MOI IR4.0 Strategic Initiatives

Ministry of Industry
Strategic Initiatives & Priority Sector

Workshop – Industry 4.0
Strategic initiatives discussion
27 December 2017
Industry 4.0 Strategic Initiatives
Agenda
Context and Recap Baselining and Aspirations setting – sectoral prioritization

• Baselining
• Aspiration settings and sectoral prioritization

• Key Challenges
• 10 Overarching Strategic Initiatives
Sectoral strategic initiative deep-dive
• Sector aspiration
• Current situation – landscape, challenges & regulations
• Path to Sector 4.0
Economic Impact
Implementation Roadmap, wrap-up, conclusion and next steps
Appendix – draft initiative charters
2
Context and recap
In the project’s 3rd workshop, we conducted alignment on the

4IR strategic initiatives Workshop
Where we are today

Project timeline
Implementation
Baseline Strategy Definition of the 4IR blueprint for Indonesia
Roadmap
Baseline Future Options Strategy Definition Implementation

1 3 6 7
Analytic Foundation
Vision Alignment
Aspiration settings
1A
External 4IR 4 5 Implementat
Environment Analysis Sectoral Define impacts Develop strategic initiatives and ion
1B prioritization from the design of enablers Roadmap
Indonesia 4IR Current priority sectors
State Mapping
2
Stakeholders engagement
Month 1 Month 2
Baselining workshop Aspiration & sector Strategic initiative sign-

• Highlight of 4IR and prioritization workshop off workshop
technology • Aspiration setting • 4IR Strategic initiatives
• Indonesia positioning & • Sector prioritization • Implementation roadmap
country readiness • Enablers identification
assessment • Implementation governance
• Policy benchmarking • Communication plan
Source: A.T. Kearney 3

Context and recap
The Ministry of Industry has implemented several strategic

initiatives to improve Indonesia’s competitiveness
Ministry of Industry’s initiatives
Link &
Match
e-Smart
IKM
Start-up
incubation
Tsinghua
Uni & UID
Source: Press search, A.T. Kearney 4

Context and recap
Indonesia has prepared Industrial Roadmap Development

(RIPIN) 2015-2035, but RIPIN does not take 4IR into account
Industry Roadmap Development (2015-2035)
Indonesia aims to be strong industrial country

– Has strong, fair, & healthy industrial structure
Vision
– Has high competitive industry globally
– Has industry with basis of tech & innovation
• 2-digit industry growth by 2035 with 30% GDP contribution

• Export oriented and less reliance to import
• Industrial distribution to all Indonesia regions
Strategic
• Growing SME’s contribution to national industry
Goal
• Mastery of technological innovation
• Competent workforce in industry sector
• Growth of natural resource based upstream and mid-stream industry sector
• Food • Power Plant

• Pharmacy & Healthcare • Capital goods, auxiliaries,& services
Priority
• Textile • Upstream agribusiness
Sector
• Transportation • Base metal and non-metallic minerals
• Electronics / ICT • Basic chemicals with oil, gas, and coal basis
Source: Rencana Induk Pembangunan Industri Nasional 2015-2035, Kemenperin, A.T. Kearney 5
Context and recap
Industrial Revolution (IR 4.0) utilizes the latest technology to

link the physical, digital and biological spheres of production
Industrial Revolution Timeline Key Technology of IR 4.0
End of Beginning of Beginning Today Artificial Intelligence (AI)

18th 20th century of the
century seventies Technology to process
information, think and make
automated decision
Internet of Things (IoT)

Ubiquitous connectivity of The internet interconnection of
people, machines and computing devices embedded
real time data in everyday objects
Industry Revolution 4.0
First programmable
logic controller (PLC)
Cyber-physical systems Advanced Robotics
Modicon 084 - 1969 Robotics technology
supplemented by Artificial
Industry Revolution 3.0 Intelligence or IoT
First production line, Use of electronics and IT to further
slaughter- houses in automate the production Wearables / Augmented
Cincinnati - 1870 Reality / Virtual Reality
The use of technology to
Industry Revolution 2.0 enhance the functionality of
everyday-worn-item
Introduction of mass production based on the division of labor
First
mechanical
loom - 1784 3D Printing
Industry Revolution 1.0 The internet interconnection of
Introduction of mechanical production facilities using water and steam power computing devices embedded
in everyday objects
6
Context and recap
Five technologies will be the key technologies in the 4th Industrial

revolution
5 Key Technologies of IR4.0
3 Wearable 4 Advanced 5 3D Printing

(AR / VR) Robotics
Physical
Layer
Connectivity IoT
2
Layer (Internet of Things)
Logical 1 AI
Layer (Artificial Intelligence)

Context and recap
4IR Country Readiness Index (CRI) measures ~100 countries’

readiness to face Industry 4.0
Country Readiness Index Framework and Drivers
Future of Production Capabilities
Capability to effectively incorporate emerging

technologies into production processes and value chains
Structure of
Drivers of Production
Production
Country preparedness to
capitalize on emerging
Current baseline of production
technologies to transform
their production systems
1 2 3 4 5 6 7 8
Demand Technology & Institutional Global Trade Human Sustainable
Scale Complexity
Environment Innovation Framework & Investment Capital Resources
Effectiveness of
Technological institutions, rules, Ability to
Capacity, Access to
Access to demand advancement and regulations, in participate in The manufacturing The diversity and
education, and resources and
and structure of the ability to shepherding international trade share in the sophistication of
agility of the labor sustainable use of
consumption generate new technological and attract foreign economy production
force resources
innovations development and investment
novel businesses
Source: A.T. Kearney, World Economic Forum 8

Context and recap
Based on the preliminary 4IR Country Readiness evaluation,

Indonesia is considered as one of the high potential entrants
Initial mapping – country readiness Preliminary
Drivers of
Production
High Potential Entrants Global Leaders
8.0
7.5 Singapore
7.0
6.5 Japan
6.0 Korea, Rep.
Malaysia
5.5 Indonesia
5.0
China
4.5 India
4.0 Best-fit line Vietnam Thailand
3.5 Mexico
3.0 Philippines
2.5
2.0 Cambodia
1.5
1.0
0.5 Followers Legacy Champions
0.0
1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0
Structure of
ASEAN Benchmark All Others Production
1. Axes are on a 10 point scale, but have been magnified to show variances between countries
Source: A.T. Kearney, World Economic Forum 9
Context and recap
Indonesia has been showing tremendous growth in the past 15

years
xx Growth from 2000 to 2015
GDP ranking1 Change
2000 2005 2010 2015 (’00-’15)
#1 United States United States United States United States 0
#2 Japan Japan China China +4
#3 Germany Germany Japan Japan -1
: : : : :
#15 Netherlands Australia Mexico Mexico -6
#16 Argentina Netherlands Netherlands Indonesia +11
#17 Turkey Turkey Turkey Turkey 0
#18 Switzerland Switzerland Indonesia Netherlands -3
#19 Sweden Sweden Switzerland Switzerland -1
#20 Russian Federation Belgium Saudi Arabia Saudi Arabia 3
#21 Belgium Saudi Arabia Sweden Argentina -5
#22 Austria Austria Belgium Sweden -3
#23 Saudi Arabia Norway Poland Nigeria +30
#24 Poland Poland Iran, Islamic Rep. Poland -
#25 Hong Kong SAR, China Indonesia Norway Belgium -4
#26 Norway Denmark Argentina Thailand +6
#27 Indonesia South Africa Venezuela, RB Iran, Islamic Rep. +9
GDP: USD 165 Bn USD 286 Bn USD 755 Bn USD 861 Bn x5.2
GDP/capita: USD 0.8 K USD 1.3 K USD 3.1 K USD 3.3 K x4.3
Population: 212 Mn 227 Mn 243 Mn 258 Mn x1.2
1. Current US$ basis
Source: The World Bank; A.T. Kearney 10
Context and recap
The Indonesian economy is the one of the most stable growing

countries globally
Annual GDP Growth Rate
(% change)
12
Positive 4.6% growth while other
11 economies experienced negative
growth during global financial crisis Growth rates
10 between 3.5% and
7% from 2000-2016
9
7 Standard
Deviation
6
Indonesia 0.7
5
Malaysia 2.8
4
Thailand 2.5
3 4.7
Turkey
2 Mexico 2.6
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-1
-2
-5
-6
Source: World Bank, The Economist, A.T. Kearney 11
Context and recap
Indonesia has successfully built an economic virtuous cycle
Economic Cycle Improvement
Labor Total Earnings Consumer Spending

The world # 4 working population and Household expenditure contributes 55% of
added ~30 Million workers in 15yrs. GDP which expanded by x8 in 15yrs
Wages surged to x2 in 10 yrs1
Economic
Virtuous
Cycle
Investment Corporate Activities

Gross capital formation increased by x13 Market capitalization of Indonesia Stock
(from 22% to 34 % of GDP) in 15 yrs Exchange became USD 500 Bn,
increased to x15 in 15yrs
Social Foundation
Political Education
Safety
Stability level
1. Based on data from ILO, average Indonesian’s earnings increased by 115% between the period 2004-2015
Source: The World Bank; IMF; A.T. Kearney 12
Context and recap
The next 15 years will be a golden period for Indonesia;

Indonesia will enjoy the demographic bonus peak
Demographic Bonus and Average GDP Growth
Demographic Bonus1 Average GDP Growth
1900 2050 During After

1920 30 40 50 60 70 80 90 2000 10 20 30 40 50 (#) Demographic Demographic
Bonus Bonus
Today
Demographic Bonus
Japan 1930 ‘95 5.0% 0.9%
China 1970 ‘15 9.2% 6.7%
Singapore 1970 ‘15 7.3% 2.0%
Thailand 1970 ‘15 5.8% 3.2%
Indonesia 1975 ‘30 5.4%2 ??
• Working population ratio will be at peak

• Country’s economy growth is
1. Defined as the period when the ratio of working population / dependent population is increasing
accelerated during the golden period
2. Average GDP growth 1975-2016
Context and recap
Indonesia has to avoid the ‘economy vicious cycle’ trap
Vicious Cycle Risks

Real Economy Financial Economy Numbers are in 2016
Limited Tech./ Infra. / • Lower ICT spending at only 1.1% of GDP. Per Capita Infrastructure
Human Capital stock is 50% of Malaysia. Government education spending per capita
Investment is only 20% of Malaysia
• Labor output per cost improvement is 0% p.a. ; labor productivity and
Lower Productivity cost both increased at the same pace. China’s productivity
improvement outperformed cost increase by x1.5
• Net export has dropped to 0.8% of GDP from 10.5% in 2000;

Weakening Net Export
Singapore 25.9%, Thailand 14.7, Malaysia 6.4%)
• Account Deficit is -1.8% of GDP, Government Revenue is 14.3% of

Less Financial Strength
GDP which is lowest among G20 and SEA countries
• Currency ratio depreciated by 58% against USD from 2000; 10-year

High Funding Cost
Gov’t Bond Rate is 6.73% which is highest among ASEAN countries
Limited Source of • Government Debt is 28% of GDP and Domestic Credit to Private
Funding Sector is 39% of GDP, FDI Net Inflow is 0.4% of GDP; all are below
ASEAN average
Source: IMF; The World Bank; A.T. Kearney 14
Context and recap
Productivity per cost in Indonesia is flattening; weakening

Indonesia’s position in the global competition
Comparative Growth in Labor Cost and Productivity1
Labor Productivity Productivity/Cost
Labor Cost Comparison3
Comparison2 Comparison
280 200 2.2
2.0
260
China 180 1.8
240
1.6
220 160
1.4
-46%
200 India 1.2
140
180 1.0
-38% -6%
0.8
160 120
0.6
140 Indonesia’s productivity
100 0.4 improvement is slower than
120 labor cost increase
Indonesia 0.2
100 80 0.0
2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016
1. Unit labor cost and productivity rebased to 2005

Source: Total Economy Database “Output, Labor and Labor Productivity, 1950-2017”, Economist Intelligence Unit 15
Context and recap
Indonesia falls behind global peers in technology investment
ICT Spending1 (US$ per capita) and ICT spending as % of GDP

(2016)
4,000 7.0
3,900 6.6 6.5
3,800 6.0
3,700 5.5
3,600
3,513 4.6 4.5
5.0
3,500
4.5
3,400
4.0
1,900
1,807 3.5
1,800
1,700 3.0
2.4
2.2 2.5
500
424 2.0
400 1.4 1.3 1.5
300
200 148 1.0
116
100 45 0.5
38
0 0.0
Productivity per
person employed2 133 78 62 30 28 25 16
(2016, ‘000 US$)
Singapore Japan Malaysia Thailand China Indonesia India

ICT spending as % of GDP ICT spending per capita
1. Gartner "Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2012-2018, 4Q14 Update“.
2. The Conference Board “Output, Labor and Labor Productivity, 1950-2017”
Source: Gartner; The Conference Board; A.T. Kearney 16
Context and recap
Indonesia is showing the lowest trade flow in ASEAN while

shrinking net export
ASEAN Countries’ Trade Size Export / Import Trends
(2016; % of GDP) (% of GDP)
2000 2016
ASEAN Simple Avg: 118% Export Import Net Export Import Net
30.5 -9.7
Singapore 318 41.0 10.5 19.1 18.3
Indonesia 0.8
Vietnam 185
Malaysia 128
Cambodia 182.9 176.9 172.1 146.3 +19.8

z 127 25.8
Singapore 6.0
Thailand 123
Brunei 83
56.5 54.2 +6.4
64.8 68.9
Laos 68 14.7
8.3
Thailand
Philippines 65
Myanmar 43
50.0 53.3 93.6 91.1 +5.8
Indonesia 37 -3.3
Vietnam 2.5

Context and recap
The Indonesian IR4.0 can be a game changer for Indonesia’s

economic growth
Implications of Indonesian economy / industry environment for IR4.0
GDP Growth Contribution Impact of IR 4.0 Direct impact
Indirect impact
From 2000 to 2016, GDP growth

has mainly been driven by:
• Consumer expenditure (55% of
Industry 4.0 Revive
Production
growth) Sector
• Investment (36%)
Build
With support from government Robust Regain
spend (10%), but only minimal net Economy Better Net
export (-1%) labor Exporter
market Position
Enhance
Kickstarting net exports will be Investment Improve
the trigger point to unleash the Country
Indonesian economy growth Enhance
Government Financial
potential Spending Strength
1. Gross Capital Formation

Context and recap
5 key lessons learnt from other countries’ 4IR policies
Key lessons for Indonesia

1 • Setting the right aspiration is important to drive outcome
Policymakers should have a clear, actionable, targeted and
Objective impactful objective for IR 4 strategy
– e.g. UK aims to double the share of manufacturing in GDP
• We recommend tech + economic indicators for Indonesia
2
• Priority sectors and key technologies must be identified for
Focus Areas effective resource allocation & success stories
2
– e.g. Germany focusing on IoT and CPS; China -10 focus sectors
3
Budget & • Initial state support and funding is needed to kickstart the
Key points funding adoption; however, complementary private investment is equally
model important
4 • Successful execution of 4 IR blueprint requires this to be a

national agenda with collaborative effort from policy makers,
Stakeholders implementing agencies, corporates, technology leaders and
research hubs
5
• Policy should also address negative implications of IR 4.0, for
Implications example, on SMEs and low skilled labor

Context and recap
Their 4IR aspirations fall into 3 categories: tech only, econ only
or tech & econ (hybrid) – hybrid most suitable for Indonesia
4IR country aspiration archetypes Not Exhaustive
Most suitable
archetype for
Indonesia to
adopt
Technology Economy Hybrid

Key indicators Key indicators Key indicators
• Sectoral adoption of advanced • GDP, mfg. contribution to GDP, • Economic: GDP per capita, growth
technology exports value of industrial VA1, productivity
• Science & industry partnership • Job creation, skills enhancement • Tech: innovation, 4IR tech market
Country examples Country examples Country examples
Germany Turkey UK US India China Japan Mexico Thailand

(Industrie 4.0) (Intelligent Mfg. Systems (HVMC (Adv. Mfg. (Make in India) (Made in (Robot (Industry (Thailand
Tech. Roadmap ) Catapult) Partnership) China Strategy) 4.0 4.0)
2025) Mexico)
If Indonesia follows this... If Indonesia follows this... If Indonesia follows this...
• Ease of implementation is low as • No urgency to drive • Clear target to improve
tech readiness is limited innovation and technological innovation & tech – where
• Weak direct linkage to overall advancement where Indonesia Indonesia is lagging
economic impact is still lagging in (compared to • Clear linkage to economic
above countries) performance
1. Value-added
Context and recap
Further, Indonesia has already defined its Vision 2045, aimed at

building a world-class innovative industry driving 32% of GDP by 2045
Indonesia Vision Indonesia 2045 –strategy on industry
development
2016- 2021- 2026- 2031- 2036- 2041-
2020 2025 2030 2035 2040 2045
Pillar of Indonesia
Vision 2045
Strengthening Improved
VISI 2045
Strengthening Industrial
the Pillars of
the base of Adaptation
Industrial
Advanced Strengthening
Growth • Improvement of
Industrial Industrial
• Focus sectors: Diversification the previous 5-
1 2 3 4 • Transition to High year achievement Sustainability
Labor-intensive, and Increase of Technology-
Export-Oriented Added Value Based Industry: • Target: Industrial • Improvement of
and Natural- • Focus sectors: Machinery and GDP Growth of the previous 5-
Based Industries labor-intensive, Equipment Goods, 8.3% / year & year achievement
PANCASILA i.e. F&B Industry, export-oriented and and Industrial contributes to
Transportation, Services 29.4% GDP • Target:
resource-based
People development and Textile and – Industrial GDP
1 mastery of science and Footwear
industries with • Target: Industrial
high value added: GDP Growth of Growth of 7.7% /
technology year &
• Target: Industrial i.e. Chemical, 8.4% / year & Reinforcement of
GDP Growth of Pharmaceutical, contributes to contributes to
2 Sustainable economic Innovation and Global Role
development 5.8% / year & Metal and 24.5% GDP 32% GDP
contributes to Electronic • Hi-Tech Based Industry with – 1.5-2% GDP for
21.2% GDP International Market Orientation R&D spending
3 Equitable development • Target: Industrial
GDP Growth of – 85% of workforce
• Target: Industrial GDP Growth of
7.5% / year & at formal sector
8.8% / year & contributes to
4 Governance and national contributes to 26.8% GDP – #4 largest GDP
resilience 22.6% GDP worldwide
Source: Visi Indonesia 2045 - Bappenas. A.T. Kearney 21

Context and recap
Planning for 4IR can accelerate achievement of Visi 2045, by

aspiring for intermediate GDP, net export, productivity wins
Aspiration
Aspiration “To become a global top 10 economy in 2030 by regaining net
statement export advantage, driving share of GDP from manufacturing, and
competing in productivity, as a result from advancement in
2030 technology and innovation”
1 2 3 4
APAC Inspiring the
Revive net
Aspiration Undisputed export
productivity- Manufacturing
elements global leader to-cost Tech
advantage
champion Revolution
10% net 2x current2 2% of R&D

By 2030… Top 10 largest productivity –to-
economy1 export spending share to
(Aspirational) contribution to GDP cost GDP
1. Based on nominal GDP value, without PPP
2. Based on 2016
Source: EIU, IMF, WITS, World Bank, UNESCO, A.T. Kearney 22
Context and recap
In line with Indonesia’s aspiration, sector prioritization focuses

on growth driven by net export, with positive impact on jobs
Implications of Indonesian economy / industry environment for IR4.0
Aspiration statement
“To become a global top 10 economy in 2030 by regaining net export advantage, driving
share of GDP from manufacturing, and competing in productivity, as a result from
advancement in technology and innovation”
Top 10 By value contribution &

global trade potential
economy What are the key industry Industry size
Double- engines for output and
digit trade? Net export potential
net
exports
of GDP
What is the readiness level &
potential disruption for our Feasibility of adoption
…by industries?
2030 By ease of implementation
1. Gross Capital Formation

Context and recap
The 24 BPS manufacturing sectors have been consolidated to

16 assessment sectors, based on GDP and trade value1
In-scope Sectors
Basic Metal Chemical Coal, O&G Refinery Electronics2
• Steel • Organic
• Coke • Computer
• Precious- chemicals
• Briquette equipment
based metal • Soap
• Petroleum oils • TV equipment
• Copper • Fertilizer
F&B2 Ind. Machinery Ind. Transport2 Jewelry, Valuable Gds.

