Profiling Transformation: Indonesia

Photo by  Gede Suhendra  on  Unsplash

Idyllic Island Resorts, Beaches, Diving, Komodo Dragons and Bintang Beer: those are the stereotypical associations people have with Indonesia.

While many look to Indonesia as a chance to experience a world untouched by urbanisation and modernism, the reality is that a storm of transformation has swept through the country, most visibly seen in its major cities and exemplified by its capital, Jakarta.

The old world

To the old world of investing, the capital markets in Indonesia are concentrated around a handful of stocks: a couple of banks, including the Djarum group’s Bank Central Asia and the state-owned trifecta of Mandiri, Rakyat and Danamon; some telcos including state-owned Telekom Indonesia; a large conglomerate Automobiles business (Astra), a couple of property developers, two cement companies, two cigarette companies, some retailers, one pharmaceuticals company (Kalbe Farma) and a long tail of smaller companies largely engaged in traditional industries like TV, palm oil, gas, mining etc.

In truth, the stock market doesn’t do this extraordinary country and its entrepreneurs justice. Neither do asset managers who hug the country’s headline indices, whether the broad-based Jakarta Composite Index or the more popular, liquidity-driven LQ45 (the 45 most liquid stocks in Indonesia).

Yet below the mundane stock market facade lies a vibrant startup scene, making Indonesia home to some of Asia’s most valuable startups.

The helmet tells you it’s a Go-Jek (

The helmet tells you it’s a Go-Jek (

A hotbed of innovation

Local e-commerce portal Tokopedia recently raised its Series G funding at a valuation of US$5.9bn, making it the 14th largest company in Indonesia; while locally-born Go-Jek, which started as a ride-hailing app for motorbike taxis but has now expanded into cabs, payments and O2O services, raised its Series F at US$8.6bn, making it Indonesia’s 11th largest company. Its latest foray: taking the fight to neighbouring Singapore, pitting itself against regional heavyweight Grab which last year subdued Uber’s regional ambitions and secured the latter’s acquiescence with a buyout of Uber’s regional businesses paid for in Grab shares.

In fact, consider this figure: Indonesia has an average of 8 digital startups per 1 million people, a bigger ratio than, say, Japan (6 for every 1 million) and with just over double the population. (Source: Hinrich Foundation)

The willingness of the local Indonesian population to adopt new technologies has also drawn in regional heavyweights. For example, Alibaba’s determination to dominate its Southeast Asian hinterland has seen it acquire Lazada and make a charge for Malaysia and Indonesia, putting it in direct competition with Tencent affiliates Shopee and

Where there are winners, there are also the vanquished - often the former incumbents: from Matahari Department Stores’ unsuccessful e-commerce venture, to the slow decline of free-to-air TV stations in the face of not just Netflix but also Malaysia-born iFlix, whose technology is cleverly adapted to the slow, intermittent mobile internet connectivity that often plagues Emerging Markets.

The Indonesian startup scene is as diverse as the food! Image courtesy of  Miss Mina .

The Indonesian startup scene is as diverse as the food! Image courtesy of Miss Mina.

The leapfrog effect

For Indonesia, transformation is being driven from within as much as from the outside - from China’s regional expansion to the country’s reliance on energy imports, to the Fed’s rate policies, to monetary and fiscal policy decisions internally, to global trends like smartphone adoption, e-commerce, climate change and demographics. More ingredients than one would find on offer at a Nasi Padang restaurant.

And to that point, our initial observation regarding the listed giants on the Jakarta Stock Exchange is incisive: transformation is threatening incumbent business models and picking them off piece by piece. Some industries (e.g. mining and energy) are more resistant to change; others like media, consumer discretionary, industrials and finance have chosen to erect walls to face off against the oncoming tsunami. But as history has demonstrated, building walls is no guarantee of survival - especially when those bricks end up crushing those hiding behind them.

Truth be told, a warm embrace for change remains a rarity in the market, for now at least. This creates opportunities for those with the vision and courage to take risk and position for the future. Taking a different approach is the road less travelled, but who’s to say it isn’t safer than staying put? Those who are resolute in clearing out the old to make room for the new, reap the rewards.

A welcome attitude towards transformation and change is starting to pay off for some companies and as a result, Indonesia is leapfrogging traditional development trajectories, leaving the old linear development path behind. But what about incumbents who fear change, or don’t understand it, or simply aren’t agile enough to adapt? They need to wake up and smell the kopi luwak. If they’re unable to innovate quickly enough to adapt to new market realities they will have to reach into their pockets and get acquisitive. Tapping abundant cash resources to reform an existing business model is a wiser choice than starting from scratch with no capital or worse still, becoming obsolete.