Indonesia is making small steps towards Industry 4.0

Industry 4.0 is a prestigious topic for Indonesia. In April 2018, the government introduced the strategy "Making Indonesia 4.0". It describes the path of domestic industry to a higher-value future, with 10 million additional jobs.

As the first step, the Ministry of Industry created the Indonesia Industry 4.0 Readiness Index (INDI 4.0), which measures the extent to which industrial companies are prepared to digitize their production processes. However, the basis for this is only a self-assessment on a scale of one to four.

Five sub-areas (each with three to four subcategories) are to be evaluated: organizational structure, employees, technology, production processes as well as products and services. More than 300 companies have participated in the new instrument. On average, they have scored between 2.5 and 2.6 points. From which industries the companies come, how big they are and which are the next steps on the way to a digitally supported production, the ministry does not inform upon request.

The most important suppliers for factory automation and Industry 4.0 in Indonesia are Siemens, ABB and General Electric. Only they could cover the full range of Industry 4.0 production offerings. According to market observers, there is little Asian competition so far.

Automotive and food processing are pioneers
At which technological level is the Indonesian industry? Automation specialists consider the automotive industry, which consists mainly of Japanese manufacturers, as the most modern sectors, as well as food processing, which accounts for almost 30% of the total manufacturing industry. This is followed by the chemical, electronics and textile industries, where the international competitive environment has also led to a high degree of automation. These five sectors are also the focus of "Making Indonesia 4.0".

As a first step in the direction of Industry 4.0, some companies have installed so-called energy monitoring, in which the power consumption of the machines in a production line can be measured and, if necessary, optimized on the basis of a cloud-based solution. By and large, however, according to experts, the connection between hitherto autonomous production steps is largely still a dream of the future.

The basis for this would be a 5G telecommunications infrastructure, which is currently only planned and will not be available nationwide for the foreseeable future - not even in the industrially comparatively well-developed and small Java. In addition, there are not enough data centers yet to be able to process larger amounts of data, foreign companies complain. In addition, there is an unclear legal situation regarding the ownership of data.

Another hurdle in the development of Industry 4.0 in Indonesia is the shortage of IT professionals. The existing ones - even abroad - are in great demand and earn above-average salaries. After all, the government has pledged US$100 million in digital education scholarships in 2019. In addition, development centers for artificial intelligence have emerged in cooperation with universities and successful start-ups such as Tokopedia and Bukalapak. But that should only alleviate the lack of digital know-how at certain points.

Concern for jobs
In an international comparison, Indonesia has unfavorable conditions for the development of Industry 4.0. This is because manpower is cheap: The minimum wages are between 110 and 300 US Dollars. This reduces the incentive to invest in greater automation and digitization.

In addition, 99% of Indonesian manufacturing companies are micro-enterprises. There are just about 30,000 medium and large industrial companies. Only for them could a greater digitization be worthwhile. After all, they employ about a third of the working people.

Digitization also carries considerable social risks in Indonesia because simple work can be replaced. Proponents emphasize that higher-quality jobs are created. However, a large part of the labor force will be affected by the dismantling. The mostly semi-skilled workers will not be able to complete them. There are already reports of cases in which high-tech machines are sitting in the corner because nobody can operate them.

Unemployment and underemployment are a major problem in Indonesia and pose societal explosive forces. Even after 20 years of economic growth averaging more than five percent per annum, almost 60% of people still work in the informal sector and are thus often found in a precarious positions.

GTAI is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises foreign companies looking to expand their business activities in the German market. It provides information on foreign trade to German companies that seek to enter into foreign markets.