• Water pump • Vehicles
• Palm oil • Precious
• AC machines • Spare parts of
• Coconut oil metal jewelry
• Furnace vehicles
• Frozen shrimp articles
burners • Ships
Metal Goods Non-Metal Goods Paper-Related Goods2 Pharmaceuticals

• Metal goods
• Glass • Paper pulp • Vitamins
for
• Ceramic • Tissue paper • Antibiotics
construction
• Cement • Paper board • Vaccines
• Wires
Rubber & Plastic Textile & Apparel2 Tobacco Processing Wood & Furniture2
Goods • Crumb rubber
• Yarn & fabrics
• Cigarette • Plywood
• Inside/outside • Processed • Furniture from
• Clothes
tire parts tobacco wood, metal &
• Footwear
• Plastic sheets • Cigars plastic
1. BPS sectors follow the Standard Industrial Classification, used in benchmarking and gov’t statistics exercise
2. These sectors are either a combination or a subset of the initial 24 BPS manufacturing sectors 24
Context and recap
Updated – based on workshop inputs
We evaluated 16 industries against 10 key criteria covering

impact and attractiveness, as well as feasibility of IR4.0 success
Prioritization approach xx Overall criteria weight
Industries in scope Sector Scorecard

(n = 16)
Impact & Attractiveness (50%)
Pharmaceutical Feasibility (50%)
Basic Metal and Traditional
Medicines Current (25%) Growth Potential (25%)
Electronics,
Tobacco 7
Optics & Elect. 4
Processing 1
Appliances 8.3% 12.5%
Required Investment
Coal, Oil & Gas Domestic Market [Sectorial Capex to Sales]
Chemical GDP Contribution
Refinery Growth Rate
8
Rubber & 12.5%
Metal Goods
Plastic Goods 12.5%
Control point
2 [# of large companies by value in
5 8.3% sector]
Transport
Wood & GDP Output
Equipment –
Multiplier1 (sector Indonesia Export
Auto Furniture
leverage to drive Growth Rate 9 12.5%
Industrial Penetration speed
Machinery & Paper-Related economy growth) [Large companies share of
Equipment Products
employees]
Food & Textile, Apparel 3 12.5%
6 Input Multiplier 8.3%
& Leather 10
Beverage
Goods Effect3 (sector Structural advantage 12.5%
Trade Size2 criticality for other [e.g. logistics, utility reliance;
Jewelry & Non-Metal production)
Valuable Goods upstream friction]
Goods
1. Output multiplier covers the impact of an increase in final demand in one sector, on resulting output from other sectors (e.g. Ratio shows additional value in other sectors, resulting from
incremental USD in specific demand sector)
2. Gross Export + Gross Import
3. Input multiplier considers criticality of sector for other sectors – e.g. Basic Metals input heavily to Metal Goods, Auto, Electronics
Context and recap
Impact criteria covers both current value & growth; feasibility

criteria covers infrastructure dependence and ease of entry
Category Criteria Definition xx Overall criteria weight
1 GDP Contribution Contribution of the sector to manufacturing GDP (2016)

Impact & Attractiveness (50%)
12.5%
Current Gauges direct & indirect production impact – specifically, impact of increasing one sector’s final
2 GDP (Simple)
(25%) Output Multiplier demand on other supporting sectors’ resulting output (e.g. ‘downstream’ level) (2010)
12.5%
3 Trade Size Total exports and imports for the sector (2016)
8.3%
Indonesia’s
4 Market Growth Rate Domestic market (GDP + imports) growth of the sector (2012-2016)
Growth
8.3%
Potential 5 Indonesia’s Growth rate of Indonesia exports of the sector (2012-2016)
Export Growth Rate
(25%) 8.3%
6 Input Multiplier Effect Assess reliance of other sectors on this sector’s output (e.g. ‘upstream’ level) (2010)
12.5%
7 Required Investment Capex to sales ratio for the sector – global & local benchmarks (2016)
12.5%
8 Control
Trade Size
point Number of companies in the sector with production above USD 1bn (2016)
Feasibility
12.5%
(50%) 9 Penetration
Export Ranking
speed Share of workforce working in large enterprises1 in total workforce of the sector (2015)
Indonesia’s Market
12.5%
• Sector export ranking (globally and in ASEAN)
10 Structural
Growth Rateadvantage • Qualitative assessment on enablers –logistics and friction (e.g. cost and availability) of upstream
inputs
1. Based on BPS definition, large enterprises are companies that employ more than 100 people
2. Cohort covers top 2 exporting countries
Context and recap
Based on these parameters, key sectors can be shortlisted with

high impact and feasibility, for phased prioritization
Sectors assessment criteria and prioritization Illustrative example
Prioritization Matrix
High
1 GDP contribution
Priority 7 Required Investment
sectors
2 Output multiplier1 8 Control Point
3 Trade Size2 Impact &
Attractiveness 9 Penetration Speed
10 Structural advantage
4 Indonesia Market Growth
Low
5 Global Market Growth

Low High
6 Input Multiplier3
Feasibility
Sequencing the priority sectors will then depend on sector dynamics and the
enablers their level of feasibility & risk and economic stimulus effect
1. Fiscal output multiplier covers the impact of an increase in final demand in one sector, on resulting output from other sectors (e.g. Ratio shows additional value in other sectors, resulting
from incremental USD in specific demand sector)
2. Gross Export + Gross Import
3. Input multiplier considers criticality of sector for other sectors – e.g. Basic Metals input heavily to Metal Goods, Auto, Electronics
Context and recap
After assessing the potential impact and feasibility, MoI should

consider the following sectors for IR 4.0 implementation
Sector Prioritization Matrix
High
Top 5 Sectors
Food & Beverage Food &

Beverage Chemical
Chemical Textile & Electronics

Apparel
Electronics, etc.
Textile, Apparel Transport
Impact Industrial
Metal Goods Machinery (Auto)
Wood & Furniture
Basic Metal Non-Metal Goods Indust. Trans.
Paper Industry Eqpt. (Auto) After aligning on focus sectors
Pharmaceutical (with post-workshop engagement),
Tobacco Rubber & ‘launch sequencing’ & strategy
Process. Plastic Goods can be decided, based on:
Coal, Oil & Gas
Refinery Jewelry & • Sector dynamics
Valuable Goods
• Potential enablers & their ease of
Low
implementation
Low High
Source: A.T. Kearney, World Bank, BPS Feasibility 28
Context and recap
5 priority sectors were defined for the IR4.0 implementation in

Indonesia
5 priority sectors for IR4.0 implementation
Food & Textile &

Automotive Electronics Chemicals
Beverage Apparel
Mfg.
GDP
29% 7% 9% 6% 6%
Mfg.
Exports 24% 15% 7% 9% 9%
Mfg.
Workers 33% 20% 2% 2% 2%
~70% ~60% 65+%

mfg. GDP mfg. exports mfg. workers
Source: BPS, A.T. Kearney 29

Agenda

• Baselining

• Key Challenges
Economic Impact
30
Strategic initiatives
Indonesia has several drivers of competitiveness to build robust

industry sectors on…
Indonesia’s Drivers of Competitiveness
Abundant Working Population
Strong Domestic Demand
Indonesia’s IR4.0 Stable Economic Growth
Largest Economy in ASEAN
Resource-Rich Country

…however, all industry sectors in Indonesia are facing 10

common issues
10 Key Challenges Across the Industries (1/2)
Underdeveloped • Raw materials and critical parts are highly import
dependent e.g.
Up-midstream
Industry
1 – >50% of petrochemicals, 74% of basic metals
– All the critical parts for electronics and automotive
Underleveraged • Absence of comprehensive industry zoning plan e.g.

oil gas vs. petrochemicals
Geographical
Potential
2 • Underdeveloped and underutilized economic zones
e.g. Batam, Karawang, Bekasi and Central Java
• Sustainability trends are no longer only for
Inevitable Global developed economies
Sustainability
Trends
3 – Exports need to meet the requirements e.g. EUROx
– It became business opportunity e.g. solar, biomaterials
• 62% of workers in Indonesia are working at small or

Left-Behind SMEs 4 micro enterprises with low productivities
• Digital platforms are still underdeveloped

Must-Have Digital – Mobile: currently adopting 4G (not ready for 5G)
Infrastructure 5 – Fiber: average speed is <10Mbps (not 1Gbps)
– Cloud: limited cloud infrastructures
Source: IHS Markit, BPS, articles, A.T. Kearney 32
…however, all industry sectors in Indonesia are facing 10

common issues
10 Key Challenges Across the Industries (2/2)
Limitation of • Recently, FDI inflow to Indonesia is flattening (0%
growth during ’13-’16) although Indonesia is suffering
Domestic Funding
and Technologies
6 from limited source of funding and access to new
technologies
Abundant but • Indonesia has 4th largest working population in the

under trained
people
7 world, however, very limited trained talents; e.g.
government education spending is only $114 per capita
Absence of • Very limited R&D spending as a country; only 0.1-0.3

% of GDP
Innovation
Centers
8 • No strong government led R&D/innovation centers
as well as private sector’s
Inertia to stay in • Currently no comprehensive incentives for industry 4.0

status quo 9 technology adoption e.g. tax exemptions, subsidies,
funding support etc.
Regulation & • Overcomplicated regulations and policies handled by

multiple organizations; e.g. upstream by MOE,
Policy
Roadblocks
10 midstream by MOI and trade by MOT, central
government vs. local government
Source: BKPM, Desk Research, A.T. Kearney 33
Indonesia’s IR4.0 initiatives should address these common

issues
10 Strategic Initiatives (1/2)
• Enhance domestic supply for basic materials while
Underdeveloped
Reform Material increasing cost competitiveness against imports
1 Up-midstream
Flow • Build capabilities for high value component
Industry
manufacturing
Underleveraged Redesign Industrial • Build a single nationwide comprehensive industry

zoning roadmap across industries including oil & gas
2 Geographical Geographical
• Review and redesign economic zones; build new
Potential Footprint economic zones for industry 4.0
Inevitable Global • Mitigate risks and grab opportunities under global

Accommodate
3 Sustainability
Sustainability Plan
sustainability and clean tech trends (e.g. EV, Bio
Trends fuel/plastics, renewables, CDM, low emission tech, etc.)
• Establish a SME empowerment plan by leveraging

Left-Behind
4 SMEs Empower SMEs technologies (e.g. ecommerce platform for local farmers
and craftsmen, microfinance through fintech, etc.)
• Upgrade national broadband infrastructures i.e. fiber

Must-to-have Build Digital and 4G/5G
5 Digital Infrastructure
• Enhance digital platform capabilities e.g. datacenter and
Infrastructure Nationwide cloud, security mgmt. , e-payment, etc.
Indonesia’s IR4.0 initiatives should address these common

issues
10 Strategic Initiatives (2/2)
Limitation of • Initiate targeted negotiations with global top 100
Attract Foreign
6 Domestic
Investments
manufactures for FDI while ensuring technology transfer
Funding & Tech. to local talents/companies
• Review and redesign national education curriculum

Abundant but
Upgrade Human under IR 4.0 era
7 under trained
Capital • Establish professional talent development program; e.g.
people
foreign talent mobility program, vocational schools
Absence of Establish • Design masterplan for national innovation centers

8 Innovation Innovation including government innovation/R&D center, private
Centers Ecosystem companies, universities, etc.
• Introduce tax exemption, subsidies or other form of

Inertia to stay in Incentivize incentives for advanced technology adoption (e.g. new
9 status quo Innovation machine introduction, R&D spending, employee training,
technology transfer, etc.)
Regulation & Reoptimize Industry • Review and revise key industry policies/regulations to
10 Policy Regulations & maximize Indonesian national benefit; e.g. trade policies,
Roadblocks Policies labor policies, energy policies, tax policies, etc.

Indonesia should take a matrix approach for its IR4.0 strategy

implementation
10 horizontal initiatives vs. 5 vertical initiatives
Priority Sectors Next Steps
A B C D E
Remaining 11
F&B Textile Automotive Electronics Chemicals sectors
1 Reform Material Flow
Redesign Industrial
2 Geographical Footprint
Accommodate
3 Sustainability Plan
4 Empower SMEs
Build Digital
5 Infrastructure Nationwide
Attract Foreign
6 Investments
7 Upgrade Human Capital
Establish Innovation
8 Ecosystem
9 Incentivize Innovation
Reoptimize Industry
10 Regulations & Policies

Technologies/processes applied to priority sectors can be

applicable to similar non-priority sectors
Priority Sectors and Non-Priority Sectors
Wood & Furniture Metal Goods
Tobacco
Priority Sectors Jewelry, Valuable
Goods.
F&B Textile Automotive
Electronics (Technology enabler)

Pharmaceuticals Industrial
Machinery
Chemicals (Material inputs)
Rubber & Plastic

Paper-Related
Goods
Non-Metal Goods
Basic Metal
Coal, O&G Refinery

1 Reform Material Flow: Indonesia is highly reliant on imports for

basic materials…
Importance of chemicals sector and reliance on import
Key domestic inputs1 for Import of select basic chemicals
select sectors (2010) (2016)
Textile Electronics Electronics 20 (2015)
Chemicals 18
Textile 64% Elec-
tronics 61% Machinery 18 Ethylene Propylene
Chemical 8% Machi-
12% Basic Metal 11
nery
Agri 5% Chemical 6%
F&B 10 38%
Textile/Apparel 46%
8 54% 62%
F&B 2% Mining 3%
Automtive 8
Others 20% Others 17% Metal Goods 5
Rubber/Plastics 3
Metal Goods Basic Metals Paper Polyethylene Benzene
3
Metal
42% Basic
42% Pharmaceutical 1
goods metals
Non-Metal Goods 25%
Basic
15%
Mi-
22%
1
metals ning 50% 50%
Wood & Furniture 1
Mining 14% Chemical 7% 75%
Tobacco Processing 0
Machi-
Chemical 7% nery 4% Coal/Oil&Gas 0
Others 23% Others 25% Jewelry & Valuables 0
Chemicals is a key input for

… however, the sector itself is highly dependent on imports
most sectors…
1. Simple multiplier of the input sector as a % of total multiplier in the output sector
Source: BPS, MITI, A.T. Kearney 38
1 Reform Material Flow: …and high-value components for e.g.

electronics and automotive sectors
Industry value chain of Automotive and Electronics sector
Raw material Component manufacturing Finished goods
Local suppliers only fulfill ~10% Local manufacturers are only OEMs assemble components
auto steel and ~50% plastic raw involved in producing simple locally
material consumption components
OEMs specify which key
Majority of high-strength metal components to use
Auto and chemicals are imported
Key components
are mostly
imported from
Japan and other
countries
Local suppliers mainly supply Local manufacturers largely Electronic components

low-tech inputs, e.g. wires, engaged in low-tech products assembled locally
plastic parts, etc. with limited scale & capability
Electro Imports for high-end materials

-nics Semiconduct- Other key
ors electronic
components
Source: Desk Research, A.T. Kearney 39

1 Reform Material Flow: Indonesia needs to fix material flow

issues while implementing IR4.0
Focus segment xx 2016 import2 ratio
Material Flow in Manufacturing Sector
Raw materials Components Final goods1
29.3% 2.7% Tobacco 3.1%
Agriculture Food and Beverage 11.2%
Pharmaceutical 36.4%
38.4% Rubber & Plastics 19.5%
Chemical Textile 39.1%
Coal, Metal Goods 22.0% 35.6%

oil &
gas 73.8% Electronics 71.3% Automotive
Basic Metal
Machinery 103%
Non-Metal Goods 16.2% Jewelry 1473%
Paper & pulp 23.7%
Wood & Furniture 29.9%

1. For customers; 2. Import / consumption. Domestic consumption is domestic production minus exports plus imports;
3. High export category : referenced from “Fire & safety, Brushes and Others” category, where Jewelry is a sub-category
Source: IHS Markit, A.T. Kearney 40
2 Redesign Industrial Geographical Footprint: In order to build

more efficient industries…
Industrial/economic zoning in Indonesia Example
Industrial Zone - Geographical issues
Petrochemical industrial zone

Typically, substantial distance exists
between upstream and manufacturing
Fertilizer plant complex
industrial zones, sometimes separated by
Natural gas main production sea, causing inefficient logistics
Government plan & challenges

Planning to build 36 new industrial zones of >50K ha of land requirement until 2035 with several lingering challenges:
• Underdeveloped supporting infrastructure, e.g. connectivity (transportation, communication), electricity
• Complex land clearance process where regulations often do not fully support (industrial zone is not a public interest and
hence does not enjoy expedited process)
• Disconnection between central and local governments e.g. contradictory regulation, local government reaping as much
benefits for the their area’s revenues
Source: RIPIN, A.T. Kearney 41

2 Redesign Industrial Geographical Footprint: …Indonesia

needs to have a well-planned & coherent industrial geo footprint
Indonesia’s industrial geographical footprint Illustrative
• Establish modern
central industrial
zone with focus on
1 or 2 priority sec-
tors along with
main complemen-
tary upstream
sectors
• Build connectivity
F&B between industrial
zones
Auto
Focus: F&B
Textile
Focus: Auto
Electronics
Focus: Textile
Chemicals Focus: Electronics
Oil & Gas Focus: Chemical
Infrastructure (Roads, Ports, Utilities, etc. ) O&G prod.

3 Accommodate Sustainability Plan: Indonesia cannot ignore

sustainability issues anymore as part of a global community
Euro emission standard trend Palm oil ban
Euro 2 3 4 5 6 In April 2017, EU parliament

voted in favor of banning
palm oil, as a component
of biofuel, by 2020 as palm
2010 11 15-17
EU oil planation drives
deforestation
2010-17
USA
Palm oil ban negatively

2010-17
Japan affects the economy of
palm oil-producing countries,
esp. Indonesia and
2010 13 17 Malaysia as EU market
China constitutes around 15% and
10% of Indonesia’s and
2010-17 Malaysia’s palm oil
Indonesia exports, respectively
Source: TransportPolicy.net, Observatory of Economic Complexity, Desk Reserch, A.T. Kearney 43

3 Accommodate Sustainability Plan: Indonesia will build clean-

tech businesses by 2035 Latest draft by MoI
Aspiration for eco-friendly vehicles Aspiration for bio materials
2017 2022 2027 2035 2017 2020 2025
Low Carbon Emission Vehicle (incl. LCGC)1 Increase min. biofuel content in gasoline3
Euro-4 emission standard Euro-5/6 30% biodiesel
Electric and fuel cell motorcycles2 10% bioethanol 20% bioethanol
EV and their components 20% pure biofuel
Biofuel- and gas-powered vehicles Encourage bioplastic uses4
1. Draft roadmap has a Low Carbon Emission Vehicles target production of 800K units by 2025 and 2 Mn units by 2035
2. Draft roadmap has an electric motorcycles target production of 2 Mn units by 2025 and 4.5 Mn units by 2035
3. Minimum biofuel content for industrial and commercial purposes, as stipulated in MEMR regulation 12/2015
4. Environment and Forestry Ministry levied excise taxes for regular plastic bags in early 2017 to encourage bioplastic uses and plans to stop the use of regular plastic bags by 2019
Source: Ministry of Industry, Ministry of Energy and Mineral Resources, A.T. Kearney 44
4 Empower SMEs: Empowering small & micro enterprises is the

key for Indonesia’s economic growth…
Employees by company size1 Small & micro workforce by Employee productivity2 (Sales
(Mn of people, 2015) selected sectors per employee)
(% total sectoral workforce, 2015) (USD K per employee)
CAGR 4.6%
Non-Metal
Goods 81%
117 149
Employee
<30 43
Wood &
Furniture 80%
Large
4.5 CAGR 4.2%
(32%) Food &
Micro 6.5 Beverage 80%
208 239
(46%) Employee
30-99 76
0.8 (5%) Metal Goods 67%
Medium
2.3 CAGR 5.8%
(16%) Jewelry &
Small Valuable Gds 61% 625
62% 379
Employee
>=100 129
Basic Metal 51%
1985 2003 2013
1. Based on BPS, company size is defined by number of employees. Large has >100 employees, Medium 20-99, Small 5-19, and Micro 1-4 employees
2. Benchmark from Japan
Source: BPS, World Bank, A.T. Kearney 45
4 Empower SMEs: …Indonesia needs to support SME

segment’s growth (1/3)
SME e-commerce Illustrative
Accessibility to market
Government to
provide training,
(M)SMEs marketing tools Customers
& internet access
SMEs Center
Empowering
Indonesian SMEs
Select area
Source
Lombok DIY Jepara
Dedicated platform to market (M) Government to

SMEs targeted should have SME’s products – can also
revenues of up to IDR 50 bn promote platform
leverage existing e-com, with through e.g. ATL1,
and assets of up to IDR 10 bn dedicated section for (M)SMEs BTL1, TTL1
Traceability of product
(M)SME = (micro) small-medium enterprise

1. Above the line, Below the line, Through the line

SME’s constraints & potential government initiatives Examples
Constraints of SMEs development

Example of SME support initiatives from other countries2
in Indonesia1 (2014)
• Dedicating government procurement to be provided by SMEs
(e.g. US government allocates 23% of all Federal Contracts to
Others
1 American SMEs)
• Establishing platform to access market information, to provide
18% network for finding potential business partners, etc. (e.g. EU)
Marketing, sa- • Providing guarantee for bank lending to SMEs to reduce credit
les & distribution3 risks that would otherwise remove SMEs from financing (e.g.
26%
4 2
Ireland, Singapore)
• Easing securitization of SME assets by providing as much
Labor & 1 information of non-financial companies’ credit assessment, data
human capital sampling, statistical information, etc. to (e.g. Japan’s Credit Risk
17% Database & France’s ESNI initiative)
Credit • Providing financing raw materials purchase (e.g. India’s Raw

Material Assistance Scheme)
3 Raw
constraints
20% 3 • Distributing pre-allocated raw materials to SMEs (e.g. India’s
Raw Material Distribution Scheme)
materials
19% 2 • Training programs for SMEs’ employees to improve productivity
and quality (e.g. Malaysia’s capability development programs)
• Apprenticeship programs for select school leavers and
4 dropout students combining theoretical and on-the-job-training at
sponsoring employers
1. According to RAND and AKATIGA SME Survey
2. Countries or regional network
3. Aggregation of original survey result of access to markets (16.7%) and sales & distribution (9.7%)
Source: RAND Corporation/ TNP2K, OECD, World Bank, governments’ websites, A.T. Kearney 47

Yield management for SME – Agriculture example Illustrative
Current Future
I can predict my harvest is

What did I grow in my field 20% higher this year as I
before this season? What have been using right seeds,
chemicals have I used? right chemicals and right
Why do pests and disease treatment!
keep attacking my field?
Gov’t-funded
smartphone
Gov’t-funded tech
development (e.g. software)
and devices (e.g. laptop)
Source: BUMR Pangan, A.T. Kearney 48

Video
49
5 Build Digital Infrastructure Nationwide: Indonesia lacks key

digital infrastructure to implement IR4.0…
Key digital infrastructure - benchmarking
Fixed broadband speed Mobile broadband adoption Cloud Readiness Index2
(Mbps, Q1 2017) (% 4G adoption1, 2017) (Out of 100, 2016)
PH 6 PH 12% PH 54
Second- Still in the Second
slowest fixed process of lowest rating
ID 7 broadband in ID 21% growing 4G ID 51
in ASEAN-6
ASEAN-6 adoption…
MY 9 MY 39% MY 66
ASEAN-6
VN 10 VN 5% VN 44
…while developed
countries scaling up
TH 16 TH 38% 5G trials TH 53
KR’s public trial planned for
Winter Olympics Feb 2018
SG 20 SG 64% SG 77
SG’s trials with industry
customers (e.g. shipping
JP 20 JP 66% JP 73
Benchmark
port) planned for 2018

Japan’s KDDI successfully
conducted real-world urban
KR 29 KR 80% trials in May 2017 KR 68
1. # of LTE subscriptions over total subscriptions

2. Considers 10 factors, including business cloud adoption, int’l bandwidth, utility reliability, data center risk from political/natural disasters, cybersecurity risk, IP protection, data privacy
Source: Ookla Speedtest, World Cellular Information Service (WCIS), news articles, Asia Cloud Computing Association, A.T. Kearney 50
5 Build Digital Infrastructure Nationwide: …and needs to

accelerate building more advanced digital infrastructure
Indonesia Broadband Plan – broadband speeds target Plan in 2014
Diameter
represents relative
speed (log scale) 2014 2015 2016 2017 2018 2019
Mobile
broadband
(Urban) 512 512 512 1 1 1
kbps kbps kbps Mbps Mbps Mbps
Fixed
broadband 100 384 512 1 1 1
Mbps Mbps Mbps Gbps Gbps Gbps
(Corporate)
Indonesia’s avg.
fixed BB = 7 Mbps
From the plan …already lagging behind …need to accelerate

developed in 2014… in fixed broadband… in order to catch up
Source: Rencana Pitalebar Indonesia 2014-2019, Akamai, A.T. Kearney 51
6 Attract Foreign Investments: FDI inflow to Indonesia has

flattened out…
Foreign Direct Investment (FDI) Trends
Indonesia FDI Trend FDI Net Inflow (2016) 1

