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So you’re a startup ready to take on Indonesia?

The potential rewards are huge. Google’s and Temasek’s recent study says Indonesia will be the epicenter of Southeast Asia’s digital economy.

All the key ingredients are here: 100 million people online, out of a mostly young population of about 260 million. An increasingly affluent middle class, and a government in support of growing the digital economy.

But Indonesia is a tough market. Here are some things to consider before attempting to conquer the 17,000-island archipelago.


No country for easy business

Indonesia lurks in the middle in the World Bank’s ease of doing business index. It’s worse than most of its Southeast Asian peers such as Malaysia, Thailand, and Vietnam.

You’ll find that setting up a business takes time and investment, especially as a foreigner. As a startup, test the waters first. Facebook and Google waited years before opening offices in Jakarta. Many choose the route of incorporating in Singapore first.

Later you may need to take the plunge. The government is currently figuring out ways to force internet companies to have permanent legal entities here, possibly even store user data on local servers, so keep an eye on this development. It pays off to hire a local legal consultant.


Partner up

Foreigners can fully own certain types of internet businesses, though conditions apply.

But most startups choose to come to Indonesia by partnering with local entities or forming a new business with local partners.

Thailand’s Moxy, for example, merged with local ecommerce site Bilna and now operates as a regional entity with bases in Thailand and Indonesia.

Malaysia’s iFlix struck an alliance with media company Emtek and state-owned telco Telkom before launching in the country, avoiding Netflix’s mistake. There’s really no way around forming alliances, joint ventures, or moving in through mergers and acquisitions.

Part of the reason is that Indonesia’s legacy industries – the big conglomerates, banks, media companies, and telcos – are keen on capturing digital business opportunities for themselves. They engage in a mix of building their own solutions or partnering with local and foreign startups to stay relevant. Lippo Group is a good example. It launched its own ecommerce business, MatahariMall, forged a strategic partnership with ride-hailing app Grab, and invests in startups across the region.


Localize heavily

You may need deeper localization than expected. Some companies launch under new brands, like India’s budget hotel site Wudstay, which came to Indonesia as Tinggal, or Malaysia’s RecomN, known here as Sejasa.

If you’re already popular, you’re less likely to give up your name. Still, localizing is a must. Take Spotify: the music streaming service added a slew of payment methods to accomodate whatever Indonesian subscribers would be comfortable with. For ecommerce, prepare to form partnerships with a multitude of logistics providers, because there isn’t one simple solution for the entire archipelago.

You may need to make significant changes to your operations. Rocket Internet’s ecommerce companies Lazada and Zalora, for example, introduced cash on delivery as a payment method, allowing shoppers to circumvent online payments.

Grab and Uber both did something radical in Indonesia. They introduced motorcycles as a means of transportation, copying the key feature of local startup Go-Jek.


Often overlooked: people and culture

One thing foreign companies don’t pay enough attention to is work culture.

It’s quite different here than in, say, Singapore, where management tends to be focused on results and direct criticism is normal. Managing teams in Indonesia requires a high degree of personal involvement. You’ll need leaders who know how to motivate and earn the respect of the team.

You’ll also confront the number one issue companies grapple with: the limited talent pool, especially in science and engineering. Indonesia’s education system is one of the worst in the world. You will need to invest in talent building.


Government support

As mentioned before, the current administration is vocal in its support of the digital economy. It wants to make starting up in Indonesia easier for local and foreign entrepreneurs.

But in many ways, reality still trails these ambitions. There isn’t yet any direct government investment vehicle for tech startups, and no tax cuts or other benefits. State-owned telco Telkom has startup incubation and acceleration programs, including financial backing. However, government programs are likely to favor local entrepreneurs.

And while regulators in Jakarta say one thing, it may all be interpreted differently elsewhere.

Finding your place within the country’s intricate power circles fuelled by factional thinking will suck up resources and require diplomacy. Just ask Uber and Grab.

Funding patterns

Investments into Indonesia’s tech sector boomed in 2015. Unlike other parts of the world, it hasn’t cooled down much in 2016. In fact, Indonesia saw its largest single funding round yet, with US$550 million going to on-demand services startup Go-Jek. Local marketplace Tokopedia also raised an additional US$147 million this year.

If the past years constituted the era of ecommerce, the next frontier is going to be fintech. The president himself opened a  fintech festival in Jakarta and the event was supported by most major banks and regulatory bodies.

Companies with ideas at the intersection of tech and the creative industries, small businesses, agriculture and fisheries, healthcare, and education are getting more attention.

What the country wants are tools and tech to help these sectors prosper, without inviting in too much foreign intervention.

In conclusion, Indonesia is an attractive market, especially if you bring tech and content at a level of sophistication not yet readily available in the country. To succeed, you’ll need local partners and a solid understanding of local culture and sentiments.

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