The Industrial Revolution 4.0: Has the Indonesian Hype Gone too Far? (I)
- Gerry Christopher
- Jan 16, 2019
- 5 min read
Updated: Feb 17, 2020
Introduction & The Real Meaning of Industrial Revolution 4.0
A week before I completed my exchange in the Australian National University, I had an intriguing conversation with Professor Prema-chandra Athukorala, a leading expert in global trade. While we sipped a morning tea in the unusually cold Canberra late-spring day, he expressed his concern in the so-called Industrial Revolution 4.0.
As our conversation was cut short due to Professor Athukorala’s another appointment, I was left wondering to his claim. Industrial Revolution 4.0 indeed has probably been the hottest term in Indonesia’s economy discussions. Ever since I returned in late November, Kompas, Indonesia’s leading newspaper, mentioned it almost every day in its economy section. Various organisations, such as McKinsey, predict that digitalisation could add up to USD120 billion to the economy by 2025. Ministry of Industries is more optimistic – it claims that the additional value could exceed USD150 billion by 2025 (Saptowalyono, 2018). Bu Sri Mulyani even came all the way to ANU in early November to give a public lecture mainly to promote the government’s pledge in developing this phenomenon.
Hence, I write this three-part essay to represent my view on this issue. The first section defines Industrial Revolution 4.0 as well as Indonesia’s progress in recent years. The second part then covers Indonesia’s current policies on human capital improvement. The third part evaluates whether its current state is suitable to capitalise on the opportunities offered by the digital disruption.
Dissecting the Real Meaning of Industrial Revolution 4.0
Klaus Schwab, in his landmark speech in World Economy Forum 2016, argues that the world has undergone several revolutions: “the First used water and steam power to mechanise production, the Second used electric power to create mass production, and the Third used electronics and IT to automate production.” The current digital revolution is believed to be different with the Third Revolution: it “fuses technologies, blurring the lines between the physical, digital, and biological spheres.” The technological breakthroughs that hallmark the ongoing trend are also more sophisticated: artificial intelligence, robotics, 3D printing, Internet of Things, and nanotechnology are some of the examples. As a result, the scope of this revolution is much wider – disrupting systems in practically every sector – and the pace is much higher.
Despite the claimed differences, Industrial Revolution 4.0 – often abbreviated as 4IR – is still well connected with the preceding transformation. Schwab asserts that the Revolution still begins with digital interconnectivity – albeit in a much larger scale in terms of the network and data availability – and the endless possibilities brought by it. The technological innovations, meanwhile, will multiply the initial impacts by overhauling menial processes and creating brand-new products and services. This concept implies the existence of two distinct yet related pillars within the Revolution: inclusivity brought by the digitalisation and major processes improvements – mainly in long-existing industries – brought by breakthroughs.
Regardless of the differences, both aspects share a common characteristic: to embrace the benefits of technological advancements, the users must thoroughly grasp their ins and outs. In other words, a high-quality human capital is a prerequisite to extract the immense potential of those innovations. This begs a question, are Indonesians truly ready for this significant leap?
The Current State of the Two Pillars
Before assessing the readiness of the society, the current state of the Revolution’s two pillars must be understood. Firstly, no one could deny the astounding progress of Indonesia’s digital economy. The significant increase in Harbolnas sales figures – Indonesia’s equivalent of China’s Singles Day Celebration – confirms this notion. In 2015, as reported by Nielsen, Harbolnas sales topped Rp 2.1 trillion (USD 143 million) – a 180% increase compared to the regular daily transaction. Three years later, the number tripled to over Rp 6.8 trillion (USD 465 million) – an impressive 690% surge compared to a normal day transaction. The participation rate also recorded a huge jump. In 2015, 140 e-commerce platforms joined the fiesta; in 2018, the number doubled to around 300 companies. While the overall figure is dwarfed by prominent sales events – the Singles Day exceeded USD 30 billion this year – its growth is nothing short of remarkable.
The explosive growth of Harbolnas – or e-commerce in general – is attributed by the meteoric rise of Indonesian unicorns; between 2015 and 2018, Indonesia produced 4 out of Southeast Asia’s 7 leading unicorns. The increasing power of these mega startups then propelled the digital economy valuation. Indonesia’s digital economy sees its market value stands at USD27 billion in 2018 – a tripling of value from 2015’s USD8 billion figure. With a massively favourable internet usage rate – 150 million people have internet access and more than half of them use their mobile phones to connect – Indonesia’s digital economy is poised to reach USD100 billion in 2025, becoming a dominating force in Southeast Asia [1]. Indonesians’ compelling level of internet engagement complements the enormous user base further: with 3.9 hours per day spent on mobile internet, Indonesia only trailed Thailand globally [2].
Officials, meanwhile, have already floated some plans to revolutionise traditional industries. State-owned Indonesia Port Corporation, which operates Indonesia’s biggest ports including Tanjung Priok, has pushed for the development of an integrated system to streamline ports’ complex processes (Santoso, 2018). In the agricultural sector, an effort to improve data quality has been initiated, with the aim of implementing a holistic database that could pinpoint ongoing issues and potentially-profitable commodities (Lukman, 2018). Santoso (2018), meanwhile, highlighted the immense progress achieved by global companies in inventing new health technologies and it is only a matter of time until those innovations entered Indonesia.
The Ministry of Industries, in fact, has set an ambitious blueprint: it is eager to use the 4IR as a turning point for the lethargic manufacturing sector. The blueprint, named Making Indonesia 4.0, aims to double productivity, increase net export to 10% of GDP, and allocate 2% of GDP to research and development. In doing so, the government has intensified the implementation of 10 main strategies that mainly revolve around innovation and efficiency. It is then hoped that Indonesia’s 5 biggest manufacturing sectors will be boosted: food and beverage, textiles, automotive, chemicals, and electronics.
These glowing situations clearly point that Indonesia’s revolution shows no signs of abating. This phenomenal progress, hence, understandably justifies the government’s huge emphasis towards it. However, are Indonesia’s foundations – mainly its education and welfare – strong enough to adapt to the dramatic change?
Continue reading to part II
[1] Please refer to e-Conomy SEA 2018 published by Google and Temasek for a more comprehensive picture.
[2] Please refer to Hootsuite 2017 report for more details. As a comparison, users in the U.S., one of the pioneers in mobile internet, only spent an average of 2 hours per day.
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