(2010-2016; in USD Bn and % of GDP) (% of GDP)
40 FDI (% of GDP) 4.0
FDI amount 20.7
3.4
3.2 6.1
3.1 3.1
ASEAN
3.0 3.7
2.7%
30 29 29
29 29
2.6
2.2% 2.2%
25 2.3
2.0
0.4 Indonesia ranks
20 19 last out of
2.1 benchmarked
Others
countries
16
1.0 1.5
2010 2013 2016
1. 2015 numbers used for Vietnam, Malaysia, Thailand and India as 2016 figures are unavailable
Source: BPKM, World Bank, IMF, OECD, A.T. Kearney 52
6 Attract Foreign Investments: …Indonesia will need to

accelerate FDI & tech transfer by attracting large global players
Masterplan for FDI Strategy
Select regional countries’ FDI strategy Partnerships with global MNCs are key
to leapfrogging technology gaps
• Comprehensive IR 4.0 strategy in place focusing on
capability development, industry transformation Targeting global top Illustrative
and reskilling workforce 100 manufacturers
MNC Local partners
Singapore • Committed SGD 4.5bn to develop individual
transformation roadmaps for 23 industries MNC benefits from low cost
labor and market access
• Focused on “Thailand 4.0”, an innovation economy
• Prioritized 5 existing and 5 new industries for
investment; created USD 286mn fund to invest in R&D
Thailand for targeted industries
Local partners benefit from
jobs created, transfer of
• A broader manufacturing industry strategy up to
… technologies and skills
2025 in place
• Secured Japan’s backing (investment commitments) • Initiate targeted negotiations with global top 100
Philippine to better prepare for IR 4.0 manufacturers for FDI
• Ensure partnerships result in transfer of technology,
• Created Vietnam Industrial Development Strategy processes and product knowledge to local partners
2025 in 2014 to prioritize industries for development
• Some policy elements Indonesia has to consider
• Working with Siemens to implement digital include: local partner development, sustainability,
Vietnam solutions, upskill labor & in preparation for Industry equal technology transfer, partnership ecosystem etc.
4.0
Source: UNIDO, Singapore Ministry of Trade and Industry, Thailand Board of Investment, H&M, Desk research, A.T. Kearney 53
7 Upgrade Human Capital: Indonesia is facing talent

development challenges as an emerging economy…
Human Capital Trends
Government education spending (2014)1 Tertiary school enrollment and GDP per
capita2 xx GDP per capita (USD ‘000)
% of GDP Per Capita
(USD)
5.7 2,661
5.4 2,938 3.8 8.5 15.1 1.0 1.8
5.3 1,933 2.1x

5.2 3,251 78% 2.5x
37% 27%
5.2 581 24%
11%
5.1 1,369
2015 1990 2000 2005 2015
3.4 1,395
• Upgrading human capital is not possible in 1-2
3.3 67 years but can be done within a decade
– Korea and India more than doubled tertiary
3.3 114
education enrolment rates within 10 years
1.9 21 – GDP / capita increased by ~1.8x over same
1. Korea in 2015
period
2. GDP per capita at constant 2010 USD
3. In 2015
Source: World Bank, A.T. Kearney 54
7 Upgrade Human Capital: …Indonesia will commit to upgrade

Indonesians’ technological capabilities (1/2)
Masterplan for National Education Curriculum Redesign
High school /
vocational Mobility
Basic education1 school2 Universities3 programs4
• Improve participation in • Improve coordination with • Review / redesign • Increased emphasis on
basic education, employers; TVET5 should national education under training for displaced
Focus areas
particularly for lower be industry-driven to IR 4.0 era workers

income segments ensure that students • Concentrate on • Encourage foreign talent
• Early exposure to IR 4.0 have the requisite skills educational areas mobility program
foundational topics such for IR 4.0 (i.e. aligned to IR 4.0 needs • Centers of excellence in
as science and engineering, coding, (i.e. STEM, ICT fields) collaboration with private
mathematics manufacturing) partnerships
• Philippines: Recently • Singapore: Introducing • Malaysia: Currently • Singapore: Offered
Select studies
reformed the K-12 courses on IoT, redesigning education for comprehensive adult
education system with advanced IR 4.0; launched policies training and skilling
focus on learning & manufacturing and other such as 2u2i (a work / through SkillsFuture,
innovation, IR 4.0-relevant courses learning program in offering credits for mid-
communication and in vocational schools universities), and career learning
information, media & (polytechnics and ITEs) CEO@Faculty (trainings programs
technology on-campus by CEOs)
1. Including primary school (Sekolah Dasar) / junior high school (Sekolah Menengah Pertama) and equivalent (i.e. madrasahs)
2. Including high school (Sekolah Menengah Atas) / vocational school (Sekolah Menengah Kejuruan) and equivalent (i.e. madrasahs)
3. Including bachelor / master / PhD degrees, diplomas and equivalent
4. Including adult learning / upskilling or other programs to improve companies’ access to skilled labor
5. Technical and Vocational Education and Training
Source: World Bank, OECD, Asian Development Bank, A.T. Kearney 55
7 Upgrade Human Capital: …Indonesia will commit to upgrade

Indonesians’ technological capabilities (2/2) Not exhaustive
Primary education 1 Quantity xx Rank
#1 Primary education – Net

enrolment rate1 (%)
Secondary edu. – Gross
enrolment rate2 (%)
166.8 149.5
Tertiary edu. – Gross
enrolment2 rate (%)
Finland
100.0 113.9
99.6 89.7 87.3
85.8
24.3
#78 China Finland Indonesia Belgium Finland Indonesia Greece Finland Indonesia
Indonesia 1 8 106 1 2 85 1 8 91
Government needs to improve overall enrolment rate especially at tertiary education
by increasing access to education through availability of funding & infrastructure
Higher education 2 Quality
& training
• STEM-focused: focus to expose children of STEM experience from early child-hood
#1 (e.g. Germany’s Little Scientists’ House for preschools, day cares & primary schools) and
to continuously train relevant STEM skills along the education path (e.g. Germany’s
Singapore Schulewirtschaft and the Excellent STEM School Network)
• Relevance: emphasis on relevance of skill sets (e.g. Finland has >100 vocational pro-
grams), hence intensively cooperating with companies for apprenticeship program to
ensure qualifications and smooth transition between school and work (e.g. Germa-
ny’s apprenticeship, that for co. e.g. DB3 & Bosch, is an avenue to train and scout talent)
#64 • Teacher quality: academically-strong talents (e.g. Singapore recruits from top 1/3 of se-
condary grad class) undertaking continuous training & receive attractive compensation
Indonesia
While improving the above traits, government also needs to revisit existing educational
approach – world’s best education systems have different styles e.g. more ‘textbooks’ in
Singapore vs more experiential in Switzerland & Germany
1. Net enrolment rate: ratio of total enrolment in the corresponding school age over total population of corresponding school age; 2. Gross enrolment rate:
ratio of total enrolment, regardless of age, over total population of corresponding school age; 3. Deutsche Bank
Source: WEF, Government’s websites, Press search, A.T. Kearney 56
Video
57
8 Establish Innovation Ecosystem: Currently, Indonesia lacks

strong government/private R&D/innovation centers…
R&D Trends
R&D spending benchmarking – 2016 Key R&D centers in Indonesia are
relatively new or in early stages of
R&D share to GDP ASEAN
Others planning
(%)
• Daihatsu operates the only
xx Rank based on $ of R&D spending
automotive R&D center in
4.0% Indonesia; started first
stage in 2011 and
3.4%
inaugurated facility in 2017
2.6%
• Apple opened USD 44mn
2.0% R&D center in 2017 to
comply with local content
1.1% regulations
0.6%
0.3%
• Toyota considering building
JP SG CH MY TH local R&D after 2022;
focusing on making
S. Korea Japan Singapore China Malaysia Thailand Indonesia
Indonesia an export base
1 3 20 2 28 NA 37 first
Source: Industrial Research Institute, R&D Magazine, EIU, desk research, A.T. Kearney 58
8 Establish Innovation Ecosystem: …Indonesia will need to

develop an innovation ecosystem with gov’t-led R&D centers
Masterplan for National Innovation Ecosystem Not Exhaustive
• Oversee national R&D strategy /

ecosystem and stakeholders
• Conduct R&D independently / in
partnership with universities / private
• Provide financial support Government
• Set and enforce regulations
– Innovation ecosystem coordinated

Industries
by Research, Innovation and
Enterprise Council
Indonesian
R&D
ecosystem • Conduct R&D independently / in
partnership with govt. / universities
• Conduct R&D independently / in
• Fund R&D through venture capital
partnership with govt. / private
funds / direct or co-investments
• Embed students with skills and
competencies required for innovation • Forge JVs / alliances with other
companies to conduct R&D
• Enhance quality of local labour Universities
• Provide expert advice – 23andMe partnered with pharma
companies, govt. and universities to
– Universities performed $13 billion in conduct R&D using customer
R&D in 2014, accounting for 40% of genetic data
total Canadian R&D
Source: Ranga and Etzkowitz, WEF, WIPO, US National Science Board, WSJ, Desk research, A.T. Kearney 59
9 Incentivize Innovation: Global peers are aggressively

incentivizing technology adoption under IR4.0 initiatives
Government Incentive summary
• Up to EUR 400 Mn of funding (from initial govt. funding of EUR 200 Mn1) for research activities in Cyber Physical
Systems, IoT and other 4IR tech
Germany • Industry partners also provide in-kind financial contributions (up to ~50% project value) for research of interest
• Up to EUR 492 Mn of funding (from initial govt. funding of EUR 164 Mn1) over 2012-2018 to stimulate manufacturing
and de-risk innovation
• Funding is shared equally between government, commercial industrial research and collaborative R&D to ensure
UK program sustainability
• Government subsidies given for selected industries, esp. robotics and New Energy Vehicles (EV, PHEV, BEV, etc.)
• Established 300 state-investment funds with EUR 202 Bn in 2015; some funds are to invest in advanced
China manufacturing sectors, e.g. robotics, deep-sea engineering equipment and new materials
• Grant “Robot Award” to recognize robots with high contribution and expectation for future market creation
Japan
• Government commitment of SGD 3.2 Bn over 2016-2020 to develop technological capabilities in advanced mfg.
• Up to 400% tax deductions on qualifying expenditure related to innovation activities in R&D, design, training & IP
Singapore management
• Corporate income tax reduction for qualifying firms for up to 15 years

• Import duty exemption
Thailand • Government funds of USD 286 Mn to provide subsidy for R&D in 10 targeted industries
1. Industrie 4.0 (Germany): firms typically receive 1/2 public funding with remaining 1/2 private funding. HVMC (UK): firms typically receive 1/3 public funding with remaining 2/3 private funding.
Source: European Commission, Desk research, A.T. Kearney 60
9 Incentivize Innovation: Indonesia will need to commit to

incentives technology adoption across the industries
Fiscal incentive scheme options Examples
• Tax holiday: Exemption of tax for certain period for companies that invest in 4IR
technologies to help shorten payback period of the investment
• Tax deduction: Relaxation of depreciation period (shortened) to reduce tax of
Tax incentives
companies that invest in 4IR technologies, perform research & development and
train employees of 4IR technologies
• Import tax reduction: Reduction of tax for companies that import 4IR tech
• Government assistance: extension of assistance to SME of basic technologies

that are platform to 4IR technologies, e.g. smartphone, or 4IR technologies e.g.
Subsidies 3D printer in innovation center, etc.
• Grant: government-sponsored innovation contests which prize money must be
used for developing the proposed 4R technologies
• Guarantee: government-guaranteed loan through organization such as Sarana

Multi Infrastructure, Indonesia Investment Fund, etc. to reduce interest rate of
Funding support loans for 4IR technologies investment
• Capital injection: additional lending capacity of state-owned financiers,
dedicated for borrowings made for 4IR technologies investment

10Reoptimize Industry Regulations & Policies: Indonesia’s

industry policies need to handle multi-functional issues…
Production value chain in Indonesia and competitiveness Key regulators
• Ministry of Finance
Raw material • Highly reliant on import (tariff causes higher • Ministry of Trade
input costs) e.g. ~50% of petrochemicals are imported • Ministry of Industry
Raw materials • Higher energy costs e.g. gas cost is 1x-3.3x • Ministry of Energy &
Energy cost
higher than Malaysia and Thailand Mineral Resources
• Highly reliant on import (tariff causes higher • Ministry of Finance

Key components costs) e.g. all key components are imported • Ministry of Trade
• Ministry of Industry
• Rapidly increasing labor costs (annual regional • Local government
Labor cost
Processing & wage increase could reach >20%) • Ministry of Manpower
Assembly
• Ministry of Manpower
Labor • Declining productivity (-1% CAGR 2009-2016 vs • Ministry of Research,
productivity other ASEAN countries e.g. Malaysia 3%) Technology & Higher Edu.
• Higher logistics cost (1.7x-2x of logistics cost ratio • Ministry of Transportation
Logistics
Logistics cost to manufacturing sales in Thailand and Malaysia) • Ministry of Public Works
and Public Housing
Goods from Indonesia

locally produce product losing
competitiveness
Indonesian market
• Ministry of Finance
No tariff for finished goods
• Ministry of Trade
Goods produced in ASEAN • Ministry of Industry
10Reoptimize Industry Regulations & Policies: Indonesia will

need to simplify policies by coordinating among ministries
Masterplan for Coordinating / Optimizing Policymaking Illustrative
Industry
Value Resources Manufacturing Trade •1 Ministries currently
responsible for
Chain managing individual
Capital market parts of the value chain
regulations
•2 Potential to coordinate
Corporate tax policymaking between
ministries and to
Environmental maximize Indonesian
Key sustainability
Trade tariffs / FTZ national benefit
Regulations
– i.e. Singapore has
/ Policies1 Energy Local content Coordination support
several cross-ministry
Infrastructure bodies coordinating
Safety compliance Partnerships policy efforts
development
Consumer rights, education, innovation, labor laws, legal / IP / property rights etc…
1
Central
Other key
regulations require
Govt. 2 support and
Need tighter coordination
coordination with
other ministries
Sub-
nat’l
Provincial and other local government bodies
1. Not exhaustive
Source: Singapore PMO, Desk research, A.T. Kearney 63
Agenda

• Baselining

• Key Challenges
Economic Impact
64
Sectoral deep dive
Table of Contents
■ Priority Sector Strategies

– Food & Beverages
– Textile/Apparel
– Automotive
– Electronics
– Chemicals
65
Sectoral deep dive
Indonesia needs to overcome the challenges in food and

beverage sector and change the face of the sector
Food and beverage in Indonesia – Today to 2030
Today 2030
Low
productivity of
Highly productive &
agriculture predictable yield of
sector agriculture sector
Cutting-edge
Food loss processing for
modern F&B
Unreliable
domestic food Food &
inputs
Beverage
Inefficient
4.0
supply chain Highly efficient
cold chain
logistics network
Leading high
quality food
standards
Sectoral deep dive
Food and beverage (F&B) sector is the largest manufacturing

sector in Indonesia
Food & beverage contribution to manufacturing sector (%)
Manufacturing GDP (2016) Manufacturing export (2016) Manufacturing labor1 (2015)
F&B
F&B F&B 24%
29% 30%
Others Others
71% 70% Others
76%
Total mfg. GDP Total mfg. export Total mfg. labor

IDR 2,526 Tn IDR 1,485 Tn 13.6 Mn
1. Including micro, small, medium and large companies

Sectoral deep dive
Top F&B products are globally competitive; Indonesia can

leverage abundant upstream resources
Key statistics of food & beverage sector (top 10 products) Global Top 10
Domestic Consumption – F&B Production – Agriculture &

Export – F&B Mfg. (2016)
Mfg. (2016) Livestock (2014)
Global rank Global rank Global rank
Product IDR Tn2 (USD-basis) Product IDR Tn (USD-basis) Product IDR Tn2 (Vol-basis)
Palm Rice
193 1 Rice 93 3 paddy
676 3
oil
14 Palm fruit 419 1
Coconut oil1 37 1 Bottled Water 46
Processed
18 6 Dairy 38 13 Chicken
86 43
crustacea meat
Chicken
Cocoa 9 2 Baby Food 37 3 eggs
74 43
Margarine 9 2 Baked Goods 31 11 Maize 73 8

Prepared 4 3
aqua invert. 9 4 RTD Tea 31 Cassava 57
Bread & pastry 7 18 Noodles 30 3 Chillies &

52 4
peppers
Processed fish 6 12 Confectionery 27 11 Bananas 44 5

Coffee, tea,
mate extracts 6 8 Savoury Snacks 21 8 Cattle meat 43 20
Oil-cake &
other solid Proc. Meat &
6 4 Seafood
19 11 Coconut 39 1
residues
1. Coconut (copra), palm kernel or babassu oil and their fractions; 2. Converted to IDR assuming USD/IDR of IDR 13,436 for 2016 and IDR 12,440 for 2014;
3. Based on # of chicken stocks
Source: US Comtrade, Euromonitor, FAO, Bank Indonesia, A.T. Kearney 69
Sectoral deep dive
Food & beverage sector in Indonesia is expanding product

coverage along with shift towards more affluent demography
Income level & food & beverage sophistication
Household by income level F&B product expansion
(%, Mn household)
‘12-’25
63 68 77 CAGR
High 2% 2% 8% 14% Degree of food Modern packaged
>$35k 10% (1) 12% (1) (6)
(6) (8) processing food
Middle-Up
$15-35K
35% Dry packaged

(27) 12% food
Middle-Down 58% Basic

$5K-$15K (37) 60%
(41) seasoning
Raw extracted
F&B
56%
(43)
1%
Low 30%
26%
<5K (19)
(18)
-100%
2012 2017 2025
Income Segment
/ GDP per Capita
Source: EIU, A.T. Kearney 70
Sectoral deep dive
Along the value chain, F&B sector is generally fragmented with

varying degrees of sophistication
Food and beverage sector player landscape
F&B Mfg. value chain
Agriculture/ Animal Husbandry/
Food processing/ Packaging Trading/ Retailing
Fishery
• Fragmented • Market is fragmented into 2 mn

player
Traditional
micro/ home stores

businesses that: – Despite largely conventional,
– Typically are many warungs have become
• Fragmented small farmers that: not integrated esp. to upstream more automated using simple
– Do not have value chain – Largely use basic tools and transaction recording systems
integration capabilities machineries
– Typically are not sophisticated,
many rely on govt. assistance for • Fragmented small & medium biz.
fertilizer, tools and other – Typically do not have value
supports chain integration capabilities
(especially upstream) but many
• Less-fragmented large players use e-com to market the product • Modern trade is largely concen-
that have capabilities and scale to: – Apply higher degree of trated by 6-10 players, part of
– Vertically integrated v. chain automation massive ~19K stores network.
– Adopt more advanced – More advanced IT tech given
technologies • Less-fragmented large players: needs to manage inventory &
– Some have more comprehend- distribution
sive E2E v. chain integration
Modern
player
(e.g. Indofood, Unilever)

– Employ advanced technologies
Source: Euromonitor, FAO, Company’s websites, A.T. Kearney 71

Sectoral deep dive
Government has already designed roadmaps to develop the

food and beverage sector
Ministry of Industry’s roadmap for F&B RIPIN 2015-2035
2015-2019 2020-2024 2025-2035
Canned Milk, milk-

Processed High-
fruits &
seafood based value
veggies
functional tea
Priority Cacao- food Milk, milk-
sub- based F&B based High-value
Starch
incl. Decaff. functional tea
sector supplement coffee, food
organic Sugar
Vegetable Sugar coffee-
oil based food
• Raw materials availability • Food industrial zone enhancement
• Human capital competence • Quality-test lab test quality, capacity and capability improvement
Select • Innovation capability • Innovation capability
prog- • Efficiency and quality • Infrastructure development
rams improvement • Value-added enhancement
• Logistics systems development • Clean production development
Commodity-specific draft roadmap – Industrial zone/ processing central development
• Sumatera
• Java
– Dumai • Sumatera • Sulawesi
– Jakarta
– Sei Mangkei – Payakumbuh – Palu
– Tangerang
• Kalimantan • Bali – Kendari
– Gunung Kidul
– Berau – Singaraja – Makassar
Palm fruit Cocoa – Kademangan-Blitar
– Tanah Kuning
Source: RIPIN, MOI’s comnodity roadmap, A.T. Kearney 72
Sectoral deep dive
Several regulations and trade agreements are already in place;

mixture impacts on the industry
Regulations and trade agreements Not Exhaustive
Regulation Outline Implications

Indonesian • As several countries do not recognize ISPO,
Sustainable Palm • Since 2011 government requires palm oil many exporting companies undertake ISPO
Oil Certification companies to be ISPO-certified and RSPO certifications causing increased
System (ISPO) compliance costs
• Since end of 2015, government eased the
regulation to import salt by revoking the
Salt import • Food processing companies enjoy better
requirement to acquire recommendation from
easing reliability in raw material availability
Gov. Ministry of Industry prior to requesting import
regulation license
• Regulation will increase cost and process
complexity of food & beverage players as
• Government requires all food & beverage, the certification needs to be obtained and
Halal guarantee pharmaceutical and cosmetic products renewed every 4 years1
requirement consumed in Indonesia to be halal-certified
by October 2019 at the latest • However, this requirement is also a non-
trade barrier for foreign companies targeting
to enter Indonesian market
ASEAN-India • Palm oil exports to India (Indonesia’s largest

• Agreement was signed in 2009 and came into
Comprehensive palm oil destination) drastically grew by
effect by 1st January 2010
Free Trade Economic Coop. 33% in 2010 vs 2% growth 2008/2009.
Agree-
ments • Agreement came into effect by 1st January
ASEAN-Australia • FTA contributed to 55% jump of Indonesia’s
2010, aiming at progressively reduce tariff
& NZ FTA import of wheat from Australia
and simplifying customs procedures
1. Earlier if there is any change in ingredients

Source: BBC, Ministry of Agriculture, MIT, A.T. Kearney 73
Sectoral deep dive
Food & beverage sector in Indonesia is facing several

challenges along the value chain
Key challenges
Fishing
Poor basic infrastructure e.g.

