Below is the transcript of an interview with Fajrin Rasyid, Co-Founder and President, Bukalapak. The interview will play out in CNBC’s latest episode of Managing Asia on 06 March 2020, 6.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan (CT): Fajrin, it all started in 2010. You and your two friends decided to get together to start an e-commerce platform targeting small and medium sized companies. Where did you get your idea from?
Fajrin Rasyid (FR): We studied IT engineering back in college, so we were engineers ourselves back then. We saw what happened with e-commerce around the world. We saw what happened with Amazon, Alibaba and other e-commerce companies globally, and we wanted to do something or create something similar in Indonesia.
CT: So, you wanted to jump onto the bandwagon as well?
FR: Yes, but at the time, we needed to also tailor to local markets. I mean, we could not copy 100 percent, we needed to adjust to local situations. Hence, we developed an e-commerce site targeting small and medium enterprises because even now, Indonesia is small and medium enterprise economy.
CT: What was the first product you sold online?
FR: Bicycles.
CT: Really?
FR: So, the first thing was we were finding the SMEs. We tried to find communities because communities have a lot of merchants inside. If you are part of a community, let’s say a bicycle community which happens to be the first community in Bukalapak, you’d love to share with one another by riding bicycles together. But you would also like to buy and sell bicycle parts among the community, and that’s why they used Bukalapak as part of that.
CT: So, you said you wanted to be local to appeal to the local community, hence you came out with the name Bukalapak. What exactly does it mean?
FR: So, “Buka” means “open” in Indonesia and “lapak” means “stores”. Not just “stores”, it’s more like informal stores. So, imagine on Sunday morning, there are people hanging around there and some people will open their “lapak” there, using whatever mats or something, then that is actually “lapak” in Indonesia. So, we wanted to create a platform where everyone, not just big companies, but small and medium merchants or even individuals, as long as they have good products, they can open their “lapak” in Bukalapak.
FR: We started with only like maybe five merchants in a month. We just passed five million merchants now
CT: The e-commerce site that you help co- found is now worth US$2.5 billion. How does it feel to be Indonesia’s newest unicorn?
FR: It’s nice to have, but it’s not our goal. What matters for us is, again, the empowerment of these SMEs.
CT: What sort of growth have you seen in the last 10 years?
FR: In “mitra” or offline merchants, we have passed three million. So, the growth has been crazy because the market itself is also in its early days. If you think about e-commerce in Indonesia, it’s actually only about 5 percent penetration. So, going forward, we are optimistic. We still grow fast in the future.
CT: You might be prominent here in Indonesia, but you’re really up against market leader Tokopedia which really has a first mover advantage. Are you aiming for that number one spot?
FR: So, I think the strategy of Bukalapak is not only focusing on e-commerce, we are actually expanding beyond e-commerce. Because we want to target not just the 5 percent of the retail, but the hundred percent and I think we are leading in the ninety five percent right now. Although, we are capturing only a tiny percentage of this 95 percent.
CT: But when it comes to e-commerce in Indonesia, do you think you have what it takes to dominate e-commerce in Indonesia?
FR: Now, that’s the thing, I think we don’t need to dominate e-commerce, we want to dominate the hundred percent. Because to dominate a very small market, it’s probably not worth it. We want to target the whole hundred percent of the market.
CT: You are also the first e-commerce site to be available outside of Indonesia. Last year, you launched BukaGlobal, which essentially connects your local SME sellers with shoppers in Singapore, Malaysia, Hong Kong, Taiwan and Brunei. What’s the response like? How you doing?
FR: I think we’re evolving. Not really big at the moment compared the total size of the Bukalapak as a company, but it’s growing – meaning that the response has been quite positive, especially since a lot of Indonesians in those five countries miss local products from Indonesia. Now, through Bukalapak, we are able to provide to them.
CT: I’m looking at the logistical challenges, how do you handle the high postal and courier delivery costs?
FR: The key here is partnership. So, we partner with a lot of logistic players – more than 10 in Indonesia and a few abroad. So, we picked those that have quality and also the technology, and obviously, the best-in-class price as well. So, using many logistics players as our partners, we are able to sort of create competition where they can improve altogether.
