Survei Aprindo

APINDO Policy Series
Vol. P.001/DPN-EUKAJ-III/2014
STRENGTHENING BUSINESS
COMPETITIVENESS FOR
A PROSPEROUS INDONESIA
Findings from APINDO's 2014 Survey on
Business Competitiveness in Indonesia
RIANDY LAKSONO
MAYA SAFIRA
ii COMPETITIVENESS FOR
Dewan Redaksi ACKNOWLEDGEMENT

Pelindung: APINDO – EU ACTIVE working papers are issued in joint
Hariyadi B.S. Sukamdani cooperation between Indonesia Employer Association
(APINDO) and Advancing Indonesia's Civil Society in Trade
Pembina: and Investment (ACTIVE), a project co-funded by the
Chris Kanter, Suryadi Sasmita, European Union. ACTIVE project aims to strengthen
Shinta Widjaja Kamdani, Sanny Iskandar APINDO's policy making advocacy capabilities in preparing
the business environment and to empower national
Pemimpin Redaksi: competitiveness in facing global integration.
P. Agung Pambudhi
For more information, please contact ACTIVE Team at
Tim Penyusun: active@apindo.or.id or visit www.apindo.or.id
Diana M. Savitri, Riandy Laksono, Maya Safira
M. Rizqy Anandhika, Sehat Dinati Simamora
I.B.P. Angga Antagia, Jefri Butarbutar Adrinaldi
Wahyu Handoko
Penyunting:
Septiyan Listiya Eka R.
APINDO-EU ACTIVE Project Team Members:
Maya Safira (Project Manager)

Riandy Laksono (Lead Economist)
Muhammad Rizqy Anandhika (Economist)
Sehat Dinati Simamora (Junior Economist)
Nuning Rahayu (Project Assistant)
Disclaimer
The content of APINDO-EU ACTIVE working papers is the sole

responsibility of the author(s) and can in no way be taken to reflect
the views of Indonesia Employers Association (APINDO) or its
Copyright (c) APINDO
Strengthening Business Competitiveness for a partner instututions. APINDO-EU ACTIVE working papers are
Prosperous Indonesia preliminary documents posted on the APUNDO website (www.
apindo.or.id) and widely circulated to stimulate discussion and
Published in December 2014 critical comment.
FOREWORD
T
he global competitiveness map is changing right now, as China becomes a more expensive
production location following its rapid wage rise. There is an opportunity for Indonesia to
regain competitiveness in manufacturing exports, thus boosting up Indonesia's welfare. To
tap optimally into this opportunity, Indonesia needs to set the right policies, especially by having
a solid productivity-driven growth strategy. The central piece on the productivity-driven growth
is that Indonesia should revitalize its manufacturing export and Foreign Direct Investment (FDI)
performance, especially FDI that focus more on export market, instead of only domestic market.
To do so, it requires signi icant improvement in the business competitiveness, so that export-
oriented irms are attracted to invest and produce in Indonesia.
APINDO's Survey on Business Competitiveness aims to map the ability of Indonesian irms to
compete in global market by identifying many recognizable business obstacles. This study tries to
complement other existing index and ranking available publicly with a closer look on what matter
the most for Indonesian businesses, especially the aspects central to business competitiveness
such as logistics, infrastructure, and employment regulation in Indonesia. This study also
provides practical recommendation to move Indonesian economy forwards, strengthen business
competitiveness, and stimulate con idence among Indonesian businesses to better compete in
the international market. In long term, this study is expected to become a systematic mechanism
to monitor dynamic and development of competitiveness in Indonesia.
Overall, we convey our appreciation to APINDO – EU ACTIVE Project Team who has successfully
delivered this policy study, especially to Riandy Laksono and Maya Sa ira as the authors. We hope
our study can contribute a signi icant input on improving further business competitiveness and
investment climate for a prosperous Indonesia.
Hariyadi B.S. Sukamdani Chris Kanter