1 Increasing cost pressures – F&B
irrigation systems, water quality Ubiquitous presence of layers of
sector Opex has been growing for
agricultural roads and rural 3 7.7% in 2011-2016, 2nd in ASEAN1 5 middlemen causing farmer to
electrification causing crop failure suffer from profit opportunity loss
behind Vietnam (9.0%)
and food loss
F&B fraud (incl. substandard F&B

Unreliable domestic supply of
Low agriculture productivity due sale and counterfeited F&B)
F&B inputs at demanded quality
to largely fragmented market causing market value distortion and
2 consisting of small farmers causing 4 and quantity causing reliance on 6 hindering fair market competition;
imports e.g. wheat, salt, bovine
slow input and tech upgrade Counterfeited F&B is accounted for
animal meat, etc.
8.5% of F&B market value in 2016
Logistics
High logistics cost2 (25% of manufacturing sales vs Lack of cold chain infrastructure causing food
15% in Thailand and 13% in Malaysia in 2015). Large damage and loss. Cold chain infrastructure can only
7 portion of the cost is attributed to high inventory-carrying 8 cater 50% of fishery sector demand, 25% of animal
levels due to uncertainties in logistics chain husbandry sector and 5% of agriculture sector in 2016
1. Only includes Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam
2. Includes transportation, warehousing and inventory
Source: FAO, IHS Markit, World Bank, Amcham, Press search, A.T. Kearney 74
Sectoral deep dive
Indonesia’s path to Food & Beverage 4.0 needs to involve

revamping of upstream sector and enhancement of mfg. sector
Path to Indonesia Food & Beverage 4.0 To be finalized by the F&B Task Force
Horizon 3 2030
Horizon 2 2025 10-15 10-15 years
Horizon 1 2021 5-10 5-10 years
Expand leadership to global F&B
3-5 3-5 years Build ASEAN leadership in F&B manufacturing market by utilizing
manufacturing sector by utilizing 4IR tech for modern and
Enhance end-to-end capabilities 4IR tech especially for simple to advanced packaged food
Key with focus on revamping upstream medium processed food
initiatives agriculture/ animal husbandry/
fishery sector with the help of 4IR
tech
Focus Palm fruit Rice, paddy Chicken Sugar Rice Sugar Noodle
products Baby food Packaged pre- Food
prepared supplement
Processed Starch Cocoa Canned fruits Bottled Water RTD Tea Coffee
meals
seafood & veggies
Halal-certified
Aspirat- Become ASEAN F&B Become top 5 global F&B

Improve net export by 50%
ions powerhouse exporter
Sectoral deep dive
To improve net export, Indonesia needs to strategically set

focus products benefitting from 3 aspects
Aspects for product prioritization
Access to Raw
Materials
Top produced commodity1:
(Rank)
Palm fruit Rice, paddy Chicken

(1) (3) (3)
Seaweed Nile
Economies of (1) (2)
Halal
Scale
Market size/ ID’s scale2:
(Rank/ Rank)
Rice Bottled Water RTD Tea

(5/1) (2/9) (3/10) Halal certification
Baby food Noodles

(10/10) (11/5)
1. Top locally-produced commodities that globally rank in top 5 in 2014 for agriculture and livestock & 2015 for fishery
2. Product selection is based of domestic consumption size in ASEAN-6 and Indonesia’s portion of the size
Source: FAO, Euromonitor, A.T. Kearney 76
Sectoral deep dive
Indonesia needs to leverage technology that is already

commercially available to improve F&B sector
Advanced technology capabilities along the value chain
Fishing
Yield management Advanced factory automation Retail management
• Braintree Techno- • Tomra’s advan- • Trax’s IoT Suite enables retailers to quickly
logies’ drones ced automated respond to in-store issues using camera
have camera for sorting machines robots and advanced analytics
detecting trees- are able to inspect
infected bag-worm • Trax’s advanced
millions of indivi- analytics help retailers
to better target dual product pieces per hour, improving
pesticide spray to analyze supplier’s
yield, productivity and consistency of quality sales performance to
• SCR’s intelligence allow them improve sales
systems can indivi- • Google’s AI Tensor- & customer experience
dually monitor Flow is used by E-commerce
cow’s health, Japanese food • Emergence of e-com-
reproduction, producer Kewpie Corp. merce platforms for agri
nutritional and well- to quickly inspect food products aims at reducing
being status using ingredient quality dominance of middlemen
body tags and apps before processing further for baby food. and allowing for traceability
Human labor then still inspects afterwards & price transparency
Logistics
Transportation Storage including cold chain
• Maersk develops remote container management systems to • Orbcomm offers analytics enables real-time
provide timely data for monitoring location, temperature and monitoring and management of refrigerated
power status. The tech is expected to cut op. costs, improve assets in a cold chain facility to improve end-to-
fleet operations and prevent product damage end operations and quality assurance
Source: Bloomberg, Forbes, Company’s websites, A.T. Kearney 77
Sectoral deep dive
E-commerce can help improve traceability of food source to

prevent from fraud and encourage SMEs
E-commerce in food and beverage sector – Traceability (Illustrative)
Which farmer should We are best carrot is a carrot specialist

I buy carrots from? producer from and has many good
Australia reviews. It should be the
or
Organic Baby Rainbow right choice!
carrot carrot carrot
We are best
vegetable grower
from Australia
Tomato Cabbage Carrot
cherry
Players – Degree of traceability

High
Low
Source: BMI, Company’s website, A.T. Kearney 78
Sectoral deep dive
All segments and value chains involved in food & beverage

sector should aim to adopt Industry 4.0 technologies by 2030
Technology adoption milestone
Fishing
player
Traditional
Current 2030 Current 2030 Current 2030

Industry 1.0 Industry 1.0 Industry 1.0 Industry 4.0
Industry 4.0
Current 2030
Current 2030 Current 2030

Current 2030
Industry 3.0
Modern
player
Industry4.0
Sectoral deep dive
Indonesia market makes up more than 30% of ASEAN1 market;

Opportunities lie with leveraging its scale to dominate ASEAN
ASEAN1 F&B Market and opportunities for Indonesia
ASEAN1 food & beverage market Indonesia’s F&B sector strategic
opportunities
2016 2025
Total market size Total market size
USD 291 Bn USD 588 Bn
1% Become a regional
10% 2 F&B powerhouse
10%
2%
16% 33% 16%
37%
2x
18%
21% 16%
Establish strong
20% 1 leadership in
domestic market
Indonesia Malaysia Phillipines
Thailand Vietnam Singapore
ASEAN market is attractive given the size, proximity to Indonesia and

established trade cooperation
1. Only includes Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam
Sectoral deep dive
Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
81
Sectoral deep dive
Indonesia needs to overcome the challenges in textile sector

and secure its position as one of global leaders in the industry
Textile in Indonesia – Today to 2030
Today 2030
High reliance Sensor-driven
on imported advanced material
raw materials High
production processing
costs, loosing
competitive-
ness
Focus on mass
Textile /
products &
lower end
Apparel
markets
Low-skilled 4.0
labor intensive
industry
Center of Rapid
textile R&D prototyping of
and customized
innovation in designs
ASEAN
Technology leader for functional

Source: A.T. Kearney clothing production & innovation 83
Sectoral deep dive
Indonesia’s textile goods1 sector is one of the largest

manufacturing sectors in Indonesia
Contribution to manufacturing sector (%)
Manufacturing GDP (2016) Manufacturing export (2016) Manufacturing labor2 (2015)
Textile/
Apparel Textile/ Textile/
Apparel Apparel
7%
15% 21%
Others
Others Others 79%
93% 85%
Total mfg. GDP Total mfg. export Total mfg. labor

IDR 2,526 Tn IDR 1,485 Tn 13.6 Mn
1. Textile sector refers to natural & synthetic raw materials, textile, apparel, garment, leather goods and footwear
1. Including micro, small, medium and large companies; size by # of employees; 1-4 is micro, 5-19 is small, 20-99 is medium, >100 is large
Sectoral deep dive
However, the industry has been losing competitiveness against

lower cost countries in the recent years
Global competitiveness of select high-value categories
Export – Garments Export – Footwear Export – Leather goods
USD Bn Country USD Bn USD Bn Country USD Bn Rank Rank

Country
(2013) (2016) (2013) (2016) (2013) (2016)
97 1 China 1 74 51 1 China 1
1 1
48
China
Hong
11.1 2 Kong 8 7.7 11.7 2 Italy 3 10.7
2 2
Italy
Bang- Vietna
9.6 3 ladesh 2 16.3 8.7 3 m
2 17.9 7 5
Vietnam
Turkey Belgiu
9.2 4 4 8.8 5.1 4 5 5.7 15 11
m
Singapore
Vietnam Germa
7.9 7 3 11.8 5.0 5 4 6.0
ny 23 15
Cambo Philippines
Indone
4.5 10 dia 9 6.1 3.9 6 6 4.6
sia 17 20
Indo- Nether Thailand
3.4 14 nesia 15 3.2 3.4 7 7 3.5
lands
19 21
Indonesia
Source: UN Comtrade, Bank Indonesia, A.T. Kearney 85

Sectoral deep dive
Textile/Apparel sector is largely served by fragmented domestic players,

focusing on contract manufacturing
Textile sector player landscape Textile/Apparel Mfg. value chain
Intermediate goods
Raw materials Production Export , retail &
processing (mid-
processing (Upstream) (downstream) marketing network
stream)
Man-made / Footwear
chemical fibers
Foreign
players
Relatively equal share of: • Mixture of domestic
• Large foreign players and JV with foreign
• Large domestic players companies. Also SMEs
Yarn Export, trading,
Nikomas – retailing
Pouchen (JV)
Natural fibers Garment

Domestic (cotton, wool, silk)
players
Largely fragmented
• Fragmented local traditional channel (70-
players, typically do not • Dominated by large local 80%) and relatively
have value chain players, focusing on mass • Dominated by large consolidated modern
integration capabilities production domestic players trade channel (20-30%)
Source: BPS data, interview with industry associations, Desktop Research, A.T. Kearney 86
Sectoral deep dive
Loss in competitiveness stems from limited access to raw

inputs, high labor & energy costs, and lack of trade diplomacy
Key challenges Textile/Apparel Mfg. value chain
Raw materials processing Intermediate goods Export , retail &

Production (downstream)
(Upstream) processing (mid-stream) marketing network
High reliance on Players lack of value-

imported raw materials1 Fabric: Low technology
added offerings; main
due to 2 adoption especially on 4 focus still on mass
finishing stage
– Low natural fiber products
1 production, due to
limited land & unsuitable Lack of customized
weather for cotton machineries & fabric Basic textile: flood of
– Limited access to
3 production focusing on 5 cheap imported Lack of trade diplomacy
technical textile products e.g. currently, the US
chemically fibers
and the EU impose
High energy price 6 import duties of 12.5 -
– Electricity: $10cent/kwh in Indonesia. $7cent/kwh in Vietnam and $6cent/kwh 16% instead of 0% on
7 Bangladesh Indonesian textile
products
– Gas: $8.3-$9.3/MMBtu in Indonesia. $7.5 USD/MMBtu in Vietnam, $5.4/MMBtu in the
Philippines and $4.5/MMBtu in Malaysia
High and rapidly increasing labor costs:
– $ 92-247/month in Indonesia, $100-145 in Vietnam and $66-71 in Bangladesh
8
– Indonesia labor wage is expected to rise at +9.5% p.a. until 2020, India will rise at 5.4%
p.a. and Vietnam at 7.4% p.a.
1. Current import ratios1 are 99% for natural fiber and 80% for other raw materials (e.g. dye, yarn, silk fabric)
Source: BPS data, Interview with the industry’s association, A.T. Kearney 87
Sectoral deep dive
Further, competitor countries such as Vietnam are strategically

cultivating their textile/apparel industry
Vietnam’s strategy in boosting textile sector
1 Enhancing domestic upstream capabilities
• The Gov’t launched “Cotton Development Program” in 2001-
#1 #2
2010, allocating 150,000ha land to add 80,000 tons of cotton
production textile producer in Vietnam’s largest
ASEAN mfg. sector
• VINATEX and PetroVietnam’s join investment of $ 125Mn in
polyester fiber production in 2015 is expected to meet 20%- 3.62% global textile 15% contribution to
50% local demand, which was only 4% in 2008 market share national GDP
2 Improving productivity while maintaining labor costs #2 #5

Dec ’06 Dec ‘09
lowest labor cost Global textile
# of Spinning Mills 96 145 after Bangladesh manufacturer
Capacity utilization (%) 40% 90% $160 avg. monthly Benchmark for
wage / labor textile production
# of Weaving Mills 382 401
Capacity utilization (%) 50% 80%
# of Knitting Mills
Capacity utilization (%)
NA
NA
105
100% 3.5 Mn
# of Dyeing & Finishing Mills NA 94
workforce
Capacity utilization (%) NA 50%
Equal to 25%
# of Garment Factories 1,446 2,424 National workforce
Capacity utilization (%) 80% 100%
Source: UN Comtrade, .IDS trade report, Desk research, A.T. Kearney 88
Sectoral deep dive
In order to overcome the challenges, industry players and

government are taking several strategic moves
Efforts to overcome challenges Government
Industry Players
Not Exhaustive
Shift garment Promotes Central Java province as a new textile hub with a dedicated
production locations industrial estate on its northern coast; 2015 monthly min. wage = $103,
to lower cost areas lower than Vietnam ($132) and Pakistan ($105)
Encourage
Incentives to buy new and secondhand machinery through Minister of
technology
advancement Trade Regulation No. 127/2015 on Importation of Secondhand Capital Goods
Prohibited imported textile products to be shipped directly to Javanese

Curb illegal textile
imports ports. Only two ports (Dumai in North Sumatera and Bitung in North
Sulawesi) are allowed to receive imported fabric, yarn and garments
Establish an Sritex is constructing a rayon factory to produce yarn in Central Java. It will
integrated upstream
to downstream also open a plantation forest to supply raw material to a pulp factory which
industry will produce rayon which will be further processed into yarn
• Pan Brothers Tbk. plans to build two new factories in 2018:
Increase production – one factory with capacity of 21Mn pcs garment/year
capacity – another new factory with capacity of 6Mn pcs garment/year
• Increase 30% of overall capacity from 90Mn pcs/yr to 117Mn pcs/yr
Source: BPS data, Interview with the industry’s association, A.T. Kearney 89
Sectoral deep dive
Further, MoI has targeted implementation of these regulation

changes for 2017
Textile-related regulations changes in 2017 Not Exhaustive
• Limiting imports to “producer-importer,” with the stipulation

that producer-importers may only use imported yarn and
fabrics for further production.
Yarn and fabrics imports
restriction
• Requirement of pre-shipment inspections in the loading

country, imposes an anti-dumping duty, and enforces the
Indonesian National Standard (SNI) on imported yarn and
fabrics.
Pre-shipment inspections
• Flat electricity tariff to textile manufacturers during the peak

hours of 11:00 PM to 8:00 AM
• Expand textile manufacturer’s operational hours from 40 hours
Additional operational hours per week to 48 hours per week.
and lower electricity tariff
Sectoral deep dive

Regulations and trade agreements (1/2) Not Exhaustive
Regulation/FTA Outline Implications
Production
• The regulation provides tax holiday for • Not applicable for textile industry due
Facilities
companies which are building production to lack of labor and energy availability in
outside Java
facilities outside Java islands outside Java
Island
Perpu No • The regulation provides lower energy
25/2016 about price for textile players; the policy has • Production costs of textile industry is
special energy been drafted for a while but slow in the still high compare to other countries due
Regulation
price for textile review process hence not yet to slow in the review process
players implemented till date
Exemption • Backfired on the domestic upstream

• Exemption of value-added tax (VAT) on textile industry –the downstream textile
towards
imported textile products for export industry prefers to import cheaper raw
imported textile purposes material from abroad rather than source
products them locally
• Free trade area among the ten member • 100% increase of cheap textile imports
ASEAN China
states of the Association of Southeast from China, from $ 0.8Bn to $ 1.8Bn in
Free Trade Free Trade 20101
Asian Nations (ASEAN) and the
Agreement Agreement People's Republic of China, signed in • Average 100-200% export growth from
(ACFTA) 2010 Indonesia to China, incl. textile products
1. As stated by Mr. Ade Sudrajat, the Head of Indonesian Textile Association (API), quoted in International Journal of Business and Mgmt. Invention
Source: BBC, Ministry of Agriculture, MIT, IJBMI, A.T. Kearney 91
Sectoral deep dive

Regulations and trade agreements (2/2) Not Exhaustive
FTA Outline Implications
• Customs duty tariffs were eliminated

Indonesia-Japan • 293% increase in footwear exports to
for textile and apparel products as the
Economic Japan (2007-2016)
date of entry force in both framework
Partnership • 180% increase in textile apparel
(IJEPA) • One-way trade –Indonesia will export
exports to Japan (2007-2016)
and Japan will import textile and apparel
• Free movement of labor and materials

ASEAN • Aims to transform ASEAN into a single
between member countries; E.g. PT.
Economic market and production base as well as a
Pan Brothers Tbk. have started
Free Trade Community region fully integrated into the global
collaborating with garment makers in
Agreement (AEC) economy
Vietnam
Indonesia EFTA
;Comprehensive • Opportunity for OEM/ODM with bigger
• FTA expected to eliminate tariffs on
Economic export values and eliminate barriers for
Indonesia’s textile products imported to
Partnership export to key destination countries
EU (currently 10% – 30%) by 2019
Agreement (IE- (e.g. remove import tariffs to EU)
CEPA)

Sectoral deep dive
Indonesia's domestic consumption is projected to be fastest

growing in ASEAN – potential for functional wear growth
Select ASEAN domestic consumption1
(USD Bn; % share to overall ASEAN market, 2016)
CAGR
’16 – ‘25 Future demand
23.5
(41%) 4.8% • Indonesia's domestic apparel market is
currently driven by basic clothing
• Opportunity from growing demand for
17.1
(30%) 8.7% functional clothing (e.g. sportswear), as seen
in other ASEAN countries
11.0
(19%) 5.6% Basic clothing Functional wear
Highest CAGR,
expected to
3.7 surpass Vietnam 7.7%
(6%) by 2025
2.1 6.0%
(4%)
Today 2025
1. Domestic consumption refers to Gross Output + Imports – Exports; Vietnam’s number is the highest due to high size of imported raw materials used for textile production
Source: IHS Markit data released on 18th Oct 2017, A.T. Kearney 93
Sectoral deep dive
The sector should regain global competitiveness by enhancing

upstream capabilities and focus on functional clothing
Path to Indonesia Textile / Apparel 4.0 To be finalized by the Textile Task Force
Horizon 2 2025 Horizon 3 2030

Horizon 1 2021 10-15 10-15 years
5-10 5-10 years
3-5 3-5 years
Building textile/apparel industrial Establish a position as a leading
Enhance synthetic fiber production clusters across the nation and
functional clothing manufacturing
Key capabilities while rebuilding connect them through Industry 4.0 hub by cultivate ecosystem while
upstream (yarn/fabric) ecosystem for leveraging technologies
initiatives technologies
functional clothing
• Investing in synthetic fiber • Shift the focus in garment • Productivity improvement by
production, spinning and weaving manufacturing from CMT (cut, make enhancing R&D and training
facilities and trim) to FOB (free on board)
Key • Build up close and stable
• Work with existing leading fiber • Gradual shift from lower end relationships with big textile
activities companies to produce high end market to high quality consumption groups in the world
fiber • More efficient sourcing through • Promote global awareness as
vertical integration functional clothing mfg. hub
Synthetic fibers Technical multi-fabric

textiles Functional clothing
Focus High quality yarn Leather fabrics Smart footwear
products
Specialty & industrial
fabrics Apparel with embedded technology
<30% raw materials import rate, Top 5 global textile

regional source of synthetic Export growth of 15% per year manufacturers, specialized in
fiber production functional clothing
Sectoral deep dive
Indonesia’s textile industry should introduce advanced

technologies along value chain to improve productivity & quality
Technology enablers – by value-chain segment Textile/Apparel Mfg. value chain
Raw materials processing Intermediate goods Export , retail & marketing
Production (downstream)
(Upstream) processing (mid-stream) network
Multi-material, Rapid prototyping of RFID for logistics
Next-Generation Fiber sensor-driven processing customized designs
New material AI IoT AI IoT Wearable IoT

• Synthetic spider silk -allows
the best qualities of both • Sensor-based waste
natural and artificial fibers: control system –allows
soft, light, durable, etc. efficient opening, cleaning
and blending of fibers, while • Attached RFID tags allows
• Nano fiber –an effective • Digital textile –faster time transparency in the supply
minimizing unwanted fiber
barrier for microorganism to market with higher chain, seamless and article-
loss and fiber damage
penetration, widely used in quality, more unique designs specific retraceability along
healthcare sector e.g. at scale and greater variety the entire supply chain,
• Integrated Grinding
surgical gowns, drapes, etc. of rich colors at quicker increase of inventory
System -ensures
turnaround cycles accuracy, as well as improve
• Bio fiber –an eco-friendly, permanently sharp clothing,
completely biodegradable maintains high-quality card anti-theft protection
and naturally occurring webs, extends the life of the
fiber, e.g. banana fiber for card wire
handbag & casual cloth, etc.
Source: Textile-World, Desktop Research, Expert Interview, A.T. Kearney 95

Sectoral deep dive
Integrated upstream and functional technology focus will help

textile sector to regain its regional and global competitiveness
Focus strategy in textile sector
Integrated geographical chain from upstream to Functional textile/apparel
downstream industry focus
Plantation forest Pulp factory Rayon production Upskill material science to support
Upstream textile
1 2 3 development of functional textile innovation
industry
Encourage and work with leading players

to produce functional textile / raw materials in
the country
Host regional / global events in functional

textile
4 5 6
Downstream
textile industry
Yarn processing Garment production Customized apparel
Source: Industry reports, A.T. Kearney 96

Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
97
Sectoral deep dive
Indonesia needs to overcome the challenges in automotive

sector and change the face of the sector
Automotive in Indonesia – Today to 2030
Today 2030
Heavy imports of raw materials Strengthened local

production of key
auto components
Local focus on low value-add

components
Automotive
4.0
Locally Regional leader
High logistics cost produced high in EV
quality raw production
materials for
automotive
Building regional
automotive export hub
Sectoral deep dive
Transportation manufacturing sector is largely dependent on

automotive including 2W but market is shifting from 2W to 4W
Transportation Sales Breakdown1 2W/4W Automotive Sector Scheme

