Strategic Role of Business Incubators in Driving Indonesia’s Economic Transformation

Indonesia is currently at a crucial juncture with a demographic bonus that could enhance its pool of qualified human resources.

Authors: Tuhu Nugraha and Temmy Debora*

Indonesia is currently at a crucial juncture with a demographic bonus that could enhance its pool of qualified human resources. However, a massive transformation in the economy and technological innovation is necessary to achieve the vision of Golden Indonesia 2045, which targets improvements in the economy, social structures, and infrastructure. Technology startup business incubators play a vital role in this context, not only as centers for developing new innovation-based businesses but also as catalysts for job creation, supporting economic growth, and reducing inequality.

Compared to other countries like China, which had 6,227 entrepreneurship incubation platforms in 2021 according to the China Business Incubation Development Report published by the Ministry of Science and Technology of China in 2022, Indonesia still has substantial room for growth with only 148 business incubators recorded by the Indonesian Business Incubator Association (AIBI). Enhancing the number and quality of incubators in Indonesia is key to fostering innovation in critical sectors such as healthcare, education, agriculture, and finance. These incubators support the development of a knowledge-based economy and facilitate the creation of competitive solutions to global challenges.

Given the significant potential and need, there is an urgency to develop more business incubators that can offer products and services that improve the quality of life and support Indonesia’s ambitions for environmental sustainability and social welfare. Strategies that can be implemented include enhancing cooperation between local governments and the private sector, integrating with universities, and forming international partnerships to accelerate growth and innovation. With this approach, business incubators can be a major driver in achieving Indonesia’s goal of becoming a high-income country by 2045. Here are the strategies that can be implemented to increase the number and quality of technology startup business incubators in Indonesia, divided into six subtopics.

Human Resource Development (HRD)

Considering the crucial role of incubators in supporting the sustainable growth of the startup ecosystem in Indonesia, AIBI as a leading association plays a strategic role in ensuring effective HRD. Therefore, AIBI needs to take proactive steps in providing special certification for incubator management, which will help improve operational standards and the effectiveness of business incubators nationwide.

Furthermore, given the important role of mentors in the startup ecosystem, AIBI must strengthen training for mentors by collaborating with educational institutions and industry professionals to develop training modules focused on current industry needs, such as digital marketing, product development, and data analysis. Special training for mentors should include effective mentoring methods, inspiring communication techniques, and strategies for delivering constructive feedback.

To enhance the synergy between AIBI’s activities and national development policies, the government needs to actively partner with AIBI. This collaboration will ensure that the development of incubators and the nurturing of startups are aligned with national interests, such as achieving Golden Indonesia 2045. This partnership will not only enhance the effectiveness of the programs implemented but also expand their reach and impact on the national economy.

The partnership between the government and AIBI will enable the implementation of more coordinated and integrated policies, supporting innovation, and creating jobs that will contribute to economic growth and reduce inequality. This joint initiative will be a crucial step in supporting the vision of Indonesia to become a high-income country by 2045, while fully leveraging the potential of the current demographic bonus.

Government Funding and Incentives for Tech Startups

Governments play a crucial role in nurturing the technology startup ecosystem through the provision of funding and tax incentives. These funds can be utilized to build infrastructure for incubators, purchase essential equipment, and cover operational costs. Tax incentives aim to attract private investment, including income tax reductions on investment profits and property tax exemptions for incubator locations. For instance, the city government of Solo has collaborated with NVIDIA and Indosat to develop an artificial intelligence (AI) center at Solo Techno Park, demonstrating how local governments can leverage cutting-edge technology and support local innovation.

Local governments actively support incubators by providing land and facilitating local partnerships, as well as implementing specialized funding programs for startups. These initiatives create a conducive environment for the growth and sustainability of the startup ecosystem in the region. Another example to consider is the strategy implemented by the Government of South Australia, which includes the launch of the SA Startup Voucher Scheme providing vouchers worth AUD 10,000 for business development, and the SA Venture Capital Fund with AUD 100 million in venture capital for high-potential startups. Additionally, an Angel Investor Network has been established to connect startups with investors.

In terms of facilities, the government has established workspaces such as LaunchPad and Hub Adelaide that not only provide office space and internet access but also function as innovation hubs offering mentoring, training, and access to investor networks. Regional incubator development also supports startups outside the metropolitan area of Adelaide. Furthermore, accelerator programs are designed to fast-track startup growth through intensive mentoring and training, and Export Market Development Grants are offered to help companies market their products and services internationally, along with Innovation and Adoption Vouchers to facilitate the adoption of new technologies.

