Market development

Indonesia: boom or bust for global supply chains?

As the global balance of economic power shifts from the West to the East, trade flows in Asia are also changing dramatically. What does this mean for global supply chains?

Following closely on the tails of this revolution is the transportation and logistics industry, in which a host of opportunities await those willing to break from the norm. But what do manufacturers and shippers need to do to mine this potential? And how far does Indonesia have to go to fulfill its promise of becoming the next global powerhouse by 2030? Read on to find out.

The great Southeastwards migration

In recent years, Southeast Asian countries have seen rapid growth of their economies and expanding consumer markets. Larger volumes of goods are being transported around the region, resulting in an ever-growing requirement for supply chain solutions.

China has traditionally dominated the manufacturing landscape, but lately, rising costs have resulted in investors looking southeastwards to the emerging economies that seem full of promise. Companies in the manufacturing sector, especially those involved in the labor-intensive production of automotive and electronic parts, have already started shifting their operations to Indonesia and Thailand, mainly because of the lower cost of labor there. This pattern is likely to continue as companies seek to base their operations wherever conditions allow them to remain price-competitive.

That being said, the countries in Southeast Asia each have a diverse and distinctive set of laws and regulations, which can be challenging for exporters to understand and navigate. Customs procedures often slow down cross-border shipping, due to issues such as deliveries being held because of insufficient or incorrect information. Inconsistent duties and corruption also mean irregular costs, impeding the ability of logistics companies to set accurate pricing frameworks.

Indonesia – goldmine or minefield?

Indonesia is fast becoming the new darling of SEA’s growing economies. Already the 16th-largest economy in the world, the dynamic archipelago has the potential to be the seventh-biggest by the year 2030 – according to a 2012 report from the McKinsey Global Institute.

Yet, in spite of the market potential and opportunities, the weak transport infrastructure has prevented Indonesia’s foray into regional production chains, as have the challenges of its internal economic integration and development. More information on this is available in the Southeast Asian Economic Outlook 2010 by the Development Center of the Organization for Economic Co-operation and Development. The problem of a lack of visibility and control in transportation and logistics, with ground operations often being run manually, is a real and present danger and could be a red flag to some investors.

In response to some of these issues, the National Logistics Blueprint was jointly set up by the Indonesian government and the private sector. It is a cohesive strategy to ensure that Indonesia’s logistics sector grows to be regionally and globally competitive. You can read more about the Indonesian experience in developing the National Logistics Blueprint here. Besides this initiative, a number of infrastructure projects are also currently underway.

According to Mr. Gopal R, Global Vice-President, Transportation & Logistics Practice at Frost & Sullivan, the Indonesian transportation and logistics industry is set to record strong double-digit growth. In 2015, CAGR will amount to 15.2% due to the continuous growth of the Indonesian economy, which in turn is driven by resilient domestic demand. This was reported on PRNewswire in March this year.

How technology can change the game for Indonesia

In my opinion, besides the importance of investments in infrastructure, technology also has tremendous potential in improving the performance of Indonesia’s logistics sector – and therefore its potential as a manufacturing hub. The use of GPS tracking and radio-frequency identification (RFID), which are commonplace in Western and other Asian markets, have not yet caught on.

However, simplified technologies that take advantage of the high penetration of mobile phones throughout Indonesia could be game-changing. Online portals that facilitate freight swapping and shipment matchmaking could also represent a golden opportunity.

In fact, AEB is helping an Indonesian customer who provides air, sea, and land freight forwarding services to develop a mobile application (app) which will automate their goods delivery processes. One of its key benefits is that it can be used across all Android platforms, including smartphones.

This is great news for all companies, especially small and medium enterprises, who will not have to overcome the barrier of investing in dedicated mobile hardware, which can be quite costly. Furthermore, staff working in companies with the ‘bring-your-own-device’ policy will also be able to enjoy the ease of accessing the app on their personal mobile phones.

By enabling barcodes on shipments to be scanned, delivery data can be captured and generated, and automatically transferred to AEB’s ASSIST4 Visibility & Collaboration Platform (VCP) software. The mobile application will also allow images to be captured by camera, to simplify the reporting process in the event of the receipt of defective goods.

A combined push from government and industry to improve infrastructure and technology adoption across Indonesia is sure to result in its ambitious growth dreams coming true. We look forward to helping many more companies in Indonesia to be part of this exciting future.

Please let me know if you have any questions - and connect with me on LinkedIn if you would like to discuss. To find out more about supply chain management in the dynamic markets of Asia Pacific sign up to our monthly newsletter.