(2016, USD Bn)
2W 4W
91% MC per 1,000 pop (units) PV per 1,000 pop (units)
Non-Automotive
300 600
Developed
9% market
Saudi Arabia
(USD 3 Bn) Vietnam Thailand 500 Belgium
Japan
Developing
Denmark
200
market 400
China USA
2W Vehicle Malaysia South Korea
and Parts 26%
Israel
(USD 7 Bn) Developed
300
Hungary
market Russia
Argentina
65% 100 India Greece 200 Brazil Argentina
(USD 18 Bn) Japan Nigeria
Brazil Spain India China Developing
USA 100 market
Russia Israel UK Thailand
Israel
Vietnam
0 0
0 5 10 15 20 25 30 35 40 45 50 55 60 0 5 10 15 20 25 30 35 40 45 50 55 60
4W Vehicle Indonesia
and Parts GDP per
2020 2030 2040 2020 2030 2040
capita
14.7 26.3 44.6 14.7 26.3 44.6
estimate,
USD K GDP per Capita, USD K GDP per Capita, USD K
1. 2W vehicles include motorcycles and bicycles
Source: IHS Markit, EIU, Pew Research, A.T. Kearney 100
Sectoral deep dive
Although Indonesia has the 2nd largest production capacity in

ASEAN after Thailand, it shows limited capabilities in export
Automotive Sector Comparison among ASEAN Countries1
(2016, USD Bn) 4W Vehicles 4W Parts 2W Vehicles & Parts
Sales value Import value Export value Domestic consumption

#2
25.5 6.9 6.7 25.6
Indonesia
Despite 2.14Mn production capacity,
#1 Indo only produces 1.17Mn cars
33.2 10.5 31.4 22.3
Thailand
11.0 6.8 1.2 16.5

Malaysia
1.6 4.6 2.3 3.6

Singapore
18.4 6.9 1.9 23.3

Vietnam
7.6 6.2 1.6 12.1

Philippines
1. 2W vehicles include motorcycles and bicycles

Sectoral deep dive
Indonesia is facing several challenges to compete with Thailand
Competitive environment – Indonesia vs. Thailand

Indonesia Thailand
• Relies heavily on imports (>90%) for flat and

= • >85% of steel demand is fulfilled by imports
high-strength steel from Japan and S. Korea
from Japan, China and S. Korea
Raw material • Imports 50% of plastic raw materials, e.g.
• Thailand is a net exporter of chemicals, esp.
polyethylene and polypropylene from Middle East, < basic chemicals and synthetic resin
Singapore, China and S. Korea
• Output per employed person in 2016 is USD < • Output per employed person in 2016 is USD
25.6 K 30.6 K
Labor cost &
productivity • Minimum wage in Cikarang-Karawang area has • Minimum wage in Bangkok and Don Mueang has
increased at 21% CAGR to ~USD 260/month < increased at 1% and 3% CAGR to USD 310 and
from 2012 to 2017 USD 308/month from 2012 to 2017, respectively
• Net importer of 4W parts; Local manufacturers • Net exporter of 4W and 2W parts

Key are concentrated in low value-add components • Produces the highest quality automotive parts
component <
• Although Indonesia govt has achieved high local among ASEAN countries, according to JAMA2
production
capability content ratio (60%), key components are mostly • Local manufacturers supply >70% parts for
imported from Japan or other countries vehicles and nearly 100% parts for motorcycle
1. Productivity is calculated based on output per employed person at national level, adjusted by the proportion of output-to-operating expenses in transportation sector to that at national level
2. Japan Automobile Manufacturers Association
Source: IHS Markit, The Conference Board Total Economy Database, Thailand Board of Investment, Relevant Regulations, Desk Research, A.T. Kearney 102
Sectoral deep dive
Indonesia’s automotive industry is largely led by Japanese

players…
xx% New passenger vehicle
Automotive industry value chain dynamics – 4W market share (2015)
Automotive Mfg. value chain
Component Manufacturing &

Raw material Trade & Retail
manufacturing Assembly
Local players Local players Toyota Motor Toyota Astra Motor

Manufacturing (TAM)
Indonesia (TMMI)
Shareholders: Shareholders: 41%
• Toyota Motor Corp 95.0% • Toyota Motor Corp 49.0%
• Astra International 5.0% • Astra International 51.0%
Astra Daihatsu Motor Shareholders: Daihatsu Motor Co

(61.7%), Astra International (31.9%),15%
Toyota Tsusho Corp (6.37%)
Foreign companies Japanese companies /
JVs Suzuki Indomobil Motor 8%
JFE Steel
Galvanizing Indonesia Nissan Motor Indonesia 3%
Honda Prospect Motor

Shareholders: 21%
• Honda Motor Co Ltd 51.0%
• Prospect Motor 49.0%
Imports for high-end Imports for high-end Mitsubishi 3%

materials components Others 9%
Source: Ipsos, A.T. Kearney 103

Sectoral deep dive
… who have been driving Foreign Direct Investment in

Indonesia
Indonesia’s FDI breakdown
FDI by country Japanese companies’ FDI by sector
(USD Bn, unless stated otherwise) (2016, %)
25 29 29 29 29
Manufacturing 47%
29% Others
56%
Finance and
63% 60% 62% 4% United States Insurance 19% Transport
8% Hong Kong equipment
9% China accounts for 73% of
Wholesale Manufacturing FDI
and Retail 10%
8% 19% Japan
5% 3% 3%
5% 2%
3% 2%
10% 16% 9% 10% Real Estate 7%
32% Singapore
20% 16% 20% 20%
Others 17%
2012 2013 2014 2015 2016
Japan is the 2nd largest foreign investor in Manufacturing industry is driving foreign
Indonesia investment in Indonesia
Source: Indonesia Statistics Bureau, Indonesia Board of Investment, A.T. Kearney 104
Sectoral deep dive
Penetration of e-powertrain vehicles is expected to surge after

2020
Forecast of global portfolio of technologies for passenger vehicles
Proportion of
1% 18% 54% 82% 87% e-powertrains
200
FCEV
180
passenger LDVs, Mn
160
Annual sales of
BEV
140
120
100
PHEV
80
60
40 HEV
20
ICE
0
2000 2010 2020f 2030f 2040f 2050f Proportion of
99% 82% 46% 18% 13% ICE-only
powertrains
• Globally, ICE will likely still dominate the market until late 2020; however we expect a shift towards electric powered
vehicle (e-powertrain) due to technology advancement and a favorable political environment such as emission regulations
and purchase incentives
• HEV (Hybrid Electric Vehicle) and PHEV (Plug-in Hybrid Electric Vehicle) serve as a transition platform as it offers the
efficiency of electric vehicle and the convenience of internal combustion engine (e.g. network of fueling station infrastructure)
Source: IEA/ETP2012, A.T. Kearney 105
Sectoral deep dive
… and other new technologies are being commercialized soon
Connected car concept and example

Continental AR-HUD
Audi A7 performed Radar shows speed,
fully automated test sensors navigation and fuel
drives over 900 km level on windshield
in the USA
Google’s driverless GPS Lane

car has driven over 1 signals guidance
Mn miles on public Connected Vehicle-to-grid tech
streets cars charges car during
low demand and
sends power back
when demand peaks
Tesla enables
autonomous driving Audi A3 has built-in
for Model S 4G LTE wireless
IoT
data connection

Sectoral deep dive
Automotive sector in Indonesia is facing several challenges

along the value chain
Key challenges
Component Assembly
Raw Material Trading / Retailing
Manufacturing Manufacturing
Heavy reliance on • Local content rule Major productivity • High logistics cost,
imports of raw (60%) does not apply issues (24% of GDP) – vs.
materials for parts: to sub-components, • Rising labor cost India (13%), Thailand
1 • >90% auto steel & 3 leading to continued outpacing vehicle (15%), China (15%)
50% of plastic raw high foreign sales (21% vs. -1% • Long dwell time - 3.5
materials required are contribution upstream CAGR 2012-17) days in busiest port
imported (Tj Priok), and even
5 6 higher in remote
• Local steel industry's • Local manufacturers areas, vs. Singapore
leading player, largely in low-value (~1 day dwell time)
Krakatau Steel, facing add components • Traffic congestion at
productivity issues, • Japanese OEMs Tj Priok port,
2 with output flat in 4 largely purchase contributing to
past 5 years, while sub-components unnecessary extra
operating costs from Japanese Tier- logistics cost
have increased at 1 brands, limiting
14% CAGR local contribution
1. As projected by IHS Markit

Source: IHS Markit, Industry Association Interview, Desk Research, 107
Sectoral deep dive
Indonesia already has a plan to enhance Automotive sector

Latest Draft from MoI
Government roadmap for Automotive sector (incl. 2W) (December 2017)
2017
2017 2022
2022 2027
2027 2030
2030 2035
2035
Low Carbon Emission Vehicle (incl. LCGC)1
Biofuel- and gas-powered vehicles

Vehicle
products
Electric and fuel cell motorcycles2
Electric vehicles (EV) and their components
Downsize conventional machine tech. to achieve fuel consumption > 20km/liter
Biofuel- and gas-powered vehicle technology

Technology
development
Main components R&D for EV and Low Carbon Emission Vehicle (e.g. battery & motor)
EV technology (incl. hybrid, plug-in hybrid and EV) Fuel-cell tech.
Environment Euro-4 emission standard Euro-5/6 emission standard
1. Draft roadmap has a Low Carbon Emission Vehicles target production of 800K units by 2025 and 2 Mn units by 2035
2. Draft roadmap has an electric motorcycles target production of 2 Mn units by 2025 and 4.5 Mn units by 2035
Source: Ministry of Industry, A.T. Kearney 108
Sectoral deep dive
There are several regulations and trading agreements in place

– but some also benefit more competitive ASEAN members
Regulations and trade agreements
Corporate income • CIT reduction amounting to 30% investment • Encourages domestic and foreign direct
tax (CIT) reduction value, accelerated asset depreciation and investment (DDI and FDI)
expiry date extension up to 10 years for • Incentivize existing manufacturers to expand
companies that perform significant capital their capacity
investment
Import duty • Import duty exemption for machinery and raw • Encourage DDI and FDI
Govrnment material for companies that establish new
exemption • Improve access to advanced machinery
Regulation business or expand existing capacity by more acquisition
than 30%
Local content • Local content requirement raised to 90% by 2019 • Encourage the growth of local auto parts
requirement for OEMs to be eligible for incentives such as suppliers
LCGC luxury sales tax waiver • Spur technology transfer from foreign OEMs to
domestic auto parts manufacturers
Indo-Japan EPA2 • Car tariffs generally range 0-5%, but non-sedan • 16.88% car tariff might reduce Indonesia’s car
PVs of 1,500-3,000cc are imposed 16.88% export competitiveness
‘luxury’ tariff, aim to be eliminated by 2023 • Low vehicle parts and rubber tire tariffs might
• Vehicle parts tariffs range 0-1.36%; Flat-rolled discourage domestic growth in these sectors
steel and rubber tire tariffs are eliminated
Free Trade ASEAN FTA • No tariffs on car products, vehicle parts and raw • Encourages trade flow of automotive-related
Agreement materials between ASEAN partners products within the ASEAN region
ASEAN-China FTA • Tariffs on vehicle parts range 0-15% in 2017, • Indonesia is a major importer of vehicle parts and
aim to be capped at 5% in 2018 rubber tires from China
• Flat-rolled steel tariffs are eliminated, but rubber • Reduced tariffs on vehicle parts and rubber tires
tires are generally levied 15%, aim to be capped would improve price-competitiveness of
at 5% in 2018 assembled 4W vehicles
1. Tax Loss Carry Forward
2. Economic Partnership Agreement
Source: Relevant Government Regulations, A.T. Kearney 109
Sectoral deep dive
Indonesia’s auto industry should build regional auto export hub

by enhancing local ecosystem and preparing for EV era
Indonesia Automotive 4.0 To be finalized by the Automotive Task Force
Horizon 2 2025
Horizon 3 2030
Horizon 1 2021 10-15 10-15 years
5-10 5-10 years
3-5 3-5 years
• Set a clear phase out plan
• Set a clear phase out plan for for ICE cars while building
• Improve productivity in ICE fuel-based MC while building infrastructure and
vehicles by adopting required infrastructure and incentivizing EV adoption
technology incentivizing electric MC
• Enhance raw material adoption • Encourage continuous
production capabilities, i.e. improvement of EV
steel and chemical • Establish R&D centers for EV component production
Key components, esp. battery, and
• Strengthen local compo-nents perform rapid prototyping • Build domestic production
initiatives manufacturing capabilities capabilities for 4W EV along
‒ Accelerate component • Build domestic production value chain
production FDI capabilities for electric MC
along value chain
‒ Accelerate tech transfer from
foreign companies to local
companies
ICE Vehicles Electric Vehicles

Focus
products
Accelerate export, starting Start 2W electric MC export Start 4W EV export for

from MPV and LCGC for emerging countries emerging markets
Sectoral deep dive
Indonesia needs to leverage technology that is already

commercially available to improve automotive sector
Advanced technology capabilities along the value chain
Component Assembly
Raw Material Trading / Retailing
Manufacturing Manufacturing
Production improvement Manufacturing process Advanced factory Retail and aftermarket
optimization automation innovation
• Optimize plant utilization • IBM Watson IoT • Fanuc robots in • Audi has a
using AI and IoT to automate equips equipment GM factory are digital
machineries (turbines, with IoT sensors connected through showroom in
compressors, etc.), diagnose to sense and self- cloud network London that
and predict potential break- diagnose issues to prevent pro- and can detect potential allows potential buyers to digitally
down of equipment duction delays and reduce breakdown, thus enabling create a car from several hundred
• Energy cost management downtime prompt maintenance million potential configurations
using IoT to closely monitor • Ford is testing • BMW workers • German supplier ZF
materials’ temperature, pH, 3D printing of wear exo- Friedrichshafen sees new
etc. large-scale car skeletons to vehicle technologies
• Safety risk management parts to improve increasing safety across its
using advanced robotics for produce lighter-weight parts posture and business, using predictive
hard-to-reach and hazardous and allow customization at cost- prevent injury in carrying out analytics to perform timely
areas effective level assembly tasks maintenance
Logistics
Productivity improvement
• In response to a product line expansion, along with increasing demands for higher quality and shorter cycle times, Škoda
Auto deployed Tecnomatix, a digital manufacturing solution from Siemens. It provides a unified platform for manufacturing
and logistics; allowing employees to quickly track logistics production time, optimize palletization and slash man-
hours, leading to increased shop-floor productivity.
Source: Desk Research, Company’s websites, A.T. Kearney 111
Sectoral deep dive
Indonesia automotive industry should have a clear strategy to

win in global competition, especially against Thailand
Thailand’s strategy Indonesia’s strategy
4W production volume (K units, 2016)
Sedan/
675 230
Hatchback 1
Pickup 919 0
• Work with
major OEMs
SUV 318 217
to expand the
MPV 6 534 market for
MPVs and
Van 14 148 Vans in Asia
Indonesia’s government policies

2
Incentives for CIT reduction and import duty exemption in Accelerate Electrical Vehicle Research – through
eco-cars and exchange for annual production commitment formulation of government incentives for the R&D and
EV by a certain year, usually 5th to 8th year production of EV and its components
3 Expedite Streamlining of Logistics Infrastructure

Logistics 2 main ports near the automotive factories for • Need to expedite the development of Patimban port (Only
infrastructure exports, i.e. Bangkok and Laem Chabang Port 1 port, i.e. Tanjung Priok port, and access to the port is
often heavily congested)
• NSTDA1 partnered up with J-SAE, largest
4 Grow ‘Up-to-Date’ Skilled Labour Base
Labor academy in Japan, for auto engineering
Create seamless integration between young graduates and
productivity courses
the automotive manufacturing players by offering vocational
& skill levels • VEC1 offers internship programs with leading
training courses and early internship programs
auto manufacturers for young technicians
1. NSTDA stands for National Science and Technology Development Agency; VEC refers to Vocational Education Commission in Thailand
Source: IHS Markit, Thailand Board of Investment, Thailand Automotive Institute, Desk Research, A.T. Kearney 112
Sectoral deep dive
Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
113
Sectoral deep dive
Indonesia needs to overcome the challenges in electronics

sector and change the face of the sector
Electronics in Indonesia – Today to 2030
Today 2030
Advanced R&D
Limited capabilities for
product focus products
development
capability
Lack of
skilled
manpower
Electronics
Low value
add activities
4.0
(e.g.
Assembly)
Value-driven net Highly skilled and
Heavy exporter in innovative
reliance on electronics for workforce for
imports of future growth advanced
components products component
manufacturing
Integrated manufacturing
champion in key focus products
Source: A.T. Kearney (e.g. EV, IoT components) 115
Sectoral deep dive
Indonesia’s electronics manufacturing sector, while growing, is

largely under-developed, relying significantly on imports
Electronics sector overview – GDP contribution, trade and multiplier effect
Output Multiplier
Manufacturing GDP (2016) Domestic Consumption (2016)
(Descending order)
Electronics Industrial
3.5
6% Machinery
Domestic
Output, net Electronics 3.1
of Exports
29% Paper &
2.6
Paper Industry
Jewelry &
Imports 2.5
Valuable Goods
71%
Others Metal Goods 2.5
94%
Multiplier effect covers the impact of an

Total mfg. GDP Total domestic consumption increase in final demand in one sector,
IDR 2,545 Tn IDR 1,485 Tn on resulting output from other sectors

Sectoral deep dive
Additionally, the sector has limited capability in manufacturing

highly complex parts
Domestic production capability Significant gap between
Domestic output vs. consumption, by product category domestic production
(USD Bn, 2016) capability and demand
Domestic Output Domestic Consumption Output - Consumption
-0.2 +1.1 0.0 +1.1 -0.3 +0.3 -0.4 -1.1 -3.8 -1.9
5.5 5.7
4.0 3.6
3.4 3.2 3.2
2.3 2.7
2.0 2.3 2.0 1.7
1.6 1.4 1.8 1.3 1.7
0.2 0.2
Electronic Batteries Wiring & Consu. Lighting Consu. Motors & Computers Comm. Others
components devices electronics equip. appliances elec. and parts dev.
distribution
Medical,
Resistor, Electric Electric Refrigerator Mobile
Lead acid Electric Television, Desktop, optical
capacitor light bulb, motor, , washing phones,
battery, dry wires, audio laptop and measure-
and PCB tubes and generator, machine, transmitter,
cell battery switches equipment accessories ment tools
assembly fixtures transformer ovens router
& others
Observations
Decreasing Domestic Production Capacity
Increasing Manufacturing Complexity
1. Domestic output = Gross revenue for the sector;
2. Domestic Consumption = Gross output – Exports + Imports
Source: A.T. Kearney, IHS Markit 117
Sectoral deep dive
Further, Indonesia’s electronics is highly dependent on foreign

players or JVs, with limited sizeable domestic players
Electronics player landscape Electronics Mfg. value chain
Components
Raw Materials1 Assembly Trade & Retail
Manufacturing
• Very minimal presence of foreign players in • Foreign players have • Restrictions on foreign
upstream industries and components assembly plants for entry in trade/retail –
Foreign manufacturing except basic materials (e.g. computer hardware, most enter ecommerce
players chemicals and basic metals) smartphones, etc. route (100% FDI allowed
>IDR 100Bn)
• Companies import sophisticated high end materials
and components
• Foreign players engage in • Limited presence of

JV - JV with local players foreign players due to FDI
foreign mainly for assembly restrictions. franchise
and agreements
domestic Partnership with PT.
players Sinar Global
Makmur Sejahtera
• Limited component manufacturing capabilities • Engaged in low tech • Fragmented small

Mainly supply low tech inputs – wires, plastic products (e.g. small home privately-run shops,
parts appliances, refrigerator, driving most of retail
Domestic washing machines) and
players some high-tech (e.g.
smartphone, TVs)
1. Basic metals, metals goods, plastics, chemicals

Source: A.T. Kearney, Press research 118
Sectoral deep dive
Indonesia already has a plan to advance its electronics

manufacturing sector Draft Roadmap – Not Final
(December 2017)
MoI’s Draft Roadmap for Electronics Sector
Timeline 2015 - 2019 2020 - 2024 2025- 2035
Smart home appliances and smartphones
Priority products Computers High speed computers
Tele communication & Transmission Satellites
Electronic components design Semiconductor for assembly Semiconductor foundry

Component industry
Consumer electronic components design and manufacturing
Smart apps for phones and other devices Smart apps - with mind control
Micro electronics comp. Bio – Nano – Cogno components (e.g. for smart medical devices)
Technology which Wireless and optical comm. High capacity wireless and optical comm.
needs to be developed
Integration of computing and telecommunication
Creative design Rapid prototyping Precision measurements

Cloud storage Real time content
Technology process ICT & digital based technology Nano technology

Supporting infrastructure University, Association, R & D Industry, Ministry, Supporting Industry, Ministry of Research and Development
Resource Minerals, Human Resources, Energy, Finances

Electric motorcycle & LCEV 150,000 400,000 750,000 1.2Mn
low emission vehicle
prod. target (p.a.) Electric Motorcycle 800,000 2,000,000 3,125,000 4.5Mn
EV development Electric and fuel Technology Development for main Hybrid, plug-in hybrid Fuel-cell
targets cell motorcycle components of electric vehicle tech. for EV technology
Source: Ministry of Industry 119
Sectoral deep dive

Not Exhaustive
Regulations
Regulations Outline Implications
Corporate • CIT reduction amounting to 30% investment

value, accelerated asset depreciation and • Incentivizes domestic and foreign
income tax
expiry date extension up to 10 years for investors to invest directly in
(CIT) companies that perform significant capital Indonesia across sectors
reduction investment
• Government Regulation Permenperin No. 17 • Lengthy compliance process (8-

Year 2012 requires electronic manufacturers to 10 weeks) increases overall
Standards apply the national industrial standard (SNI) operating costs but potential long-
Compliance design and testing for televisions, irons, term improvement in international
washing machines and air conditioners – standards adherence and
Government among other products expanded market access
regulations
Minimum • Government mandated 30% of local content
• Encourages establishment of
Local in 4G smartphones sold in domestic market
both smartphone production and
Content rule – This requirement can be achieved through a
R&D centers in Indonesia by
in 4G combination of hardware, software and
domestic and global players
smartphones investment methods
• Import duty exemption for machinery and • Improves access to advanced

Import duty raw material for companies that establish new machinery acquisition to expand
exemption business or expand existing capacity by domestic electronics manufacturing
more than 30% capacity