General Chairman Secretary of APINDO Advisory Board
The Employer's Association of Indonesia APINDO – EU ACTIVE Project Holder
(APINDO)
iv COMPETITIVENESS FOR
TABLEOF CONTENTS
Acknowledgement................................................................................................................................ii
Foreword..............................................................................................................................................iii
Table of Contents.................................................................................................................................iv
A. A One Time Window of Opportunity...........................................................................................2
B. About the APINDO's Business Competitiveness Survey............................................................5
C. Indonesia's Business Environment 2014.................................................................................6
C. 1. Major Roadblock to Business Competitiveness: an Insight for Policy
Prioritization...............................................................................................................................6
C. 2. Labor Market Condition: Rigid Regulation, Low Compliance, and Shortage of Skilled-
Workers......................................................................................................................................11
C. 3. Infrastructure and Logistics.................................................................................................17
D. Business con idence and moving forward beyond 201.………….…………………........................22
D. 1. Indonesian businesses are ready to face tighter competition in AEC 2015………..............22
D. 2. Perception on the effect to Indonesian business sector if FTA between Indonesia and
European Union is being implemented……….......…..........................................................................23
D. 3. Business Prospect: Politics and Global Situation……..............……………………………………....24
D. 4. Policy Recommendation on Strengthening Business Competitivene.....................................27
References...........................................................................................................................................31
Appendices..........................................................................................................................................32
COMPETITIVENESS FOR 1
STRENGTHENING BUSINESS COMPETITIVENESS

FOR A PROSPEROUS INDONESIA
Findings from APINDO's 2014 Survey on Business Competitiveness in Indonesia
Key Findings:
Ø The large gap on income growth path across countries is best explained by the differences in
their labor productivity level. As Indonesia aspires to be one of the high-income countries in
the near future, it needs to develop productivity-driven growth strategy, with robust business
competitiveness as its core element.
Ø Business licensing, customs procedures, access to inance, logistics infrastructure, and
availability of skilled workers are among the top 5 major impediments to business
competitiveness. There is the case that SMEs and large enterprises tend to perceive a different
degree of severity for each problem.
Ø Indonesia's current position of competitiveness is perceived lower than that of other
developing Asia countries, however business sees a quite positive trajectory in place.
Ø Logistics infrastructure and legal certainty are the competitiveness elements that have the
poorest performance among others, while political stability and macroeconomic policy are
the best performer.
Ø Labor market condition in Indonesia is among the most rigid in the region where regulations
concerning the creation and termination of employment relationships are relatively costly.
Ø Businesses respond the minimum wage increase mostly through: not recruiting more new
workers for a certain period, passing the cost increase onto the consumers, and investing
more on the technology.
Ø There are evidences of shortage of skilled-labors in Indonesia both at sectoral level as well as
at national level.
Ø The problem in logistics infrastructure in Indonesia does not only lie in the lack of physical
infrastructure, but more importantly also the institutional aspect.
Ø There needs to develop reliable electricity infrastructure, especially at the regional level, to
further boost up the region's development.
Ø Despite low level of business competitiveness and all the impediments facing the business
sector, there is still a quite robust optimism and con idence among private sector.
Government must be able to capitalize this opportunity to attract higher investment rate that
can contribute to faster income growth the government aspires at, and to translate it as a
foundation to perform any necessary bold measures to improve business
competitiveness–even though it's a hard thing to do. The government must keep its
consistency to do necessary reform and do it as soon as possible; before the political capital
begins to slower, and business con idence will not be that high anymore.
2 COMPETITIVENESS FOR
A. A One Time Window of Indonesia, on the other hand, only

recorded modest income growth and
Opportunity never touched the rapid growth rate
experienced by those countries that
ndonesia aspires to close the gap overtook its position (see Figure 1)
I with high-income countries, boost

