Indonesia must work faster than it has before to develop strategies to upskill its workers to anticipate the Fourth Industrial Revolution and pivot from manufacturing-led to services-led development, experts say.

Improving the services sector was key to increasing competitiveness, said Richard Baldwin, a professor at the Graduate Institute of International and Development Studies in Geneva, Switzerland.

Baldwin was a panelist at the 2019 Centre for Strategic and International Studies (CSIS) Global Dialogue held in Jakarta on Monday, an event that aimed to spark discussion over the need to harness frontier technologies like artificial intelligence (AI) and automation.

He took the example of top sportswear brand Adidas, which after 20 years of relying on cheap labor in Asia decided in 2017 to automate its manufacturing of shoes and return the production base to Germany.

Baldwin said even though employing Germans costs 10 times more than employing Chinese people, it did not matter when the burden of the cost was only 1 percent of total overhead costs and the move saves on shipping and is in proximity to customers.

“In 10 years the idea that people would walk off a farm into a factory, become middle class and then move into services […] will break down and people will be jumping straight into services,” he said.

President Joko “Jokowi” Widodo has pledged to prepare five sectors to be developed for the Fourth Industrial Revolution — food and beverages, textiles, the automotive industry, electronics and chemicals — saying they would become the backbone of Indonesia’s Industry 4.0.

Yose Rizal Damuri, lead economic researcher for the Jakarta-based CSIS, said that while it was necessary to support what the Jokowi administration was doing to improve skills and talent, the sectors in focus may have to change.

“We can no longer expect in 10 or 15 years that manufacturing will still be a mainstay. We must prepare for the time when services will be able to be a mainstay and in the future that might happen,” he said on the sidelines of the event.

The Indonesian Chamber of Commerce and Industry’s (Kadin) deputy chairwoman for international relations, Shinta Widjaja Kamdani, recently said that what happened with Adidas was certainly a warning for Indonesia to change its mindset and employment policies so that there would be a smooth transition from labor-intensive industries.

“For this reason, our workers must also be prepared for this reality. Workers need to start changing their mindset so as not to only demand wages without increasing skills and productivity. If they continue like that, labor-intensive companies will easily leave Indonesia or more quickly replace them with machines,” she said.

Wojtek Krok, another panelist at Monday’s event and a partner at consulting firm McKinsey Global, said that various factors, including the enormous increase in computing power, volume of data, number of connected devices and the industrial use of robots in recent years had fueled a fundamental change in businesses and the world economy.

He said the McKinsey Global Institute had calculated that many of these technologies can add to the global economy and estimated that AI had the potential to annually create value across sectors totaling US$3.5 trillion to $5.8 trillion.

However, implementation would not be easy, he said, citing a McKinsey survey conducted with Southeast Asia’s leading companies, which despite an awareness of the potential that technologies like AI carry, still faced difficulties bringing the technologies into use.

According to the McKinsey data, about 60 percent of these companies struggle to attract the right talent for this cause.

One study by CSIS, AlphaBeta and the Hinrich Foundation estimated that the digital trade sector could create economic opportunities in Indonesia worth Rp 2.3 quadrillion ($163.79 billion) by 2030, which would be equivalent to 9 percent of the country’s projected gross domestic product.

Shinta said the disruption would not eliminate jobs but transform them and even though technological disruption was pushing the industry toward automation, employment would still be created. However, the positions and qualifications for work would be very different. (tjs)

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