Hopes Pinned on Big Tech Merger

The integration of Gojek and Tokopedia as the two corporate giants into a new entity will certainly make them the biggest digital economy giants, not only in Indonesia, but also in Southeast Asia.

A few days ago, two business players in the Indonesian digital economy sector -- Gojek and Tokopedia -- announced to the public about the completion of a merger with the formation of a new entity called GoTo.

The merger carried out by Gojek and Tokopedia is categorized as a vertical merger, which aims to combine the development of their different core business from upstream to downstream.

Gojek has advantages in retail transportation for passengers and goods, while Tokopedia is an e-commerce giant engaged in the retail business of selling goods and services with a customer-to-customer (C2C) platform.

It is among megamergers in the history of business integration in Indonesia after the megamergers of several state-owned banks to become Bank Mandiri in the wake of the 1998 monetary crisis.

Also read:

> ”Dual Listing” May Be Best Option for GoTo

> GoTo Strengthens Market Share Coverage

The integration of the two corporate giants into a new entity will certainly make them the biggest digital economy giants, not only in Indonesia, but also in Southeast Asia.

The presence of GoTo should give pride to Indonesia and at the same time serve as a reminder to other nations that Indonesia deserves to become one of the biggest digital economic hubs in Asia.

The world can no longer underestimate the huge potential of the digital economy currently growing and developing in Indonesia.

Economic impact

With a population of 270 million and internet users reaching upwards of 202.6 million, Indonesia sees promising growth for the digital economy.

Although currently the contribution of the digital economy to Indonesia’s gross domestic product (GDP) is still below 5 percent, the emergence of new big tech giants gives hope that the role of the digital economy will be greater and become one of the pillars and backbone of Indonesia\'s long-term economic growth.

KOMPAS/RADITYA HELABUMI

Gojek and Tokopedia officially announced the merger agreement through the formation of the GoTo Group on Monday (17/5/2021).

The two big tech merger carries a gross transaction value estimated at US$ 22 billion or around Rp 319 trillion at an exchange rate of Rp 14,500 per US dollar, while the new entity’s valuation is estimated at US$ 18 billion-US$ 20 billion or around Rp 261 trillion-Rp 290 trillion.

The economic figures resulting from the merger is certainly an extraordinary achievement considering the two companies were only established about ten years ago.

In fact, the GoTo valuation is believed to far exceed that of the national airline company Garuda Indonesia, or the country’s largest taxi company Bluebird, both having been established decades earlier.

With this enormous economic value, GoTo will not only be able to jack up sales value or profits in the future, but is also expected to provide other economic merit.

Also read: Spring Comes to Economic Recovery

First, this vertical merger will create a new synergy between the two different business portfolios run by Gojek and Tokopedia. Second, the synergy will create new business developments outside the core business they have been engaged in so far.

Third, the business process or operational mechanism will become more efficient and fast because there are no complicated procedures and bureaucracy.

Fourth, the merger will stimulate innovation of products and services by combining the technology resources and experiences they already have. Currently boasting around 100 million of customers, GoTo can expect an increasing growth in customers following the merger.

KOMPAS/RADITYA HELABUMI

Illustration

The government will also benefit from the merger in several ways. First, with further development of GoTo\'s business activities in the future, the government will receive more tax revenue. Second, GoTo\'s contribution to GDP, which has reached around 2 percent, will continue to improve further.

Third, the merger enhances Indonesia’s competitiveness as a nation and state in the international community and encourages the national economy to become one of the major economic powers, especially in the digital economy.

Social aspect

Facts show that Gojek has been able to attract more than two million driver partners throughout Indonesia, while Tokopedia has become the storefront of goods and services involving more than 11 million MSME players in Indonesia. The magnitude of the two companies’ roles in creating business and employment opportunities for those 13 million people has certainly supported the household economic welfare.

If each GoTo partner supports two other family members, it meets the economic needs of 39 million people. This is one of the significant roles of the digital economy many people are not aware of. Digitalization indeed cuts a number of jobs, but on the other hand it will create new jobs.

Also read: Economic Growth toward the End of the Pandemic

The integration of Gojek and Tokopedia to become GoTo is expected to create new jobs through the development of their new business activities. We hope that GoTo’s current number of 13 million business players will become two fold in the future.

The growing business activities are expected to open up new job opportunities not only in big cities, but also in the regions. Millions of MSME players in the regions do not have access yet to digital cooperation and GoTo is expected to become the business ecosystem for them.

Monopoly fears

Many people have the prejudice that the merger of technology giants will create monopolies and disrupt business competition. Such an argument does not hold true because the merger carried out by them is a vertical merger. It is in stark contrast to horizontal merger, which involves companies of the same business portfolios.

A horizontal merger would see an integration of, for example, Gojek and Grab, or Tokopedia and Shopee or Bukalapak. The horizontal merger theoretically creates monopoly and potentially disrupts business competition due to certain business players becoming dominant in controlling the market, in terms of price, quality and access.

KOMPAS/RADITYA HELABUMI

Illustration

This is where the Business Competition Supervisory Commission (KPPU) can play its role to ensure that a merger will not create monopoly, oligopoly, monopsony, nor infringe a fair business competition.

It is suggested that KPPU give its opinion regarding the impact of the merger of Gojek and Tokopedia on business competition in the marketplace in Indonesia. GoTo is not the sole player given that many other companies engage in the same business sector.

In addition, opportunities are still open to other new business players to enter retail trade transportation sector or in e-commerce. The digital economy market is still wide open for anyone who wants to become part of it.

Openness and transparency

We need to support the formation of GoTo as a foundation and a forerunner to making Indonesia one of important countries in the digital economy. Nonetheless, the development of the digital economy must be facilitated by good governance in order to create people’s trust and encourage a digital ecosystem that grows healthily and stably.

Companies need to adopt the principle of transparency given the fact that the public still finds it difficult to follow the financial performance or governance of big tech companies currently operating in the market. It is difficult for us to get their financial reports because they are not public companies that are already listed on the stock exchange.

Therefore, it is not an exaggeration if GoTo needs to be pushed into the Indonesia Stock Exchange immediately and become a public company. This way, investors and the public can follow the performance or governance of the company.

Joining the stock exchange will also increase the portfolio issuers in the digital economy sector, the number of which is still very little. It is time for GoTo to become one of the blue chips for public companies considering their huge assets and big role in the digital economy sector.

Kompas

Agus Sugiarto

Apart from providing transparency, being a public company GoTo can provide opportunities for millions of Indonesians to become their shareholders. Of course, this initiative will draw enthusiastic responses from the public and support from the government.

Agus Sugiarto, Head of OJK Institute

This article was translated by Musthofid