The lifestyle and consumer sectors in Indonesia are known to be brimming with potential. Consumer spending contributes around 54% of Indonesia’s total GDP and it has been the backbone of the economy during the pandemic. The booming middle class would become one of the key growth drivers over the next decade – by 2030, the middle class would make up about 75% of the population and is projected to contribute to 72% of all spending in Indonesia.
Due to the proximity between both countries, Indonesian consumers are familiar with Singapore brands and often perceive our brands as high quality and reliable. Hence, Indonesia is also the top market for most Singapore lifestyle and consumer brands looking to enter and expand within Southeast Asia.
Brands such as BreadTalk, Fish & Co., SaladStop!, Old Chang Kee, Cat & The Fiddle, Killiney, Love, Bonito and Pets Lovers Centre are examples of Singapore companies which have successfully entered the Indonesia market. Healthcare companies such as Fullerton Health, Singapore Medical Group and RenalTeam have also ventured into Indonesia and found success.
To stay ahead of competition, Singapore companies should adapt their strategies in response to the accelerating trends that will continue to shape consumer preferences:
Indonesian consumers’ receptiveness towards digital businesses has improved. According to the e-Conomy SEA 2020 report, one in three digital service customers are new to digital services, with majority intending to continue with such services post-pandemic7. The same report also mentioned that Indonesia’s digital economy is projected to more than double its Gross Merchandise Value (GMV) between 2020 and 2025. By 2030, the number of internet users would rise to 262 million, with internet penetration reaching 92% in urban areas.
While e-commerce is the fastest growing channel, offline and physical channels will continue to remain relevant as consumers increasingly come to expect to switch seamlessly between online and offline throughout their consumer journey. With the blurring of channel roles, Singapore companies need to build up their online presence and find ways to achieve a more seamless offline to online consumer experience.
According to the World Economic Forum, post-pandemic consumers are simultaneously moving in two directions: embracing premium goods, while retaining their preference for value. Consumers will be willing to pay a premium for convenience, well-being and personalisation.
Simultaneously, consumers are also becoming more value-conscious as a result of the pandemic. This value-seeking behaviour will likely lead to reduced brand loyalty as consumers are more prepared to try new brands of similar quality. Consumers of different income bands will also define value differently. For example, high income households (e.g. more than US$1,000 a month) are still likely to prioritise health and wellness, convenience and safety8. Therefore, Singapore brands need to clearly communicate their Unique Selling Point (USP) to tap consumers’ willingness to pay for the quality that their products represent.
Apart from price considerations and taste, the healthiness and nutritional value of a food product are increasingly important purchase decision factors. According to a new report by Food Industry Asia (FIA) and research firm IGD, most Indonesian consumers are interested in improving their diet and open to healthier product reformulation, provided taste is not compromised9 .
This is an opportunity for Singapore food companies to introduce healthier options into their offerings for Indonesia.
7 Source: “e-Conomy SEA 2020”. Google, Temasek and Bain.
8 Source: Deloitte Consumer Insights Survey (2021)
9 Source: “Most Indonesians are health conscious and are open to healthier product reformulation”. IGD.com. Feb 2020
The landing point for most Singapore consumer companies is Jakarta. The Indonesian capital, with a population of approximately 10 million, has the largest population among other cities and a dense network of malls and supermarkets. It also has a high per capita income and a dominant middle class, which has attracted international retailers.
With the shift towards online business models, it is increasingly important for businesses to consider e-commerce as a market entry model. Among the various cities, Jakarta, Bandung and Surabaya reported the highest level of digital activity, with more than five hours a week10 spent on online platforms. E-commerce platforms such as Tokopedia, Shopee, Bukalapak, Lazada and Blibli.com are popular among locals. Indonesia also has the largest food delivery market in the region, valued at US$3.7 billion in 202011 . Food delivery platforms such as Grab and GoFood help companies to reach out to consumers beyond their physical location. Companies are also turning to cloud kitchens, with operators such as GrabKitchen, Dapur Bersama GoFood, and Yummy Kitchen providing ready infrastructure in various cities in Indonesia.
