Digital technology to Indonesia

Trends and opportunities

The market

Indonesia’s digital innovation sector is rapidly evolving. Indonesia, is the fourth most populous country in the world with 264.2 million people. Internet penetration is 64.8%, and the “digital economy” is set to grow to US$133 billion annually by 2025. (Source: Google, Temasek and Bain & Company, e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s 100 billion internet economy, October 2019) Smartphones are the key platform, with 96% of internet users accessing internet via their handheld device.(Source: Hootsuite, Digital Indonesia, January 2020)

The Indonesian start-up ecosystem is an increasingly important way for Australian business to access and participate in the Indonesian market. Indonesia is one of the largest and most diverse start-up ecosystems in ASEAN, propelled by 215 million internet users and the largest economy in ASEAN. Within the broader economy, Google/Temasek measure Indonesia’s “internet economy” at US$40 billion in 2019, having grown at an average rate of 49% per annum since 2015, and forecast to reach US$130 billion by 2025. This equates to approximately 45% of the estimated total for ASEAN. (Source: Google, Temasek and Bain & Company, e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s 100 billion internet economy, October 2019)  

Start-up innovation is critical in growing “digital economy” industries like e-commerce, digital health, fintech and edtech. It is also a modernising force in traditional sectors like banking, telecommunications, agriculture, logistics, retail, resources, and public services. Indonesia has over 2,000 digital start-ups, and 5 tech unicorns as at May 2020. This is supported by a wide range of accelerator/incubator programs, co-working spaces, and venture capital investors. 

New technology innovation entrepreneurs in the market include:

1. Ride hailing: Gojek and Grab
   • Ride hailing was an early success story in the Indonesian start-up ecosystem, alongside other aspects of e-commerce including online retail, and travel bookings.
   • Gojek and Grab lead the ride hailing market in ASEAN. Gojek is now a broader e-commerce platform with more than 18 services including online transportation, financial, and lifestyle services, and the payments service GoPAY. and has expanded regionally to Singapore, Thailand, and Vietnam. (Source: Google, Temasek and Bain & Company, e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s 100 billion internet economy, October 2019)  
   • Meanwhile Grab, is present across eight countries. Besides online transportation and food delivery, Grab also offers financial services directly through its subsidiaries and partnerships, such as the popular e-money service OVO in Indonesia. (Source: Google, Temasek and Bain & Company, e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s 100 billion internet economy, October 2019)  
2. E-commerce: Traveloka, Tokopedia, Blibli
   • Indonesia is the biggest e-commerce market in ASEAN with total sales of US$ 20.9 billion in 2019 . (Source: Google, Temasek and Bain & Company, e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s 100 billion internet economy, October 2019).
   • The largest e-commerce platforms in Indonesia were established in either Indonesia, or other markets in South East Asia, although many have significant investment from China, Japan, Singapore and the United States. Key players are: Shopee, Tokopedia, Bukalapak, Lazada, and Blibli. (Source: Iprice insight, The Map of e-Commerce in Indonesia, July 2020)  Top categories include fashion, electronics & media, toys & hobby, furniture & appliances, and food & personal care.( Source: Hootsuite, Digital Report Indonesia 2020, January 2020)
3. Payments and e-money: Ovo, Gopay, LinkAja, Dana 
   • Digital payments are popular in Indonesia, while credit card usage is very low by international standards. (Source: JP Morgan, E-commerce payment trends: Indonesia. Accessed August 2020)  
   • According to research conducted by Ipsos, GoPAY has the biggest market share in e-wallets (60%) followed by Ovo (28%), Dana (8%) and LinkAja (4%). (Source: Ipsos Group, The Evolution of Digital Wallet, February 2020)  Payment for online transportation, online F&B, and offline F&B are the main usage for e-wallet. Points and cashback promotions are highly popular.
4. Health: Halodoc, Klikdokter, GUE, alodokter
   • Digital health has been positioned as one of the next key areas of start-up growth by the Indonesian Government since 2018, alongside ed-tech. (Source: e27, Indonesia’s health-tech sector anticipates its first unicorn, August 2019). Services include online consultation, pharmaceutical delivery and e-appointment. These firms often have strong partnerships with strong established players in the health or tech sectors, such as hospital networks, pharmaceutical firms, and e-commerce platforms.
5. Education: Ruangguru, Zenius, Quipper
   • Indonesia has the world’s fourth largest education systems, behind China, India and the US. In 2018, there were 42 million students (7 – 18 years old) across approximately 149,000 primary schools, 40,000 junior high schools and 27,000 high schools. Source: Indonesian Ministry of Education and Culture, The Centre of Educational Data and Statistics 2018/2019. Accessed by August 2020) However, it is by many measures one of the lower performing education systems internationally. (Source: The Organisation for Economic Co-operation and Development (OECD), Indonesia’s Education GPS PISA 2018. Accessed by August 2020). This has led to significant digital innovation in delivery of education services.
   • Edtech in Indonesia is dominated by marketplaces, online class platform, school management systems, and student loans, and targets parents and teachers as well as students.

