BADRI MUNIR SUKOCO, Professor, Faculty of Economics and Business, Director of Postgraduate School Universitas Airlangga
Earlier this month, President Joko Widodo said that Indonesia needs to prepare an alternative strategy to get out of the middle income trap and become a developed country. The strategies used by developed countries are less than optimal in making Indonesia a developed country.
This President's belief is in line with South Korean economist, Ha-Joon Chang.
In his book, Kicking Away the Ladder (2003), comprehensive thinking based on data shows that developed countries, either directly or indirectly, will prevent developing countries from becoming developed. An alternative strategy is needed to do this.
The President emphasized that Indonesia must be a trendsetter (creating trends), not follower . The trend in question is related to technology-based innovation. What is Indonesia's strategy to become a trendsetter ?
Innovation index
The first step is of course to look at Indonesia's innovation position relative to other countries. The 2021 Global Innovation Index (GII) could be one source. Measuring the capacity to innovate (input) and the output produced, this index can be the basis of a national innovation strategy.
Based on economic groups, GII 2021 places Switzerland, Sweden and the US in the top positions of high-income countries . For upper middle-income , China occupies the top position, followed by Bulgaria and Malaysia.
Indonesia is ranked 25th (out of 34 countries in the upper middle-income ) and the overall ranking is 87th (out of 132 countries). Of course it is interesting to observe the improvement in China's position – 12th place (2021) from 15th place (2019).
Moreover, the Harvard Business Review article (Abrami et al., 2014), "Why China Can't Innovate," emphasizes their inability to innovate.
The dominance of e-commerce, smartphones, home appliances, computers (artificial intelligence), medical devices, solar panels and wind energy from Chinese companies strengthens their position in GII 2021.
The above achievements certainly cannot be separated from the national policy Made in China 2025 (MIC 2025) which focuses on 10 strategic industries. In terms of input, for example research, the government's funding allocation is quite large for the above fields.
The result is that scientific publications (on average four times as many as the US produces) are the basis for the creation of technology patents. This technology patent is what entrepreneurs commercialize to offer products to the domestic market and then to the global market.
Of course, the role of quality universities has become a priority agenda since 2025. Superior human resources not only produce competent workers, but also young entrepreneurs who are able to downstream the technology-based innovations that have been produced.
Data from the Chinese Statistics Agency shows that every day in 2016 an average of 15 thousand new companies were registered so that 5.4 million new companies were registered.
Tech startups are booming as incubators and venture capital grow and develop as China's innovation locomotive.
According to Greeven et al (2019), the combination of a large domestic market with a middle-income class , intense competition with millions of entrepreneurs, and dynamic government regulations will facilitate the realization of swarm innovation .
Millions of young Chinese entrepreneurs collectively innovate on the same business opportunities (using the ATM principle – observe, imitate and modify) pushing technology and market boundaries to new levels.
This is different from the innovation strategies of developed countries which rely on unique opportunities as the basis for differentiation and competitive advantage. When markets change, the collective innovation that results is superior because of the agility and speed that results.
Recommendation
The President promised to carry out economic transformation and make Indonesia a high value added producer. High added value requires technology-based innovation. There are two strategies that have proven successful in making the country a trendsetter .
Developed countries rely on innovation from niches (differentiation) and grow as the market becomes more educated. China's innovation strategy relies on its "herd" of entrepreneurs, who are driven by the same opportunities in the market to accelerate the innovation produced.
The large domestic market means that Chinese innovators are able to respond quickly to market needs and modify them so that the resulting innovations match, or even outperform, products from developed countries.
Indonesia can choose one or mix and match strategies to become a trendsetter . Focusing on certain areas, according to innovation capabilities and available markets, will strengthen the innovation trends that Indonesia will produce.
Let us not be proud of our large market size, but only be followers of even the largest market for other countries' products. This, according to Ha-Joon Chang, perpetuates the status of a developing country without being able to become a developed country.
