Introduction
What are the structural problems facing the world's fourth most populous country?
Indonesia, with a population of approximately 280 million, was expected to be the largest market in Southeast Asia. However, in reality, it is facing the serious challenge of "weak domestic demand."
This is not merely a temporary economic downturn, but rather, the root cause lies in a lack of preparation for the "digitalization of supply chains."
According to an analysis by Chisaki Masukawa, an economist at Daiwa Institute of Research:
- Comparison with Vietnam: Vietnam has successfully integrated itself into the global supply chain as a "post-China" country.
- The concentration of the electronics industry has progressed since the 2010s, with high-value-added companies like Samsung Electronics establishing smartphone production bases in the area.
- The success or failure of digitalization is a turning point:
- Whether or not a company rode the wave of digitalization spurred by the COVID-19 pandemic determined the winners and losers within the ASEAN region.
In contrast, Indonesia:
- While we have focused on the electric vehicle (EV) industry, leveraging our abundant nickel resources, the reality is that "it has not translated into exports."
- The country suffers from a structural weakness in that its main export products are "low value-added products such as clothing, footwear, and food products."
In short, the problem with the Indonesian economy lies in the gap between its pride as a resource-rich country and its actual business capabilities.
Recognizing this "trap disguised as a huge market" is extremely important for future investment decisions.
Why are other countries succeeding while Indonesia is struggling?
★Malaysia's strengths
“The main reason is that "the electronics industry is concentrated here":
- We embraced the trend of digitalization, triggered by the COVID-19 pandemic.
- The area is a hub for the production of personal computers and related components, and also has a certain track record in the semiconductor field.
- With its status as a high-income country (per capita GNI of $24,165) on the verge of becoming one, expectations are high for it as a "new market."
★ Vietnam's strengths
“"Growth driven by both digitalization and supply chain management:"
- Because we are integrated into a global supply chain, we were able to maintain our economy even during the COVID-19 pandemic.
- Population migration from rural areas to cities is increasing, which is working to suppress wage increases (unlike in the past when industrial development was progressing smoothly, as in China).
★Thailand's strengths
“"Outstanding achievements in the automotive industry:
- It is the largest automobile producer and exporter in ASEAN.
- This has fostered connections with neighboring countries, such as through the development of ARTAI.
These facts indicate that the ASEAN region's "ability to adapt to digitalization" is a key factor in determining economic trends.
This point directly relates to a rethinking of business strategy.
Supplementary Information: Points to Note and Structural Issues in Investing in Indonesia
■ The limits of the effectiveness of the Prabowo administration's fiscal stimulus measures
The Prabowo administration, which came into power in October 2024, undertook the following efforts:
- The government implemented aggressive economic stimulus measures, including providing 20 trillion rupiah (approximately 1.86 trillion yen) in liquidity to commercial banks.
- The aim was to increase lending and stimulate consumption, but...
In reality, there are structural challenges such as the following:
| ■ Reasons why deposit balances are stagnating |
| - Deposits are flowing out due to the decline in preview interest rates. The banks are not in a position to lend money actively. |
| ■ Rising trend in the ratio of non-performing loans for personal loans |
| • Risk management needs to be more thorough than ever before. |
■ Problems revealed by changes in population distribution by inflation level
- Intermediate reserve layerIt is increasing (seemingly a positive thing).
- However, the reality is that this proportion is decreasing, and the number of "vulnerable people" is increasing.
- This isn't just a simple economic downturn; it could be said that "the decline in purchasing power is a structural problem."
■ Insufficient response to changes in the trade structure
Amidst the dramatic changes in global trade brought about by the COVID-19 pandemic and the Ukraine crisis, Indonesia is currently struggling to keep up.
Offshoring (relocation overseas) → Nearshoring (procurement and production completed in a neighboring country)
└─ The reality is that Southeast Asia's advantage is beginning to diminish relatively.
Whether or not you can adapt to this change will determine your future business opportunities.
Summary: Important lessons and insights learned through work
“Let's keep in mind that we shouldn't be fooled by the term "huge market."
We can learn a great deal from the Indonesian case.
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- Maintain an attitude of not blindly accepting numbers or superficial success criteria.
While having the world's fourth-largest population sounds appealing, it can be a "trap" if the actual purchasing power doesn't match. When exploring business opportunities, it's essential to always examine the underlying structural realities.
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- Adaptability to rapid change
The difference between countries in the ASEAN region that were able to ride the wave of digitalization and those that were not was clear. The ability to discern whether there is "real demand" rather than simply following "what's trending now" is required. This is true in any industry, and it is important to focus resources on "areas with real demand" rather than just chasing market trends.
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- “The importance of "competitive relationships with neighbors"
The gap between us and neighboring countries like Vietnam and Malaysia was clear. It's not just about objectively assessing our own strengths, but also about considering what we can learn from our competitors. To take on a leadership role in the industry, it's not just about being big, but about being an adaptable organization.
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- “"Breaking free from resource dependence"”
Indonesia possessed abundant nickel resources, but that alone was not enough to guarantee success. This is true for any company; the key to long-term growth lies in not being overconfident in one's own strengths (resources, technology, and brand) and instead focusing on "adding value."
lastly:
“"The biggest lesson we can learn from the Indonesian economy is,‘'Scale does not equal success'’It's a simple fact: "Qualitative indicators" such as actual purchasing power, degree of integration into supply chains, and digitalization capabilities determine true growth.
The same applies to business: simply being a large company or having many employees is not enough. The essence of success lies in having an adaptable organization and strategies that generate real demand.
Keep this realization in mind and use it to inform your future business decisions and career planning.
You will realize that there is always a hidden side to a massive market, and the ability to decipher that is true leadership.