CT: Which new markets are you eyeing?
FR: People keep asking me, is Middle East next? I think it’s one of the possibilities. But again, we haven’t decided yet. Middle East is certainly interesting because a lot of Indonesian products, especially Islamic-related products like hijab and other Muslim wares, may be attractive to Middle East countries.
CT: You also have fintech ambitions. You launched a gold and mutual funds trading as well as providing loans and financing to SME sellers, are you trying to build an eco-system beyond just e-commerce? Are you trying to be a super app?
FR: The key here is the ecosystem, as you mentioned. So, we don’t just create something just because we can develop that. We are developing an ecosystem that we think makes sense with our current established ecosystem. Can we build something on top of these already established ecosystem? Fintech makes sense because this enhances our current ecosystem. For example, when we talk about merchants, we have a lot of small and medium merchants and usually they have problems relating to working capital. So, it makes sense to provide fintech, especially giving loans to these merchants. So, it’s not just about us developing fintech out of nowhere, targeting new people, no, they are already in our ecosystem and we try to develop this case on top of them.
CT: Not everything has been smooth sailing because your effort to create e-wallet BukaDompet has encountered some regulatory challenges. It has been frozen making difficult with some of your consumers to liquidate their funds. What’s the problem there?
FR: That was not the problem per se, because it was also a decision we made. Essentially, in 2017 or 2018, we received an investment from Ant Financial which also has an e-money or e-wallet product. It’s called Dana. So, in 2018, 19, we decided to just focus on partnering with Dana. So, we stopped the development of BukaDompet because we have Dana. So, we shifted the focus of the development team to e-commerce features itself.
CT: So, you completely abandoned BukaDompet?
FR: If Dana can provide this, then let Dana do that.
CT: So, will Dana completely replace BukaDompet?
FR: In the future, it’s possible, although Dana itself at the moment is still under development. It’s still in the process of development. So, there are certain features that are not yet there at the moment that we still want to develop or maintain.
CT: Any lessons learnt from these regulatory challenges?
FR: One is it’s good that if you have a team that is also taking care of this, and we do now.
CT: Were you too early in the game?
FR: Um, not really. I think the Government sees this. Again, it’s not a problem, but it was a decision that we took right with the partnership with Dana and others. We do have a partnership with the Government in other places as well. For example, we are now one of the few partners with the Government, trusted by the Government, to handle tax payments. So, now you can actually pay taxes with Bukalapak. Another thing that we are actually already piloting: Bukalapak is partner to the Government in what they call in English a loan to the poor people through Bukalapak. Because we have the ecosystem, the database so they can use Bukalapak for example. Then, they can use the Bukalapak platform because it’s cashless. Let’s say the Government gives a loan or funding to this user, we can track whether this user actually spends the money to buy the right thing or not.
CT: So, as you scale up, will your fintech business eventually outgrow your e-commerce business?
FR: We have yet to see at the moment. E-commerce is still the main part of the business. But fintech is definitely growing fast. So, it might become so, but it will still take a lot of time to do that.
CT: So, Bukalapak could eventually be known as a fintech company?
FR: I would say that we are known more as a technology company. So, we are a technology company starting with the e-commerce platform, expanded to offline platform, and then we expanded to fintech. So, we are in the core a technology company.
CT: From online, Bukalapak has now gone offline with a program called Mitra Bukalapak. Why get into retail with these small roadside kiosks or what you call “warung”s?
FR: The main reason is purely business. E-commerce in Indonesia is still only about 5 percent of total retail. So, 95 percent still happens offline. When we talk about offline, the majority in Indonesia is in places like this – traditional retailers or what we call “warung”.
CT: How much has this exactly changed the lives of these small and medium sized businesses?
FR: Obviously, one is about providing them with more revenues – by essentially adding more SKUs for them to be able to serve to their customers. Another one is through virtual products. Before, they could only sell physical goods like snacks or foods, but now they’re also able to sell virtual goods such as pay electricity bills, mobile top ups and many other things that they didn’t offer to customers.
CT: How exactly do you earn your fees from Mitra?
