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Badri Munir Sukoco
Professor of the Faculty of Economics and Business,
Universitas Airlangga
Overall, Indonesia's economic growth has been relatively stable (between 5.1% and 5.5%) and is predicted to be above the global average (2.6%) this year. This stability is certainly commendable, given that many countries are experiencing economic growth similar to or even lower than the global average.
However, with this growth rate, it will be difficult for Indonesia to accelerate and escape the middle-income trap. This was stated by Finance Minister Sri Mulyani mid-last year. Therefore, a new growth engine is needed. Clayton M. Christensen et al. (2019) in their book, *The Prosperity Paradox*, stated that a nation's capability to innovate and create new markets (market-creating innovations) will foster sustainable national prosperity.
On various occasions, most recently at a limited cabinet meeting (February 6, 2020), President Joko Widodo emphasized the importance of a clear concept and roadmap to ensure Indonesia's competitive innovation capabilities. To achieve this, the president continued, not only a clear roadmap but also the country's innovation ecosystem must be improved. What does Indonesia need to do to develop the right innovation ecosystem?
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The World Economic Forum (WEF) annually releases the Global Competitiveness Report (GCR). Overall, Indonesia ranked #34 in 2014-2015 and gradually declined to #50 in 2019 (down five places compared to 2018). Of the 12 indicators, only the market size indicator consistently and convincingly rose to #7. Its large population and high domestic demand, coupled with a growing middle class, have caused Indonesia's economy to expand year after year, with Standard Chartered Plc predicting it will become the world's fifth-largest by 2030.
Interestingly, 11 other indicators consistently declined, including the last indicator: innovation capability (#74 in 2019, #68 in 2018). Singapore ranked #13, followed by Malaysia (#30), Thailand (#50), and Vietnam ranked slightly below Indonesia (#76). Of the several sub-indicators on innovation capability, Indonesia ranked #116 in R&D expenditure (Malaysia #24). The second lowest position was international co-inventions, at #98 (Malaysia #34). The Ministry of Research, Technology, and Higher Education's program in the First Working Cabinet regarding World Class Universities (WCU) resulted in increased research institution prominence (#53 in 2018 to #45 in 2019). Specifically for scientific publications, 60-80% of total publications of Cluster I universities occurred in the last 5 years, which caused the position of scientific publications to rise from #58 (2018) to #56 (2019).
The productivity of scientific work in universities has increased significantly, but its downstream utilization has not been very visible and has been a constant concern for the government, from the New Order era to the post-reform era. This is not only true in Indonesia, but also globally, and everyone understands that government investment in improving innovation capabilities is not short-term. In the long term, this investment will bring prosperity to the nation. Innovation capability itself does not depend solely on universities, the government, or industry; it also depends on our ability to orchestrate the innovation ecosystem so that basic research can be transformed into applied research and can be immediately utilized by the public.
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Until now, we've treated innovation as a system, not an ecosystem. Consequently, innovations operate as separate silos. Indonesian universities are racing to increase the number of scientific publications in Scopus-indexed journals (+60% of the WCU indicator), yet the linkage between innovation and industry is relatively low.
The Creative Economy Agency (BKR) still handles its growing and developing startups partially and tends to compete with other ministries and state institutions (K/LN). OJK regulations require a minimum of two years of existence and a demonstrated profit to qualify for financing from Indonesian financial institutions. These regulations are not startup-friendly. The role of the government (central, provincial, and city) is to create an attractive and challenging ecosystem for creative industry players. Within this ecosystem, universities are only one component that feeds creativity and the creative class.
As the world becomes increasingly volatile, uncertain, complex, and ambiguous (VUCA), most organizations lack the resources to develop and commercialize innovative products without engaging others. This underpins the importance of innovation ecosystems, comprised of diverse organizations, whose relationships are semi-permanent and bound by data, services, and capital; collaborating, competing, and complementing each other; and coevolving with each other based on dynamic capabilities and relationships over time.
