Global Business Guide Indonesia

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Business Updates | Vocational and Non-Formal Education Opportunities in Indonesia

Indonesia’s surging service industries suffer from a distinct shortage in the availability of skilled labour; an issue that to date has prevented the sector from realising its potential as the driving force behind the country’s continued economic growth. Businesses in South East Asia’s largest economy have vociferously advocated for improvements in the quality of Indonesian labour, particularly at the middle management and technician level.  Indonesia therefore faces the need to expand upon its vocational, non-formal education and training opportunities and utilise the expertise that foreign companies in the field can provide. Opportunities in specialised services such as aviation and more general services such as tourism and hospitality are especially abundant. The long term outlook for these markets is equally promising as the government strives to protect local labour and limit the entry of foreign workers.

Flying High

In no area of the economy is the demand for highly trained workers greater than in Indonesia’s booming aviation industry. The World Bank estimates that over the course of the next twenty years, the portion of the country’s middle class with sufficient disposable income to afford air travel will swell from the current 130 million people to 240 million people. To meet this demand, Indonesia’s aviation industry will need 1,000 new pilots every year until 2015, in addition to a total of 7,500 new technicians and 1,000 air traffic control officers (Boeing). Currently, reports from the Ministry of Transportation suggest that government funded schools and private flight academies have only been able to produce approximately 350 pilots per annum. In light of recent aviation accidents attributed to human error, there are also serious concerns over the preparedness of workers currently being rushed to flight certification. 

It is because of this that investors with documented international accreditation and expertise in creating high quality pilots and ground staff are urgently required; a fact that local players in the industry are becoming increasingly aware of. Lion Air, for instance, has expressed interest in working with partners that have received certification from either the European Aviation Safety Agency or the U.S. Federal Aviation Administration, to expand and improve upon the standard of operations at their existing training facilities. Moreover, recent government efforts to curb the number of foreign pilots in the country have further incentivised the local aviation industry to form international partnerships, in an effort to accelerate the development of Indonesian flight crews.

As regulation currently stands, the Negative Investment List (See Presidential Decree No. 36/2010 Negative Investment List) stipulates that foreign investors are permitted to partner with local entities when entering the non-formal education sector in Indonesia, insofar as their ownership stake does not exceed 49%. For specialized non-formal education, including flight schools, a license from relevant ministries is required.

Healthy Returns

The issues of a dearth in qualified labour are not limited to air travel, with the healthcare sector also suffering from a lack of well trained employees. This has resulted in affluent Indonesians going abroad to receive medical services; another missed opportunity that could be remedied by improving upon the availability and standard of training and non-formal education.

Furthermore, the impending implementation of universal healthcare services for Indonesians in 2014 is widely projected to propel demand for auxiliary medical personnel such as nurses, laboratory technicians and healthcare assistants. If the 70% increase in hospital patient intake (Reuters) projected to take place in Jakarta (where the pilot stage of the universal healthcare program has already been set in motion) is anything to go by, investors will be needed to smooth the course of the upcoming transitionary stage by offering consultancy and/or training programs to the labour force. This will raise the quality and quantity of healthcare employees ready to work in one of Indonesia’s most rapidly growing industries.

Tourism & Beyond

These are but two examples of the prospects for investors in the field of non-formal education, whether through founding schools with a local partner or offering consultancy services. Other opportunities exist, for example, in improving upon the standard of workers in the hospitality and tourism sector, which has experienced growth above the global average at 6.4% (Ministry of Tourism & Creative Economy) and has considerable scope to continue to expand into niche markets such as shariah compliant tourism.

In an increasingly tech savvy population, few avenues of delivering non-formal education are more attractive than e-learning and web-based training. E-learning offers the distinct advantage of allowing for individuals in more remotely located parts of the vast Indonesian archipelago to access training that is normally confined to the largest cities. Furthermore, current regulation permits foreign entities to be sole stakeholders in enterprises that provide education and training via e-learning under the IT Consultancy category.

Being successful in these types of endeavours as a foreign investor will depend upon the ability to find the right local partner. Irrespective of their achievements and reputation abroad, it is crucial for foreign companies in Indonesia to work with partners that have an established local network in the sector in question so as to allow for greater market penetration, insights into Indonesian culture, and ease in obtaining clients. Investors interested in improving labour in the aviation industry, more specifically, should seek out partners with existing ties to the Indonesian Directorate General of Civil Aviation as well as to airlines looking for a consistent source of ground staff, pilots and technicians. It would also serve foreign entities well to work with local companies that have tapped into Indonesia’s network of vocational high schools that focus on aviation (SMK Penerbangan). Similarly, parties interested in investing in healthcare training should forge partnerships with organisations with extensive experience in working with hospitals and the Indonesian Medical Council, the leading organisation tasked with improving the level of competency amongst medical professionals. 

Global Business Guide Indonesia - 1st November 2013

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