failed in their infancy due to reliance on imitation services, lack of innovation and mismatch with market demand.

Economist Wijayanto Samirin believes that Indonesia’s technology sector is undergoing consolidation and that companies that survive need to streamline operations, reduce costs and achieve profitability. He emphasized that investors are currently prioritizing financial stability over valuation metrics.

Looking ahead, Indonesian startups such as TaniHub and Sayurbox face cash flow management challenges, exacerbated by operational difficulties. TaniHub, for example, has struggled to repay debt obligations after encountering problems with farmers not keeping their harvest promises.

As competition intensifies, Indonesian startups must remain agile and adapt quickly to navigate the competitive environment. Foreign tech giants see Indonesia as a key battleground and are using their global resources to assert dominance in Southeast Asia’s largest market.

East Venture, a leading Indonesian venture capital firm, believes the digital sector is entering a new phase amid global economic pressures.

While cautious optimism prevails among investors, the availability of financing continues to depend on the soundness of companies’ business models and their ability to weather market uncertainty.