This is part 2 of our Indonesia e-commerce Export Potential Series. You can find part 1 which covers Indonesia’s fashion and processed food export potential.
In our previous article, we covered the export potential that Indonesia’s fashion and processed food industries have when supported by e-commerce.
Indonesia’s fashion industry has the potential to ride the global modest wear wave. Indonesia’s processed food can follow the path being laid out by the likes of companies like Indofood while products like SME-developed packaged food can benefit from the exposure that selling on online platforms provides.
Here, we'll talk about another product group with great potential:
Skin Care, Cosmetics and Essential Oils
Another group of product categories whose export potential is worth exploring is skin care, cosmetics and essential oils. Indonesia’s cosmetics export potential is supported by great natural biodiversity in Indonesia, a good grounding in halal cosmetics which can help them serve the up-and-coming halal cosmetics market and more. Indonesian personal care brands selling on local online marketplace platforms like Bukalapak and Tokopedia are also set to benefit when these platforms expand their coverage beyond Indonesia.
According to Statista1 (accessed 25th April 2019), total revenue from global cosmetics & personal care sales will amount to USD 425.0 billion in 2019. This is expected to grow to USD 717.6 billion by 2026 with a CAGR of 7.2% during the forecast period, driven by a surge in demand2 for grooming products globally.
Indonesia’s cosmetics have seen some success internationally, with the export value of Indonesian cosmetic products reaching USD 516.9 million in 2017, a 9% increase from its 2016 value of USD 470.3 million. Currently, Indonesia’s cosmetics companies are able to export their products to countries in ASEAN, Africa, the Middle East and others according to Indonesia’s Minister of Industry Airlangga Hartarto.3
Some of Indonesia’s brands are even internationally recognised. One of Indonesia’s largest local cosmetics players, Paragon Technologies, was recognised at the 2016 in-cosmetics Global4 awards as one of the globe’s fastest growing brands for the 2014 to 2015 period. In-cosmetics is an internationally recognised global event for personal care ingredients.
Apart from Paragon Technologies, Indonesia is home to other homegrown cosmetics and skin care5 companies like Mustika Ratu, Akasha Wira International, and Martina Berto who are able to compete against other well-known brands like Unilever domestically.
Indonesia’s personal care and cosmetics export potential in Southeast Asia is also helped by Indonesia’s participation in various free-trade agreements. The lower import duties from the free trade agreements greatly lowers the barriers for Indonesian personal care companies to sell their products throughout the Southeast Asian region. Here are some of the free-trade agreements that Indonesia is party to:
- ASEAN - Australia - New Zealand6
- ASEAN - China7
- ASEAN - Korea8
- ASEAN - India9
- Indonesia - Japan (IJ-EPA)10
- And other bilateral trade cooperations11
There are also several personal care trends that can help out Indonesian brands in the coming period:
- Organic and Natural
- Halal cosmetics
Organic and Natural
According to research by Austrade12, going ‘natural and organic’ is a major consumer trend in the personal care and cosmetics market, especially in Southeast Asian countries like Malaysia and Vietnam. Recently, consumers are increasingly demanding their personal care products to have naturally harvested and or organic ingredients. This bodes well for local Indonesian personal care businesses considering that Indonesia has access to a wide variety of natural ingredients from the country’s rich biodiversity, second only to Brazil.13
For instance, Indonesia has local companies producing skincare products14 made of raw coconut oil produced in Tabanan or other essential oils, while touting their eco-friendliness and cruelty-free and paraben-free stances. Other ingredients that can be found in these Indonesian products include aloe vera, cucumber extract, organic Argan oils, just to name a few.
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The global halal cosmetics15 market is a growing niche segment. This could be huge for Indonesian cosmetics seeing as the halal cosmetics market is expected to reach USD 90 billion by 2023, up from 2017’s USD 61.0 billion. This is with a growth rate of 6.9% per annum over the period.
While local Indonesian brands have to go up against competitors from countries like Malaysia and even South Korea, they have strong potential to become halal cosmetics’ household names. This potential stems from a few factors:
The Home Advantage
Indonesia requires cosmetics and personal care products to be halal certified13 before they can be sold in the country. Companies selling these products in the country who do not follow the rules will be given a warning letter up to three times followed by the revocation of their products.
This gives companies who have been specialising in developing halal cosmetics from the beginning, like Paragon Technologies’ Wardah brand and local personal care brands from Mustika Ratu, an edge. This is also aided by these companies’ expertise and understanding of what drives the halal cosmetics market, along with good training provided by the Muslim consumer base in Indonesia.
Years of Experience and Ambitious Plans for Expansion
Indonesian brands like Wardah have expanded their consumer base by offering both premium and affordable halal personal product lines, targeting women who wear hijabs and those who do not. During Wardah’s earlier years, it consistently recorded 20% - 50% annual sales increases and even reached monthly sales values of IDR 200 billion (USD 14 million) in 2014.
Southeast Asia is a region which is home to a large population of Muslim consumers, particularly in Indonesia, Malaysia and Singapore. As a result, Indonesia’s halal cosmetics companies have been using their halal certification to expand their market share in these countries. These companies expanded their distribution networks into neighbouring countries like Malaysia, in addition to others like Bangladesh and some European countries.
Some of these brands have their own proprietary websites to sell online, but many of them also make use of Iocal Indonesian online marketplace platforms like Bukalapak and Tokopedia to expand their online coverage. Once these platforms launch beyond Indonesia, the expanded geographical reach is set to improve Indonesian halal cosmetics exports as well.
The success of Wardah has attracted local competitors to follow in its footsteps. These include Zoya, a prominent hijab producer who recently introduced its halal-certified cosmetic line. Martha Tilaar, L’Oreal and Unilever have also obtained halal certification for many of their products in order to compete in this potentially lucrative market segment.
With the home advantage and years of experience in handling halal cosmetics, access to natural and organic ingredients and ambitious international expansion plans helped by local Indonesian online e-commerce platforms, Indonesian cosmetics have a lot of export potential in the years to come.
Indonesia’s fashion, packaged food, and personal care industries show great potential to do well in terms of e-commerce exports. Products from each of these industries have already found demand overseas, and the international coverage from selling these on international e-commerce platforms is undeniable. Indonesia’s e-commerce exports definitely have a lot of potential to grow in the coming years.
These industries are also receiving the help of initiatives from the Indonesian government and e-commerce players, which we'll be exploring in a future article. Stay tuned!
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Interested in e-commerce in Indonesia? Find out more about Indonesian e-commerce with our latest e-book!:
2020 Guide to Entering Indonesia's E-commerce Market
More articles on Indonesia's e-commerce:
- Statista: Beauty & Personal Care Asia
- Global News Wire: Beauty and Personal Care Products Market Size Worth $717.6 billion by 2026: Acumen Research and Consulting
- Insider Stories: Indonesia’s Shimmering Cosmetics Industry
- Paragon Innovation
- Indonesia Investments: Cosmetics Indonesia - Rising Demand for Beauty & Personal Care Products
- ASEAN - Australia - New Zealand
- ASEAN - China
- ASEAN - Korea
- ASEAN - India
- Indonesia - Japan (IJ-EPA)
- Bilateral Trade Cooperation
- Beauty Product Opportunities to Indonesia, Malaysia and Vietnam
- Indonesia Cosmetic Sector
- Jakarta Post: Three Bali-based organic skincare brands to try
- Salaam Gateway