Key challenges:

1. Infrastructure and connectivity
   The ‘two Indonesias’: 60-80 million people with sophisticated, internationally connected, digital urban life, alongside 180 million people with limited access to infrastructure, services, education, or well-paying jobs.
2. Business establishment
   Business establishment in Indonesia is relatively difficult and expensive. The ease of doing business in Indonesia is at rank 73 (from 190 countries), indicates 40 days (Source: World Bank, Ease of doing business index Indonesia. Accessed by August 2020). In practice it can take significantly longer, many firms require 18 months or more to complete business establishment.
3. Recruiting talent
   Indonesia faces high demand and low availability of both IT and tech entrepreneur talent. Currently Indonesia has 278 IT workers per 1 million people, compared to Malaysia (1,834) and India (1,159). Indeed, Indonesia is projected to have a shortage of 9 million skilled and semi-skilled ICT workers by 2030.( Source: World Bank, Preparing ICT skills for digital economy: Indonesia within ASEAN context, March 2018). In addition, IT companies have expressed a need for more highly qualified graduates than are currently being produced by the Indonesian education system. (Source: Google-A.T.Kearney Study 2017 – Register for free to search TWG, APAC, Indonesia, VC, Outlook, 201. Accessed by August 2020). Consequently, turnover rate of digital workers is 15%-20% annually, due to rising incomes.

Opportunities

1. SaaS (software-as-a-service)
   • SaaS is relatively new in Indonesia and the development has been pushed by increasing of internet penetration, the needs of cost efficiency with cloud storage and the importance of going digital. (Source: Jakarta Block71, SaaS market trends in Indonesia, January 2020) According to research by Boston Consulting Group, Indonesia’s SaaS market is expected to grow at an annualised rate of 31.9%, reaching US$400 million in 2023 from US$100 million in 2018. The popular SaaS implementation in Indonesia in business application areas are payroll and HR, CRM and file sharing. Key cloud computing support companies include Microsoft, AWS, and Telkom Cloud.
2. Cyber security
   • Indonesia has been particularly prone to cyber-attacks, and this vulnerability has increased as many traditional industries modernise their operations and new digital industries such as e-commerce and digital health and education have experienced rapid growth. Over the past 3-5 years, the prevailing approach in government and business has shifted from avoiding public acknowledgment of cyber security risks, to seeing cyber resilience as part of national critical infrastructure. This includes the establishment of a national cyber security agency, BSSN, in January 2018. BSSN is creating standards for industry to support the resilience of Indonesian business and government.
   • Indonesia is one of a small number of countries with whom Australia has concluded a Government-to-Government agreement on cyber security cooperation. This MoU was signed between Indonesia and Australia in September 2018 and witnessed by President Widodo and Prime Minister Morrison. It sets a foundation for a strong cooperative relationship across the official, academic, business and skill development aspects of cyber security resilience. 
3. Mobility
   • Remote working is becoming more popular in Indonesia, especially during theCovid-19 pandemic. Indonesia is the 5th largest market for mobile subscribers with 355.5 million users.(Source: eSecurityPlanet, 5 Top Enterprise Mobility, Management Solutions, September 2017)
   • The trend towards Bring Your Own Device (BYOD) has been accompanied by data security challenges for Indonesian enterprise. This has created opportunities for Enterprise Mobility Management in Indonesia.
4. Artificial Intelligence/Data analytics
   • The growth and success of many Indonesian start-ups (see above) has highlighted the value of data analytics and artificial intelligence (AI) for decision making.
   • The appetite from enterprises and SMEs to adopt AI is high. A survey conducted with businesses engaged in the retail, IT/telecom, financial services and insurance industries across eight APAC markets by Appier found that Indonesian companies top the list in AI implementation with 65% adopting or expanding the use of AI to improve operational efficiency and develop innovative products and solutions that better meet customers’ needs. (Source: Appier, Indonesia leads the pack in AI implementation, September 2018)
5. Internet of Things (IoT)
   • The value of IoT in the country is expected to reach US$30 billion (IDR 444 trillion) by 2022. The reported value is a summation of the contributions of several components: content and application, platforms, IoT devices, as well as networks and gateways.

