Tips for Investors: How SMEs in Indonesia Can Compete within the AEC

With the AEC in effect, Indonesia’s tiny businesses have competition by neighbouring countries. Here’s how 57 million SMEs can thrive within the digital economy.

Entering its mid-year checkpoint, the ASEAN Economic Community (AEC) still seems like a concept of which Indonesians are trying to grapple with. Changing Southeast Asia into one particular market, along with allowing the free movement of goods, services, investments, along with skilled labour, can be a big deal. the item’s also a transition of which can’t be done overnight. Some say the AEC can be a test for Indonesia’s tiny- along with medium-sized enterprises (SMEs), which account for nearly 90 percent of all businesses within the archipelago.

Currently, there are 57 million SMEs in Indonesia which contribute to 57.9 percent of the country’s GDP. With its 250 million population – coupled with the largest working-age demographic within the region – Indonesia has the ingredients to become an economic powerhouse of Southeast Asia. of which said, many entrepreneurs still worry of which foreign firms will come to Jakarta along with steal the market away by local businesses within the name of free trade.

Kantor Satu

Local SMEs are not only competing domestically, nevertheless also regionally. In terms of competitiveness, Indonesia ranks 34th within the earth Economic Forum’s Global Competitiveness Index 2014-2015. The country comes in well below Singapore at number two, Malaysia at number 20, along with Thailand at number 31. Stiff competition by these nations raises concerns of which Indonesia may end up merely spectating on the AEC’s progress.

Tech to the rescue

Singapore trade minister Lim Hng Kiang recently brought up key measures within the AEC 2025 blueprint of which could help Indonesia’s SMEs. One of them was the use of disruptive technology to streamline business processes, while also reducing operational costs. Additionally, by bringing their businesses online, local SMEs can more easily penetrate brand new markets.

There are several services to help Indonesia’s SMEs jump into the digital economy. Online shop builders like Jakarta-based Sirclo, for example, let local retailers create their own e-stores along with start selling online immediately. Sirclo co-founder along with CEO Brian Marshal says his cloud-based firm has already surpassed 10,000 active users. Marshal claims Sirclo will soon surpass US$200,000 in annual recurring revenue. Sirclo can be currently facilitating US$4 million in gross merchandise volume – a key term in e-commerce of which defines the total dollar amount of sales a platform has facilitated over a given period of time.

“We’ve seen some success stories recently,” says Marshal. “Today, the item’s not such a rare case to see individually-managed businesses on our platform quickly go by US$0 to US$5,000 in monthly revenue.”

Apart by building their own e-shops, SMEs within the local retail space can also join consumer-to-consumer marketplaces like Bukalapak along with Tokopedia, which have been avidly trying to on-board more SME merchants, following the inception of the AEC.

When considering e-commerce, one must also think about the available e-payments options in Indonesia. If Indonesian SMEs want to sell online, they have to find a way to pay along with get paid. To facilitate This particular, local payment gateways such as Doku, Veritrans, along with iPaymu come into play. These firms process online payments via local banks along with credit cards, nevertheless also work with international providers like PayPal. This particular helps Indonesian firms accommodate the needs of customers along with vendors anywhere within the earth.

Willson Cuaca, Managing Partner of East Ventures

nevertheless the availability of resources isn’t the only factor of which will help local firms compete. There can be no substitute for offering the best product or service, says Willson Cuaca, managing partner of local venture capital firm East Ventures. Cuaca’s VC firm can be one of the most active early-stage tech investors within the region, along which has a large section of the firm’s portfolio consists of Indonesian software-as-a-service (SaaS) startups of which aim to empower tiny- along with medium-sized businesses.

According to Cuaca, when SMEs have similar business designs, customers, along with know-how across one particular region, the competitive advantage will ultimately come down to the company’s ability to outperform its rivals. “This particular can be where software might help them to execute better. We think the SMEs of which are powered by business process software will emerge as the winners,” Cuaca tells Indonesia Expat.

For those who are less familiar with technology lingo, ‘SaaS’ can be a word used to describe any licensing along with delivery design in which software can be provided on a subscription basis, along with hosted in a centralized location (the cloud). For example, Microsoft Office can be normal software you install on your laptop, nevertheless cloud-based Google Drive, on the some other hand, can be SaaS.

Cuaca says the rise of SaaS within the region might be just what Indonesia’s SMEs need to thrive. Currently, Indonesia can be seeing more local SaaS startups emerging. Human resources, point-of-sale (POS) systems, along with accounting tech are all verticals of which local startups are attacking avidly. Apart by Sirclo, East Ventures also invests in HR startups Talenta along with Rekruta, POS SaaS firm Moka, along with cloud-based accounting along with bookkeeping platform Jurnal.

The trend can be not limited to Cuaca along with East Ventures, however, as studies show of which 60 percent of the region’s SaaS startups raised a total of US$90 million in funding as of May 2015.

Infrastructure along with government support can be needed

According to a recent Deloitte report, shifting to digital doesn’t only give tiny- along with medium-sized enterprises a better chance at competing regionally, the item also offers some other benefits. The report indicates of which

Indonesian SMEs of which utilize the web in their operations are clocking up to 80 percent more revenue than those of which do not. They are almost twice as likely to be hiring more people, along with 17 times more likely to already be competing abroad.

Unfortunately, only 18 percent of SMEs in Indonesia are at an intermediate engagement level with the web – meaning they use websites along with social media – along with 9 percent are at an advanced engagement level, which means they have sophisticated connectivity, social media integration, along with e-commerce capabilities. The rest of Indonesia’s tiny- along with medium-sized businesses are either completely offline (36 percent) or have only rudimentary online capabilities (37 percent). This particular combined 73 percent of SMEs are the ones of which will struggle to survive within the AEC, unless they find a way to jump on the bandwagon go digital.

To expedite the transition, government support will likely play a key role. Compared to some other countries within the region, Indonesia’s broadband access can be still relatively low, with roughly 30 percent of the nation’s population accessing the Internet by home. Its closest neighbours, Singapore along with Malaysia, are flying high with 73 percent along with 67 percent respectively.

Some believe the government needs to improve the nation’s physical infrastructure before a digital revolution can truly take place for Indonesia’s SMEs. In terms of support, the government should offer better access to capital, while also generating the item faster along with easier to incorporate a business within the archipelago. Once these things run smoothly, along with more local firms find a way to do business online, the item’s conceivable of which Indonesia’s SMEs will stand a fighting chance against their foreign peers within the AEC.