The roadmap of “Making Indonesia 4.0” has been officially launched by the Indonesian government in order to boost the nation’s economy substantially through the implementation of new manufacturing technologies for the most vital sectors in Indonesia that contributed to two-thirds of the total manufacturing output in the country in 2017. These sectors included automotive, food and beverage, electronics, textile, and chemical. They will be prioritized under the “Making Indonesia 4.0” roadmap.
The government is optimistic that this initiative will lead to a huge transformation including more jobs on the Indonesian market and an increase in exports. President Joko Widodo is also positive that this implementation will push Indonesia to become one of the top ten biggest global economies by 2030.
This article provides insights into Industry 4.0 in Indonesia, including the challenges and opportunities that exist to support this rapidly progressing economy.
Industry 4.0 refers to the fourth industrial revolution is transforming manufacturing by the implementation of new technologies and innovations, particularly in digital technology, cyber-physical systems, and biology and hardware automation.
The vision of Industry 4.0 is to make the smart factories a reality and fully utilize digital manufacturing. It is believed to be end-to-end digitization in the manufacturing sector and will create an ecosystem across the entire supply chain.
Currently, Industry 4.0 is supported by five key technological innovations: artificial intelligence (AI), Internet of things (IoT), robot and sensor technology, human-machine interface, and 3D printing.
The whole world is now moving towards Industry 4.0 and Indonesia is also getting ready to join the new trend.
As the backbone of the Indonesian economy, the manufacturing sector in Indonesia accounted for 20% of Indonesia’s GDP in 2017. Almost one in five of the working population in Indonesia is employed in this sector. Thus, if Industry 4.0 is successful in Indonesia, the country will see a growth in GDP of at least 7% annually between 2018 and 2030; and the manufacturing industry will contribute to 26% of the nation’s by 2030 as well.
Today, Indonesia faces aggressive competition from other countries such as China, Vietnam, and Thailand. Many other challenges still exist but the Indonesian government has already taken a lot of positive strategies in order to fulfill the goal.
There are four major challenges present for Industry 4.0 in Indonesia including capability issues, funding problems, lack of technology/digital infrastructure and system suppliers for Industry 4.0, and the regulation and policy overlap that require further synchronization.
For funding and capabilities problems, not only does the manufacturing sector need a large number of fresh funds, but the implementation of Industry 4.0 also requires foreign talent and technology to help improve the capability and quality of the domestic industry.
As for the lack of technology and system suppliers, many manufacturers have been discouraged from migrating to Industry 4.0. Last but not least, harmonization is needed for rules and policies and this issue has not yet been solved by the Indonesian government.
The big opportunities for Industry 4.0 in Indonesia are mostly driven by the demographic factor in the country for the next decade. The large population in Indonesia has over 100 million smartphone users and over 145 million people are connected to the Internet – a huge advantage to the realization of Industry 4.0.
According to a study conducted by McKinsey in 2018, almost 78% of Indonesian companies had awareness of the Industry 4.0 concept, only behind Vietnam (79%). Surprisingly, countries such as Singapore, Malaysia, and Thailand have lower rates of Industry 4.0 awareness as compared to Indonesia.
With proper execution, by 2025, Industry 4.0 is estimated to contribute approximately US$121 billion to Indonesia’s GDP. The speed-up of the digital economy through Industry 4.0 may help Indonesia to earn up to US$150 billion annually by 2025 as well.
With all the data and statistics mentioned above, Indonesia is certainly an alluring market for every foreign entrepreneur. Despite the challenges present as the country is keeping up with Industry 4.0, the opportunities are for you to seize. Get in touch with us now to get important insights into a market entry in Indonesia and how Cekindo can assist you with business incorporation in Indonesia.
