Indonesian market may become the most interesting for founders from Russia

The fourth country by population, a growing economy, no political risks. And most importantly, a large Russian-speaking community in Bali of entrepreneurs and startup founders. In this article, we will analyze the features of the Indonesian venture market together with members of the heg.ai community.

One of the most attractive options for business development is Indonesia: Jakarta and Bali. We explain in a reasoned manner who they are suitable for, what cultural features influence doing business and why our entrepreneurs need this distant country.

Advantages for startups in Indonesia

Indonesia is the largest market in Southeast Asia with a population of 270 million people: only the USA, India and China have more.

Since 2000, Indonesia has increased its GDP by 4 times, while growth is stable - +5% annually. In the 20 years before the pandemic, the country had not suffered any critical losses in GDP.

Indonesia is currently a middle-low income country, but it will soon become a middle income country: according to the World Bank, there are already 52 million middle class representatives in the country, and their number is steadily growing and will reach 118 million by 2030. And it is the middle class of Indonesia that is the main driver of economic development.

Analysts suggest that Indonesia can repeat China's experience of economic progress: show an explosion of economic activity due to the use of cheap labor, borrowing innovations and building infrastructure.

Even today, this island nation is already a very attractive market for venture capital due to its capacity and power. Local "unicorns" are emerging in such domains as:

• EdTech
• FinTech
• HRtech
• E-commerce
• Logistics

Moreover, “unicorns” from Indonesia are in the top most expensive.

Here, the number of active angels and funds that invest money in startups at an early stage is growing. At the same time, the high-tech sector of Indonesia is still young and has only completed its first cycle of venture investments and exits. There is still relatively little competition here and there are free niches. The level of technical personnel is low, and Russian-language projects will be stronger on average, so there is an opportunity to “bite off” part of the market.

Domestic market and points of attraction

The center of attraction for business in Indonesia is Jakarta. All the decision makers, opinion leaders, startups, venture funds, government institutions and large international and local corporations are concentrated in the capital. On the island of Bali, which is better known to the Russian-speaking community, you can only find representative offices, and there will be fewer of them. The main business district of Jakarta is Sudirman Central Business District, where the offices of large international companies and funds are located. Most of the country's business activity is concentrated here. In essence, SCBD is a combination of Moscow City and White Square.

1. The startup ecosystem in Indonesia is still small, but highly connected. Most specialists, founders and managers know each other through one or two handshakes. Unfortunately, Indonesians still lack the internal resources to make everything move and develop on its own. Therefore, there is no such thing as a “Silicon Jungle” yet. However, the outlines of the future “valley” are already visible here.
2. The Indonesian startup community is mainly entrepreneurs from Jakarta and expat founders who are slowly trying to create something. As well as Singaporean funds or local banking conglomerates and old-money, which give them money if they show good traction.

Indonesia already holds its own events for digital entrepreneurs: for example, competitions for startups XTC Indonesia 2022, Hyundai Start-up Challenge, Unicorn Battle Asia. But in terms of scale, these are still local events that are not yet comparable to Slush in Helsinki or Web Summit in Portugal.

In what niches to develop a startup

Now Indonesia is open to innovation, but at the same time it is just beginning to develop and build a national technological economy. Every invested rupee and created service leaves a huge mark here, because entrepreneurs literally change people's lives and provide tools to improve the well-being of citizens.

Projects that, for example, will not take off in European or North American countries, because there are too many of them, are often relevant for Indonesia. These could be relatively banal ideas:

• to develop infrastructure, which is still far from perfect
• to improve logistics
• education
• medicine
• telecommunications
• and others

Imagine how much people's lives could be improved by launching car sharing in Indonesia or, for example, an analogue of the Russian HH or Skyeng.

Indonesia offers great opportunities for FinTech startups. Over 60% of the population is not covered by banking products, and 40% are not included in the banking system at all: they do not have cards or accounts. There are only 16 million plastic cards for 270 million people.

The most popular payment method is cash: 90% of transactions in the B2C market are made this way. Electronic money is used in B2B, but only 18% of Indonesia's population has electronic wallets.

There are transfers by bank account number, but this is a very complicated path:

• you need to open the bank's website
• add a new client
• enter their account number there
• then create

Given this picture and the growth of the middle class, the need for FinTech startups is huge.