Competitive environment

In general, software and technology are areas where business is strongly internationalised in Indonesia, with 60% of technology and software solutions being foreign-sourced and 30% jointly developed with Indonesian firms. (Source: Frost&Sullivan, Digital Market 2018- fee based access. Accessed by July 2020) There are only a few domestically developed cyber security technologies or solutions.

Supply of IT solutions is led by 3 global companies: IBM, Oracle, and Microsoft, triggered in part by widespread implementation of cloud solutions in business.  For cyber security, key players include CheckPoint, Cisco, McAfee, Symantec, Juniper, Fortinet, FireEye and ForcePoint. 

It is also common commercial practice for foreign software solutions to be procured through an ecosystem of established solutions integrators that specialise in particular industries and support local firms to identify and integrate new solutions over time (e.g. in telecommunications, banking, enterprise or government). Almost all significant foreign software, ICT solutions and cyber solutions companies work through such partnership arrangements in Indonesia.

Tariffs, regulations and customs

Indonesia is a heavily regulated economy, and there are a range of permitting and regulatory requirements that can apply, depending on the specific nature of the business. A key element of planning to enter the Indonesian market is to identify which regulatory requirements may apply.

• Permit in telco activities (services, hardware, and operator) and electronics systems, and oversight of data localisation and storage regulations  - Ministry of Communication and Information Technology (Kominfo)
• Regulating foreign investment policies and application Business establishment - Investment Coordinating Board (BKPM)
• Permit for Digital payment (e-wallet, e-money)-Indonesian Central Bank (BI)
• Formulating regulation in financial services in banking, capital market, and other financial services (insurance, pension fund, financing, etc), including financial technology and issuing fintech permit in Indonesia - OJK (Financial Services Authority)
• Recording copyrights including digital copyrights and registering  brand-Ministry of Law and Human Rights

Most Indonesian regulation in relation to cyber security itself is focused on encouraging the implementation of standardised IT risk management systems and practices. In some cases, specific regulated implementations are also advised through publicly available official circular letters, focused on individual industries.

Marketing your products and services

Market entry

For new to market exporters, local partner is recommended for market entry. Other things that need to be considered:

1. For new to market exporters important to consider:
   • How your unique selling point can solve the problem
   • What is your strong past projects
   • Who is your established client (world and Asia countries)
   • How your solutions can be flexible in Indonesia market (i.e. available in mobile both IOS and android, available in cloud / on premise, pricing)
   • How to build your support network
2. For existing market exporters
   • Keep updated with regulatory changes and market changes
   • Keep innovative and adaptive with the market
   • Customer relationship management

Links and industry contacts

• Ministry of Communication and Information Technology Republic of Indonesia
• Indonesia's National Cyber and Encryption Agency (BSSN)
• Financial Sevices Authority (OJK)
• Central Bank of Indonesia (BI)
• Indonesian ICT Society (MASTEL)
• Indonesian E-Commerce Association (idEA)
• Indonesia FinTech Association (AFTECH)
• Indonesian Software Association (ASPILUKI)
• Indonesian Internet Service Provider Association (APJII)
• iCIO Community 
• Indonesia Internet Domain Name Registry (PANDI)
• Indonesia Data Center Provider Organization (IDPRO)
• Big Data Association (ABDI)
• Indonesia Cyber Security Forum (ICSF)
• Indonesian VC Association (AMVESINDO)
• Indonesia Digital Creative Community (Mikti)
• Indonesian Co-working Association

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