Strong economic rebounds are expected around the world as confidence returns due to the success of accelerated vaccination programs. The World Bank recently suggested this recovery would be the most robust postrecession recovery in the past 80 years, while noting that growth will be uneven across countries and industries.

We believe that having competitive local industry is a critical driver for countries to emerge as winners post-crisis, enabling them to achieve economic growth targets, create millions of jobs, increase supply chain resilience, and improve the nation’s global competitiveness.

In order to catalyze these efforts, Indonesia recently increased its local procurement (TKDN) targets from 44 percent in 2021 to 50 percent by 2024, looking to unlock benefits to economic performance and employment.

It is equally important for the country to focus on achieving sustainable benefits through national industry, rather than short-term targets, which may trigger higher costs and reduce the quality of goods. In Brazil for example, strict local content delivered some success, but ultimately resulted in a cost premium of up to 30 percent.

Capturing the maximum value of this transition not only requires strong participation by local industries, but also focused efforts to ensure local vendors reach global competitiveness as a value driver in Indonesia’s business ecosystem.

One option is to accelerate capabilities through collaborating with strategic partners. In many categories, boosting local industry will be extremely costly without these partnership ventures. For example, a partnership venture to develop smart metering in Indonesia would reduce imports and create sizable cost saving opportunities.

Saudi Arabia, in partnership with its national oil company, developed a road map toward a low-carbon economy with local ven-dor-development programs as a core pillar. This approach allowed the oil company to achieve 80 percent locally supplied content, with US$2 billion spent, while supporting the training of over 350,000 professionals to boost employment and add value to the local labor market.

Measuring success from boosting local industry participation should span across four strategic areas, namely competitiveness; resilience; small and mediumenterprise (SME) participation; and strategic participation in the global supply chain post-COVID recovery.

Achieving these ambitions will require close collaboration by stakeholders like the Industry Ministry, the State-Owned Enterprises (SOEs) Ministry, the Investment Ministry and the National Development Planning Ministry, as well as SOEs, private companies and SMEs.

As agents of national development, SOEs will play an important role in defining sectorspecific road maps to enable sustainable growth of local vendors. In a recent example, Indonesia Battery Corporation (IBC) was set up by four SOEs to develop an electric vehicle (EV) battery ecosystem, followed by a partnership with global battery manufacturers. This strategic partnership contributed to a high value-added business ecosystem, supporting Indonesia to become a global battery manufacturing hub while working toward crucial Sustainable Development Goals (SDGs).

Another example at private level,  Astra has demonstrated success in establishing the nation as a regional manufacturing hub, driven by a commitment to a strong local business ecosystem. Astra works closely with suppliers to implement standardized practices and jointly identify performance enhancements to drive cost improvements. It has also established an educational institution to improve access to skilled graduates that benefits the wider business ecosystem.

COVID-19 disruptions over the past 18 months have reinforced the importance of having a robust local business ecosystem, given the heightened awareness of supplychain risks.
‘Right to win’

Growing higher value-added business is the only viable path for developing countries to sustainably grow their economies and compete in the post-COVID world. This can be enabled through targeted investment on identified “right to win” categories, boosted by enhanced local compensation, training initiatives, competitive R&D, backed by a vibrant business ecosystem.

Unlocking the greatest value from participation of local vendors will only be realized if and when each industry segment has clearly laid out a structured local vendor-development program, including partnerships where relevant, targeting prioritized spend categories. A targeted category strategy will reduce exposure to higher costs and increasing domestic industry participation in low value-added businesses.

Indonesia is not unique in its support for local vendor development. South Korea’s government, in partnership with local conglomerates, implemented an activist program to support these companies to be champions in select strategic segments, helping create a vibrant ecosystem, supported by preferred financing policies, regulated R&D and tech transfer, and immigration policies for key talent.

Singapore’s government engaged directly with its SOEs to create local champions, backed by financing support and export promotion. More recently, they have focused on boosting R&D and workforce skills as innovation becomes a critical differentiator in the modern business landscape.
Inclusive growth

Indonesia’s business ecosystem is diverse but offers remarkable potential. Building out an effective road map to boost local industry will require an informed and carefully managed strategy, and one which reflects the individual circumstances of specific sectors and businesses. This strategic approach will offer each sector a clear view of its role in boosting the participation of local vendors in value-adding businesses. This should include focus on the efforts and benefits of transformation.

High-benefit, low-effort opportunities are a priority. We should act now and capture these quick wins. High-benefit, high-effort areas should be a secondary priority, with clear plans established on how to deliver these in the midterm. Build-operator-transfer (BOT) models could be a key enabler of these opportunities.

Specific industries considered as a priority with high ben-efit/low effort potential may include EV batteries, oilfield services, petrochemical and pharmaceutical. Medium-term priorities extend to green energy, health care and agriculture.

These are very much aligned with the post-COVID economic recovery development program set by the government.

Based on our experience, there are three battle-tested initiatives not only to drive participation of local vendors, but also enable them to do so in higher valpe-add business categories in Indonesia:

•    Local vendor scouting and development: Scout local SME vendors and manufacturers and" introduce ven-dor-development programs as well as performance evaluation.

•    Workforce training programs: Catalyze development of specific in-demand skills through training or certification programs.

•    Strategic participation in global supply chain: Invest strategically with select partners and simplify regulations where needed, to create an attractive business ecosystem, boosting growth of high value-added business ecosystems in Indonesia.

A holistic but strategic local vendor-development strategy is critical to success. Without these foundations, efforts to increase local share could come at the risk of higher costs and lower quality. When delivered in the right way, growing domestic vendor capabilities, and ensuring a supportive business ecosystem for them to flourish, will unlock the value of sustainable economic opportunity for Indonesia and help build globally competitive Indonesian companies.