While the e-commerce segment has been expanding rapidly, offline transactions and shopping continue to be popular among Indonesian consumers as a leisure activity. Hence, Indonesia is famous for its large, sprawling malls, with some malls housing more than 1,000 tenants. These shopping malls continue to be important landing points for businesses. Pre-pandemic, demand for premium retail space was always high and businesses faced a long waitlist. The pandemic has offered opportunities for businesses as retail mall operators relook at the current tenancy mix.
In residential areas, warungs – which are small store formats – are prevalent. Warungs are perceived to offer products at a lower price. Nonetheless, supermarkets are still good entry points for Singapore businesses in cities12.
Outside of Jakarta, businesses can also explore Surabaya and Medan, which are the next two largest cities by population. Surabaya City is the second largest city in Indonesia and is home to multiple modern shopping malls. These cities are receptive to foreign brands due to the open attitude they have towards expanding trade flows and increasing commercial activities.
10 Source: Deloitte Consumer Insights Survey 2021
11 Source: Momentum Works 2020
12 Source: Deloitte Consumer Insights Survey 2020
Manufacturing accounts for close to 20% of Indonesia’s GDP, and employs 15% of its workforce13. Indonesia is an attractive manufacturing location for companies seeking to tap its large domestic market. With a large population of 270 million, and with its middle class growing at 12% year-on-year, multinationals such as Unilever and Nestle have entered Indonesia to tap its high domestic consumption.
The Indonesian government has identified six focus sectors to anchor higher value-added manufacturing in Indonesia. These sectors are food & beverage (F&B), textile & apparel, automotive, chemicals, electronics, pharmaceutical and medical devices industries, and they contribute to 65% of Indonesia’s manufacturing exports and employ 60% of manufacturing workers.
Most manufacturing activity in Indonesia is concentrated in Java island and Riau Islands. More than 90 of the 115 industrial estates in Indonesia are located within Java and the Riau Islands, with only 24 within Sumatra and Kalimantan. Java Island hosts five Special Economic Zones (SEZs), while the Riau Islands host three SEZs and three Free Trade Zones (FTZs).
Within Java, manufacturing activity is concentrated around DKI Jakarta, Banten and West Java due to its concentration of industrial activities and connectivity infrastructure. East Java and Central Java are increasingly attractive for manufacturers seeking to access the domestic market in East and Central Indonesia. Both regions benefit from lower labour costs than Jakarta and West Java, while being close to these mature industrial centres.
13 Source: Fitch Solutions 2020
The six focus sectors are predicted to grow at an accelerated pace due to increasing local and international demand14. The COVID-19 pandemic has fuelled the push to develop local processing capabilities for active pharmaceutical ingredients, in addition to rise in demand caused by universal health insurance implementation. Moreover, with the ongoing pandemic, medical wear such as personal protective equipment and surgical masks will continue to be in global demand. The chemicals industry is expected to follow suit in pace due to the growth in downstream industries that require them, such as construction chemicals and cement for housing and infrastructure, and petrochemicals industry expansion. The F&B sector was also particularly resilient during the COVID-19 pandemic, with food manufacturing remaining steady through the pandemic.
Indonesia also aims to become a hub for electric vehicle (EV) production. Indonesia has the world’s largest nickel reserves, accounting for 23% of global volume. The government has also backed EV development strongly, establishing the Indonesia Battery Corporation as a vehicle to pursue joint ventures with foreign investors15. Several multinationals such as Tesla from the US, CATL from China and LG Chem from South Korea16 have also committed to investing in conducting upstream EV battery manufacturing activities in Indonesia.
Indonesia’s state-owned electricity provider, PLN, estimates that some US$3.7 billion public and private investment is required to install 31,000 commercial charging stations over 10 years, with one-third of the stations built in Jakarta. Indonesia also has ambitious plans to produce 2.45 million two-wheelers by 2030, which is expected to see strong adoption given the prevailing transport preference in Indonesia. These developments present opportunities for our companies in the charging infrastructure solution and two-wheeler manufacturing space.
14 Source: 21 January 2020 article on thejakartpost.com; “Indonesia eyes double-digit growth in exports, investment through RCEP”
15 Source: Jakarta Post 2020
16 Source: Nikkei Asia 2021
In considering where to set up in Indonesia, various factors such as sector type, supply chain and end-customers should be considered. For example, manufacturers looking to manufacture for re-export will find it easier to locate within the BBK islands due to their FTZ status. MNCs such as Schneider Electric, Infineon Technologies and Philip Industries have set up in BBK to tap the incentives offered under the FTZ.
