Global Business Guide Indonesia

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Education | Indonesia's Transforming Economy: Business Education in High Demand

Indonesia needs a growing number of qualified business leaders to take the country's emerging economy to a more mature level and help local companies prevail amid intensifying competition in the Southeast Asian region. Domestic business schools need to up their game, as they, too, face formidable foreign competitors. Investment alone is not sufficient to meet these challenges. Local educators need to foster global connections and explore new ways to impart business acumen to future leaders among a generation of young Indonesians that is eager to learn the tricks of tomorrow's trade.

Indonesia's Transforming Economy: Business Education in High Demand
Regional trade integration represents a key time for the country’s business schools, as universities based around the world seek partners in Asia to give their graduates an edge over the competition

Rapid economic development has created a general shortage of qualified human resources in Indonesia. Local businesses that fail to recruit management talent with the right skill set are at risk of falling behind their national and international rivals. The strong GDP growth rates of the recent past can only be sustained if domestic companies are able to boost their efficiency while simultaneously generating the innovative capacity to set themselves apart, both in the products and services they offer and in the ways they work. This requires high educational standards across the board, but first and foremost at the managerial level. Preparing Indonesian business executives for the challenges that lie ahead spells opportunities for business schools inside the country, cooperation with foreign counterparts, and private vocational training.

Too few high-calibre graduates

The dearth of management talent in Indonesia can be partly blamed on the education system, which produces too few graduates to begin with and hence too few candidates of high calibre for postgraduate study on MBA and other business programmes. In a country where around one in three people is below the age of 18, the government must balance the goals of guaranteeing free basic education and raising the quality of schools to qualify students for top universities and empower them to compete on the global stage. Over the past decades, the Indonesian state has focused on increasing access to affordable schooling across the archipelago, largely neglecting elite education.

The impetus to create specialised business schools, meanwhile, came from the private sector; Prasetiya Mulya Business School was founded by a group of businessmen and intellectuals as one of the first to set up and start offering MBA and Masters in Management courses in 1982. Subsequent private schools continued to open, such as IPMI in 1984 being the first to offer the MBA course in English. Business education institutions were eventually brought under the National Education System as the government introduced formal business education within state universities. In the aftermath of the global financial crisis, Indonesia’s rectors have acknowledged the responsibility they face in nurturing the next generation of business leaders.

Opportunities for cooperation

Producing business-savvy graduates with strong ethical foundations has become a core theme throughout the curriculum, with the introduction of new modules focusing on leadership as well as social and environmental responsibility. Indonesian universities, including business schools, still feature low or not at all in international rankings. Attracting international scholars could help local institutions in their quest to build a world-class reputation for themselves, but regulations prioritize the hiring of local faculty. Moreover, Law No. 12/2012 on Higher Education allows foreign institutions of formal education to operate on a non-profit basis only (See Indonesia; Investing in Education).

The country's higher education sector must open up to commercial investment and promote the global exchange of students, faculty and research. Regional trade integration represents a key time for the country’s business schools, as universities based around the world seek partners in Asia to give their graduates an edge over the competition. As the largest economy in the ASEAN region, Indonesia offers foreign business schools interesting opportunities for cooperation.

A transforming economy

Without significant improvements to current regulations, Indonesia's national education system will fail to bring forth enough well-qualified business leaders to meet the needs of the country's transforming economy. In a 2013 survey by The Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA), senior executives cited managing talent and developing leadership as the two most critical problems in Indonesia. “By 2020, companies will face large gaps in entry-level and middle-manager jobs, as well as a lack of leadership skills among senior executives,” according to BCG. The gap between the demand for middle managers and the supply could widen to 40% to 60%. One of the main reasons for the anticipated shortages of managers is the expansion of Indonesia's economy into services. More than half of all jobs in the country would be administrative or managerial by 2020, BCG reckons.

Some companies in Indonesia have started to react with in-house training of future managers. Diversified conglomerate Astra International, for example, has created the Astra Management Development Institute, which manages development programs for new hires and the top-two layers of leaders. Mobile telecommunications operator XL Axiata recently launched its Future Leaders programme, and Unilever has a global management trainee programme in place, the Unilever Future Leaders Programme, which includes recruits from Indonesia. With young Indonesians known to switch jobs quickly in search of higher salaries or better conditions, however, many companies are reluctant to put much time or money in training, since qualified staff could simply be poached by a competitor. This might explain why XL Axiata views its programme as a part of the company's corporate social responsibility (CSR).

Vocational management training in high demand

The urgent need for better management talent, coupled with companies' reluctance to invest heavily in in-house training, creates growing demand for business education. Universities and specialized schools are not just hard-pressed to supply the quantity and quality of graduates which the economy needs; they also concern themselves primarily with technical aspects of management. So-called soft skills, business leaders lament, are particularly hard to come by in Indonesia. This has created a growing market for vocational training and coaching and is good news for foreign investors, since the informal education system is open for foreign participation on a commercial basis (See Vocational and Non-Formal Education Opportunities in Indonesia).

The upcoming ASEAN Economic Community (AEC) with open borders for capital and skilled labour across the 10-country region ups the pressure on Indonesian businesses to become not just more efficient, but more innovative as well. Innovation will not happen on its own but requires managers with sufficient entrepreneurial energy and a focus on results to guide and inspire their staff, according to Stefan Ciesielski, director of Jakarta-based Asia Leader, a management training and executive coaching firm. Improving internal communications, solving disputes and building effective teams are skills that are increasingly expected of middle managers, and even more so of executives, but often neglected in academic degrees. In their attempt to improve bottom lines, major Indonesian corporations have already picked the low-hanging fruit, such as technological modernisation and tighter financial control. Today, therefore, management-based soft skills are becoming an increasingly important driver of growth. Partnering with established local players is the easiest way for foreign investors to enter the leadership training market, since it eliminates bureaucratic hurdles of setting up shop and affords new entrants access to clients and sales networks.

Global Business Guide Indonesia - 2015

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