Source: Relevant MoF Regulations, A.T. Kearney 120
Sectoral deep dive

Trade agreements Not Exhaustive
Agreements Outline Implications

• Tariffs for all electronic and electrical
components are waived, on trade to/from
Indo-Japan • Indonesia’s share in Japan’s wire
Japan
EPA2 imports increased from 7% to
– Specifically beneficial for categories, where
(2007) 10% over 10 years (2007-2016)
competing exporters face tariffs (e.g. wires
and cables (4.8%))
• Domestic components
manufacturing facing cost
Trade ASEAN FTA • Tariffs on electronic / electrical components
agreements pressure to compete with zero-
(1992) and products are eliminated
tariff electronic components’
imports
• FTA contributed to an influx of

ASEAN- • Tariffs on most electronics are eliminated low-priced consumer appliances
China FTA • Tariffs of 0-15% exist on audio equipment, to from China, with domestic
(2002) be reduced to 5% by 2018 manufacturing suffering heavily,
due to lower competitiveness

Sectoral deep dive
But government is already leveraging fast-growing digital base

to drive investments in smartphone mfg. with local content laws
Smartphone adoption and regulation + Positive development
- Negative development
Smartphone Adoption Government Regulation 2015
Regulation for 30% local
Subscribers by type of connection content requirement in
(Mn) CAGR smartphones announced
337
324 $50Mn investment
306 67
30% + in assembly
(Samsung, Oppo)
(20%) -18% Local Content
104 OnePlus pulls out of
(32%)
in 4G - Indonesia market, Xiaomi
Non Data 152
Smartphones disables 4G in some phones
94 -7% from 2017
Subs (50%) (28%)
2016
Conditions updated to
include software content
and R&D investments
128
(39%) Meeting local content $44Mn investment in
+ R&D by Apple
requirements
3G 126 175 58% $50Mn Investments
Subscribers (41%) 1• Hardware scheme (e.g. +
(52%) in assembly
manufacturing)
92 2017
4G (29%) 2• Software scheme (e.g. app. Xiaomi announces a
Subscribers 28 development) “We are made in
+ Indonesia” smartphone,
(9%) 3• Investment scheme (e.g. R&D from its Batam
2016 2018 2020 centers)
production facility with
local partners (Erajaya,
Sat Nusapersaada,
1. Top players by volume share in 2017 TSM)
Source: A.T. Kearney, Euromonitor, Press research 122
Sectoral deep dive
While global brands are shifting manufacturing from China to

ASEAN, Indonesia has not been gaining FDI proportionately
ASEAN competitiveness – electronics
% Total FDI of GDP Foreign investments Structural Advantages
(%, 2014-16) across value chain
Input
R&D, Components Labor Labor Infra-
Assembly avail-
Semicon. Mfg. Mfg. Cost Skills structure
ability
24.0%
-3.3%
20.7%
4.9%
1.3%
6.2%
3.1%
1.4%
4.6%
2.0%
0.6% Kinpo
2.6%
1.2%
-0.8%
0.4%
2.8%
-2.4%
0.4%
2014 2016 Most of these players already have investments
in China, now diversifying in ASEAN
Source: A.T. Kearney, World Bank, Press Research 123
Sectoral deep dive
Electronics manufacturing sector in Indonesia is facing several

challenges along the value chain Not Exhaustive
Key challenges along the value chain Electronics Mfg. value chain
Components
Raw Materials1 Assembly Trade & Retail
Manufacturing
Limited advanced manufacturing capability – largely

2 focusing on assembling imported components or
manufacturing low-tech products (e.g. wires and cables)
• No high-tech material
capability locally (e.g. Fragmented inefficient
Si, Advanced ceramics, downstream Sector –
Limited product design capability – due to low number Electronics sales largely
etc.) of skilled engineers (542 per mn population in Indonesia
1 3 vs >1,000 in Vietnam) and limited investments in R&D 5 driven by small privately-
• Even basic materials run shops, resulting in
are still import capability limited scale and
dependent (e.g. distribution inefficiency
petrochemicals, metals)
High Labor Costs – wages rising faster & higher than
4 some ASEAN countries; e.g. average daily cost of factory
labor is $9 in Indonesia, vs. $7 in Vietnam
Logistics and Utility
High logistics cost – Underdeveloped logistics High utilities costs – High natural gas prices, compared
6 infrastructure, stemming from archipelago geography, 7 to other ASEAN countries e.g. Indonesia: $6~10/MMBtu
increasing logistics costs for electronics players vs other ASEAN: $3~6/MMBtu
Source: Press search, A.T. Kearney 124

Sectoral deep dive
Indonesia’s electronics sector needs to transform from low-tech

assembly to high-tech high-value component manufacturing
Path to Indonesia Electronics 4.0 To be finalized by the Electronics Task Force
Horizon 3 By 2030
Horizon 2 By 2025 10-15 years
10-15
Horizon 1 By 2021 5-10 5-10 years

Establish pure local
3-5 3-5 years Enhance large scale advanced component
manufacturing capabilities manufacturing capabilities
Aggressively invite foreign in focus areas (e.g.
investment and accelerate while cultivating local
automotive components, IoT
skill transfer to Indonesian electronics manufacturing
Key components etc.) and
initiatives engineers software capabilities by leaders (2-3 $10Bn players)
leveraging foreign
technologies and investment
Smart Smartphone Comp. Smartphone
phone (Screen, Charger) Components (Camera) Semiconductor
products
manufacturing
Focus
IR 4.0 (Foundry)
IoT Manufacturing
prod.
Batteries for Electric Batteries for industrial
EV
Vehicles usage, homes
Reduce import ratio for Regionally competitive (top Grow 2-3 mega billion
electronic components by 3 in ASEAN) in key focus national players in the
20% products e.g. IoT, EV sector
Sectoral deep dive
Indonesia needs to leverage already commercially available 4IR

tech to improve electronics manufacturing capability
Advanced technology capabilities along the value chain Electronics Mfg. value chain
R&D / Design Components Manufacturing and Assembly Trade / Retail
Siemens built a smart connected factory to Airflash is

manufacture PLCs, where over 75% of the value chain developing
runs without human intervention; products and smart stores connected with
machines communicate via barcode and real time IOT sensors providing analytics
production data is accessible across value chain on customer engagement
Additive printing of Multiple

Rethink Walmart uses
multilayer PCB, companies
Robotics, predictive
reducing design & (e.g. Kuka,
produced a analytics and AI
test cycle times Fanuc, etc.)
cobot Sawyer, solutions to predict demand
Simulation to for machine have developed advanced for better inventory
integrate product dev. tending, circuit board testing, robots for intricate management
& production for rapid other precise, repetitive tasks electronics assembly
prototyping
Logistics
ORBCOMM provides industrial IoT solutions Augmented reality & drones supporting
to remotely track, monitor, and control warehouse mgmt. - with big data analytics
transportation fleet for streamlined processing / category

Sectoral deep dive
Indonesia's electronics industry should build a clear strategy to

win regional competition for key focus products
Masterplan for Success in the Electronics Industry
Attract foreign investment and build Create domestic champions
Import- • Attract investment in priority Export- • Build competitiveness of local

substitution sectors (i.e. smartphones, EV oriented products and promote venturing
investment components) investment abroad through trade
• Promote production of consumer agreements with top demand
promotion promotion markets
products for domestic market
• Enact policies such as tax reform, Support • Incentivize domestic players to

National education, infrastructure etc. to invest in R&D and advanced mfg
growth of
development increase Indonesia’s capabilities in key focus areas
domestic
policies attractiveness as a FDI destination • Develop clusters to foster
of choice
champions
innovation
• Develop strong IP rights • Look to transfer know-how and
IP rights and legislation to protect foreign not purely assembly processes
Incentivize
legal investors’ investments and build • Tax incentives or other policy
tech transfer
safeguards trust base for future tech transfer levers may be considered
Top global players / tier 1 suppliers should be

targeted across priority product segments Indonesian National Electronics Brand
Source: Thailand BOI, A.T. Kearney 127

Sectoral deep dive
Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
128
Sectoral deep dive
Indonesia needs to overcome the challenges in chemical sector

and change the face of the sector
Chemical in Indonesia – Today to 2030
Today 2030
Enhanced basic
chemical production
Inefficient plants with predictive
maintenance & yield
mgmt.
Low technology
adoption
Chemicals
Lacks R&D
capabilities
4.0
Highly reliable Advanced
Basic chemical processing of
supply chain logistics via biomass to
advanced biochemicals
inventory
monitoring in-
transit Refined bio-plastics
Source: A.T. Kearney technology hub 130
Sectoral deep dive
Indonesia’s chemical industry is still in basic chemical import

stage, but needs to shift to become non-import dependent soon
Chemical industry development stages
Emerging Economy Growing Economy Developed Economy

(Importer) (Neutral / Exporter) (Exporter)
Industry • Highly dependent on • Starting to satisfy • Facing oversupply for

Stage basic chemical domestic basic basic chemicals
imports chemical demand by • Starting to consolidate
• Starting to build domestic production, and industry players
domestic capacity for export to other countries • Highly focused on
basic chemical, but • Gradually adopting specialty chemicals and
suffering from excess specialty chemical exports
demand domestically technologies
Product Specialty chemicals

Demands Basic chemicals
ASEAN
countries
’ stages

Sectoral deep dive
Indonesia’s chemical sector is largely dependent on

petrochemical…
Indonesia’s chemical industry sales & consumption breakdown by product
Sales1 (2016; US$ Bn) Consumption (2016; US$ Bn)
Petrochemical basis Others Petrochemical basis
Others $32.2Bn (72%) $39.3Bn (77%)
$2.1Bn (4%)
$2.9Bn (6%) Soap & cosmetics
Soap & cosmetics $3.9Bn (8%)
$4.9Bn (11%) Agrochemical
$0.9Bn (2%)
Agrochemical
Fertilizers
$0.8Bn (2%)
$5.0Bn
(10%)
Fertilizers
$4.0Bn (9%)
Synthetic resins
Basic chemicals $6.2Bn (12%) Basic chemicals
Synthetic resins $29.7Bn (66%) $32.8Bn (64%)
$2.1Bn (5%)
Synthetic fibers
$0.3Bn (1%)
Synthetic fibers
$0.4Bn (1%)
Total Chemical Sales: US$44.8Bn Total Chemical Consumption: US$51.2Bn
1. Sales from local production

Sectoral deep dive
…which is facing serious supply shortage issues in most basic

chemicals
Indonesia’s basic chemicals domestic supply status e
(2015; in K tons)
a b c d
bb + c - dd B ÷ aa
b dd ÷ e
Capacity Production Import Export Domestic Utilization Import

Demand Ratio
>90% >30%
1,540
Ethylene 860 850 710 99% 46%
20
Low Density 530 470 470 910 90% 51%
30
High Density 450 400 360 740 90% 49%
30
Styrene Monomer 340 320 270 95% 4%

10 60
Ethylene Glycol 480 640 92% 74%

220 200 30
PVC 860 730 700 85% 11%

80 110
1,090 700 1,130
Propylene 430 0 64% 38%
1,160 830 600
Polypropylene 20 0 71% 42%
Benzene 580 550 730 94% 25%

180 0
Source: METI Japan, A.T. Kearney 133

Sectoral deep dive
Indonesia’s current main import partners for chemicals are

China, Singapore, Thailand, Japan & Korea
Indonesia’s chemical industry import partners
(2016; US$ Bn)
Import value #1 partner country #2 partner country #3 partner country
(US$ Bn) (US$ Bn) (US$ Bn) (US$ Bn)
Basic chemicals 6.9 CHN 1.8 SGP 0.7 MYS 0.6
Synthetic resins 5.4 SGP 0.9 THA 0.7 KOR 0.7
Other specialty
2.3 CHN 0.4 SGP 0.4 JPN 0.3
chemicals
Fertilizers 1.6 CHN 0.5 CAN 0.3 RUS 0.2
Synthetic fibers 1.1 CHN 0.4 KOR 0.2 THA 0.1
Soap, cleaning, & 0.7

cosmetics
THA 0.2 FRA 0.1 CHN 0.1
Paints & varnishes 0.6 JPN 0.1 CHN 0.1 SGP 0.1
Pesticides, agro- 0.4

chemicals
CHN 0.2 USA 0.0 SGP 0.0
Source: A.T. Kearney, Ministry of Industry 134

Sectoral deep dive
Indonesia’s basic chemical industry is more concentrated, while

the specialty chemical industry is more fragmented
Indonesia’s chemical industry key players
Basic Chemicals Specialty Chemicals
• Concentrated market with several big players • Fragmented market with many large-to-medium
producing >90% of domestic basic petrochemicals: corporations focusing on specific specialty chemicals
– Olefins (ethylene, propylene, butadiene etc.) & such as:
aromatics (benzene, toluene, etc.) – Fertilizers
Domestic – Gases
Players – Cosmetics
– Paint & colouring
– Methane (methanol & ammonia) – Soaps
• Several foreign players focusing on basic • Numerous foreign company producing intermediary
derivative chemicals such as: chemicals & specialty chemicals and competing with
– Low density & high density the domestic players
– PET & PTA
Foreign – Acrylic & Terepthalic Acid
Players – Chloride Derivatives
– PVC
Source: A.T. Kearney, Ministry of Industry, related company presentations 135

Sectoral deep dive
Indonesia’s chemical industry is facing several issues along its

value chain beyond the basic chemical capacity shortage issue
Indonesia’s chemical industry key challenges Chemical Mfg. value chain
Raw materials Basic chemicals Specialty chemicals Trade / Retailing
1 2 3 4
Dependence on material Lack of basic chemical Fragmented industry High logistic costs e.g.
imports e.g. >90% processing plant e.g. structure e.g. no local cost of shipping goods
Naphtha consumed is ethylene, propylene, company with revenue > from/to other islands
imported butadiene, benzene, etc. US$1Bn outside Java
5 6 7 8
Relatively high domestic Suboptimal plant location Low technology adoption Tariff mechanism hurting
gas price e.g. Indonesia: i.e. resources located in i.e. too many unskilled domestic producer’s
$6~10/mmbtu vs other East Indonesia, but most labors and lack of training competitiveness i.e. tariff
ASEAN: $3~6/mmbtu plants located in West provided on basic chemical > tariff
rate on finished goods
End-to-end visibility
9
Lack of end-to-end supply chain visibility i.e. no integrated industry roadmap covering supply / demand planning.
Coordination between various stakeholders need to be improved. Stakeholders involved including:
• Ministry of Energy & Mineral Resources & SKK Migas  O&G / naphtha
• Ministry of Industry  basic & specialty chemicals
• Ministry of Trade  Export & import under MoT
• Bappenas  Overall national planning
Source: A.T. Kearney, Ministry of Industry, BPS 136

Sectoral deep dive
Indonesia is well positioned for biochemical (biofuel & bioplastic)

production due to its natural resource advantage
Biofuel opportunity for Indonesia Potential future biofuel /
bioplastic demand increase
Access to raw materials Significant potential demand

Agriculture production (2014) Biofuel Bioplastic
(Unit in mn. tonnes)
Global energy consumption (2014) Global plastic consumption (2015)
China 4,632 (Unit in EJ) (Unit in mn. tonnes)
USA 2,222
Biofuel Bioplastic
India 2,075 1%
Brazil 1,504
14%
Indonesia 652
Russia 535
Nigeria 407
Argentina 365 Others
86% Others
Ukraine 359
99%
France 357
• In 2014, Indonesia is ranked #5 • In 2014, only ~14% (50 EJ) of • In 2015, only ~1% (4 mn. tons) of
in terms of total agriculture global energy consumption (360 total plastic demand (269 mn. tons)
production volume EJ) is coming from biofuel is coming from bioplastic
• Agricultural commodities are the • In 2014, Brazil led biofuel • While Europe led R&D for bioplastic
main raw materials used to penetration (~41)%, while global development, Asia contributes the
produce biofuel (i.e. ethanol & biofuel penetration avg. was still most to global bioplastic production
biodiesel) & bioplastic ~19% (~43%) in 2016
Source: A.T. Kearney, European Bioplastics, Plastics Europe, World Bioplastic Association 137
Sectoral deep dive
Gov’t has already planned to enhance chemical industry by

focusing on domestic production of basic petrochemicals
Roadmap of Petrochemical Industry Development Developed in 2010
(2010-2025)
2010 2014 2025
Plant utilization rate 81% >85%
Usage of domestic raw materials <20% >20%

Ethylene 600 750 1,600
Propylene 865 1,270 1,334
Toluene 100 170
Production Benzene N/A 440
Capacity
(in K tons/year) Paraxylene N/A 796 1,250
Orthoxylene N/A 120
Ammonia 6,400 6,800 7,500
Methanol N/A 990 1,500
Integration of O&G industry with
petrochemical industry (upstream,
Industry Integration N/A
intermediary & downstream) via more efficient
and effective distribution & infrastructure
Source: A.T. Kearney, Ministry of Industry 138

Sectoral deep dive
There are several regulation and trade agreement in place

which has implications on chemical industry
Regulation & trade agreement related to chemical industry Not Exhaustive
Corporate income • CIT reduction amounted to 30% investment value,
• Incentivize domestic and foreign investors to
tax (CIT) reduction accelerated asset depreciation and TLCF1 expiry
perform direct investment direct investment in
- Gov’t Reg. date extension up to 10 yrs for players that
Indonesia
18/2015 perform significant investment
Government Import duty • Import duty exemption for machinery and raw
• Improve access to advanced machinery acquisition
regulation exemption - MoF material for companies that establish new business
to expand domestic chemical production capacity
176/PMK.011 /2009 or expand existing capacity by >30%
Utilization of • Biodiesel & bioethanol needs to be used as mixing

• Increase in domestic demand for biofuel to be used
Biofuel – MoEMR agent for domestic fuel (minimum level of biofuel %
as mixing agent to satisfy government requirement
12/2015 set for the year 2015, 2016, 2020 & 2025
• Indonesia significantly imports basic chemical (e.g.

petrochemical) and specialty chemicals (e.g. soap)
• Tariffs on basic chemicals and specialty chemicals from Singapore & Thailand
ASEAN FTA are eliminated • Domestic manufacturers need to have lower / similar
cost structure to other ASEAN peers if they want to
compete
Free Trade
Agree-ments • Basic petrochemical tariffs are generally eliminated,
except for select few products e.g. propylene, • China became Indonesia’s #1 import partner for basic
ASEAN-China FTA butadiene (5%), polycarboxylic acids (0-5%) chemical, fertilizer, pesticides and synthetic fibers
• Specialty chemical tariffs range from 0-5%
• Tariffs on basic chemicals and specialty chemicals • Japan became Indonesia’s main import partner for
Indo-Japan EPA2 are eliminated paint & varnishes and other specialty chemicals

Sectoral deep dive
Indonesia should transform its chemical sector from import

dependent to bio specialty chemical production hub
Path to Indonesia’s chemical 4.0 To be finalized by the Chemical Task Force
Horizon 3 By 2030
Horizon 1
Horizon 2 By 2025
By 2021 10-15 10-15 years
5-10 5-10 years
3-5 3-5 years
Boost production of Establish a position as a leading
Key Reduce reliance on basic intermediary chemical bio specialty chemical hub
initiatives chemical imports products
• Enhance naptha refining & • Strengthen the production of • Optimize biochemical
basic chemical (i.e. olefins & intermediary products (e.g. output to meet domestic
aromatics) production synthetic fiber & resin) used as demand & export demand
Key capacity, which will feed raw material in other industries
activities • Consolidate specialty
downstream industry • Improve capability to convert chemical industry to
• Increase plant efficiency biomass into basic compete with multinational big
using 4IR technology biochemical players
Ethylene Synthetic resin Bioplastic

Focus
Propylene Synthetic fiber Biofuel
products
Butadiene Synthetic rubber Biocomposite
Reduce import rate of basic Increase synthetic resin & fiber Become global top 5 biofuel &
chemical (<30%) sales contribution by >1.5x1 bioplastic producer
1. From total contribution of synthetic resin & fiber to total chemical sales of ~5% in 2016
Sectoral deep dive
Indonesia’s chemical industry should introduce advanced

technologies for process improvement
Chemical industry technology adoption
Asset Management Resources Management Labor Management

Plants utilization optimization Energy cost management Safety risk management
• IoT  Feed data • IoT  Monitor • Advanced robotics 
collected from flows, PH, Enable labor to inspect
critical equipment temperature, hazardous plants location /
(turbines, pressure level, equipment e.g. power lines,
compressors, viscosity, etc. chemical tanks, pipelines
extruders, etc.)
Employee training
• AI  Predict and diagnose potential • AI  Perform data mining & modelling to
breakdowns and based on that, create develop dynamic target values for plant’s • VR wearables 
maintenance schedule and parts energy consumption and create the most Train staffs virtually to
procurement plan to minimize efficient energy management strategy to handle various on site
maintenance spends & maximize outputs minimize cost situations
Supply chain management

Demand forecasting Product development Product delivery visibility
• AI  Create forecasting • 3D Printing  • IoT  Monitor chemical
model by considering Allow companies to condition during delivery
factors e.g. seasonal digitally custom process &generate alerts
effects, macro data at design a reactor when chemical conditions
domestic/regional level, which can control / become suboptimal
regulatory changes & cater to specific • AI  Perform automatic troubleshooting
company strategy chemical reaction process during delivery
Source: IBM, Libelium, Deloitte, A.T. Kearney 141

Sectoral deep dive
Bioplastics and biofuels have many potential applications,

replacing plastic and fossil fuels
Potential Biochemical Applications Biofuels Bioplastics
Carbon-neutral Carbon-neutral
fuel power generation
Biodegradable
Biodegradable,
plastics in
agriculture /
Biochemicals disposable food
containers
horticulture
Biocompatible
Biodegradable /
materials for use
sustainable
in implantable
packaging
medical devices
Source: Desk research, A.T. Kearney 142

Agenda

• Baselining

• Key Challenges
Economic Impact
143
Economic impact
IR4.0 can help Indonesia to increase its GDP by ~IDR 8,800 Tn

and labors by ~10 Mn compared to BAU case by 2030
Economic Impact Estimation – Accelerated Case vs. BAU Preliminary
Non Manufacturing
Manufacturing
2021 2025 2030
8,815
GDP impact 5,047 3,376
(Nominal1, 1,294 1,882
5,439
IDR Tn) 840 454 3,165
Net Export 2,428