Export-oriented manufacturers could consider greater Jakarta and West Java due to their proximity to international container ports, airports and established road infrastructure. These areas would also service higher-tech and less labour-intensive manufacturing models better, due to the availability of skilled but more expensive labour. For those aiming to cater to domestic demand, East and Central Java may be more compatible, with relatively cheaper land and more competitive labour cost.
With these factors, these two provinces also have a greater congregation of labour-intensive industries, such as manufacturing of textiles, F&B and other fast-moving consumer goods. For manufacturing industries that are dependent on raw material inputs, manufacturers could consider setting up bases closer to raw material sources. For instance, Sulawesi and Maluku are popular places for seafood manufacturing factories as majority of freshwater species exist in those waters.
Manufacturers can also consider setting up production bases in industrial parks. With their ancillary services and proximity to logistics nodes, these industrial parks can serve as landing pads for both established and new players. The 2,700ha Kendal Industrial Park, a joint venture between Singapore’s Sembcorp Development and Indonesia’s PT Jababeka, is one such example. The Indonesian government has also designated several SEZs and FTZs across the island, which offer additional incentives to manufacturers setting up base in these regions, such as lowered corporate tax rates, tax holidays of between five to 10 years if investors commit more than US$50 million, easier licensing and exemption of import duties.
The infrastructure sector is a priority sector for the current Jokowi administration, which hopes to achieve US$430 billion in infrastructure investments by 2024 to meet the government’s National Medium-Term Development Plan targets. These include investments into roads, airports, seaports, irrigation, water, energy and waste management projects. Indonesia has been tipped to be one of the fastest-growing construction markets in the region, with a rebound from COVID-19 boosted by strong government support for the year. Analysts had projected a year-on-year growth of 8.7% for the construction sector in 2021, followed by an average expansion of 6.8% from 2022 to 2030 as infrastructure projects that were delayed have resumed17.
Indonesia envisions that about 37% of the infrastructure investment required will be funded by the government and 21% by state-owned enterprises, with the remaining invested by the private sector, including equity investments by foreign investors. Indonesia launched the Indonesian Investment Authority (INA) in February 2021 as a vehicle for attracting and managing long-term infrastructure capital. The INA has a bold target of attracting US$200 billion in fund commitments over the next two to three years, and foreign funds from the US, Japan and the United Arab Emirates had indicated interest to work with the INA on investing into infrastructure projects in Indonesia.
17 Source: Fitch Solutions 2021
Securing financing remains a critical element for many infrastructure projects. Beyond attracting new investments, there is potential for Indonesia to tap asset recycling to raise capital. Singapore is well-positioned to work closely with Indonesia to explore more financing avenues. For example, Infrastructure Asia and PT Sarana Multi Infrastruktur (PT SMI) signed a Memorandum of Understanding (MOU) to collaborate on joint capacity building with Indonesian government contracting agencies (GCAs) at the provincial, municipal, and local level. The MOU focuses on areas such as transit-oriented development as well as waste and water management. Infrastructure Asia will also facilitate access to financing from Singapore-based financial institutions for these infrastructure projects.
Beyond financing, Singapore companies are also well-placed to share their expertise on developing and operating actual assets, including in growth sectors such as renewable energy. By 2025, Indonesia aims to increase its renewable energy mix to 23% from 11.5% as of 202018. By 2035, it aims to generate one-third of its clean power from solar energy, which will require it to build 17.6GW of solar capacity from 153.8MW currently19. This big transition will create opportunities for international expertise, technology providers and capital investors. The immediate demand will come from industrial and commercial facilities looking to integrate energy management solutions, solar power and plan for new utility-scale renewable energy projects. In the medium term, we expect more business models that allow individual residential properties to install solar power capacity.
