Becoming Producers in the Digital Era
Number of digital business people and entities growing, including Indonesian citizens or subsidiaries of businesses from other countries.
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On Nov. 3, Malaysian Prime Minister Najib Razak and Alibaba founder Jack Ma inaugurated a digital free trade zone. The new facility was built as a logistics center for products that are traded online.
Similarly to a conventional free trade zone, the digital free trade zone (DFTZ) can receive, import, add value and re-import products with special treatment, such as easy access to import and export permits from the customs and excise office. There are two strategic benefits for Malaysia from this project.
First, the DFTZ will help products from small and medium enterprises (SMEs) enter the world market through online trade. Second, the DFTZ will become a logistics center to support digital trade in Southeast Asia. With special treatment in the DFTZ area, the flow of goods will be smoother and costs will be lower. This will raise the competitiveness of the products that are sold online, especially products manufactured by SMEs.
The digital economy has become a part of life. We can buy various products online, such as books, consumer goods, furniture, computers, medicine, flight tickets, freight services and even design services for name cards and company logos.
There are also a growing number of digital business people and entities, including Indonesian citizens or subsidiaries of businesses from other countries. Names like Kaskus, OLX Indonesia, Jualo, Lamudi, Lazada, Matahari, Bhinneka and Bukalapak are familiar names to Indonesian’s. They follow the steps of companies, such as Amazon, Alibaba and eBay that have been established on the global online market for a relatively long time.
The transaction values of digital businesses will continue to increase rapidly. Technological development of smart phones and the lifestyles of the millennial generation encourage digital economic growth. Indonesia is one of the countries with a high digital growth rate. Various sources say Indonesia\'s e-trade transactions reached Rp 65-70 trillion in 2016. A study carried out by Nomura Research also found that the value of e-trade transactions in Indonesia accounted for about 1.2 percent of all retail transaction values in 2016.
E-trade contributed to around 1 percent of Indonesia\'s gross domestic product (GDP). This figure will increase rapidly and is predicted to reach about Rp 2,000 trillion in 2025. This reflects an average growth rate of above 40 percent annually, far above moderate GDP growth of about 5 percent per annum.
If the predicted growth rate approaches reality, e-trade’s contribution to GDP in 2025 will reach 10 percent. The figure forces us, especially the government, to prepare so that all stakeholders, from producers to e-trade marketers, to the nation as a whole, can benefit.
Opportunity to become a producing country
When we discuss online trade, two issues draw attention. First is the issue of technology-based business models. Second is the issue of last mile delivery. The two issues substantially affect conventional business models and promise extraordinary business opportunities for those who are willing to enter the digital economy. Various information technology platforms have grown to carry out trade transactions, allow consumers to give ratings and reviews and process payments. Regarding last mile delivery, old and new players have appeared, including application-based motorcycle taxis, to compliment the digital economy.
On the contrary, something rarely discussed is how we should align the production of goods to be sold online. Our market has grown and we are spoiled by choice. Competition is becoming increasingly tight among producers. If we want the country to be successful in trade, attention has to be directed to how domestic products enter the digital economy competitively. Government and business associations need to be proactive toward the production side of the digital economy. The upstream segment of the digital economy are the goods producers, including farmers, fishermen and handicraft makers who need guiding so that their products can access a wider market through online trade.
If we go on the Alibaba.com website, we can see products from a number of countries. Countries are divided into pavilions. There is an Indonesian pavilion, Malaysian pavilion, Thai pavilion and so on. On the website, Indonesian products can be promoted and purchased from anywhere so long as their addresses are accessible by the delivery network. It means that the digital economy does not only give services to consumers through the ease to trade, but also presents opportunities for Indonesia to become a producing and exporting country.
Responding to this opportunity, the government has to be more aggressive to encourage a productive climate with products that are innovative, qualified and priced competitively. When market opportunities appear, taking advantage relies on productive capabilities, both in terms of the quality of products and the capability to meet production targets and delivery times. Central and regional governments have to be more proactive in encouraging product innovation, especially with the nuance of Indonesian characteristics. Governors and regents have to set targets and initiate programs to promote local commodities and marketing strategies so that they can be competitive on global online trading networks.
Moreover, the government needs to be more diligent when embarking on trade missions to global and local e-traders. In the conventional era, we relied heavily on physical exhibition activities overseas through Indonesia\'s trade attaches. However, it is now time for the government to form digital trade teams to promote domestic products to e-trading executives. The teams should promote Indonesian products, such batik, herbal products, seaweed, coconut shell handicrafts and furniture to the global digital market. The teams should work to make Indonesian companies preferred suppliers for e-trade companies so that they have the opportunity to appear on their home pages. They also have to travel throughout Indonesia to help regents and governors encourage locally made products to enter the global online market.
Infrastructure development
There is a misperception when associating the digital economy only with information technology while forgetting the physical aspects. The digital economy has drastically altered business models, especially ones that deal with matching buyers and sellers, promotion, payments and processing information about consumers. We should not forget that in reality the activities of production, transportation, storing and repairing goods still physically takes place, even though there will be change because of the development of production technology and transportation.
The reality is that we still need physical infrastructure to support digital economic activities. How can people living in Maluku, East Nusa Tenggara, Jambi, Kalimantan and other regions in Indonesia benefit from the digital economy if physical facilities to deliver goods, such as roads, ports, airports, railway tracks and warehouses are not built properly. How will SMEs throughout Indonesia be able to sell their products competitively if they cannot easily transport goods they produce to centralized distribution centers managed by e-trade companies. Both producers and consumers of goods need physical infrastructure.
Government initiatives to develop infrastructure are necessary if we want Indonesia to take advantage of the digital economy in the future.
We should appreciate the government’s move to drastically raise the budget for infrastructure development in the last three years, from 14.2 percent of the State Budget in 2015, to 15.2 percent in 2016 and 18.6 percent in 2017.
The quality of infrastructure is strongly related to improving the flow of goods, that lifts the competitiveness of domestic products in the digital economy. However, the government also needs to pay attention to logistics to support the digital economy. We do not only need the digital free trade zone, such as the one built by Malaysia, but also the network of suppliers so that products from regions can efficiently move to distribution centers that are managed by e-trading companies.
The role of the government is vital in creating and maintaining the competitiveness of domestic products so that they are popular in both the domestic and global market. All related ministries, from the Agriculture Ministry, Industry Ministry, Cooperative, Small and Medium Enterprises Ministry and the Maritime Affairs and Fishery Ministry, have to jointly establish a team to strengthen production. Then the Trade Ministry can strengthen relations with e-trading companies. Meanwhile, the Public Work Ministry and Transportation Ministry will have to open better accesses for our domestic products through planning physical infrastructure. Hopefully, Indonesia, with its abundant natural wealth and the characteristics of its products, can supply global markets in this era of the digital economy.
NYOMAN PUJAWAN
Professor of Supply Chain Engineering at ITS, General Chairman of the Indonesian Supply Chain and Logistics Institute (ISLI) and a Member of the National Logistics System Team.
