Indonesia is currently in the 'nascent,' or third, stage of adoption of the fourth industrial revolution – the same level as Vietnam and Cambodia – according to a joint report by the World Economic Forum and A.T. Kearney, published in September. (Reuters Photo/Rebecca Cook)

Indonesia May Become Asean Manufacturing Hub by Embracing Fourth Industrial Revolution


OCTOBER 29, 2018

Jakarta. Indonesia has tremendous potential to become the leading manufacturing hub in Southeast Asia if it fully embraces the fourth industrial revolution to optimize productivity, according to a joint report by the World Economic Forum and global research firm A.T. Kearney, published in September.

The report titled "Shaping Asean's Future Readiness Collaborations to Advance Manufacturing and Production" shows that Indonesia is currently in the "nascent," or third, stage of adoption of the fourth industrial revolution – the same level as Vietnam and Cambodia.

Thailand and the Philippines are in the "legacy," or second, stage, while Singapore and Malaysia are already in the "leading" stage.

According to the report, some countries, such as Singapore and Malaysia, are already advanced, preparing strategic blueprints for the digital disruption associated with the fourth industrial revolution, while other countries in the Association of Southeast Asian Nations (Asean) are still building awareness of the ecosystem.

The various stages also reflect on each country's current level of economic development.

Artificial intelligence is a major part of the fourth industrial revolution. Through automation and data enhancement, AI should make people's tasks easier.

"If we look at Indonesia, even though it is still at the nascent stage of artificial intelligence adoption, the growth has been quite significant in recent years and that is because technology startups have primarily driven it," A.T. Kearney partner, Shirley Dhewayani Santoso, told the Jakarta Globe.

At least a quarter of Indonesian technology companies are adopting AI, with the country leading the pack in the region, according to a 2017 survey by global market intelligence firm IDC.

The survey polled 502 information technology executives across the Asia-Pacific region, except Japan. Trailing Indonesia was Thailand (17.1 percent) and Singapore (9.9 percent).

Shirley said tech startups, such as Indonesian ride-hailing firm Go-Jek, web forum Kaskus, e-commerce platform Tokopedia and most fintech players, are actively adopting AI.

"We see that many startups [in Indonesia] are already embracing AI, but many more traditional companies, such as those in manufacturing, have yet to do so," she said.

Shirley said the adoption of AI in Indonesia would still take time, especially among more traditional companies.

"We don't feel that AI will necessarily replace jobs; what we see is that AI will actually provide a lot of value to companies, but we must make sure the adoption can be accelerated," she said.

Shirley said companies must ensure that they prepare their human resources to embrace AI by giving them an understanding of how the technology will benefit the company.

"We also need to think of cybersecurity policies. A customer data protection framework is also needed to accelerate the adoption of AI," she said.

National Efforts

Singapore was the first country to adopt the technology through its "Smart Nation" initiative, launched in November 2014, to improve the quality of life in the city-state.

Malaysia, Indonesia and Vietnam are following in its footsteps, but are still lacking tech infrastructure, innovation and capabilities to fully capitalize on technology adoption.

However, Indonesia is making serious efforts to catch up with adoption of the technology.

In April this year, the government launched "Making Indonesia 4.0," a roadmap to improve labor productivity and shift to value-added manufacturing in priority industries.

There are five major technologies to support the development of Industry 4.0. They are the internet of things, artificial intelligence, human-machine interface, robotic and sensor technology and 3-D printing.

The roadmap aims to make Indonesia one of the world's 10 biggest economies by 2030.

According to the blueprint, improvement in human resources should be the initial step, through a collaborative effort between related ministries and private institutions.

"One of the ways is to match the training required by employees to what the business needs. It needs a link between what the business really needs and what the human resources are lacking, so the result is much more impactful," Shirley said.

She added that Indonesia should tackle one of its most persistent challenges: a lack of talent in key industries.

"Indonesia does not have enough graduates in STEM [science, technology, engineering and mathematics], so how do we make sure our education system produces the workforce we need? For example, we need to provide inputs for the curriculum to match what the industry needs," Shirley said.

According to global business consulting firm McKinsey & Company, Indonesia only produces eight STEM graduates per 1,000 citizens, while the figure is 20 for India and 34 for China.

Asean Needs More Collaboration

The report suggests that if Asean wants to advance its manufacturing sector, the region must improve collaboration between countries, set up 3-D printing facilities, develop smart packaging, digitize logistics and establish academies for small and medium enterprises.

The region also needs to launch a collaborative educational institution, while adopting a platform for sustainable manufacturing and creating seamless data exchanges for the faster flow of goods.

"We believe the case for collaboration should be very strong. You can actually share knowledge rapidly rather than reinvent the wheel in each country. Through collaboration, you can actually share knowledge and scale up efforts much faster," Shirley said, adding that such combined efforts are better than each country trying to do its own thing.

"We believe the efforts should shift from bilateral collaboration to multilateral platform-based collaboration to basically address the challenges around the different levels of readiness," she said.

Shirley said this collaboration can be between the private and public sectors, in the form of platform-based collaboration, or solely through private initiatives.

She cited Europe as an example of how Southeast Asia should create platform-based digital logistics to address the challenges.

"In Europe, the government created the Alliance for European Logistics. It is a platform-based model that basically connects the various logistics providers [within the region] with a group of experts," Shirley said.

"The companies can see what sort of logistics solutions are required, so they can really help to push down the cost of logistics. Whether it is through optimization, multimodal transportation, and so on," she added.