The ecosystem pie model (EPM) proposed by Talmar et al. (2020) in the journal Long Range Planning has been tested over 260 times, yielding optimal results. This model consists of four dimensions shared by each organization, each of which is interconnected to develop the existing innovation ecosystem: resources (R), activities (A), value-added (VA), and value capture (VC). For example, the innovation ecosystem to be developed is electric public transportation (buses). This innovation was chosen based on the presence of 17 major cities with populations exceeding 1 million in Indonesia, and relying solely on private cars would require significant resources (costs and energy) and generate high levels of pollution.
This ecosystem requires the involvement of technology development teams (universities), electric battery manufacturers, bus manufacturers, local governments (cities), electric charging stations, bus operators, and financing institutions (banks). The R (R) possessed by the PT is knowledge of technology and how to build a good transportation system, as well as copyrights and facilities for further R&D. The A (R) is building applications from the technology owned and assembling them for operation. The PT offers VA by providing electric vehicle technology. The income from licensing the technology used constitutes the VC obtained.
What is the role of the city government? The R (Regulatory Rights) are the rights to manage public transportation and provide subsidy funds from local taxes. A (Regulatory Rights) can include tendering for electric bus management with zero-emission requirements. The VA (Variable Interest) can be achieved by establishing regional regulations mandating the use of electric buses and providing incentives in the form of a three-year tax exemption. The VC (Variable Interest) is obtained in the form of reduced emissions in the managed city, which will improve the health and satisfaction index of city residents.
Electric battery factories have the facilities (R) to produce batteries, as well as the supply chain and copyrights to produce them. The industry produces electric buses with batteries that have a minimum range of 500 km per charge (A). VA represents the economies of scale in producing electric buses, and VC represents the profit from each electric bus sold. Banks certainly have capital resources (R) that can be allocated to all actors in the electric public transportation (bus) ecosystem. Activity (A) involves distributing capital to actors who win tenders, with VA in the form of competitive interest. The VC is in the form of business profits. Of course, at the activity level, each actor can help each other to accelerate existing implementation. For example, battery manufacturers and banks request tax reductions if they are involved in this ecosystem, or universities request facilitation from battery manufacturers so that their students can have internships or their applied research funded, and so on.
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On several occasions, President Jokowi has emphasized the need to downstream research and innovation produced by universities. This hope tends to be difficult to achieve because the perspective used is still based on an innovation system, not an innovation ecosystem.
Using the EPM framework to develop an innovation ecosystem will facilitate the government's orchestration. This begins with identifying the key players within the ecosystem, then analyzing resources (R), activities (A), value added (VA), and value captured (VC). As a result, the total linkage effect generated by the innovation ecosystem will be able to become a new driving force for economic growth in Indonesia.
And most importantly, real government support through regulations (R) and several facilities is a necessity. As done by the Indian Government, which successfully placed Bangalore #18 (up 2 places compared to the previous year) as the city with the best innovation ecosystem (Global Start Up Ecosystem Report). The Top 5 remains occupied by Silicon Valley, New York, London, Beijing, and Boston. This rise in position is partly due to the real commitment given by Indian Prime Minister Narendra Modi in 2015 by launching Start Up India which emphasizes new innovations in various fields (not only digital) with high added value. Facilities provided include 3 years of tax holidays, funding of up to Rs. 2,500 crore (+ Rp. 5.4 trillion) and a credit guarantee of Rs. 500 crore (+ Rp. 1.08 trillion). In addition to requiring patents (it only takes 3-6 months to apply for approval), recommendations from business incubators and legal drafting managed by universities make the ecosystem built more conducive and comprehensive. The existence of an innovation ecosystem in Indonesia needs to be included in the Job Creation omnibus law so that its impact on national independence and prosperity is truly tangible.
Source: https://kompas.id/baca/opini/2020/03/10/ekosistem-inovasi/