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'€˜One-stop shops'€™ are many moving parts, a better focus is business incubators

A trim tab is a second, very tiny rudder attached to the larger, main rudder of a big ship, such as a cargo ship, oil tanker or freighter

Will Hickey (The Jakarta Post)
Daejeon, South Korea
Thu, October 2, 2014

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'€˜One-stop shops'€™ are many moving parts, a better focus is business incubators

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trim tab is a second, very tiny rudder attached to the larger, main rudder of a big ship, such as a cargo ship, oil tanker or freighter. In essence the trim tab creates a counterforce to the main rudder (some which can be 30 meters long underwater), in order to change the ships course.

Without the trim tab, it would be almost impossible or require huge energy inputs to turn the main rudder alone.

On Sept. 18, president-elect Joko '€œJokowi'€ Widodo gave a talk to the Investment Coordinating Board (BKPM) where he seeks to create a '€œOne-stop service'€ of government business licensing in order to facilitate better foreign investment.

The idea of one-stop shops (or service) was also promoted in many former Soviet and Eastern European countries the past 20 years to entice foreign investors (with negligible results).

Additionally, one-stop shops tend to bolster the export model, of which Indonesia needs to eventually break free from to foster better foreign direct investment (FDI) that serves its own domestic population and engage its vast amounts of youth, many unskilled, in value added work.

It is doubtful most foreign investors coming to Indonesia are looking to make cheap handbags, fashion accessories or computer components with low skilled labor only.

They want access to the oil, gas, coal, infrastructure, crude palm oil (CPO) and other big profit industries. These industries are tightly regulated in Indonesia, or have high capital barriers to entry.

The only Asian area where '€œone-stop shops'€ have had real success are in Singapore), with its concept of a unified government entity and use of online registration and in some very transparent EU countries (i.e. Germany), where corruption is low and the rule of law and contracts are obeyed to the letter.

Yet, Singapore is a tiny place and the government force feeds transparency.

In short, one-stop shops are a nice ideal, and will have some success given enough time, but the turf battles, incipient business cronyism, and of course corruption embedded in many offices will undermine any real initiative.

Previous experience shows that merely creating a one-stop shop by sending a single representative from each department (such as tax, immigration, labor, justice and etc) to one location for collecting paper documents does not simplify processes by itself.

In fact this may even create more problems with the interaction of the individuals in regards to who is the final authority, process integration, inclusion or exclusion on decision making, and overall management of the business approval.

Unfortunately, the focus of these Indonesian incubators is still '€œsmall scale'€ SME type business.

We haven'€™t even mentioned jobs. One-stop shops are about streamlining processes (and people) to create efficiency and eliminate overlapping bureaucracy. That means putting a lot of people out of work in situations of redundancy, (i.e. people doing the same job). This certainly won'€™t sit well with a country under the duress of underemployment (or people doing jobs that don'€™t fully engage their efforts).

In order to make one-stop shops workable, strong and consistent direction is also required from a leader, otherwise, disparate entities will climb back into the process to seek rent or '€œreassert'€ their authority, thus, slowing any change effort.

Namely, continuous success of the one stop shop requires total cooperation among all players, without hidden agendas. That in itself is a very tall order for Indonesia.

It is questionable if a new administration with many priorities will have the focus, never mind the political clout, necessary to push such an issue through against a massive, entrenched bureaucracy.

Most studies have that while one-stop shops have indeed lowered the costs and time to start a business, they also have shown that one-stop shops have had no significant effect on lowering corruption, if that is indeed a part of Jokowi'€™s plan.

Another issue is what types of business are subject to the one-stop shop? Is it only SMEs (small and medium sized enterprises) that make T-shirts and promote chocolate bars, or does it include the bigger fish of the energy business, where most big scale FDI seeks to go anyway.

It is especially noted that Jokowi'€™s talk was directed at changing BKPM. BKPM does not offer business permits for those wanting to invest in the oil or mining sectors, and offers no advice for these major FDI arenas.

While it should, without a one-stop shop for energy and resources, any initiative will be compromised. Halfway reform does not work, it should include all businesses in Indonesia or don'€™t do it.

Finally, what system will the one-stop shop use? Paperwork storage, scanned images, or the latest trend, data collection (which many countries have now adopted for the standard of business registry) that is now utilized in the e-commerce format of '€œXBRL'€ or eXtensible Business Reporting Language?

Indonesia is a culture obsessed with collecting paper documents, yet the world trend has been towards digital data.

Of course one-stop shops are better than the status quo, but another alternative is suggested. Enter business incubators, or the '€œtrim tabs'€ of changing the course of business, and determining future growth opportunities for Indonesia, or any middle income economy with a burgeoning middle-class.

Business incubators are just that, a place that protects, partly funds and nurtures a new business, just as for a baby.

This is where real advancement lies: A focus on future business opportunities and entrepreneurialism, without the baggage of past mistakes. This is not to say new business won'€™t be regulated, but localized startups in relevant industry, that have already gone through a trial and error process, will be a more stable platform for attracting FDI.

Indonesia has already had some success with incubators in Dayeuhkolot (Bandung), certain trade related incubators in Jakarta and in Surabaya. These are the places any incoming administration should be considering for their dynamism and future ability to attract FDI, vibrant growth areas, with significant youth engagement.

Unfortunately, the focus of these Indonesian incubators is still '€œsmall scale'€ SME type business, such as textile manufacturing, clothing design, food stuffs and online applications. Most of these businesses will not survive due to cutthroat competition, but they are an initial engagement of Indonesian youth.

The better long term positioning of these incubators must be a proper alignment with Indonesia'€™s real industrial drivers: natural resources (coal, oil, gas, CPO, etc). This is where industrial empowerment lies.

This gets to the core of what a successful incubator does, it provides real content to existing industry not just office space for a good idea. It would also pay tremendous dividends for Indonesia'€™s youth in the form of industrial localization and service providers and allow investment into finished and semi-finished products as opposed to '€œjust exporting raw materials'€.

This is in effect the core of the 2009 Indonesia mining law and also Jokowi'€™s push to create better growth with '€œeconomic nationalism'€.

However the method of how to approach this is different. The key difference between a one stop shop and incubator is emphasis on streamlining old, existing processes or creating new processes. Essentially, brownfield versus greenfield entities.

Instead of righting the Titanic of bloated and old bureaucracy, if may be better to consider smaller faster boats of youthful entrepreneurialism, which is where Indonesia'€™s future lies.

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The writer is associate professor at Linton Global College (LGC) in Daejeon, the Republic of Korea.

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