Indonesian Technopreneurs and the ASEAN Economic Community

Following the recent US-ASEAN summit, President Joko “Jokowi” Widodo visited Silicon Valley to talk with CEOs of the world’s digital and technology companies, such as Facebook, Twitter, Google and Plug and Play.

The President invited the companies to invest in Indonesia as part of the country’s plan to be a US$130 billion market by 2020. The visit is timely and important given that this year the ASEAN Economic Community (AEC) will take effect.

Here are the reasons.

While AEC allows free trade among all 10 ASEAN member countries, there are several interesting characteristics of intra-ASEAN trade that are worth scrutinizing.

First, intra-ASEAN trade has always been lower than external-ASEAN trade — i.e. with countries outside ASEAN, such as Japan, the US and China. Statistics from the ASEAN Secretariat show that intra-ASEAN trade covers only 25 percent of total trade in the region; this trade is also dominated by companies in Singapore (34 percent), Malaysia (19.6 percent), and Thailand (17 percent).

Second, intra-ASEAN trade has proven more difficult in some sectors because of regional business competition. For example, the competition in the car industry between Thailand and Malaysia. Another example is the competition between Malaysia’s Air Asia, the struggle to enter the lucrative Indonesian domestic airlines market and the reluctance of Indonesian airlines to face this open competition.

Third, intra-ASEAN trade seems to be more beneficial for the other nine ASEAN countries than it is for Indonesia, because these countries may only need to deal with one regulation, one language, and one set of cultural considerations to tap into the largest market in ASEAN, namely the 250 million people of Indonesia.

On the other hand, the “costs” for Indonesian businesses to enter the ASEAN market are rather “expensive”. This is because Indonesian companies need to deal with nine different regulations and nine different languages, as well as nine different sets of cultural considerations in order to tap into the 350 million people residing in those countries.

Although our small and medium enterprises (SMEs) have significantly contributed to the Indonesian economy, it seems that — with these challenges — we may have little capacity or capability to go beyond.

What would be the most logical strategy for Indonesia to face these challenges?

The immediate logical move is for Indonesia to become a part the global value chain. Because there are no trade barriers, global companies can think of the ASEAN region as their regional “backyard”.

This has been a strategy that many Indonesian top companies have embraced for some time. For example, Astra International has long been a part of Toyota’s global value chain.

Further, Indonesian SMEs should also become a part of this global value chain. For example, Indonesian SMEs should be able to manufacture components for these global companies.

The other strategy is to “conquer” local markets. Indonesian companies, especially SMEs, should be able to sell their products to domestic markets. In fact, this should also be a low-hanging fruit for Indonesian SMEs — and may serve as a comparative advantage — because we should be more familiar with the Indonesian market.

These two strategies seem to have begun to be implemented; and the government has also developed several schemes to ensure that Indonesia is moving in this direction.

Yet, while the strategies may work because they are a “business-as-usual” approach for the Indonesian economy, the only loose end of this particular approach is the fact that the digital economy is becoming more and more important globally.

With the rise of digital technology, entrepreneurs in ASEAN countries will be able to capture the Indonesian market easily. This is because entrepreneurs can be based in any ASEAN country, and with the help of digital technology, they can tap into the largest market in the region, Indonesia. And this may pose a threat to our AEC strategy.

Take a look at the example of Malaysia’s GrabBike. If Go-Jek had never been launched, GrabBike — with their experience in the Malaysian market and backed by strong capital — would have easily dominated the Indonesian market.

Now, considering the level of mobile phone usage and coverage in Indonesia and the vast opportunities that may arise from this, imagine what other countries can do with the potential of digital technology in the Indonesian market.

Therefore, the call from President Jokowi to increase collaboration with these large digital companies and also the call to Indonesian technopreneurs in Silicon Valley to come home is a strategic one.

Indonesia needs more technopreneurs to make the country more competitive. And these technopreneurs also need capital and resources. By collaborating with US companies, Indonesian technopreneurs should have better access to capital and resources.

At the end, strengthening digital entrepreneurship in Indonesia is not only important, but is essential. It is, in fact, the holy grail for our success in the AEC.

The writer, a faculty member of the Binus University Business School in Jakarta, is studying for his PhD at the QUT Business School, Queensland University of Technology, Australia.