prosperity, and avoid the middle-
income trap.
These are ambitious but achievable goals,
especially if we put historical perspective
The period of 2000's is a very crucial
period. This is the period where China's
income inally leapfrogged Indonesia's. It
should be of note that before Asian Financial
into the context. Indonesia started at the Crisis (AFC), Indonesia's income was still
comparable income level with Thailand, well above China and it had arguably set the
Taiwan and South Korea back at the 1950; right track to becoming upper-middle and
China was even way poorer than Indonesia even high-income countries by having a
at that time¹. What happen is that Taiwan robust manufacturing base. However, after
and South Korea–focusing on massive recovering from the AFC Indonesia was kind
investment in human capital, manufacturing of losing grasp to make it back on track. At a
and technology–experienced a very rapid relatively stable period, 2003-2011,
income growth since the second half of Indonesia was very much into commodity
1960's thus leaving Indonesia well behind export, driven by global commodity boom
while they become solid high-income during that period. As opposed to strong
countries in 1990's. manufacturing production and export in
China, Indonesia's manufacturing
This is also true for Thailand in late 80's competitiveness in 2000's was in the
where it outperformed Indonesia and decline, moreover considering the
positioned well above Indonesia in the 90's strategy of Bank of Indonesia to keep
thus better af irming its position as an Rupiah strong at that time.
upper-middle income countries and further
setting the right track on becoming high
income countries in the future. China,
though started signi icantly poorer than
Indonesia, were able to grow very robust
over time and inally managed to record
double digit income growth during the

2000's making it leapfrogged Indonesia in
term of GDP per capita; thanks for its heavy
investment in infrastructure and high
productivity in low-skilled manufacturing
sectors.
1 Income level is measured by GPD per Capita in constant 1990 USD (converted at Geary Khamis PPPs)
FIGURE 1. Income Growth Path in Selected Asian Countries, 1950-2013
GDP per capita of Selected Asia Countries

1950 = 1
30
25
20
15
10
0
1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
China Indonesia South Korea Taiwan Thailand
Note: The igure on GDP per capita uses constant 1990 USD value converted using Geary Khamis PPPs. The growth
path is indexed using 1950's value as a benchmark
Source: The Conference Board, Total Economy Database (January 2014)
Even worse, the policy makers tend to necessary to tame those negative trend
marginalize investment in infrastructure resulted to a slower economic growth rate.
and connectivity, which is very essential for In this decade, Indonesia lost the
manufacturing competitiveness, and prefer m o m e n t u m o f r a p i d g l o b a l
to spur money on highly inef icient petrol manufacturing growth, while China took
subsidy instead. As a result, Indonesia the advantage and dominate global
becomes too dependent on oil import, manufacturing production, especially the
external balance tended to be more low-skilled manufactured goods. This is
vulnerable to shock, and investors begin to why China could boost its income so rapidly,
l o s e c o n i d e n c e w i t h I n d o n e s i a ' s while Indonesia's stayed modest at the
fundamental. What happen in the following 2000's.
years was that investors tended to opt out,
making Indonesia's Rupiah depreciated The diverging income growth path between
signi icantly, current account de icit widen those countries is best explained by two
at a rate never seen before in the last decade, factors: the difference in their labor
and eventually all contractionary policy p ro du c t iv i t y leve l a n d sh a re o f t h e
population employed². Latest research show opportunity by having right policies,

that 92 percent of the differences in GDP per Indonesia is predicted to be able to capture
capita across countries are explained by 10% of China's 2012 market for labor
differences in labor productivity (IMF 2013). intensive manufactures (Papanek, et.al.
Thereby, for Indonesia to have a rapid 2014). In reverse, if Indonesia fails, it would
income growth in order to close the gap be there for other competitors, like Vietnam,
with other high-income countries and Bangladesh, and other less-developed
avoid middle-income trap, it needs to countries, to tap into this golden opportunity
develop a solid productivity-driven and using it to leapfrog Indonesia sometime

