The Good, the Bad and the Ugly of Running Startups in Indonesia
Indonesia’s technology sector has seen a massive increase in the venture capital activity. Over the past few years, it has flourished the ecosystem of startups in the country.
Having a population of more than 250 million, a growing middle class and access to affordable mobile devices Indonesia is shaping into a fine ecosystem, helping to support many homegrown startups primarily in ride-hailing and e-commerce.
Starting a company in emerging markets like Indonesia is tough as founders have to make difficult decisions every day with limited information. This article illustrates the good, the bad and the ugly of running a startup in Indonesia.
Indonesia has the largest Southeast Asia’s online market and has accounted for the most venture capital deals among emerging markets since 2012.
Behemoths like Expedia, Alibaba, JD.id, Tencent Holdings and Rakuten Ventures are pumping billions of dollars into Indonesia, trying to take a piece of the ever-growing pie.
In 2015, Indonesia received $31 million in disclosed venture capital and the number grew to $631 million in just a year later. Last year in September 2017, the investment reached $3 billion worth of deals.
Recently, Indonesia was ranked as number one in “startup frontier markets” category, a study done by CB Insights that covered over 50 countries, which were defined as “hotspots of raising venture capital outside of places where mainstream VC is concentrated.”
The graph below illustrates the Top Emerging Startup Hubs and Indonesia has contributed the highest percentage of the world VC deals since 2012:
Source: CB Insights
On top of that, Jakarta leads the top ten frontier startup cities, ahead of Dubai, Vienna, Istanbul, Kuala Lumpur and Bangkok.
On a worldwide level, nearly 60% of all VC deals go to US-based companies, followed by the UK, China, India, Germany, and Canada respectively.
In terms of the market; Indonesia gets more and more attention from international startups as well.
Additionally, internet use is growing faster in SE Asia than in other parts of the world, with 124,000 users coming online every day over the next five years, according to a study by Google.
Indonesia has developed a unique mobile-first market which is expected to comprise more than half of SE Asia’s e-commerce market by 2025 and an estimated value of $46 billion.
Luckily, Indonesia’s president; Joko Widodo, is a strong supporter of digital innovation and his support amplifies the rapid growth. His plan is to create 1,000 local tech startups worth $10 billion in total by 2020.
The bad and the Ugly:
Low credit card penetration
Most of Indonesia’s population has not entered the banking system, only a small segment owns a credit card.
According to the International Labour Organization, Indonesia faces challenges in responding to the skills needed for its workforce in a time of increasing globalisation, new technology, and changing work patterns.
The World Bank argues that poor education is one of the causes claiming gaps in thinking and behavioural skills particularly critical when it comes to running a startup.
According to AFP, Indonesia is one of the worst countries in the world for startup bureaucracy. To illustrate that point, it takes on average five procedures and five days to establish a corporate entity in nations like the U.S., in Denmark it simply takes 5 minutes and an internet access. While in Indonesia, it takes nine procedures and 47 days. As a result, the World Bank ranks Indonesia on the 155th place in the world for ease of starting up a business.
Indonesia’s poorly developed transportation infrastructure creates a lot of opportunities for startups but poor roads and unclear addresses make the process cumbersome.
In emerging markets and Indonesia, a study from TechInAsia shows that the market is more inclined to purchase products and services that have already gained traction in other markets. Indonesians therefore, fall under “late adopters” category, making it challenging for innovative concepts.
Low Number of Co-working Spaces
The number of co-working spaces in Indonesia is just more than 100 – 120, that might seem like a lot, but, Singapore alone has pretty much the same numbers. Co-working spaces are important as they are the catalysts of startup activity.
Most of the co-working spaces in Indonesia are located in the capital city of Jakarta, as well as in Bali. If your company is not located in one of the big cities of Indonesia, finding a coworking space that suits your needs- let alone at all, might be a tad hard.
Running a startup is hard. Running a startup in emerging markets is even harder. No wonder why so many entrepreneurs in Southeast Asia would prioritize proven business models in order to decrease the uncertainty they are facing.
As Patrick Grove once said:
“Running 1,000 miles per hour is what wins the day. In emerging markets, it’s not innovation that wins the battle; it’s rapid execution.”
Indonesia is a fascinating case. At first glance, it presents so many challenges and we haven’t even touched the topic of cultural differences across the archipelago.
Yet, many venture capitalists and entrepreneurs remain optimistic. The opportunity window is here. Are you going to seize it?