Indonesia's Challenges in Facing Industry 4.0

Jakarta, 10 August 2023 – The emergence of the industrial revolution 4.0 has changed many things in various sectors, which initially required many workers to run their operations, now replaced by the use of technological machines.

The Industrial Revolution 4.0 or often called the cyber physical system emerged in the 21st century is a revolution that focuses on automation and collaboration between cyber technologies. Its main characteristic is the incorporation of information and communication technology into the industrial field.

Industry 4.0 was first coined at the World Economic Forum (WEF) in 2015 by German Chancellor Angela Merkel and WEF "founder" Klaus Schwab who believe the world is now entering industry 4.0. or often referred to as Industry Cyber Physical System.

Entering the industrial era 4.0 means facing advances in the field of information technology that produce disruptive potential that has a major impact on business models and industrial management from the production process to the distribution of goods to consumers.

Schlechtendahl et al (2015) define an industrial revolution that emphasises the speed element of the availability of information, namely an industrial environment where all entities can always be connected and able to access various information easily between each other.

To face the industrial era 4.0, it is necessary to study 6 components of Driver Production which include technological readiness and innovation, human resources, global trade and investment, institutional framework, sustainable resources and demand conditions.

Currently, Indonesia's position in facing the industrial era 4.0 is considered to be at the nascent level, which has weak adaptability to the technological era 4.0.

In terms of technological readiness and innovation based on data from the Unesco Institute for Statistics, Indonesia's research & development (R&D) expenditure is only around 0.1 per cent of GDP or around USD 2,130.3 billion using the Arta Yasa Parity approach to GDP calculation. 25.68 per cent of R&D spending in Indonesia is done by the business sector, 39.4 per cent by the government and 34.92 per cent by universities. The number of researchers is also very small at around 89 people per 1 million population.

This is very small compared to Malaysia and Singapore which allocate R&D expenditure of around 1.3 per cent and 2.2 per cent of GDP respectively and are dominated by the business sector.

This means that if we want to catch up, we need a very strong effort and political will driven by the government as a catalyst for change and facilitator to support the increase of R&D for technological readiness and innovation. 

According to R&D World, Indonesia is the country with the lowest research budget-to-GDP ratio, at just 0.24 per cent in 2022. The ratio of research development to GDP varies from country to country, with a high of 4.8 per cent (Israel) to a low of 0.24 per cent (Indonesia) for the top 40 research spending countries.

According to the OECD, in the area of reading, about 27 per cent of Indonesian students have a competency level of 1b, a level where students can only complete the easiest text comprehension tasks, such as picking out information that is stated explicitly, for example from the title of a simple and general text or from a simple list.

They show proficiency in some sub-skills, or basic elements of reading literacy, such as literal sentence comprehension, but are unable to synthesise and apply these skills to longer texts or make simple inferences.

In mathematics, around 71 per cent of students did not reach the minimum competency level in mathematics. This means that many Indonesian students struggle with situations that require problem-solving skills using mathematics. Usually they are unable to do arithmetic calculation problems that do not use integers or problems where the instructions are not clear and well detailed.

In science, 35 per cent of Indonesian students are still at competency level 1a and 17 per cent at lower levels. Competency level 1a refers to students' ability to use general material and procedural knowledge to recognise or distinguish explanations of simple scientific phenomena.

With support, they are able to initiate scientific investigations using a maximum of two variables, such as input variables and output variables. They are able to distinguish simple cause and effect relationships and interpret graphical and visual data requiring only low-level cognitive skills. Students at level 1a are able to select the best scientific explanation of data presented in a general context.

Until now, the quality of human resources in Indonesia is still relatively low. BPS data shows that the workforce in Indonesia is still dominated by elementary school graduates and below (no/never been to school/not yet graduated from elementary school), at 39.10 per cent (February 2022). Workers with junior high school education amounted to 18.23 per cent, senior high school 18.23 per cent and vocational school 11.95 per cent.

Meanwhile, workers with a diploma I/II/III and university education only account for 12.6 per cent (BPS, 2022). One of the important factors in improving the quality of human resources is education and training that can adapt to social changes in society.

The data related to unemployment based on the latest education is dominated by SMK at 10.38 per cent (February 2022). Unemployment with primary school education and below was 3.09 per cent, junior high school was 5.61 per cent, high school was 8.35 per cent. Meanwhile, unemployment with the last diploma education was 6.09 per cent and university was 6.17 per cent (BPS, 2022).

In terms of global trade and investment, Indonesia must expand its trading partners. Trade partners are concentrated among ASEAN countries with a share of 21.51 per cent, then China at 15.14 per cent, the US at 10.79, the European Union at 10.58 per cent, and Japan at 10.23 per cent and the rest are other countries.

A solid inter-institutional framework still needs to be built to face the tough work in the industrial era 4.0, which is full of competition and the speed of change between sectors. The provision of sustainable resources, especially in energy, needs strong efforts and political will amidst the dominance of primary commodities as products that dominate exports.

The potential of non-fossil energy, such as geothermal, hydropower, solar thermal is very available in Indonesia, however, without political will and strategic measures to shift energy use it is impossible for us to produce sustainable resources in all fields.

With such a large population, it is ironic that we have not been able to utilise the domestic market. If the domestic market is able to absorb domestic products, it will definitely create a large scale of production that results in low average production costs and will result in prices that are competitive with foreign products.

Changes in consumer tastes for domestic goods and the ability of the domestic supply side to attract domestic consumers require enormous effort. The role of the government as a facilitator and buffer for the industrial sector and a catalyst for changes in consumer tastes is absolutely necessary.

In the midst of six weak production drivers, Indonesia is considered a success in digital business growth. The growth of digital business (e commerce) recorded at 49 per cent/year is the highest in ASEAN. The economic turnover recorded at Rp 394 trillion is a large enough capital to step into the industrial era 4.0. However, this is not enough because the digital business is only at the programme user stage.

According to data from the Ministry of Communication and Informatics, 82 million people have used the internet in Indonesia, which ranks Indonesia 8th in the world. Of these internet users, 80 per cent are teenagers aged 15-19 years. For Facebook users, Indonesia is ranked 4th in the world.

To enter and face the industrial era 4.0, the government has prepared 10 road maps, namely:

Some points in the road map can be done immediately if there is a strong will of the government such as points 1, 2, 5, 8 and 10. S, while points 3, 4, 6, 7 and 9 in addition to requiring considerable funds also require a long process to complete the 6 production driver requirements.

Referring to the reflection and concept of the road map, it seems that Indonesia is still quite weak to adapt to the industrial era 4.0. There needs to be very revolutionary changes in all fields. Does Indonesia have to force itself to enter the industrial era 4.0 even though it is very possible that our industrial level may still be in industry 3.0 because our exports are dominated by primary commodities. The industrial strategy is instead carried out simultaneously due to the diverse levels of Indonesia's industry and does not only focus on industry 4.0. This is done so that the strategy and achievement targets are more realistic and do not ignore our current position and condition.