Promoting Local Markets: Tokopedia President Patrick Cao Talks About IPO Plans and Business Strategy

Indonesia's largest e-commerce platform, Tokopedia, is entering its second decade. On its 10th anniversary, the company declared its ambition to become a “super ecosystem” for local consumers and businesses. Based on latest research by LPEM FEB UI, Tokopedia is projected to contribute as much as $12 billion to the Indonesian economy this year, in terms of transaction value, employment, and increased income for sellers in all corners.

The company caused an uproar with the statement by its CEO and Co-founder, William Tanuwijaya, about their plans for an IPO in the next few years. This was well received by the public as well as analysts, given the company's positive track record in Indonesia's digital economy. It is hoped that this invite other companies to follow in his footsteps.

KRASIA recently spoke with the President of Tokopedia, Patrick Cao to discuss the company's business strategy and the details of the IPO preparation.

KrASIA (Kr): William publicly revealed that Tokopedia would focus more on "going local" rather than competing with other players to enter the international market. Can you explain a little about this?

Patrick Cao (PC): Small and Medium Enterprises (SMEs) are the backbone of the Indonesian economy. Today, there are more than 60 million SMEs in the country, and we contributed to empowering about 6,6 million last month. Apart from helping existing SMEs, we are also channeling a new wave of SMEs through this platform. According to the latest research LPEM FEB UI, Tokopedia has created 857.000 new jobs, ranging from active sellers from Aceh to Papua, equal to 10,3% of the total new jobs in Indonesia in 2018.

Currently we have 350.000 partner stores also called Partners. We develop technologies and platforms to provide additional services to them. For example, we help procure faster through the wholesale feature, and provide working capital to make it easier for them to add inventory. We made the Tokopedia Partner design simple to make it easier to digest. After one year, this application has been downloaded by more than two million Android users.

Cr: Does the company cooperate with the local government on this?

PC: Yes, we are aware that consumers in small villages have different needs and preferences from consumers in Jakarta, so we personalize our services for them. For SMEs, we set up Tokopedia Centers in every remote area and village. A digital learning and experience center where SMEs can learn how to act as a merchant, how to manage applications, make transactions online-to-offline (O2O), using digital financial services and payments, and more. Recently, we have collaborated with the West Java government to expand access to empowerment to remote areas through various initiatives, one of which is opening a Tokopedia Center in a village called Sukanagara. We are already planning to build in bulk over the next two years.

Kr: Is it true that there is a plan to export products from Tokopedia merchants?

PC: First and foremost, our intention is to build the best technology to empower the logistics and procurement industry in Indonesia, as well as to increase the number of partners. That's why we have data, traffic and technology. When we have succeeded in reaching all of Indonesia and providing equal experience in every corner of the area, it is possible that we will expand the logistics and procurement side to help them export. In addition, we will also focus more on building the best experience in Indonesia first, that's a big thing. When we can reach that stage, exports can be considered.

Kr: With more than 90 million active users and various verticals, what stage is Tokopedia currently at?

PC: Honestly, I see: we're just getting started. If you think about penetration metrics, be it e-commerce, digital payments or technology-enabled logistics and procurement in Indonesia, I think we, as well as the other players, have built a great business. However, if you look at our position among other players in China or the US, we still have a long way to go. We are still far behind them. The number of our transactions looks large according to the latest research, it is also projected to contribute 1,5% of the country's total GDP. However, compared to the total trade contribution, this number is still low. So, there are still so many opportunities in the core verticals and huge room for growth.

Kr: News of Tokopedia's plans for an IPO has spread in the media in recent months. Can you tell us a bit about the preparations so far?

PC: I see this as a positive growth, because it means we have gone beyond a certain scale. In terms of preparation, to be honest, our preparation took a very long time. Since I first joined as CFO three years ago, we have consistently ensured that our corporate governance is at the highest standards in Indonesia, and in line with international standards of practice. I think it's very important for us to listing in the Indonesian market given the localized focus. However, dual listings become equally important for securing access to greater liquidity. Outside of infrastructure work, William and I talked about current market conditions, whether it's the right time to take into account market volatility, macro conditions and sentiment, because all of those things matter.

The final, and perhaps most important, stage is understanding the health of our business. I think we've put a lot of effort into improving services that have added value for our merchants and customers, that's reflected in the click-through rates that drive revenue. At the same time, we have been doing cost optimization for quite a long time.

I'm sure you're starting to see a more rational approach to the market on our part. You won't see us doing big shopping festivals like 11.11 or 12.12 promos like other players, because I don't think running a two day promotion is really healthy. Our core focus is all about product innovation to improve customer experience because that's how you build a sustainable business. At this stage, it makes sense for us to start thinking of the IPO as a validation testament to everything we have built in the last ten years.

Cr: Have you ever thought about listing in the New York market such as Alibaba, which is also the success story of a debut IPO?

PC: The biggest difference between us and them is that we prioritize listing local first. Whether we choose the US for international targets, it depends on the time listing and market conditions at that time. The IPO debut was complicated but my team members and I have driven a number of companies go public in previous ventures. So we can learn from experience, and of course, shareholder experience — like Alibaba, Softbank, and Sequoia, which have portfolios of successful companies. go public — will also help us to know the right time and place. We are looking forward to getting to that point.

Cr: What will be the focus of Tokopedia's business in the next year and beyond?

PC: Let's start with the mission to democratize trading technology in Indonesia. The definition of trading is basically the same, but it's all evolved. First, for trade in physical goods, we are the largest in the country. Second, we help businesses and brands on the platform to grow rapidly. The third is about digital goods. We recently announced a partnership with the government in rolling out a payment feature for more than 900 kinds of services state administration, including taxes. It is important for us to answer every need of Indonesians and we will continue to improve the quality of our products and make them even more seamless pattern.

Lastly, is to continuously improve local services, which is why I feel Bridestory acquisition be very important this year. Basically, we bring the best team in to help strengthen women-focused services like weddings, as well as for mothers and babies. I feel we are expanding into the realm home and furniture as well as other major needs in the future.

Apart from the trading area, another thing we will continue to do is improve IaaS (infrastructure services) which creates a better experience in using the service trade where logistics and procurement help traders faster scale-up. We will also continue to focus on developing financial and payment services. The population that is affordable by banking products is still low, so we want to unlock that potential to support a larger ecosystem, be it merchants, customers, or shop partners. These will continue to be our focus in 2020 and beyond.

Kr: Speaking of acquisitions, it's commonplace when big tech companies acquire smaller startups, we don't think Bridestory will be the last acquisition, do you have any future plans to share?

PC: Bridestory is our first full acquisition. This doesn't happen often, because usually, we partner and support entrepreneurs by leveraging capital, data and technology. Bridestory, however, is an exception as we think full integration would be better for both companies. We're always looking for loopholes to leverage resources to support other tech companies, but as for the next acquisition, it all depends on the wishes of the extended family [stakeholders], and how it will benefit both parties, especially from a strategic perspective. But for now, we have nothing to say.

Kr: Apart from focusing on core business development, what other factors contributed to Tokopedia's success?

PC: I think the focus on the Indonesian market is an advantage. We are not bothered even when other players expand regionally or globally, because we realize that this is not our forte. Over the past ten years, we have competed with local and international players, but our penetration and deep understanding of the local market has been so lucrative that there are no plans for overseas expansion.

- This article was first released by KRASIA. Re-released as part of a collaboration with DailySocial