Global Business Guide Indonesia

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Manufacturing | Indonesia's Creative Economy & Heritage Products – A Wealth of Opportunities

Indonesia's rich cultural heritage reflects in its long history of crafts, arts and entertainment and provides a valuable foundation for the creative industries. The country's creative economy features a particularly large number of small businesses, despite the presence, for instance, of large media conglomerates. Owners of micro, small and medium-sized enterprises (MSMEs) are gradually realizing that the business potential of indigenous fashion, music, handicraft, furniture and even herbal medicine extends far beyond their localities and even national borders. Long popular with foreign tourists, Indonesian handicraft and batik products can fetch a significant premium when sold abroad, where their novel and exotic qualities are better appreciated. To fully realize their export potential, however, producers need to sustain sufficient quantities of consistent quality. Many need to upgrade their workshops, streamline production and vastly improve on their marketing. And many should be happy to enlist support from investors and foreign buyers.

Indonesia's Creative Economy & Heritage Products – A Wealth of Opportunities
Recent growth in tourism is a boon to Indonesia's creative economy, especially to culinary businesses and native craftsmanship
 

A clear-cut definition of the term creative economy does not exist; most descriptions leave much overlap with other industries, for example IT, pharmaceuticals or sports. The United Nations Creative Economy Report applies the term to “activities involving cultural creativity and/or innovation.” Indonesia employs a particularly wide definition, based on which the creative economy employs around 12 million people. Specifically, ekonomi kreatif encompasses the following 15 economic activities: advertising, architecture, art and antiques, handicraft and furniture, design, fashion, film and photography, interactive games, music, performing arts, publishing, software, radio and television, research and development, as well as – somewhat unusually – culinary culture.

A catalyst of innovation

The creative economy grew by 5.8% in 2013, in line with national GDP. At 642 trillion RP, the segment accounted for just over 7% of Indonesia's economy in 2013, according to Statistics Indonesia (BPS). While the creative economy still generates most of its returns on the home market, exports are catching up and rose by 8% to 119 trillion RP in 2013. The culinary industry is the biggest of the creative industries output, followed by fashion and handicraft. As for exports, fashion accounted for almost two-thirds of shipments in 2013, followed by handicrafts, ministry figures show. The United States, Japan and Germany are the main export destinations for Indonesian fashion articles.

The creative economy represents a healthy counterbalance to Indonesia's cyclical extractive industries, which tend to drag all stakeholders through the ups and downs of the global commodity markets. As such, the creative economy is important for job creation and for inspiring entrepreneurism among the country’s relatively young population. Aware of the economic potential that remains to be unlocked in the creative capacity of several hundred ethnic groups, the government supports the segment in numerous ways. These include the organisation of trade fairs throughout the country and abroad to showcase local companies and their products and services. Industry clusters aim to improve vertical and horizontal integration and hence the competitiveness of various industries, including fashion, crafts and software, although their establishment so far has not progressed far beyond the planning stage. So-called cultural parks in various provinces provide a space to celebrate cultural heritage from local dances and indigenous art to traditional handicraft and to explore their economic potential.

Tourism driving culinary business, handicraft and arts

In an effort to boost sales of handicraft and other indigenous products with the help of foreign visitors, the Yudhoyono administration in October 2011 combined its policies on the two sectors through the establishment of the Ministry of Tourism and Creative Economy (See Indonesia’s Tourism Industry and the Creative Economy). As tourists enter the country, they will be inclined to spend money on handicraft and pieces of art as well as experiencing the local cuisine, musicals and dance performances, theatre and film. The idea behind this approach is to generate synergies between Indonesia's mature international tourism industry and the creative economy, which has a long way to go in terms of internationalisation. Recent growth in tourism is a boon to Indonesia's creative economy, especially to culinary businesses and native craftsmanship. The year 2013 saw 8.8 million foreign visitors arrive, an increase of more than 9% from 2012, in addition to 248 million domestic tourist visits. The central government in tandem with provincial administrations aims to boost tourism across the archipelago to lessen the sector's heavy reliance on Bali and Jakarta.

Indonesia's answer to Silicon Valley

The potential of Indonesia's creative economy, and indeed government efforts to foster it, extends far beyond products and services rooted directly in cultural heritage. Notably, it extends to new media, information technology and a burgeoning knowledge-based economy. Indonesians are already avid users of social media platforms such as Facebook, Twitter or Path (See An Overview of Indonesia’s Telecommunication Sector). The rollout of high-speed broadband, increasing internationalization and rising standards of education provide a basis for software creation and IT projects. In March 2014, the Ministry of Tourism and Creative Economy signed a memorandum of understanding (MoU) with Microsoft to cooperate on making Indonesian businesses and talent fit for the digital age – and to tackle widespread piracy.