In addition to FinTech, the EdTech industry is very promising. According to analysts, by 2030, about 100 million Indonesians will need retraining, and the authorities are ready to facilitate the development of educational projects. At the same time, Indonesian students love to study and are interested in new services in this domain.

There are already almost 400 EdTech projects in the country, offering both self-study platforms and online tutoring platforms or full-fledged courses. The strongest startup in this market is Ruangguru, a platform for K-12, but it seems that there is still a lot of room for new teams.

Relationships and cultural features of business

There are two features of the cultural code of Indonesia:

1. The first is that time here flows differently than in countries with a different, more changeable climate, and trying to overtake it is useless. Many visiting entrepreneurs have broken down on this. Indonesian culture is not prone to planning. Historically, there have been no problems with crop failure, drought, or gathering supplies for the winter. Over hundreds of years, this has left a strong imprint on the logic of human interaction.
2. The second feature is that Indonesians are a very communal nation with an island mentality. They are afraid of outsiders, treat them with distrust, and find it hard to perceive themselves without a team. It is uncomfortable for locals to make decisions alone and take responsibility.

This is reflected in business.

The essence of the classic Indonesian business culture is that it is much more important who you know than what

If you have contacts of a person from the community who can solve the problem, then your problem will be dealt with quickly. Practical information or skills do not play a critical role in achieving goals — only what people are in the address book, and what you can do with them. Gradually it changes, it becomes more Western, but the process is very slow.

Luckily, you can become part of the local community by living here for some time, learning to speak Bahasa at least a little, and showing yourself to Indonesians. However, this cannot be done in a year or two. Even in the third year, many expats still feel like they are just getting into the swing of things, and it is unclear when they will become full-fledged members of the community.

To quickly enter the circle of trust, have access “through connections”, it is important to show yourself, achieve success and earn money together with Indonesians, help them, respect their culture. It is important to send a clear message that you understand the importance of their independence, their language, identity and religious background and try to live like them - this is a necessary condition. Indonesians value this very much, more than in Western countries.

Many local specialists are used to spreading decision-making among colleagues, they are often not suited for leadership roles - they are good performers, but not business process managers. Vlad Ayukaev, CEO of Startup Builder PVG.

In Indonesian companies have very blurred areas of responsibility and there are scenarios in which several people are responsible for the same area. To become an effective startup in our market, you need to carefully select personnel at the start, otherwise you can drown in a swamp. When hiring specialists for the team, it is better to pay attention to those who are not spoiled by the organizational structure of the Indonesian corporation and have experience working in an international team in English.

How to enter the Indonesian market: company experience

You can come to Indonesia and open a company only with KITAS - this is an analogue of Green and Blue cards, in fact, a residence permit with the right to work in the country, own property, and so on. KITAS is valid for a year, then it can be extended, and after four years you can apply for KITAP: permanent residence.

Both business employees and co-founders come under KITAS. But the founder must first register the company (PT PMA) on a business visa, appoint himself as a director, and only then request KITAS. The pitfall is the staff: for each foreign employee there must be an Indonesian colleague who acts as a guarantor of his work permit. In general, all paperwork can be completed in one to two months.

The founder must have at least 10% in the company to request KITAS. Therefore, up to 8-10 founders in one business can receive such a residence permit. The approximate cost of KITAS is $2.5-3 thousand for 2 years, plus monthly insurance for $20-25. Pavel Khegay.

Recently, Russian-speaking teams have ceased to be a rarity here, and several success stories have emerged at once. In December, the educational startup Refocus entered the Southeast Asian market - first in the Philippines, and in February in Indonesia with online courses.

From February to July, the project's revenue increased 15 times and continues to grow. In just six months, the startup earned more than $1.5 million in both countries. Such rapid growth is associated with many factors, and one of them is the right choice of country for launch.

• Firstly, thanks to the pandemic, the Internet penetration rate has increased in Indonesia - now it is 40% and continues to increase.
• Secondly, in terms of real GDP, Indonesia is in 7th place in the global ranking. And the demand for technology solutions is very high.