FR: For every transaction, we get from them a very small fee. So, they become our partners or resellers. “Mitra” itself in Indonesian means “partners”. So, that’s how it works.
CT: I understand Mitra started out as an experiment in 2017. How much work was involved testing out the concept with these so-called small kiosks?
FR: Obviously, enough. At first, there were a lot of effort put in to conduct a pilot and refinement. Over time, it proves that it’s successful. So now, we’re able to roll it out across the country with over 3 million “warung”s.
CT: I understand you send a team of people to talk to these “warung”s to get them to buy into your idea. What can you tell us about their behavior and needs, and how you cater to them?
FR: When we talk to these people, we not only explain to them how it works but show them directly – show them our applications, how to process the orders and how it benefits them. And it spreads by word of mouth. So, other “warung”s want to join in as well, and it becomes easier for us to recruit more “warung”s.
CT: It has been more than two years, how many so-called road side kiosks or so called “warung”s have you signed up as Mitra?
FR: In total, they are about three million. Some of them have their physical stores like these guys. Some of them are individual agents who are usually students or housewives who can now become small, medium business owners as they can now offer something to serve customers.
CT: How many more are you targeting?
FR: In the future, we are aiming to have more than 10 million of these guys. Obviously, it’s not an easy task but it’s something that we think is doable.
CT: You are not the only ones going offline, your big competitor Tokopedia here has also launched a similar product. You think your first mover advantage into the sector will help you dominate the offline segment?
FR: The first mover advantage is certainly beneficial because from these warungs’ perspective, it’s a hassle for them to engage with a lot of people compared to online. For a buyer in online commerce, it’s easy to switch between different types of e-commerce. So, having a first mover advantage is beneficial because we hope to become engaged in their lives and business already.
CT: So, you want to be the first to sign them up basically?
FR: Exactly.
CT: Compared to your online business, how much could your offline Mitra business contribute to your overall group?
FR: Right now, it’s actually very fast growing. In fact, it’s faster than online.
CT: How much faster?
FR: In terms of the transactions, may be about double? I need to check on the exact size. Because the market itself is very big – 95 percent compared to 5 percent in terms of the total retail – so the potential is very, very big. It just shows that in the span of two to three years, it’s become a significant part of the business.
CT: Any plans to take Mitra Bukalapak outside of Indonesia?
FR: I think there is certainly a possibility because when we say the virtual products, one of them is obviously related to fintech as well. The investment products, the gold products online are already in Mitra. When we talk about fintech, one of the areas that we are considering is sending money. So, you can send money from this warung and received it in another warung or a bank account. This type of use case can also be done internationally. Especially in the case of Indonesia, where a lot of migrant workers are abroad. Indonesian workers in the other countries could send money through the equivalent of a warung in those countries into the warung in Indonesia.
CT: So, that’s where your fintech strategy comes into play?
FR: One of the things that we are planning, yes.
CT: Don’t go away, coming up next…
FR: To be a publicly listed company is something that is good, but you’d also have a lot of responsibility.
CT: I understand that Bukalapak wants to be the first profitable unicorn in Indonesia. Are you on track?
FR: Right now, yes. I think we are the closest one so far. Obviously, we don’t have the exact data of other competitors, but from our observation, in terms of the revenue and expense, I think we are on track to do that.
CT: What sort of timeframe are you looking at?
FR: We haven’t decided yet, but we hope to be very, very soon.
CT: By this year?
FR: That’s a possibility. But again, we don’t really have a target date yet.
CT: A strong possibility?
FR: I would say… I would say it’s possible.
CT: Whether it’s offline, online or fintech, will all your segments be profitable?
FR: I think there might be some variations regarding the EBITDA level. There might be some categories that are having high margins and there might be some categories that are having low margins so that overall, hopefully, we’ll be profitable.
CT: Your financial backers include Singapore sovereign wealth fund GIC as well as Alibaba’s Ant Financial. What are your plans for further capital raising?
FR: We want the investors or potential investors to help us go to the next stage. So, not just giving us the money, but we hope that they can provide value add. So, GIC for example is obviously a very reputable company who helps us with good corporate governance and stuff like that. Alibaba’s Ant Financial is definitely an expert in payment and fintech, and who helps us in those sectors. Emtek, for example, who is a reputable investor in Indonesia, has expertise in the media which is necessary for Bukalapak. So, that is an example of how shareholders bring value to us, not just money.