Around 140 km from Jakarta, Bandung is keen to present itself as a technology centre and start up hub. The country's third-largest city, which enjoys a reputation as a vibrant cultural and creative centre, has committed an 800-hectare plot to Technopolis, Indonesia's hopeful answer to Silicon Valley. It is currently seeking investment in the project. Closely related to the growth of conventional and digital media are the booming advertising and entertainment industries. The country's large and young workforce are a valuable resource to both industries, while adverting agencies also benefit from fast-rising consumer spending. The film and music industries, however, still have to put up with poorly-enforced intellectual property rights.

Indonesian fashion unites tradition and modernity

While Indonesia's IT sector is still in its infancy, the fashion industry holds immediate investment opportunities (See Indonesia’s Textile and Clothing Industry). The government in cooperation with retailers has undertaken measures to boost domestic sales and exports from MSMEs in the fashion industry through standardization and financial support for the purchase of machinery and raw materials. A drive by the Industry Ministry to explore the use of native natural resources, such as hemp, silk, banana or pineapple fibers, could give products unique qualities upon which local designers can build distinctly Indonesian brands for the global market. Regular fashion shows also boost the image of Indonesian products at home and abroad.

Following concerted efforts by the government and society to revive the status of batik in Indonesian fashion, local designers are happily experimenting with the traditional Indonesian cloth on garments, bags and other fashion articles. Some observers lament the fact that the recent resurgence of batik through the “batik Friday” campaign and public procurement of batik uniforms for public sector workers has led to unhelpful commercialisation and encourages automated printing of batik patterns on a mass scale at the expense of the traditional artistry of making batik. The government is, however, trying to preserve the market for original batik through a national standard's definition and a label of authenticity, the “batik mark”.

Homegrown handicraft, furniture and medicine

Similar to the fashion industry, handicraft and furniture are blessed with the domestic availability of natural resources, notably timber and rattan. The Ministry of Tourism and Creative Economy supports marketing efforts and promotes exports in many sub-industries through exhibitions, publications, websites and standardization. The government set an export target of $3 billion for furniture and handicrafts in 2014, which would represent a 13% increase from 2013.

Somewhat surprisingly, perhaps, traditional herbal medicine, known locally as jamu, is also considered a creative industry in Indonesia by virtue of its application of research and development. It benefits from exceptional biodiversity in a country that is home to possibly the largest number of medicinal plant species in the world. Jamu has been practised for centuries in Indonesia and remains popular to this day, despite the increasing availability of modern medicine. Enabling exports on a significant scale will require tremendous efforts in standardization and quality control to establish trust with foreign patients, attain compliance and receive approval. As the effectiveness ascribed to many jamu products is based on experience and personal perception, a lot of research is needed to scientifically establish its safety and medicinal properties. In addition, local jamu producers, many of which remain family owned businesses, have failed to establish effective brands that could translate across borders. Packaging remains a key area where foreign know how could make a big impact on building premium brand products catering to the higher end of the market domestically and internationally. However, leading producers have begun to export to select countries and are eyeing China as a prospective market.

Private investment and facilitation needed

The government is also extending a helping hand to its creative economy by directing state-owned banks to provide credit-lending to small businesses and entrepreneurs and is pondering a special financing scheme together with the central bank to improve funding. These efforts notwithstanding, it is clear that almost every sub-sector of Indonesia's creative economy could go a lot further in developing its full potential with the help of additional finance, which domestic commercial banks are often reluctant to provide. This opens up opportunities for investment and comprehensive export partnerships, where foreign importers would consult and facilitate Indonesian businesses in going global. Joint ventures and other forms of cooperation also come to mind. Once Indonesia's IT industry begins to prosper as envisioned by the government, venture capital will also be in high demand.

Global Business Guide Indonesia - 2014

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Indonesia Manufacturing Snapshot - Creative Industries

Contribution to GDP: 6.3% (Jan-Jun 2015)
Contribution to Exports: 5.8% (2014)
Number Employed in the Sector: ±12 million (2014)
Main Areas: Fashion, Crafts, Advertising, Design, Architecture, Broadcasting, Publishing, Music, Software Development.
Relevant Law: Presidential Regulation No. 6 of 2015 on the Creative Economy Agency, intellectual property laws, and the National Medium Term Development Plan 2015-2019 (RPJMN 2015-2019).