The Minister of Industry of Airlangga Hartarto (left) and the Minister of Communications and Informatics Rudiantara (second left) listened to an explanation from Apple Developer Academy Director Gordon Shukwit (right) regarding the facilities provided to app developers PT Apple Indonesia at the iOS Developer Academy Facilities Inauguration event in Tangerang, May 7, 2018. (Credit: Ministry of Industry).

JAKARTA (TheInsiderStories) – Electronic industry is one of the largest and fastest growing industries in the world. The rapid development was triggered by the product fragmentation which accelerated by two factors: skill and innovation.

While the second character could mean easier distribution and higher value over weight for all, the first characteristic leaves many developing electronic manufacturing in hardship as the skills and innovation are growing rapidly which some couldn’t afford to catch-up.

Innovation in technology within the electronic industry has a disruptive impact toward the global production network. The speed of “updating” some component and the basic utility of electronic products over the globe increase the demand of high tier manufacturing process.

While some country such as Indonesia is left behind with low skill labour and lack of sophistication products. This also means harder to establish local component manufacturing hub and at the same time increase import on high tier components.

These phenomena force many emerging countries to increase their electronic industry sophistication by increasing labour skills, investing in research and development to foster innovation, and open to investment to promote technology transfer.

As one of the emerging economy, Indonesia lags behind in these factors. First, Indonesia labour force still dominated by unskilled population with only 1.4 per cent of tertiary education completion, second, R&D investment is one of the lowest among emerging country, and lastly, foreign ownership restriction by government discouraged technology transfer within an industry that is technology intensive such as the electronic sector.

As a result, Indonesia electronic sector suffers low comparative advantage compared to other countries. The Revealed Comparative Advantage (RCA) score shows a downturn trend in Indonesia electronic sector export. The RCA score shows how a sector is competitively advantaging or disadvantage compared to the world share of the sector with a range of 1 to -1.

Although Indonesia starts with a positive score after Asia’s 1998 economic crisis with a peak score of 0.12, the sectors hit the bottom in 2009 global economic crisis, scored -0.51. After a slight recovery, the sector still at disadvantage without an improving sign.

But despite little comparative advantage, Indonesia electronic sector has a surprisingly high opportunity to increase product sophistication. This trend is a triggered by the middle-income population rapid growth and the availability of advanced telecommunication infrastructure such as 4G which attracts more sophisticated electronic products to sell.

Regardless of the significant opportunity to create a sophisticated product, the fact that Indonesia low manufacturing skill and sophistication is still not changed. To take advantage of the opportunity, the sector will need to improve some general aspect of the industry.

First, is improving investment policy and business environment in general by relaxing business restriction such as ownership and increasing R&D spending over the time to attract more investment and technology transfer, especially in component manufacture.

Second, improve the infrastructure condition, both in distribution, trade, manufacturing, as well as secondary infrastructure such as telecommunication which encourage the development of more sophisticated electronic products.

Better infrastructure means better time to trade, lowering the production as well as distribution cost, and increasing the value of the product. Lastly, is to improve education level, the emerging automation and innovation based manufacturing will eradicate the use of low skill labour, to anticipate its government will need to reforms education system by matching school curriculum with industry needs.

Email: elisa.valenta@theinsiderstories.com

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