Indonesian businesses disrupted, overwhelmed by digitalization | Harcourts Purba Bali

Indonesian businesses disrupted, overwhelmed by digitalization

Illustration of digital transformation(Shutterstock/metamorworks)
Eisya A. Eloksari (The Jakarta Post)
Jakarta   ●   Sat, August 14, 2021

 

Despite the rapid digitalization that has been happening over the course of the COVID-19 pandemic, most businesses in Indonesia still consider themselves “disrupted” and face difficulties keeping up with digital transformation, two recent studies show.

A survey conducted by law firm Baker McKenzie on 800 businesses from eight Asia Pacific countries showed that 84 percent of Indonesian businesses felt disrupted over the past year, which meant they lagged behind competitors in digitalizing their operations.

The survey, which was conducted in the first half of this year, also found that only 34 percent of Indonesian businesses felt they had successfully onboarded and monetized new technologies.

A separate Ernst & Young (EY) study found that many nondigital industries in Southeast Asia did not invest enough money over the past few years to mimic digital companies’ success in growing amid the COVID-19 pandemic.

“Businesses said that they had faced an acceleration of business digitalization in the past year but also shared deep anxieties around the pace of keeping up with competitors and risks associated with digital transformation, from cybersecurity, effective adoption of technology to expected heightened regulatory scrutiny,” wrote Baker McKenzie in a statement about the survey on Aug. 12.

The two studies reflect the sentiment of Indonesia’s businesses community, which is struggling to undergo digital transformation despite the pressures of the pandemic and the hurrah over digitalization amid a tech start-up boom in the country.

Baker McKenzie’s study titled “Riding the Next Wave – Digital Transformation Strategies in Asia Pacific” stated that 44 percent of Indonesian respondents felt they were falling behind competitors in establishing technology to support remote working, higher than the 31 percent average in Asia Pacific.

Furthermore, Indonesian respondents identified heightened regulatory investigations and sensitive information theft as the top business risks at the moment. They also recognized the high risk of customer data breaches and major system failures.

EY’s report wrote that Southeast Asia’s “old economies”, such as retailers and hospitals, have been responding to the disruption by partnering with strategic players in the digital ecosystem.

A case in point, Indonesian retail heavyweight PT Matahari Putra Prima (MPPA) onboarded 97 outlets with ride-hailing giant Grab’s GrabMart service, operated 45 virtual storefronts on e-marketplace Shopee and operated 23 virtual storefronts on rival e-marketplace Tokopedia last year.

“Incumbent players or old economies see that the digital ecosystem is a future-proof business model and that they have to do that [digitalization]. They strongly believe that digital economy platforms will dominate in the future,” said Joongshik Wang, a partner at EY-Parthenon, during an online discussion on Wednesday.

The firm noted that Southeast Asia saw US$408.5 billion in technology transactions in the last five years mainly in five tech areas: artificial intelligence (AI), big data and analytics, blockchain, cloud computing and mobile application.

For example, major hospital operators in Indonesia such as Siloam Hospital and Mitra Keluarga Group have launched remote consultations with doctors to tap into Asia Pacific’s telemedicine market, which is projected to be worth $22.45 billion by 2024.

However, Wang went on to say that many old economies failed to mimic the success of digital business due to the former’s product-centric business strategy and a lack of investment.

“Digital ecosystems need lots of capital, but incumbent players don’t take it seriously. They stop before they reach the right critical mass,” he said, advising businesses to either conduct mergers and acquisitions or joint ventures to accelerate the digital transformation.

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