Could Indonesia be the next big tech startup center?

November 9, 2015


facebook icon facebook icon

Expected reforms to legislation, combined with recent major investments in the country’s burgeoning tech scene place Indonesia as a major tech startup contender, but can the nation really compare to the other Asian giants of industry?

Global venture capital investments

Rumors of recent investment in the courier and transport service, Go Jek, by US-based venture capital firm Sequoia Capital have brought increased interest and speculation into the potential that Indonesia may have within the tech space.

This contribution follows a $100 million round of funding for the online marketplace, Tokopedia, from Sequoia Capital with Japan’s SoftBank Corp, in late 2014. Forbes reported that according to those closely involved, the deal was the largest funding round ever recorded for a homegrown Internet company in Southeast Asia.

This enormous gain for the country does not however, appear to be indicative of any new trend of growth for Indonesia, not just yet. As of October the country has successfully acquired $61.9 million this year in publicly announced investments.

This figure was highlighted this month by the Wall Street Journal, in its analysis of the country as a potential next big growth market in the technology sector.

The financial gain still pales in comparison to the ongoing successes of China, drawing $12.8 billion and India with $2.7 billion.

Investments in tech accounted for almost half of the total venture capital investments for the year, making this sector an attractive potential for stagnating economies with an annual growth of 90% to a whopping $39.8 billion. This industry currently remains largely focused to very few countries; 85% of capital was received by just three countries; the US, China, and India.

It is evident that India and China’s huge growth will continue to outshine that of Indonesia, a country that is relatively new to the scene in terms of high profile investments and opportunities, however, the country is making steps.

Barriers to business

In a strong contrast to its neighbor Singapore, which benefits from good tax laws and simple startup procedures, starting a business in Indonesia comes faced with numerous challenges, putting the country at a serious disadvantage.

The WSJ listed regulations barring foreign investment in e-commerce, a lack of infrastructure, and local competing players all preventing the growth of investment and new business.

Ongoing challenges and developments have been furthermore exemplified in the World Bank’s “Doing Business Report” released last month.

The DB16 economy profile for Indonesia ranked Indonesia at 173 of 189 for ease in starting business, the easiest being 1. There are reportedly 13 procedures required to legally start and operate a company, taking a total of 46.8 days. Compare this to New Zealand, the highest performer globally, where just 1 procedure takes half a day.

This report did however acknowledge developments made in reducing the time to register with the Ministry of Manpower for new businesses in Indonesia’s capital, Jakarta. Improvements have also been made in facilitating access to credit and paying taxes, with the introduction of a new online system.

Executive experience of Indonesia’s tech space

Sociable spoke to Andrea Loubier, CEO of Indonesian-headquartered Mailbird, about her experiences and expectations for the growth of the tech scene across the country, and specifically the island of Bali, where she operates her business.

“If you look at Bali today, it’s getting quite a lot of attention,” said Loubier. “Challenges still exist, but many have been overcome such as slow Internet, power outages and recognition in industry.”

A decentralization of industry from Jakarta has seen businesses take advantage of co-working spaces and lower overheads. This is in no way large scale, but is indicative of an interesting emerging trend.

“Networking and investment opportunities are primarily in the big cities in SEA, however even today that is changing quickly. As more new initiatives form in Bali we are seeing more investors make the trip out here to check it out,” added Loubier.

Future developments

On Sunday, US Assistant Secretary of State for Economic and Business Affairs, Charles Rivkin, concluded his visit to Indonesia, after meeting with a number of officials looking to drive developments in entrepreneurship, investment and innovation in the country.

Rivkin’s trip focused largely on discussions of economic growth, trade, and investment issues.

President Joko Widodo has additionally announced an expected reform of foreign investment in e-commerce, in efforts to capitalize on a boom in the tech sector.

A review of the current investment regime, expected to be completed by mid of next year, aims to grant greater foreign ownership in industries. Changes to its “negative investment list,” which regulates foreign ownership, aim to stimulate a lethargic economy.

Until now, areas such as telecommunications and banking have excluded foreign participation, opting to protect local interests, partly due to domestic political sensitivities and corruption. Potential changes to legislation could have an enormous impact in this area.

Taking all this into account, could Indonesia really be the next big tech start-up center?

As steps are being taken to reduce the barriers to new business and tech investments the answer for now, in line with WSJ conclusions, is a resounding no.

While Indonesia celebrates its recent achievements, it undeniably remains a difficult place to do business. However, developments in this space could spell a very different story for 2016.


facebook icon facebook icon

Sociable's Podcast