growth strategy. The central piece on the in the near future. As depressing as it sounds,
productivity-driven growth is that Indonesia Indonesia then might well get trapped in the
should revitalize its manufacturing export lower-middle income status for quite a time.
and Foreign Direct Investment (FDI)
performance, especially FDI that focus more Given limited resources to deal with these
on export market, instead of only domestic global challenges and opportunities, it is
market. To do so, it requires signi icant indeed a tough task for policymakers to
improvement in the business competitiveness, m a ke t h e r i gh t d e c i s i o n o n h o w to
so that export-oriented irms are attracted to s t r e n g t h e n I n d o n e s i a ' s b u s i n e s s
invest and produce in Indonesia. Even more competitiveness in order to boost country's
important, Indonesia needs a much stronger p ro d u c t iv i t y. A P I N D O' s S u r vey o n
business competitiveness environment than Business Competitiveness seeks to dig
its competitors, especially other developing deeper on the obstacles that have long
Asia countries. s t a l l e d b u s i n e s s a dva n c e m e n t i n
Indonesia so that policymakers and
Indonesia can't afford to stay too long as a businesses can have a more complete and
lower-middle income country. It needs to deeper view regarding what aspects that
raise the income of its people and especially should be improved to better compete in
of the poorer 40% of the population. It has to a more globalized world economy. This
also ensure more and better employment study tries to complement other existing
creation to feed the young-new workforce index and ranking available publicly with a
entrants. Indonesia only has this one time closer look on what matter the most for
window of opportunity. Demographic Indonesian businesses, especially the
bonus, the era where we can easily ind aspects central to business competitiveness
abundant source of productive workers, will such as logistics, infrastructure, and
b e s t o p p e d b y 2 0 3 0 . T h e g l o b a l employment regulation in Indonesia. This
competitiveness map is changing right now, s t u d y a l s o p r o v i d e s p r a c t i c a l
as China becomes a more expensive recommendation to move Indonesian
production location following its rapid wage economy forwards, strengthen business
rise. It presents Indonesia with a potential to competitiveness, and stimulate con idence
regain competitiveness in labor-intensive among Indonesian businesses to better
manufacturing exports. If Indonesia compete in the international market.
m a n a g e s t o m a k e t h e m o s t o f t h i s
Based on GDP per capita decomposition as follows: GDP/population = GDP/workers * workers/population. The
2
irst right-hand side term refers to the aggregate labor productivity, while the second refers to the proportion of total
population employed
B. About the APINDO's

Other major feature of this survey is that it
Business Competitiveness contains special focus to employment policy,
Survey logistics, and infrastructure situation in
Indonesia, and to some extent also a closer
The APINDO's business competitiveness look at the regional level. The argument of
survey is conducted in two simultaneously having these special focuses is that these are
ways: face-to-face interview and online the elements that score rather poorly in
survey. The survey managed to get 106 s e v e r a l g l o b a l s u r v e y, e . g . G l o b a l
respondents that are located in 4 major Competitiveness Index (GCI), Enabling
business districts in Indonesia, namely: Trade Index, Doing Business, etc. For
Medan, Greater Jakarta (Jabodetabek), i n s t a n c e , I n d o n e s i a' s l a b o r m a r ke t
Semarang, and Surabaya. Most of the ef iciency ranks very poorly in the GCI 2014-
th
respondents are the key industry players 2015 that is 110 out of 144 countries (WEF
that operate almost in all regions in 2014). Indonesia, though improving, still
Indonesia, from Sumatera to Papua. ranks below Malaysia and Thailand in Ease
T h e r e f o r e , t h i s s u r ve y i s a r g u a b ly of Doing Business Index, in term of “trading
representative enough to sort of peeling out across border”, which implies the need for
major problems impeding business growth further boosting up trade logistics and
and to having overall view about the recent infrastructure development in Indonesia.
business competitiveness in relative with This study wants to dig and evaluate these
other major competitors of Indonesia, problems deeper by inding more profound
especially in major developing Asia evidence and putting more local context to it,
countries. where possible.
Apart from the general questions asking The survey was conducted from October to
about major impediments to business, one November 2014; the highly political period
of the major features of this survey is that it yet at the same time the period where
asked the respondents to score out business expectation is among the highest as
Indonesia's competitiveness level as compared to other period. The survey is
compared to other developing Asia done within this period in a hope that
countries as our proxy of Indonesia's major respondents will have greater willingness to
c o m p e t i t o r s . T h e a r g u m e n t i s t h a t ill in the questionnaire, noting that this is
competitiveness should not be measured in the right moment to communicate a policy
an absolute-independent term, but it should change to the newly elect government, at the
also be measured in a relative to other time where the political capital is still high.
countries: how good Indonesia is comparing An appendix is devoted to explain more
to other comparable countries. To get a sense about the distribution of the survey
of how to improving business competitiveness r e s p o n d e n t s a n d s t r u c t u r e o f t h e
and invite export-oriented irm to invest and questionnaire.
produce in Indonesia, we have to know deeper
about Indonesia's relative strengths and
w e a k n e s s e s a s c o m p a r e d t o o t h e r
competitors, so that we can have a more solid
evidence on what should be in the policy
prioritization for improvement.
C. I n d o n e s i a ' s B u s i n e s s Respondents, in general, also indicate the