CT: Are you looking to do further capital raising this year?
FR: I think we are open. We are not in a rush to do fundraising. But if there are potential investors who want to explore and talk to us, we are open to discuss.
CT: In late September last year, you had to lay off something like 10 percent of overall staff in what you called an efficiency drive. Was it a case of expanding too fast or was it a strategy and a decision on your part to stay lean and tackle intense competition coming from online rivals?
FR: I think it’s more like a mix of both. Not every initiative that we do will be successful. We have to take action if there is an initiative that we think is not going to work at this time. Maybe we can only do this after a few years or do something about it. Unfortunately, in some initiatives that we do, the people related to that initiative could not be transferred to other divisions, so we need to have that decision. The other reason for that is we want to pursue the sustainability thing. So, for that reason, we made that decision.
CT: Was it hard letting them go?
FR: It’s definitely not easy, but it’s something that we have to do again for the benefit of the company.
CT: You are the President and one of the Co-Founders of Bukalapak. Your former CEO Achmad Zaky stepped Down and he was replaced by Rachmat Kaimuddin. What exciting things can we expect from the new management?
FR: When we first published that, a lot of people were asking questions: why? Then, we answered that it is something that is normal as well, right. We saw leading companies around the world do that as well. In fact, a few days before we announced that, Google also announced the same thing. So, it was not something that was out of the blue and something that is bad. Again, it was the company’s decision. Why? One of the company’s decision was to have more good corporate governance. We don’t know yet whether we want to IPO. A lot of people ask that question, but we think it’s a good thing to be an IPO-ready company. And Rachmat Kaimuddin is obviously expert in that because he was in a public-listed company for many years. So, he can guide the company to become an IPO-ready company. Whether we will be publicly listed in the end is something that we need to decide by ourselves and our shareholders. But if that happens, if we can be IPO-ready at a time, we will have a lot of options for the company.
CT: As one of the Co-Founders, what does your gut tell you? Do you want to be listed?
FR: It’s certainly a nice thing, I think. (Laughs). Well, I don’t have the experience personally myself, but I think to be a publicly listed company is something that is good. But we also have a lot of responsibility.
CT: So, as the President of Bukalapak, you’ve obviously been very busy building up and creating all these joint initiatives with the Government as well as growing the company, how will you describe your leadership and your management style?
FR: I am a pretty hands-off person, a hands-off manager. I don’t do micromanage, like telling my team exactly the list of things that they have to do. Instead, I just give them the big KPI and let them do what they want, so long as they achieve the KPI. But obviously, I need to also be there to address the problems or issues that my team may have and become a discussion partner with them so that they also feel they are protected by the management.
CT: So, as one of the Co-founders, you feel you still have something to contribute to help grow the company?
FR: I think so.
CT: Will you do an exit?
FR: Well, at the moment, I don’t have plans for that because I am enjoying the role as President and Co-Founder of the company. One, it’s about giving leadership examples. So, for example, if we want the team to have initiative, then we have to also have initiative, right. We also have to be innovative and so on. So, that’s something that I can contribute and show to the team.
CT: And finally, Bukalapak celebrates its 10th anniversary this year. What is your ultimate ambition for the company for the next 10 years? Where do you see Bukalapak?
FR: Well, when we started Bukalapak, we had this vision that we want to empower SMEs through online marketplace. But now, we see that we can do much more than online. So, in the next 10 years, we want to empower SMEs or we want to provide a fair economy to everyone in Indonesia, especially through any kind of technology.
CT: So, you want to make a difference?
FR: Exactly, we want to provide a fair economy to everyone.
CT: What is the end game for you? If it’s not listing, could you possibly sell the company?
FR: At least, I haven’t thought about that, because right now, I still think about the company, not the founders.
CT: It sounds like you’re not willing to let go just yet.
FR: At the moment, I don’t think that.
CT: Thank you so much, Fajrin.
Rasyid: Yes.
END
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