Demand for smart cities and sustainable solutions is likely to see continued growth as regional government and private companies place greater emphasis on sustainability and digital transformation. Regional governments have been transforming local administration via the implementation of smart city initiatives. In Jakarta, Bandung, Tangerang and Makassar, the local governments have already implemented e-government services, as well as the use of sensors around the city, which allow local government departments to react more efficiently to social and infrastructure needs. Besides government initiatives, private enterprises, especially real estate developers, are also looking to differentiate their developments with smart cities solutions. Particularly, smart buildings and smart environment solutions that allow these enterprises to operate in a cost-effective and sustainable manner are well-received. This opens opportunities for Singapore companies with expertise in these areas.
18 Source: The Jakarta Post, 2021
19 Source: Smart Grid Indonesia, “Indonesia’s largest solar farm key opportunities and challenges”
We are already seeing more Indonesian companies seeking partners, including those from Singapore, with technological solutions that can complement infrastructure projects. In the renewable energy space, Indonesian companies have been seeking partners with energy optimisation technologies and a track record in solar power installations. For example, Singapore company Barghest Building Performance (BBP) recently deployed their solutions in three Indonesian malls to optimise the energy performance of their chiller systems without requiring equipment replacements. Similarly, PVFoundry has begun working with developers in Indonesia to integrate their solar technology in expandable homes (commonly known as rumah tambah in Indonesia).
Given the complexity of infrastructure projects, it is useful for companies to work with strong local partners and build a reliable local team to meet requirements for national utility-scale projects, understand the regulatory environment and changes, and operate projects effectively across the diverse archipelago. Singapore companies who can bundle financing with their technical solutions will be able to offer their Indonesian clients more comprehensive and competitive offerings.
Indonesia’s innovation and startup ecosystem has been growing rapidly. Despite the disruptions brought about by the COVID-19 pandemic, Indonesia raised one of the highest amounts of venture capital in the region (second to Singapore). During the first half of 2020, US$2 billion was invested across 80 deals in Indonesia’s startup ecosystem, with large funding rounds by Indonesia’s unicorns such as Go-Jek, Tokopedia, Traveloka, Bukalapak, and OVO.
Such healthy capital investment demonstrates Indonesia’s potential as one of the fastest growing digital economies. By 2025, the digital economy is predicted to reach US$124 billion, up from US$40 billion in 201920. E-commerce usage has also surged during the pandemic, with 221 million people expected to be using e-commerce by 202521. The tech sector is dominated by companies in the e-commerce and fintech spaces – a reflection of the country’s large population and growing consumption levels.
20 Source: Information from World Economic Forum Op-ed
21 Source: Statista 2021
E-commerce services, fintech, healthcare services, and deep tech could provide opportunities for Singapore companies and startups, given the developments in these sectors. For example, fintech innovations have been mainly driven by two developments: (i) the increasing use of e-payments, largely to support the e-commerce boom; and (ii) peer-to-peer (P2P) lending, as the country has one of the largest unbanked populations in the world. Apart from digitalisation, we also observe Tier 1 banks seeking deep tech solutions in areas such as Know-Your-Customer (KYC) evaluations and cyber security, which could present partnership opportunities for Singapore companies and startups.
Healthcare services is another area of opportunity, where healthtech startups have translated problems that plague the traditional healthcare industry into innovation opportunities. Startups such as Halodoc and Alodokter seek to improve patient access to physicians through telemedicine, while others such as Medico focus on increasing the cost-effectiveness of care, by increasing efficiencies in clinical workflows and reducing high-touch physician intervention. The demand for digital healthcare services is expected to remain strong as COVID-19 transforms healthcare consumption habits and preferences.
As the innovation ecosystem and digital economy in Indonesia continue to develop, there will be greater opportunities for collaboration. Our initiatives such as the Global Innovation Alliance (GIA) Acceleration and Demand-Led Programmes in Jakarta create platforms to catalyse collaboration between Singapore startups and Indonesia corporates. Established in 2017, the GIA strengthens Singapore’s connections to the ecosystems of global innovation hubs and key markets in the region.
ESG partners GK Plug and Play Indonesia to support Singapore startups to gain market access into Jakarta through the GIA Acceleration Programme, which comprises business workshops, networking sessions and a Demo Day. Key flagship innovation events such as the Singapore Week of Innovation and Technology (SWITCH) and the Southeast Asia Open Innovation Challenge also provide opportunities for Singapore companies to work with Indonesian corporates.