(IDR Tn) 1,358
334
% of GDP
2.1% 4.8% 5.5%

9.7
Labor 8.7
impact
(Million 6.9 8.3
2.5
workers) 0.6
1.9 1.8 1.4
1. Nominal basis (no GDP deflator adjustment)
Source: A.T. Kearney, BPS, Ministry of Industry 144
Economic impact
Indonesia can increase its net exports 4~7x and GDP by

16~32% by 2030
Preliminary
Macroeconomic Estimation – BAU vs. Accelerated vs. Aspiration
Mfg. net export estimation GDP estimation
Non-Manufacturing
(2030, IDR Tn) (2030, IDR Tn)
Manufacturing
3.9x 6.9x 16% 32%

5,716 70,736
62,245
53,429
3,256 51,540
48,098
44,722
828
14,147 19,196
8,707
BAU Accelerated Aspiration BAU Accelerated Aspiration
Case Case Case Case
Indonesia’s Manufac-
net export 1.5% 5.5% 8.5% turing 16.3% 22.7% 27.1%
ratio Cont.
(% of GDP) (% of GDP)
1. [Insert your text]

Economic impact
Manufacturing sector’s GDP contribution can increase by 5~6

percentage point…
Preliminary
Indonesia GDP Sector Contribution Forecast
(%)
Business As Usual Accelerated Case
Change CAGR1 Change CAGR1
Total (IDR Tn) = 12.0 (‘15--30) (‘15-30) Total (IDR Tn) = 12.0 (‘15--30) (‘15-30)
20.0 30.2 53.4 21.3 35.3 62.2
Mining & 21.5 20.1 17.7 -5 pp 9.3% Mining & 21.0 19.5 17.6 -5 pp
Agriculture 22.7 Agriculture 22.7 10.5%
16.3 -5 pp 9.2%
Manufacturing 19.6 18.2 Manufacturing 22.7 +1 pp 13.0%
21.3 21.3 22.3 24.6
+10 pp 12.6%
66.0 +4pp 13.0%
Services 58.9 61.7 Services 56.7 59.7
56.0 56.0 55.9
2016 2021E 2025 2030E 2016 2021E 2025E 2030E
1. Nominal basis (no GDP deflator adjustment) 146

Source: World Bank; UN Data; Economist Intelligence Unit; Indonesia’s Central Bureau of Statistic; A.T. Kearney
Economic impact
…while inducing more labor demands not only in priority

sectors, but also non-priority sectors due to multiplier effect
Indonesia Labor Force Estimation Due to direct effect + multiplier effect Preliminary
Due to multiplier effect only
(Million workers)
2021 2025 2030
2016
BAU Accelerated BAU Accelerated BAU Accelerated
Priority
sectors1
9.8 10.3 10.6 10.4 11.2 10.8 11.1
Other mfg
sectors 6.6 6.5 6.9 6.0 7.0 5.6 6.7
Mfg
sector 16.4 16.8 17.4 16.5 18.2 16.4 17.8
total
Non Mfg 102.9 109.5 111.5 115.3 122.2 127.7 136.1

sector total
Indonesia 119.3 126.3 128.9 131.8 140.4 144.1 153.9

Total
2.0% 6.6% 6.8%
1. Priority sectors include Food & Beverages, Chemicals, Textiles, Automotive & Electronics
Source: A.T. Kearney, BPS, Ministry of Industry 147
Agenda

• Baselining

• Key Challenges
Economic Impact
148
Implementation roadmap
There are potentially several overlapping roadmaps that need

to be aligned for governance of 4IR roadmap implementation
Industrial roadmaps/ policies in Indonesia Not Exhaustive
Key observations
• Most roadmaps are developed indepen-
Roadmaps/ dently – high risks of misalignment towards
policies: President
• Industrial
national aspirations (no function to oversee
roadmap and align)
• Creative economy • Existing instruments may need to be
National
Econ. Com. roadmap adjusted to cater Industry 4.0
Roadmaps/ policies: Roadmaps/ policies: Roadmaps/ policies:

• RIPIN 2015-2035 • Vision Indonesia • National research
• Vocational link & 2045 – Industrial plan 2015-2035
match program development
Ministry of • KIN 2015-2019 section Ministry of
• Sectoral roadmaps Ministry of
Industry National Plan. Rsch. & HE1
Roadmaps/ policies: Roadmaps/ policies: Roadmaps/ policies:

• Tax incentives • Vocational edu- • E-commerce
• Import duty cation roadmap roadmap
• Government • Cybersecurity
Ministry of guarantee Ministry of Ministry of roadmap
Finance Manpower Info. & Com. • IOT blueprint
Potential overlaps
1. Research & Higher Education President Ministry Committee Potential complementary regulations
In many countries, IR4.0 is the top priority agenda directly

managed by the president or the prime minister
IR 4.0 governance and committee – leading practices Example
Singapore Thailand Germany
Industrie 4.0
IR 4.0 strategy Thailand 4.0
Platform
PMO Prime Minister
• Leading Industry 4.0 • Coordinating Thailand BMWi / BMBF
blueprint 4.0 programs • Co-chairing Industrie
4.0 platform
Precharat S-Curve Society Working Steering &

Industrial
group Policy
EDB A*Star • Regional • IR 4.0 cross • Human
development • Cross functional working groups and
• Business & economy • Science & Technology provincial functional committee
approach lead committee committee committee
• Prime Minister Office (PMO) taking the • Thailand 4.0 programs are coordinated • Industrie 4.0 platform is co-chaired by
lead on Industry 4.0 blueprint – directly under Prime Minister through Ministry for Economic Affairs and
developed by strategic foresight unit multiple committees (Thai 4.0 – Precharat Energy (BMWi) and Ministry of
• Other agencies to support for committee, Industry 4.0 S-Curve Education & Research (BMBF)
implementation of the blueprint committee) to ensure cross stakeholders • Multiple stakeholders (government
coordination agencies, select business players, trade
– Economic Development Board
(EDB) to align investment strategy, • Committees will consist of relevant unions, science) are closely coordinated
attractiveness of Singapore, industry government agencies plus business under several working groups
and trade perspective – coordinating players to develop key policies and reporting to Industrie 4.0 chairman
with other agencies programs – Reference architecture
• Technical ministries (Science and – Standardization
– A*Star to encourage collaboration on
Technologies, Commerce, Provincial – Research and innovation
supporting science, technology, and
government) execute plan and projects set – Security and networked systems
research
out by national committees – Legal and regulatory
– Labor and skills
Source: IR 4.0 policy benchmark, WEF ASEAN studies, Press research, A.T Kearney 150
Indonesia’s IR4.0 policy needs to be properly coordinated with

several stakeholders and policies
Indonesia’s IR4.0 policy implementation governance Proposed – not exhaustive
• National direction and vision – 5 pillars including industry

development
• Industrial committee can leverage existing organs in
presidential office or KEIN President
• Setting clear agenda on industrial vision, including Industry (4.0)
Industry 4.0 application to support Vision 2045 Committee New
• Committee members to include stakeholders (government
agencies, business players, technology providers, academia)
• Legal instruments can be through Inpres, Presidential decree or
• Alignment of existing regulations based on programs and
directions by committee
10 horizontal initiatives 5 vertical initiatives
1 2 3 4 5 6 7 8 9 10 A B C D E
Members
Government
MoI MoF MoManpower MoTrade MoInfocom National Planning MoResearch National R&D Agency
Industry1 Educational1
1. Illustrative. Not exhaustive and not representative of final stakeholder cohort.

Video
152
2018 will be a critical year for Indonesia’s IR4.0 implementation
Indonesia’s IR4.0 implementation roadmap

2019- 2022- 2026-
2018 1H 2018 2H
2021 2025 2030
Semi-annual reviews
Establish IR4.0 IR4.0 committee to
committees and endorse detail • Periodic review for initiatives
Overall taskforces horizontal initiative
– 10 horizontal design and 5 • Make cross-initiative decisions
– 5 verticals vertical roadmap
Design initiative
Appoint horizontal
details e.g.
Horizontal taskforce
program design, • Implement the initiatives
initiatives members and
incentive design,
define governance
masterplan, etc.
Detail the industry

Appoint vertical
roadmap and
Vertical taskforce
develop key • Implement the initiatives
initiatives members and
programs by
define governance
sector

Agenda

• Baselining

• Key Challenges
Economic Impact
154
Indonesia should take a matrix approach for its IR4.0 strategy
implementation
10 horizontal initiatives vs. 5 vertical initiatives
Priority Sectors Next Steps
A B C D E
Remaining 11
F&B Textile Automotive Electronics Chemicals sectors
1 Reform Material Flow
Redesign Industrial
2 Geographical footprint
Accommodate
3 Sustainability Plan
4 Empower SMEs
Build Digital
5 Infrastructure Nationwide
Attract Foreign
6 Investments
7 Upgrade Human Capital
Establish Innovation
8 Ecosystem
9 Incentivize Innovation
Reoptimize Industry
10 Regulations & Policies
IR4.0 Manufacturing Masterplan (including Priority Sectors selection) will need

to be reviewed & updated every 3 years to ensure continuous & relevant impact
Critical activities required prior to the implementation of 4IR
Roadmap to ensure successful execution across priority sectors
Pre-requisites1 Proposed
Pre-requisites Target2 Definition

• Define and map key stakeholders to be involved and determine their roles &
Identify key stakeholders Q1 ’18 responsibilities in this initiative
• Start socialization and ideation beyond MoI
• Develop MoU and or official agreement with key stakeholders to support this
Secure commitment from key initiative as foundation of their commitment towards the success of the
stakeholders via transparent legal / official Q1 ’18 implementation plan
agreement
• Push national agenda through right legal mechanism (Inpres/Perpres)
• Officially appoint task force to handle each strategic initiative, incl. each of
priority sectors.
Establish special task force Q1 ’18 • Task force at MoI level (working groups) and national level – set up governance
mechanism. MoI working group to focus on sectoral detailing, while national
level to focus on de-bottlenecking 10 strategic initiatives
• Detail the plan, incl. milestones and KPI to measure the success of
Detail out Priority Sectors’ Roadmap implementation. The roadmap has to be agile / flexible enough towards rapid
Q3 ’18 change of the industry
Kick off Implementation
• Launching Indonesia 4IR initiatives
Build public awareness about 4IR • Through various events and media, both in popular and scientific way e.g.
implementation; SMEs and industry Q3 ‘ 18 through radio advertisement, competition, association meeting, academic
players are priority conferences, key stakeholders’ symbolic actions / commitment
Quarte • Monitor implementation / conduct debottlenecking of implementation / risk

On going monitoring
1.
rly management
Critical activities, deliverables and outputs required prior to this initiative to enable commencement and / or successful execution / finalization of this initiative
2. Target to finish the task = deadline; indicative; final target to be decided by MoI and key stakeholders
There are 6 common pitfalls in implementing a roadmap,
especially at national level – mitigation plan is required
Potential pitfalls and mitigation Not exhaustive
Potential pitfalls Mitigation plan

• Identify and get buy in from right stakeholders to
Limited exposure at national level – trigger the agenda
competing with other national agenda • Identify the right legal mechanism to put at national
level
• Ensure strong governance and top-down approach
Failed to get commitment, resources to from President / ministers in charge for the program
move the initiatives • Ensure programs are accommodated in respective
agencies’ yearly programs
• Change
• Ensure clarity on governance, monitoring management
Flaws in coordination, both at interagency
mechanism, roles and responsibilities, timelines and program at all
and MoI internal level target levels,
including
• Ensure clarity of roles and responsibilities, linkages building
Lack of understanding of the linkages / between initiatives awareness
dependencies between initiatives
• 4IR committee at national level to align on programs and case for
change
• Ensure 4IR program is included in national RJM and
National dynamics, changes in political
RJP – strategic initiatives are embedded in PSN
priority and direction (national strategic programs)
• Strong communication plan, targeting all level –
focusing on benefits and “what’s in it for the
Resistance to change stakeholders”
• Show strong case for change

A charter with key teams, activities, milestones, risks and
mitigation, has been prepared for each sector
Initiative charter Conceptual
Horizon 1 Aspiration Leader 1 accountable for the overall Leader 2 accountable for the overall
Co-leads initiative results and outcomes initiative results and outcomes
• High level aspiration of the sector’s
Key Government Industry Academic
initiative
stakeholders Primary stakeholders responsible for driving the execution of the initiative
/ sponsors (support from other parties may be required, but will not be listed here)
Strategic Milestone Focus products

Milestone date – high level milestone to be Priority product Priority product Priority product
achieved during Horizon during Horizon during Horizon
1 1 1
Key sector initiatives - objectives
Initiative 1 • Objective of the initiative 1
Initiative 2 • Objective of the initiative 2
Initiative n • Objective of the initiative n
Key risks & mitigations

• Key risks: Potential key risks that may disrupt the execution and / or the ability to achieve the objective of the initiative
• Mitigation: Actions required to mitigate the identified risks

Table of Contents
■ Priority Sector Charters

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
159
A Indonesia’s path to Food & Beverage 4.0 needs to involve
revamping of upstream sector and enhancement of mfg. sector
Path to Indonesia Food & Beverage 4.0 To be discussed; preliminary
Charter & detailed
roadmap on ff. pages
Horizon 3 By 2030
Expand leadership to global
3-5 years Build ASEAN leadership in food & beverage
food & beverage manufacturing market by
Enhance end-to-end manufacturing sector by
capabilities with focus on utilizing 4IR tech for modern
utilizing 4IR tech especially
revamping upstream and advanced packaged
Key for simple to medium
initiatives agriculture/ animal processed food food
husbandry/ fishery sector
with the help of 4IR tech
Palm fruit Rice, paddy Chicken Sugar Rice Sugar Noodle Baby food Food
Focus supplement
products
Processed Canned fruits Bottled Packaged pre-prepared
Starch Cocoa & veggies RTD Tea Coffee
seafood Water meals
Halal- Become ASEAN F&B Become top 5 global F&B

Improve net export by 50%
certified powerhouse exporter
Horizon 1
A Food & beverage sector : Initiative Charter

Horizon 1 Aspiration Co-leads Ministry of Industry Ministry of Trade
• Enhance E2E capabilities with focus on re- Government Industry Academic1

vamping upstream agri/ animal husband- Key
dry/ fishery sector with the help of 4IR tech stakeholders Mo Agri; Mo Mari- • Associations, e.g. GAPKI, AGI,
time Aff. & Fisher- DEKAINDO, AGRI, GAMMI
• Improve NX of focus products by 50% / sponsors
ies; Mo Finance • Private, e.g.
cess. food
Basic pro-
Livestock
By 2021, reach additional 50% net export of
Agri
focus products (for palm oil at least 20%)
Rice, paddy Sugar Starch Cocoa Processed Chicken Canned fruits Palm
seafood & veggies oil

Establish Taskforce and Socialize • Establish sector taskforce, ensure clear roles of government, industry and academic in the
Agenda taskforce, raise awareness of Food & Beverage 4.0 agenda
• Detail out challenges across value chain (including geographical granularity), develop detailed
Map Challenges across Value Chain potential solutions, technologies and other enablers, coordinate resourcing, enhance tech-
related research and development in agri, ease regulatory restriction
Provide Assistance for Technology • Incentivize technology and R&D investments, provide assistance (especially for MSMEs) e.g.
Adoption subsidy, in-kind assistance to stimulate technology adoption
Nurture Indonesian Agropreneur2 of • Develop learning program tailored to modern agriculture practices, intensify skills develop-
the Future ment for farmers, enhance entrepreneurship for fresh and packaged F&B e-commerce
Strengthen and Expand Trade • Map key trade partners, revisit existing trade agreements, engage in dialogues to enhance
Relationships positioning, expand to emerging “non-traditional” markets e.g. African countries

• Reluctance to change, mainly due to being low-educated and pervasive negative provocation from community  at smallest farmer community,
ensure presence of respected and trusted proponent of Food & Beverage 4.0
1. Example; 2. MSME entrepreneurs in agriculture and F&B sectors
To be discussed Semi-annual review in IR4.0 overarching
Steering Committee
A By 2021, tech adoption & skills enhancement are critical to

revamp upstream agri sector & improve net export Masterplan
review every 3-4
Stages Setting the foundation Developing capabilities Selling to the market years
Key 2018 2019 2020 2021

Horizontal
initiatives initiatives
H1 H2 H1 H2 H1 H2 H1 H2
Design
Build taskforce & Reassess priority of
Establish
Taskforce
governance
masterplan; align
on timelines
Continuous sector evaluation on GDP contribution, trade and employment targets
sector vs. impact 1 3
and Socialize Confirm focus products,
Engage and win support from top industry players, Continuous evaluation on implementation at all size of
Agenda target stakeholders & IR4.0
impact in taskforce
leading MSME and farmer communities at regional level industry players 5
Detail value chain Engage with global leading Launch Leverage relationship with private institution & existing
Identify potential 4IR
Map
Challenges
challenges and key
stakeholders
technology solutions
technology provider for potential
resource support
selected
tech
R&D institutions (e.g. IOPRI for palm oil) for continuous
R&D in agri and food & beverage 2 6 8
across Value Detail regulatory Engage stakeholders on
Launch amended regulations or new regulations that support
Chain restrictions hindering
implementation
easing regulatory
restrictions
implementation 10
Develop business case for Launch
Provide incentive scheme for invest- incentive Stimulate tech and & innovation by promoting incentives
Assistance ments in tech and R&D scheme 9
for Tech Develop biz case for assistance Pilot program in
Evalua-
Proliferate assistance program to more MSMEs and farmer
Adoption package (monetary and/or tool)
for MSMEs and farmer comm.
select area for
each focus pdt.
te pilot
communities; ensure involvement of local government to support the
initiative
4
Develop training Engage with key stakeholders Pilot Evaluate and Implement the program, ensure high
Nurture prog. in modern
agriculture
and tech providers on
implementation support
prog
ram
enhance
program
participation rate and monitor skills
development
7
Indonesian
Agropreneur Engage e-com. players to Conceptualize program
Launch training program, select top-selling players to be
of the Future
facilitate fresh & packaged F&B
e-com. training for MSMEs
(ensure learning for
tapping global market)
showcased in trade fairs 4 7
Map key
Engage in dialogues with key exporters to Conduct trade fairs, initiate trade talks with key trade partners and
Strengthen trade
improve trade penetration and breadth emerging “non-traditional” markets e.g. African countries
and Expand partners
Trade Revisit existing
10
Relation- trade agreements Initiate trade talks to favor more Indonesia interests
ships in agri and F&B

Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
163
B Textile sector should regain global competitiveness by
enhancing upstream capabilities and focus on functional clothing
Path to Indonesia Textile / Apparel 4.0 To be discussed; preliminary
Charter & detailed
roadmap on ff. pages Horizon 2 2025 Horizon 3 2030
Horizon 1 2021 10-15 years
5-10 5-10 years 10-15
3-5 3-5 years

Building textile/apparel industrial Establish a position as a leading
Enhance synthetic fiber production clusters across the nation and functional clothing manufacturing
Key capabilities while rebuilding hub by cultivate ecosystem while
connect them through Industry 4.0
upstream (yarn/fabric) ecosystem for leveraging technologies
initiatives technologies
functional clothing
• Investing in synthetic fiber • Shift the focus in garment • Productivity improvement by
production, spinning and weaving manufacturing from CMT (cut, make enhancing R&D and training
facilities and trim) to FOB (free on board)
Key • Build up close and stable
• Work with existing leading fiber • Gradual shift from lower end relationships with big textile
activities companies to produce high end market to high quality consumption groups in the world
fiber • More efficient sourcing through • Promote global awareness as
vertical integration functional clothing mfg. hub
Synthetic fibers Technical multi-fabric

textiles Functional clothing
Focus Leather fabrics Smart footwear
High quality yarn
products
Specialty & industrial Apparel with embedded technology
fabrics
<30% raw materials import rate, Fulfill 100% domestic Top 5 global textile
regional source of synthetic consumption demand, export manufacturers, specialized in
fiber production growth of 15% per year functional clothing
To be discussed
Horizon 1
B Textile / apparel sector : Initiative Charter

Horizon 1 Aspiration Co-leads Ministry of Industry Ministry of Research & Tech
• Enhance synthetic fiber production Government Industry Academic

capabilities while rebuilding upstream Key
ecosystem for functional clothing stakeholders • Textile /Apparel and Chemical Textile specific
Ministry of Trade;
/ sponsors Ministry of Finance Associations institute /school,
• Large companies (private/MNC/SOE) leading univ.

By 2021, raw materials import rate down to Specialty &
below 30% and become the highest Synthetic High quality
industrial
synthetic fiber producer in ASEAN fibers yarn
fabrics

• Establish technology-advanced synthetic fiber production facilities to fulfill 70+% domestic needs
Invest in upstream production
and modernize the technology of 80% players in upstream chain by 2021
Leverage existing resources while • Work with existing leading fiber companies while attracting foreign investment to accelerate the
attracting FDI enhancement of national fiber production
• Establish efficient upstream-downstream value chain for better logistics/production cost and
Establish an integrated value-chain
industry alignment
Improve productivity while maintaining • Regain regional competitiveness to be the destination country for textile and functional clothing
labor costs manufacturing among global textile players
• Establish national innovation hub to focus efforts on accelerating R&D for next-gen focus products aim
Build a world-class Textile R&D center
to be regional leader in textile R&D (e.g. functional clothing, bio fiber, etc.)
• Key risks: Lack of consensus with regard to decision making during implementation, lack of support from external parties (e.g. foreign investors),
resistance to change from domestic stakeholders / industry players
• Mitigation: Maintain open and ongoing dialogue within Textile Taskforce members, provide proof of feasibility and benefits of investing in
Indonesia textile industry, conduct regular updates to impacted parties on changes and roll-out plan
Semi-annual review in IR4.0 overarching
Steering Committee
B By 2021, textile sector should lower its raw material imports rate to
<30% and aim to be the highest synthetic fiber producer in ASEAN
Stages Setting the foundation Engaging in dialogue Regional source of synthetic fiber production
Key 2018 2019 2020 2021

Horizontal
H1 H2 H1 H2 H1 H2 H1 H2
Decide with key Launch relevant Phased investment towards SMEs, large companies, relevant provinces and academy (e.g. through
Invest in stakeholders on regulations and/or “Upstream SMEs’ Empowerment Program”, “Digital Infrastructure for Upstream Industry Players”, etc.) 1 3
upstream the investment MoU to secure
Continues monitoring towards raw materials import rate; aim to achieve 18% reduction each year from 2018,
amount ($$) commitment of key
production and plan stakeholders
so can achieve <30% import rate by 2021
4 5
Build awareness among industry players regarding the GOI investment on upstream textile
Leverage Engage and incentivize existing chemical companies to support the synthetic fiber production
Identify
existing potential
Develop
resources companies to
be involved, communication
Initiate dialogue with target investors
(i.e. company and country) regarding 6
while kit to attract FDI Follow up and secure trade agreement with target investors
set target potential benefits of investing on
attracting FDI in fiber Indonesia textile sector
production
Develop Launch regulations to support Reach fully

Identify key Phased launch textile industrial zone
Establish an integration the integration plan integrated
provinces involved
roadmap and
integrated
value-chain
from raw materials
production to secure support
Engage and collaborate with regional government to ensure smooth implementation of the
plan
textile industry
value chain, 2 10
garment production from key continuous
Mobilize industry players to implement the roadmap by giving regular update on the benefit
stakeholders improvement
and potential growth
Improve Finish the pending review and Incentivize SMEs and large companies on machinery upgrade and innovation with aim to improve productivity
productivity launch regulations which support 7 8
productivity improvement Upskill workforce with subsidized training
while
maintaining Incentivize factory opening in low-
cost province
Continues international branding and promotions toward the GOI initiatives in improving productivity and proven
results / improvement
9 10
labor costs
Benchmark with leading Align on curriculum needs Host regional / global events in innovations related to textile raw materials and functional textile
Build a country/company in with industry stakeholders for
textile sector mfg. focus products Develop mid-career re-skilling programs & practical training programs, with corp. sponsors
world-class
Textile R&D 9
Develop plan w/ academy for national innovation Conduct roadshow for VC funding on Establish national textile innovation hub w/ industry &
center centers & identify key resource needs R&D / innovation center academic partners, covering IoT, AI, WD, etc.

Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
167
C Indonesia’s auto industry should build regional auto export
hub by enhancing local ecosystem and preparing for EV era
Indonesia Automotive 4.0 To be finalized by the Automotive Task Force
Charter & detailed
roadmap on ff. pages Horizon 2 2025
Horizon 3 2030
Horizon 1 2021 10-15 10-15 years
5-10 5-10 years
3-5 3-5 years
• Set a clear phase out plan
• Set a clear phase out plan for for ICE cars while building
• Improve productivity in ICE fuel-based MC while building infrastructure and
vehicles by adopting required infrastructure and incentivizing EV adoption
technology incentivizing electric MC
• Enhance raw material adoption • Encourage continuous
production capabilities, i.e. improvement of EV
steel and chemical • Establish R&D centers for EV component production
Key components, esp. battery, and
• Strengthen local components perform rapid prototyping • Build domestic production
initiatives manufacturing capabilities capabilities for 4W EV along
‒ Accelerate component • Build domestic production value chain
production FDI capabilities for electric MC
along value chain
‒ Accelerate tech transfer from
foreign companies to local
companies
ICE Vehicles Electric Vehicles

Focus
products
Accelerate export, starting Start 2W electric MC export Start 4W EV export for

from MPV and LCGC for emerging countries emerging markets
To be discussed
Horizon 1
C Automotive sector : Initiative Charter

Horizon 1 Aspiration Co-leads Ministry of Industry Ministry of Finance
• Improve productivity by adopting 4IR tech

Government Industry Academic
• Attract FDI for auto’s raw material and key Key
component production while ensuring stakeholders Ministry of Res. & • Associations, e.g. Gaikindo, AISI, • Vocational
knowledge transfer / sponsors Higher Education; GIAMM schools
BKPM • Private, e.g. • Universities
Strategic Milestone
Focus products
By 2021, fulfill >60% raw material needs by
domestic production and attract 10 global Auto Key EV Components
Components ICE Vehicles
auto key component manufacturers, (e.g. engine, brake, (esp. MPV, Van, LCGC) and Technology
prioritizing those with 4IR adoption plan (investment phase)
transmission system)

Create Taskforce & Reinforce the • Create and officially appoint a taskforce to develop detailed sector masterplan and
Roadmap announce the re-launching Indonesia’s Automotive 4.0 roadmap
Reinforce Domestic Sourcing of • Understand future domestic needs of auto raw materials, coordinate with existing producers
Raw Materials regarding domestic production capacity and attract more foreign players if necessary
Attract Foreign Key Component • Initiate dialogue with potential key component manufacturers to gauge their investment
Manufacturers appetite and understand their needs so as to design tailored and attractive incentives
Kickstart EV and Sustainability • Establish R&D centers and the required infrastructure for EV and Connected Car adoption
Programs • Design targeted incentives for companies that adopt 4IR tech and develop EV capability
• Upgrade vocational & university curriculum and introduce mandatory internship programs
Groom Local Automotive
Engineers • Partner up with auto players to offer talent mobility programs and work with foreign/
domestic automotive academies, e.g. J-SAE, to conduct seminars and courses

• Foreign key component manufacturers do not invest the most advanced technology in Indonesia  specify minimum investment
and set annual production commitment
Steering Committee
C Indonesia will improve productivity by upgrading labor skills,

encouraging 4IR adoption and attracting key component FDI
Masterplan
Stages Setting the foundation Build local strength Accelerate foreign players’ investment review every 3-4
years
Key 2018 2019 2020 2021 Horizontal
H1 H2 H1 H2 H1 H2 H1 H2
Create Appoint Design
Reassess priority of
Taskforce & taskforce; define masterplan; align Continuous sector evaluation on GDP contribution, trade and challenges
sector vs. impact
governance on timelines
Reinforce Confirm focus products, Identify key logistics/utilities/digital
10
the target stakeholders & IR4.0 Develop & build enhanced automotive industrial and economic zones
infra. for value chain
Roadmap impact in taskforce
Establish domestic RM consortium w/ 1:1

Reinforce Understand govt/industry funding to design productivity &
Launch scheme and set bonus-linked targets for 2023
Domestic Identify future RM (TBD), rewarding companies meeting prod & cap. KPIs
existing players’ capability improvement scheme
Sourcing of
needs in terms of
quantity & quality
total capacity and
For RM with low production capacity and high import ratio, discuss with local players about the possibility
1
RM capability
to partner up with foreign producers to expand capacity & capability
Prioritize specific Engage with foreign Socialize incentives to foreign producers With the revised incentives, open
Attract
Foreign Key
key components
to produce
producers to gauge appetite
& needs
and establish 1st window period for
investors to sign up
up the 2nd window period for
investors to sign up
6
Component Work with BKPM to design
Manufactu- Plot industrial zones for foreign producers;
tailored incentives based
rers on dialogue with foreign
Monitor and review the effectiveness of the
incentives, and improve the incentives
2
producers
Work with Ministry of Res. Invite companies and universities to
Kickstart EV Identify available public
& Higher Edu. to design Acquire advanced technology & carry out R&D related to EV
and R&D centers & determine
funds; Conduct roadshow
to secure additional funding
equipment; Build R&D centers components and Euro emission 3 8
Sustain- locations standard improvement
ability Design targeted incentives Work with Ministry of Transportation, Ministry of Energy, Ministry of Communication &
Programs for companies that intend to Informatics to develop EV and Connected Car infrastructure, e.g. ensuring sufficient electricity 5 9
adopt 4IR and develop EV grids, determining locations of charging stations and improving national broadband speed
Work with Ministry of Education to
Encourage auto companies to offer talent mobility programs and send their engineers for higher
Groom revamp vocational/university
education; Partner up with foreign auto academies to conduct seminars and conferences in Indonesia
Local curriculum
Automotive Joint partnership with auto
7
Starting from 2019, all incoming undergraduate and graduate students are required to have at least 6-month
Engineers players to introduce
internship experience to graduate
internship programs

Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
171
DIndonesia’s electronics sector needs to transform from low-
tech assembly to high-tech high-value component mfg.
Path to Indonesia Electronics 4.0 To be discussed; preliminary
Charter & detailed
Horizon 3 By 2030
Establish pure local
3-5 years Enhance large scale advanced component
manufacturing capabilities manufacturing capabilities
Aggressively invite foreign in focus areas (e.g.
investment and accelerate while cultivating local
automotive components, IoT
skill transfer to Indonesian electronics manufacturing
Key components etc.) and
initiatives engineers software capabilities by leaders (2-3 $10Bn players)
leveraging foreign
technologies and investment
Smart- Smartphone Comp. Smartphone
phone (Screen, Charger) Components (Camera) Semiconductor
products
manufacturing
Focus
IR 4.0 IoT Manufacturing (Foundry)

prod.
Batteries for Electric Batteries for industrial
EV Vehicles usage, homes
Reduce import ratio for Regionally competitive (top Grow 2-3 mega billion
electronic components by 3 in ASEAN) in key focus national players in the
20% products e.g. IoT, EV sector
Horizon 1
D Electronics / Electrical sector : Initiative Charter

Horizon 1 Aspiration Co-leads Ministry of Industry Ministry of Finance
• Invite foreign investment and accelerate Government Industry Academic

skill transfer to Indonesian engineers Key
• Reduce import ratio by 20% through stakeholders Ministry of Trade; • Associations, e.g. APPI, Gabel
domestic manufacturing scaling / sponsors Ministry of Res. & • Private, e.g.
Higher Education
By 2021, attract 2 global top 100 electronics Electric
/ electrical manufacturers to invest USD Smartphone IoT Vehicles
1bn each – with technology transfer to Components Components
(e.g. screen, charger) batteries
Indonesian engineers (investment phase)

• Appoint sector taskforce to develop detailed sector masterplan, coordinate needs-finding
Mobilize & Reinforce the Value-chain
and resourcing for re-launching Indonesia’s Electronics IR4.0 industrial / economic zone
• Initiate targeted dialogue with global top 100 electr. mfg on their wishlists in order to make
Engage with Key Foreign Investments
‘big-bet’ investments in Indo. (including sponsoring tech transfer programs to local partners)
• Develop economic incentives, leveraging discussions with domestic/foreign industry
Incentivize Tech Adoption
stakeholders (e.g. duty-free zone, talent mobility programs, financing)
Reoptimize Industry Regulations & • Improve “ease of doing business” through cross-ministerial effort to harmonize priority
Policies policies & regulations
• Upgrade engineering/tech vocational & university curriculum, with inputs from industry
Groom the Indonesian Engineer 4.0 • Establish national innovation hub to focus efforts on accelerating R&D for next-gen focus
products (e.g. electrical vehicle components, advanced IoT)

• Limited tech transfer, due to speed of manpower talent upgrade and/or IP protection concerns focus on specialized tech certification
• Multi-yr transformation required for logistics / utilities infra. resolution, beyond foreign investors’ window of opportunity  focus on expediting
key locations
Steering Committee
D By 2021, it is critical for MoI to re-launch its electronics

industrial zone, with ‘headline’ big-bet investments Masterplan
review every 3-4
Stages Setting the foundation Engaging in dialogue Launching Electronic/Electrical Zone 4.0 years
Key 2018 2019 2020 2021

Horizontal
H1 H2 H1 H2 H1 H2 H1 H2
Appoint Design
Reassess priority of
Mobilize &
taskforce; define
governance
masterplan; align
on timelines
Continuous sector evaluation on GDP contribution, trade and challenges
sector vs. impact 1 2
Reinforce the Identify key
Confirm focus products, Develop & build enhanced electronics
Value-chain target stakeholders & IR4.0 logistics/utilities/digital industrial/ economic zone (e.g. Indonesia’s
Phased launch electronic / electrical
3 5
industrial & economic zone
impact in taskforce infra. for value chain ‘Shenzhen’), with EV, components reqs.
Initiate dialogue with global top 100 players Court and secure ‘headline’ companies for future
for focus products, on needs, potential industrial / economic zone (e.g. in waves by focus Continued engagement with
Engage with incentives & challenges product category) foreign players in priority products
Key Foreign
Encourage Tier 1 suppliers of current key foreign
Secure & break ground for Tier 1 (e.g. advanced IoT, EV 6
Investors suppliers’ set-up in industrial / components)
electronics investors to build in Indonesia
economic zone
Design incentives (tax reform, subsidies, etc) Finalize & launch incentives for
based on discussions with top industry players industrial zone launch (e.g. duty-free
Incentivize for mfg investment (e.g. machinery, tech type, zone, talent mobility program) for
Tech
Adoption
training) for IR4.0 products smartphone IoT, EV, component 9
Identify & support existing mfg candidates for Support discussions between foreign players & domestic manufacturers for
migration to economic zone – in focus growth basic components and encourage use of domestically-produced content
products, including industrial EV batteries (e.g. via B2B platform/marketplace (physical & online), gov’t funding)
Reoptimize
Industry Establish cross- Review and harmonize industry regulations & policies across sectors (from raw Launch of harmonized policies -
Regulations ministry coordinating materials to trade/ retail) in semi-annual cross-ministry forums ; leverage input from with electronic sector implications 10
taskforce industry players on priority policy simplification (TBC)
& Policies
Align on curriculum needs Review & update vocational/ university engineering curriculum from industry & R&D inputs
with industry stakeholders for
Groom the mfg focus products Develop mid-career re-skilling programs & practical training programs, with corp. sponsors
Indonesian
Develop plan w/ academy for national
7 8
Engineer 4.0 Conduct roadshow for VC funding on Establish nat’l electronics innovation hub w/ industry &
innovation centres & identify key
R&D / innovation centre academic partners, covering IoT, EV, etc.
resource needs

Table of Contents

– Textile/Apparel
– Automotive
– Electronics
– Chemicals
175
E Indonesia should transform its chemical sector from import
dependent to bio specialty chemical production hub
Path to Indonesia’s chemical 4.0 To be discussed; preliminary
Charter & detailed
Horizon 2 2025 Horizon 3 2030
Horizon 1 2021 10-15 years
5-10 years 10-15
3-5
3-5 years 5-10
Establish a position as a leading

Boost production of intermediary bio specialty chemical hub
Key Reduce reliance on basic chemical products
initiatives chemical imports
• Enhance naptha refining & • Strengthen the production of • Optimize biochemical output
basic chemical (i.e. olefins & intermediary products (e.g. to meet domestic demand &
aromatics) production synthetic fiber & resin) used as export demand
Key capacity, which will feed raw material in other industries • Consolidate specialty
activities downstream industry • Improve capability to convert chemical industry to compete
• Increase plant efficiency using biomass into basic with multinational big players
4IR technology biochemical
Ethylene Synthetic resin Bioplastic

Focus
Propylene Synthetic fiber Biofuel
products
Butadiene Synthetic rubber Biocomposite
Reduce import rate of naphtha Increase synthetic resin & fiber Become global top 5 biofuel &
(<50%) & basic chem. (<30%) sales contribution by >1.5x1 bioplastic producer
1. From total contribution of synthetic resin & fiber to total chemical sales of ~5% in 2016
Horizon 1
E Chemicals sector : Initiative Charter

Ministry of Energy
Horizon 1 Aspiration Co-leads Ministry of Industry
& Mineral Resources
Increase domestic basic chemical Key • Associations, e.g. AKl
production capability to reduce reliance on stakeholders • Ministry of Res. &
basic chemical import Higher Education • Private, e.g.
/ sponsors
• Bappenas

By 2021, reduce naphtha & basic chemical
import ratio to <50% and <30%, Ethylene Propylene Butadiene
respectively

Create Taskforce & Reinforce • Create and officially appoint a taskforce to develop detailed sector masterplan and
the Roadmap announce the re-launching Indonesia’s Chemicals IR4.0 roadmap
Engage with Key Domestic • Initiate targeted dialogue with top 5 domestic basic chemical producers (Chandra
Players & Potential Foreign Asri, Pertamina, TPPI, etc.) & potential foreign investors to ensure their buy-in to
Investors the relaunched roadmap and identify their key needs
• Develop economic incentives, leveraging discussions with domestic/foreign
industry stakeholders (e.g. tax discount, tech/machinery subsidy, training program)
Reoptimize Industry • Improve “ease of doing business” through cross-ministerial effort to harmonize
Regulations & Policies priority policies & regulations

• Limited actual participation in the incentives program – Hold multiple dialogues with all key stakeholders during design
phase & develop clear socialization plan
• Delay in execution due to bureaucratic issue - Conduct semi-annual review in IR4.0 overarching Steering Committee to
ensure timely progress
Horizon 1
E Chemicals sector : Initiative Charter

Ministry of Energy
Horizon 1 Aspiration Co-leads Ministry of Industry
& Mineral Resources
Increase domestic basic chemical Key • Associations, e.g. AKl
production capability to reduce reliance on stakeholders • Ministry of Res. &
basic chemical import Higher Education • Private, e.g.
/ sponsors
• Bappenas

By 2021, reduce naphtha & basic chemical Synthetic
Propy- Buta- resin/fiber/ rubber;
import ratio to <50% and <30%, Ethylene
lene diene Bio-plastic
respectively (investment phase)

Create Taskforce & Reinforce • Create and officially appoint a taskforce to develop detailed sector masterplan and
the Roadmap announce the re-launching Indonesia’s Chemicals IR4.0 roadmap
Engage with Key Domestic • Initiate targeted dialogue with top 5 domestic basic chemical producers (Chandra
Players & Potential Foreign Asri, Pertamina, TPPI, etc.) & potential foreign investors to ensure their buy-in to
Investors the relaunched roadmap and identify their key needs
• Develop economic incentives, leveraging discussions with domestic/foreign
industry stakeholders (e.g. tax discount, tech/machinery subsidy, training program)
Reoptimize Industry • Improve “ease of doing business” through cross-ministerial effort to harmonize
Regulations & Policies priority policies & regulations

• Limited actual participation in the incentives program – Hold multiple dialogues with all key stakeholders during design
phase & develop clear socialization plan
• Delay in execution due to bureaucratic issue - Conduct semi-annual review in IR4.0 overarching Steering Committee to
ensure timely progress
Steering Committee
E By 2021, it is critical for Indonesia to produce basic chemical

domestically to support other industries’ competitiveness review
Masterplan
every 3-
Setting the foundation Engaging in dialogue Launching Chemical Zone 4.0 4 years
Stages
2018 2019 2020 2021
Key Horizontal
H1 H2 H1 H2 H1 H2 H1 H2
Design
Appoint
Create taskforce; Plan
masterplan;
Relaunch Indonesia Chemical 4.0 roadmap
Reassess priority of 1 2
align on sector vs. impact
taskforce & governance
timelines
reinforce Confirm focus products, Identify key 5
roadmap target stakeholders & logistics/utilities/digital infra. for Develop & build enhanced chemical industrial & economic zone
IR4.0 impact value chain
Engage with
Initiate dialogue with top 5
key domestic domestic basic chemical Establish sector consortium, backed by
Launch scheme and set bonus-linked targets for
players & players & potential foreign w/ 1:1 govt/industry funding to design
2023 (TBD), rewarding companies meeting
potential investors; identify their key productivity & capability improvement
production & capability KPIs
foreign scheme
investors
needs
6
Design incentives (tax reform, Finalize incentives for tax & subsidies & actively Establish R&D
Incentivize tech./machinery subsidies, persuade key players to participate innovation hub for 9 7
Tech training program etc) based on synthetic intermediate
Coordinate joint training program using foreign
Adoption discussions with top industry
players for IR4.0 adoption expert (if required) to improve human capital
chemicals & bioplastic
research
3
quality of key players in the sector
Reoptimize Establish cross-

Review and harmonize industry regulations & policies across sectors (from Launch harmonized policies /
Industry ministry
raw materials to trade/ retail) in semi-annual cross-ministry forums ; regulations for basic chemical
Regulations coordinating
taskforce
leverage input from industry players on priority policy simplification products 10
& Policies

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Ministry of Industry

Strategic Initiatives & Priority Sector

Context and Recap Baselining and Aspirations setting – sectoral prioritization

Industry 4.0 Strategic Initiatives

Implementation Roadmap, wrap-up, conclusion and next steps

Appendix – draft initiative charters

In the project’s 3rd workshop, we conducted alignment on the

Where we are today

Baseline Future Options Strategy Definition Implementation

Baselining workshop Aspiration & sector Strategic initiative sign-

Source: A.T. Kearney 3

The Ministry of Industry has implemented several strategic

Source: Press search, A.T. Kearney 4

Indonesia has prepared Industrial Roadmap Development

Indonesia aims to be strong industrial country

• 2-digit industry growth by 2035 with 30% GDP contribution

• Food • Power Plant

Industrial Revolution (IR 4.0) utilizes the latest technology to

Industrial Revolution Timeline Key Technology of IR 4.0

End of Beginning of Beginning Today Artificial Intelligence (AI)

Internet of Things (IoT)

Five technologies will be the key technologies in the 4th Industrial

3 Wearable 4 Advanced 5 3D Printing

Source: A.T. Kearney 7

4IR Country Readiness Index (CRI) measures ~100 countries’

Capability to effectively incorporate emerging

Source: A.T. Kearney, World Economic Forum 8

Based on the preliminary 4IR Country Readiness evaluation,

Indonesia has been showing tremendous growth in the past 15

The Indonesian economy is the one of the most stable growing

Indonesia has successfully built an economic virtuous cycle

Economic Cycle Improvement

Labor Total Earnings Consumer Spending

Investment Corporate Activities

The next 15 years will be a golden period for Indonesia;

Demographic Bonus1 Average GDP Growth

1900 2050 During After

Japan 1930 ‘95 5.0% 0.9%

China 1970 ‘15 9.2% 6.7%

Singapore 1970 ‘15 7.3% 2.0%

Thailand 1970 ‘15 5.8% 3.2%

Indonesia 1975 ‘30 5.4%2 ??

• Working population ratio will be at peak

Indonesia has to avoid the ‘economy vicious cycle’ trap

Vicious Cycle Risks

• Net export has dropped to 0.8% of GDP from 10.5% in 2000;

• Account Deficit is -1.8% of GDP, Government Revenue is 14.3% of

• Currency ratio depreciated by 58% against USD from 2000; 10-year

Productivity per cost in Indonesia is flattening; weakening

1. Unit labor cost and productivity rebased to 2005

Indonesia falls behind global peers in technology investment

ICT Spending1 (US$ per capita) and ICT spending as % of GDP

Singapore Japan Malaysia Thailand China Indonesia India

Indonesia is showing the lowest trade flow in ASEAN while

Cambodia 182.9 176.9 172.1 146.3 +19.8

Source: The World Bank; A.T. Kearney 17

The Indonesian IR4.0 can be a game changer for Indonesia’s

From 2000 to 2016, GDP growth

1. Gross Capital Formation

5 key lessons learnt from other countries’ 4IR policies

Key lessons for Indonesia

4 • Successful execution of 4 IR blueprint requires this to be a

Source: A.T. Kearney 19

Technology Economy Hybrid