In the fall of 2021, before the launch, Refocus checked the market demand: using data from the Indeed service, the team compared the number of open vacancies in Southeast Asia with the number of relevant CVs in the IT field. It turned out that for every CV, there are 12 open vacancies - this is a huge gap. For 600,000 open vacancies, there are only 50,000 CVs.

In Indonesia, we have no major competitors either in terms of training conditions or revenue. There are only bootcamps, but they do not provide the opportunity to study in parallel with work. We are in a blue ocean, where there is every opportunity to grow quickly and become a key player in the market. Alexander Solovyov, co-founder of the international educational project Refocus.

As the experience of Refocus has shown, when entering the Indonesian market, Russian startups need to be ready to adjust the system of working with local employees to the cultural code.

• Firstly, there are a lot of holidays in the country, Indonesians love them and love rest. The chances that any of the local employees will work on the weekend are practically zero.
• Secondly, hiring and training local sales managers looks different than in Russia. More time needs to be allocated for both processes, employees need to be motivated not only financially, but also intangibly — for example, to give certificates for a good performance.

Initially, when planning our business, we did not take into account the speed of processes and decision-making in Indonesia. This led to a failure in our plans: in terms of revenue, hiring, and marketing activities. In addition, we are accustomed to the well-established and comfortable banking in Russia, where a manager will answer you in a minute and resolve issues. In Indonesia, this is complicated, and when our installment system broke down, it took several weeks to resolve the problem. Alexander Solovyov.

In addition, in order for Indonesian employees to work effectively, you need to develop informal relationships with them:

• spend more time outside the office
• talk about personal topics

Such informality is also welcomed in communications with partners and investors. You can't start a conversation straight to the point - first small talk about nothing, and only then touch on the main issue. Ideally, the first meeting takes place over conversation and lunch or dinner, and business is left for the second.

But with such a love for informal dialogues and a leisurely pace of life, Indonesians really like clear TOR. An employee will do his job perfectly only if he is given specific instructions and schemes.

Work with Indonesians should be built as consistently and systematically as possible. You must always monitor the result and deadlines. This is important in any country, but in Indonesia it is of critical importance. Alexander Solovyov.

As with any new market, for Indonesia you need to adapt the product. In Russia, Refocus' flagship product was a digital marketing course: it sold well. But in Southeast Asia, it turned out that it was not so popular - sales were going well, but slowly. As a result, the team decided to conduct a demand test and launched several new IT products. The Data Analyst profession won. As it turned out, this profession is in demand on the market, and people like it.

Marketing campaigns in Indonesia should be as accessible as possible. Indonesians strive to simplify, so there is no need to use abstract messages in advertising. The more specifics, the better.

Ideally!

Voice the benefits of the product for the user literally: this is the salary he will be able to earn if he gets this profession, this is the position he can realistically occupy in X months, and so on.

And another important point - do not rush to roll out the business to the maximum. It is easy to open a company in Indonesia, but it is much more difficult to close it. Here, this process can take several years. The more complex the design, the more risks. This is especially true for young businesses in a new market. Therefore, while the client is not familiar "in person", it is better to try pilot versions of the product, and then scale it up when it becomes clear that everything is great and sales are flying. There is no need to impose unnecessary obligations on a business in the form of loans, a large office and expensive employees, when even the immediate future of the startup is unclear.

The strength of the Russian community in Indonesia

Important:

• actively interact with the local population
• look for partners among Indonesians, employees, investors
• integrate into the culture of the country
• form or join Russian-speaking communities in Indonesia

Why?

• Firstly, it is useful in absolutely any country to quickly adapt to new conditions, gain experience from those who have already started a business here also as a foreigner, learn life hacks, adopt someone else's expertise and simply get psychological support from “our own”.
• Secondly, there are still few competent personnel in Indonesia, so if you have to recruit a team on the spot or simply expand your staff, it is better to have connections. Know either someone who is ready to join your startup as a specialist, or someone who can recommend good, proven Indonesians - a conditional qualified developer from the locals.

To summarize - today Bali is a very good option for entrepreneurs who clearly understand that their product will be in demand here, or can make sales on the global market. But when relocating, it is very important to take into account the peculiarities of the mentality and build not only business relationships with Indonesians, but also informal ones, because without a network and connections you can’t get anywhere here.