Squeezed by Digital Giants
The merger of Gojek and Tokopedia will begin a major disruption to the Indonesian economy. The government must anticipate the consequences for tax revenues and the quality of the workforce.
The digital business in Indonesia is about to enter a new phase. The planned merger between Gojek and Tokopedia followed by an initial public offering of shares, as well as a similar plan by Grab and a number of other startup companies, will accelerate the expansion of the digital industry into the financial and retail sectors in Indonesia. The government must draw up proper regulations to ensure that we do not simply turn into a market and fail to enjoy any benefits from this consolidation.
Many things are certain to change after the two giants of the digital business sector, Gojek and Tokopedia, combine. If there are no obstacles, the establishment of GoTo, the new entity resulting from the merger, will be announced in May. GoTo will combine the e-commerce business of Tokopedia with the ride hailing, delivery and digital wallet services of Gojek. The new company will have a valuation of US$18 billion, or around Rp262 trillion. If it is then launched on the capital markets, it is estimated that the valuation will exceed US$40 billion, or Rp580 trillion. This is close to the market capitalization of companies like Bank Rakyat Indonesia and Bank Central Asia.
At present, according to research carried out by CB Insights, Tokopedia has around 100 million monthly active users in Indonesia, while Gojek is used by 40 million people every month. It will be truly regrettable if most of the capital pouring into GoTo – and also Grab and Bukalapak when they launch their IPOs – goes into the pockets of their shareholders. After all, not all of the owners of these digital companies are based in Indonesia. Policymakers need to seek ways to ensure this consolidation of the digital business sector also provides more business opportunities and high-quality jobs in Indonesia.
At some stage, in the not too distant future, digital businesses will evolve into super corporations that have control over people's daily needs and that cross borders. Transportation, payment systems and online trading will only be a part of the business sector that they will control. In the future, along with the growth of technology and innovation, the business models of these types of companies will become more complex. The government must put in place the right taxation mechanism and systems to ensure that profits from these digital corporations operating in Indonesia do not all go overseas.
As well as this, the government must push those involved in conventional business sectors, especially in banking and retail, to anticipate the impact of this digital disruption. They must be ready and on the alert so that these major changes do not wreck the business models and networks that they have built over many years. The old players must make use of new technology and innovations or collaborate in order to survive. At this time of rapid change, the government must be able to guarantee healthy business competition and the implementation of fair tax regulations.
Another thing the government has to do is to ensure that these digital companies treat their employees fairly. They must not accept the terms "partners" and "application providers" because the fact is their relationship are similar to corporations and its employees. Therefore, the state must protect the precariat, workers who are vulnerable because they do not have guarantees of permanent employment with digital companies. The ruling by the British Supreme Court in February that changed the status of 70,000 Uber partner drivers into employees could be used as a guide.
The digitalization that should improve people's quality of life must not turn into a disaster for millions of peoples depending on the apps for their livelihood or widen the gap between rich and poor in this country.