The initiatives undertaken by the Government of South Australia can serve as a benchmark for local governments in Indonesia to collaborate and synergize with the private sector in developing business incubators and supporting startups. This collaboration will strengthen local capacity to meet global economic challenges and support sustainable innovation, thereby bolstering the entrepreneurship ecosystem in Indonesia.

Special Programs for Priority Sectors and Clusters

To transform from a heavy consumer to a global innovator, Indonesia needs to focus on developing five strategic sectors identified in the “Digital Indonesia Vision 2045” book, namely financial services, trade and retail, manufacturing, agriculture, and marine. Each of these sectors offers significant growth potential and the capacity to transform the national economic foundation into one that is more innovative and sustainable.

In the financial services sector, the development of fintech technologies like digital payments, blockchain, and insurtech is expected to enhance access and efficiency in financial services. Meanwhile, in the trade and retail sector, the use of e-commerce and big data analytics will help deepen consumer preferences and improve logistics and supply chain management. In manufacturing, the integration of technologies such as the Internet of Things (IoT), AI, and robotics is expected to optimize production and industrial efficiency.

Agriculture will benefit from the adoption of smart farming that uses sensors, AI, and big data for resource optimization and yield improvement. For the marine sector, new technologies will increase fishing efficiency and resource management, while also supporting biodiversity conservation.

Moreover, it is vital to form industry-specific clusters tailored to local ecosystems including available talent and supporting infrastructure. For instance, the BSD area has been designated as the National Center for Biomedical Digital Education (PSN), showing great potential to become an incubation cluster in the health tech sector. Establishing such clusters will facilitate stronger synergy between the government, large companies, and research institutions, supporting the development of research and innovation that can compete in the global market. With a coordinated and integrated approach, Indonesia is strategically positioned to secure its place as an innovative global economic power by 2045.

Campus and Industry Integration through Incubators

Integrating campuses with the industry through the development of incubators is an extremely effective strategy in facilitating innovation and entrepreneurship among students. Campuses serve not only as educational centers but also as hubs for cutting-edge research and innovative young human resources. Establishing incubators within campus environments creates significant opportunities to directly connect students with industry needs and challenges through internships, practical work, and applied research projects.

A notable example is NUS Enterprise in Singapore, the country’s largest campus incubator, which has successfully supported the entrepreneurial development of students from various disciplines. NUS Enterprise has demonstrated how incubators can play a key role in fostering strong relationships between academia, industry, and government. Through this collaboration, the incubator organizes various events and programs that support startup growth.

Key programs from NUS Enterprise designed to accelerate startup growth by providing resources, mentorship, and access to investment networks. Additionally, The NUS FinTech Centre focuses on developing innovative solutions in financial technology, and The NUS Smart Nation Initiative aims to develop technologies that support the concept of a smart city. These programs not only promote innovation but also prepare students to be future leaders capable of providing solutions to real-world problems.

Models like NUS Enterprise can inspire universities in Indonesia to develop incubators that are not just theoretical learning spaces but also centers of innovative activity that support the practical application of knowledge to industry and societal challenges.

International Partnerships

Strategic international partnerships in developing Indonesia’s startup ecosystem can be facilitated by the Indonesian Business Incubator Association (AIBI). AIBI plays a crucial role in paving the way for collaborations between local incubators and renowned institutions from countries with mature startup ecosystems such as the United States, Singapore, and Germany. For example, partnerships with entities like Y Combinator and Techstars in the United States, or NUS Enterprise in Singapore, and Factory Berlin and Betahaus in Germany, can provide Indonesian startups with access to global innovation and international investor networks.

In facilitating these partnerships, AIBI can function as a bridge between local startups and global stakeholders, ensuring that Indonesian startups receive the exposure and resources needed to grow their businesses. Additionally, AIBI also coordinates accelerator programs, knowledge exchanges, and mentorship initiatives involving experts from various fields, thus helping to accelerate the growth and success of domestic startups.

Connecting local stakeholders with international partners through AIBI not only strengthens the innovative capacity of Indonesian startups but also opens opportunities to compete and collaborate in the global market. Such partnerships will encourage technology transfer, capability enhancement, and integration with global industry trends, all crucial for national economic growth and innovation.

The development and enhancement of quality technology startup incubators will not only positively impact economic growth but also expand employment opportunities and innovation in Indonesia. With the right strategies and support from various sectors, business incubators can become a crucial pillar in achieving Indonesia’s vision for 2045.

*Temmy Debora, CEO and Founder, & part of Chain Reaction Web 3, AI incubator

Tuhu Nugraha
Tuhu Nugraha
Digital Business & Metaverse Expert Principal of Indonesia Applied Economy & Regulatory Network (IADERN)