Indonesia remains one of the most attractive places to invest in Southeast Asia. And it’s easy to see why: the economy has been growing steadily, its middle class continues to expand, and its consumers’ confidence is consistently high. In a country where more than half of its economy is driven by consumption, it bodes well for growth in the coming years. On top of that, the Indonesian government has been pushing on some key policies aimed to attract more investments which are expected to eventually catapult the country into one of the world’s biggest economies. Large spending on infrastructures and improvement in ease of doing business is among the steps taken with the hope of driving more investments to the country.
Especially important for start-ups in the tech sectors, there are other factors that should make the world’s fourth biggest country even more alluring: its population is getting more and more connected. As of 2017, more than 100 million people have access to internet and a own smartphone. A figure which is likely to be higher in the years to come. Understanding the potential of tech sector, the government has also been issuing policies to help Indonesia’s start-ups: from developing start-up incubators to tax cuts. All aimed at realizing the government’s vision of Indonesia 4.0 where the tech sector is expected to play much more prominent role to Indonesia economic development.
Yet, building a thriving start-up is an enormous undertaking, with challenges each step of the way. These are some the most common hurdles facing aspiring entrepreneurs in setting up business in Indonesia:
Bureaucratic hurdles – Even with government’s push to improve ease of doing business, it still takes 2 months to set up a business for Indonesians and up to 5 to 6 months for foreigners. Foreigners with experience of setting up a company in business-friendly country like Singapore will find it too slow.
Finance – Many founders have the technical know-how necessary to develop their business. But quite often they don’t have a good grasp on managing company’s finance. As a result, many companies can’t survive because they don’t have any cash left. This is often made worse by the tendency to use limited private money to finance their start-ups.
Office space – Jakarta is still the most preferred location to start a business. But office space comes at a steep price. One solution that entrepreneurs in Indonesia should seriously consider is using a co-working space. This way money spent on space would be lower while providing businesses with opportunities to exchange idea and potentially collaborate.
Sales – Most start-ups don’t get profitable in the first year, but they expect to reach break event point (BEP) in the next 3 to 5 years. Most are not yet profitable or will never become profitable because they either target the wrong segment or the products or services they offer don’t fit with what the market needs.
Talent – Most start-up managers still find it difficult to find the right talent with good technical skills in Jakarta. In general, the number of fresh graduates who are qualified for the job, particularly engineers with sufficient knowledge on website software or back-end development is very small. It’s made worse by other problems especially lack of creativity and critical thinking. Not only that, university graduates often also have high salary expectations that young start-ups without huge amount of money from investors can’t match.
Despite the many obstacles, it should not hide the general consensus that establishing a business in Indonesia remains as a very attractive proposition. As unicorn start-ups like Gojek and Traveloka have shown, as long as budding entrepreneurs prepare themselves well to face the challenges in bureaucracy, finances, sales, lack of office space or human resources, there is a potential for massive reward that can be reaped in the end.