Global Business Guide Indonesia

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Education | Opportunities for Business Education in Indonesia

The Indonesian business education sector is of greater importance than ever in playing a role in reducing the skills gap between graduates and employers. The importance of business education for Indonesia’s future development has come to be appreciated in the last two decades and the sector has undergone significant improvements in that time period.

Opportunities for Business Education in Indonesia
Promoting entrepreneurship to generate Indonesian graduates that create new jobs as opposed to looking for jobs is another emerging trend

An over emphasis on theoretical teaching over practical field work has been an issue in Indonesia’s business education sector, and one that has seen institutions in the country ranked lower than its regional peers. This is also evident in the rate of entrepreneurship in the country which while on the rise, particularly in areas such as the creative economy, such growth is from a tiny base.

Indonesia’s business education sector and dedicated business schools offer numerous opportunities for collaboration on an international scale for joint degree programmes and research (See Opportunities for Research Collaboration in Indonesia). Further investment to expand the sector, particularly in areas that the country is lacking qualified professionals such as tourism (See Indonesia’s Tourism Sector; Making True ‘Wonderful Indonesia’) is another area for investors interested in Indonesia’s lucrative education sector.

Delayed development

Until the end of 1960s, the number of universities offering economics and business education in Indonesia was still limited as there were only 29 state universities and a handful of private universities. The tide turned in the 1970s and 1980s when Indonesian economic growth spiked amid an oil and commodity price boom (See Overview: Indonesia’s Downstream Oil and Gas Sector).

Rapid economic development had created a huge demand for skilled workers, especially in the fields of economics and business. Since the number of graduates from the state universities were unable to keep pace with the increased demand, the government allowed private individuals and institutions to establish private colleges and universities (See Second Class: Indonesia’s Higher Education Sector In Need of Reform).

As a result, the number of universities offering economics and business education soared to hundreds and even thousands in the following decades. Later, in the early 1980s, as Indonesia’s business and service sectors evolved, there was a growing need for middle managers and top executives with a master’s degree in business education.

Unusually, it was Indonesia’s private sector which pioneered the establishment of a specialised business school. In 1977, LPPM offered a 10-month non-degree programme, dubbed as Program Wijawiyata Manajemen (WM) for fresh college graduates. After working for at least 12 months, its students can continue its study and obtain a master’s degree in management.

Five years later, Prasetiya Mulya Business School, which was founded by a group of businessmen and intellectuals, started offering Master of Business Administration (MBA) and Master’s in Management courses. In 1984, IPMI became the first business school offering the MBA course in English. A year later, PPM Graduate School of Management was established and offered an MBA programme too (See Indonesia's Transforming Economy: Business Education in High Demand). At the time, such courses were not recognised by the state education body. It was not until the late 1980s that state universities began to move away from only offering classic academic subjects and began to provide a variety of business programmes and qualifications.

Quality remains an issue

One major drawback of Indonesia’s business education sector is its over-emphasis on theory and knowledge over practical teaching. This has created a mismatch between what businesses in Indonesia need and what the education provides. Many Indonesian business graduates are perceived to be lacking practical business skills and to be able to compete in the job market. That is why Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA) predicted that by 2020, the gap between the demand for middle managers and the supply in Indonesia could widen to 40%-60% (See Labour Pains in Indonesia).

This was further underlined by a survey conducted by the Employment Office of East Java in the first half of 2014 which revealed that the majority of unemployed college graduates during the period surveyed were those majoring in economics, particularly those with a management major. The same holds true for Islamic economics and finance graduates. According to a study, only 20% of its graduates meet the requirements to fill jobs in the Islamic banking and finance industry (See Indonesia's Islamic Banking Industry: Bright Prospects Ahead Despite Constraints) due to the lack of soft skills and standardised curriculum (See Islamic Finance Education in Indonesia).

Some universities in Indonesia try to work around this problem by requiring their students to obtain various certifications, such as TOEFL, general banking, risk management, investment broking certification etc. when approaching their graduation to improve their competency and competitiveness.

Given that we are aspiring to support the government’s mission of producing qualified local talents, it is, therefore, our responsibility to warrant that our students and graduates can compete on the domestic and international market.

Promoting entrepreneurship to generate Indonesian graduates that create new jobs as opposed to looking for jobs is another emerging trend. This is in-line with the Indonesian government’s plan to increase the number of entrepreneurs in Indonesia by 500,000 annually to 2% of the population by 2025.

To ensure the quality and compliance of these universities with the Indonesian national standard, the government ranks institutions according to their accreditation level, i.e. A, B, and C. To date, the majority of Indonesian universities are falling into the second and third-rate categories.

Business Education 

Based on the QS World University Rankings by Subject in 2013, the Faculty of Economics of the University of Indonesia and Faculty of Econometrics and Business of Gadjah Mada University occupy the first and second positions in Indonesia in the economics and econometrics education category. Padjadjaran University ranked third, followed by Diponegoro University and the Bandung Institute of Technology.

Demand remains high

The demand for economic and business education remains high throughout Indonesia. Based on data from the Committee of Joint Selection for State Universities Admission (SBMPTN), management majors attracted the highest number of applicants at 139,109 in 2017. Accounting ranked second with 96,423 applicants, followed by Law of 81,050, Medicine of 64,744, and Civil Engineering of 62,957.

To improve the quality of local universities, the Indonesian government has permitted foreign universities to open a branch in the country as of 2016. However, the new regulation still imposes restrictions which limit the commercialisation of higher education by foreign institutions in Indonesia. These include the obligation to adjust the programmes to local rules, culture and conditions including using Indonesian names, language and being an Indonesian legal entity as well as restricting the proportion of foreign faculty members to 40%. The greatest setback is that foreign university branches in Indonesia must operate on a not-for-profit basis (See Indonesia’s Education Sector: Promising Investment Despite Need for Reforms).

In addition to the growing demand for executive training and business education courses in Indonesia, the government has planned to allocate 44 trillion IDR over the next four years to develop vocational training and vocational schools. Moreover, President Joko Widodo has asked his ministers to formulate a policy that will facilitate private sector investments in the education sector, especially in vocational training and schools (See Vocational Education in Indonesia; Crucial to Compete in the ASEAN).

The business education sector in Indonesia thus offers significant potential for investors, however, it requires a long-term strategy and outlook to gain a foothold in an already competitive market. Establishing a branch in Indonesia still offers advantages as a feeder brand to the main campus in attracting Indonesian students overseas as well as being able to offer professional education programmes which are not governed by the same national curricula. In addition, due to the ineffectiveness of the current regulations on attracting international universities to Indonesia, we may well see changes underway in the future to adjust this and improve the attractiveness of Indonesia’s higher education and business education sector.

Global Business Guide Indonesia - 2017

icone share

Indonesia Education Snapshot

Number of Tertiary Education Institutions: 4,445 (2016)
Type: 91.5% Private, 8.5% Public
Students in Higher Education: 4,941,574 (2016)
Net Enrolment Rate in Tertiary Education: 22% (2014)
Relevant Law: Higher Education Law No. 12 of 2012 provides universities with the autonomy to set their own tuition fees and authorising the set up of foreign universities in partnership with Indonesian institutions.