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Badri Munir Sukoco
Professor at the Faculty of Economics and Business
Universitas Airlangga

In general, Indonesia's economic growth is relatively stable (between 5.1% and 5.5%) and is predicted to be above the world growth average (2.6%) this year. Of course, this stability is something to be grateful for when many countries have economic growth that is the same or even lower than the world average.

However, with this growth rate, it will be difficult for Indonesia to accelerate and escape the middle income trap. This was stated by the Minister of Finance Sri Mulyani mid last year. For this reason, a new growth engine is needed. Clayton M. Christensen et al. (2019) in his book, The Prosperity Paradox, states that the nation's capability to innovate in creating new markets (market creating innovations) will create sustainable prosperity for the nation.

On various occasions and most recently at a limited cabinet meeting (6 February 2020), President Joko Widodo emphasized the importance of a clear concept and roadmap so that Indonesia's innovation capabilities are competitive. In order to make this happen, the president continued not only to have a clear roadmap, but also to improve the innovation ecosystem in Indonesia. What does Indonesia need to do to develop the right innovation ecosystem?

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The World Economic Forum (WEF) annually issues the Global Competitiveness Report (GCR). In general, Indonesia was #34 in 2014-2015 and gradually fell to #50 in 2019 (down 5 places compared to 2018). Of the 12 existing indicators, only the market size indicator consistently and convincingly rose to #7. The large population and high domestic demand along with the increasing middle class make the size of the Indonesian economy grow from year to year, and it is even predicted that in 2030 it will become the 5th largest in the world by Standard Chartered Plc.

Interestingly, 11 other indicators consistently fell, including the final indicator: innovation capability (#74 in 2019, #68 in 2018). Singapore is ranked #13, followed by Malaysia (#30), Thailand (#50), while Vietnam is ranked slightly below Indonesia (#76). From several sub-indicators on innovation capability, Indonesia ranks #116 in R&D expenditure (Malaysia #24). The second lowest position is international co-inventions, namely #98 (Malaysia #34). The Ministry of Research, Technology and Higher Education's program in Working Cabinet I regarding World Class Universities (WCU) has had an impact on increasing research institution prominence (#53 in 2018 to #45 in 2019). Specifically for scientific publications, 60-80% of PT Kluster I's total publications occurred in the last 5 years, this is what caused the position of scientific publications to rise from #58 (2018) to #56 (2019).

The productivity of scientific work in higher education has increased significantly, but its application (downstreaming) has not been very real and has always been a concern for the government, since the New Order until post-reformation. Not only in Indonesia, this is also the case globally and everyone understands that government investment to increase innovation capabilities is not short term. In the long term, this investment will provide prosperity for the nation. Innovation capability itself does not only depend on universities, government, or industry; However, it depends on our ability to orchestrate the innovation ecosystem so that the transformation of basic research into applied research can be immediately utilized by society.

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So far, we have treated innovation as a system, not as an ecosystem. As a consequence, innovation is like silos that work separately. Indonesian universities are competing to increase the quantity of scientific publications in Scopus indexed journals (+60% of the indicators in WCU), but the link between innovation and industry is relatively low.

Start-ups that are currently and have been developing are handled by the Creative Economy Agency, which still functions partially and tends to compete with other Ministries or State Institutions (K/LN). There are OJK regulations that require a minimum of 2 years of existence and demonstrated profits in order to be financed by financial institutions in Indonesia. These regulations are not start-up friendly. The role of government (both central, provincial and city) is to create an attractive and challenging ecosystem for creative industry players. In the ecosystem, universities are only one part of the ecosystem that supplies creativity and the creative class.

As the world becomes increasingly volatile, uncertain, complex, and ambiguous (VUCA), most organizations do not have the resources to develop and commercialize their innovative products without involving others. This is what underlies the importance of innovation ecosystems, which consist of various organizations; the relationship is semi-permanent and bound by data, services, and capital; collaborate, compete and complement each other; and coevolve with each other based on dynamic capabilities and relationships over time.

In the ecosystem pie model (EPM) proposed by Talmar et al. (2020) in the journal Long Range Planning, more than 260 test iterations have been carried out with the most optimal results. This model consists of 4 dimensions owned by each organization which bind themselves to grow the existing innovation ecosystem: resources (R), activities (A), value-added (VA), and value capture (VC). For example, the innovation ecosystem that will be built is electric public vehicles (buses). This innovation was chosen based on the existence of 17 large cities with a population of more than 1 million in Indonesia, and if you only relied on private cars it would require large resources (cost and energy) and high pollution.

In this ecosystem, it requires the involvement of technology development teams (universities - PT), electric battery factories, bus manufacturers, local governments (cities), electric charging stations, bus operators and financing institutions (banks). The R that PT has is knowledge of technology and how to build a good transportation system, as well as copyright and facilities to carry out advanced R&D. What is done is to build an application from the technology that is owned and assemble it so that it can be run. PT offers VA by providing electric vehicle technology. The income from licensing the technology used is the VC obtained.

What is the role of city government? The R owned is in the form of the right to manage public transportation and provides subsidy funds originating from regional taxes. What can be done includes tendering for the management of electric buses with zero emission requirements. The VA has established regional regulations to require the use of electric buses and provides incentives in the form of tax exemption for 3 years. The VC obtained is in the form of reduced emissions in the managed city, so that the health index and satisfaction of city residents will increase.

The electric battery factory has facilities (R) to produce batteries as well as a supply chain and copyright in producing them. The industry produces electric buses with batteries that have a minimum cruising range of 500 km per charge (A). VA is in the form of economies of scale in producing electric buses, and VC is the profit from each electric bus sold. Banking certainly has capital resources (R) that can be allocated to all actors in the electric public transportation (bus) ecosystem. Activity (A) takes the form of distributing capital to actors who receive 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 ask for tax reductions if they are involved in this ecosystem or PTs ask for facilitation from battery manufacturers so that their students can do internships or have their applicable research funded, and so on.

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On several occasions, President Jokowi emphasized the need to downstream research and innovation produced by PT. 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 in developing an innovation ecosystem will make it easier for the government to orchestrate it. This starts by identifying who the players should be in the ecosystem, then analyzing the resources (R), activities carried out (A), value added (VA), and value obtained (VC). As a result, the total linkage effect resulting from the innovation ecosystem will be able to become a locomotive of new economic growth for Indonesia.

And the main thing is that real government support through regulations (R) and several conveniences is a necessity. As done by the Government of India, which succeeded in placing 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 increase in position was partly due to the real commitment given by Indian PM Narendra Modi in 2015 by launching Start Up India which focuses on new innovations in various fields (not only digital) with high added value. Facilities provided include 3 years tax free, funding up to Rs. 2,500 crore (+ Rp. 5.4 trillion) and a credit guarantee of Rs. 500 crore (+ Rp. 1.08 trillion). Apart from requiring a patent (it only takes 3-6 months to apply until it is approved), recommendations from the business incubator along with legal drafting managed by the university, make the ecosystem being 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 the nation's independence and welfare is real.

Source: https://kompas.id/baca/opini/2020/03/10/ekosistem-inovasi/