problems in the taxation, legal certainty,
Environment 2014 corruption, electricity, and land-related
problem to have negative impact for their
C.1. Major Roadblock to Business businesses, though not as severe as the
Competitiveness: an Insight p r e v i o u s ly m e n t i o n e d t o p 5 m a j o r
impediments. All of this means high cost
for Policy Prioritization
and serves as major roadblock for
business competitiveness.
There are 5 major impediments that are
perceived by Indonesia's private sectors as Outside the option that has been provided in
having the highest degree of barriers for the questionnaire, respondents also
their businesses (see Figure 2), namely highlight a few of other signi icant
Business licensing (35% of respondents); impediments to business growth, namely
customs procedures and trade regulation currency and raw material. There are 2
( 3 2 % ) ; a c c e s s t o i n a n c e ( 3 0 % ) ; major issues regarding the currency and
infrastructure, transportation and logistics why business might be negatively affected by
(28%); as well as limited availability of that. Firstly, at pre-2011, before the current
skilled-workers (28%). This inding re lects account de icit took place in Indonesia's
largely the situation business sector have to economy and while the commodity was still
deal with in a routine basis. In Indonesia, booming, the Central Bank of Indonesia
u n l e s s w e u s e a s e r v i c e f r o m t h e (Bank Indonesia) had preferred to keep the
agent/brokerage, it will take years in order rupiah strong. It might be good news for the
to get a complete-set of license to be legally importers and the consumers, but it
registered as a business entity in the speci ic certainly hurts the competitiveness of
sectors. It sometime will take weeks for the export-oriented manufacturing irms,
importers to have their products being especially the labor-intensive industry.
loaded from the ship and have them stored in Papanek et.al. (2014) found that from
their warehouse, not solely because of 2008 to 2011, workers “real wage”
congested port and inef icient customs (purchasing power) stayed essentially
procedures, but also stringent trade rules. It the same, but the cost of labor for
is also 2 until 3 times much cheaper for fruit exporters increased 27% because of the
distributors in Jakarta to import orange fruit exchange rate appreciation over that
from China than have it delivered from time. They said that Indonesia's exchange
Medan, because of highly inef icient rate management system at that time
domestic logistics, infrastructure, and seemed to ignore its impact to domestic
transportation system. Entrepreneurs in production, employment, and certainly the
Indonesia are also facing 2 or 3 times higher industrial development.
price of investment credit than in other
major developing countries in Asia, like Secondly, starting from late 2011 until now
China, Malaysia, and Thailand. Furthermore, (2014), rupiah is seeking the way to its new
Indonesia's employers have to pay higher equilibrium level which is attributed largely
mandated wages for a much lower human to the changing dynamism of how the
capital than that of Thailand, Malaysia, and investors are seeing Indonesia's economic
China. fundamental. As investors are in a high
expectation for structural reform measures
a n d p o l i c y b r e a k t h r o u g h f r o m t h e competitiveness instead.
government in order to improve the
economic fundamental, Rupiah is often Another speci ic impediment raised up by
going up and down in a high variability the respondents is the availability of raw and
re lecting largely of how con idence the supporting materials for the industry.
i nve s t o r s a r e w i t h t h e r e f o r m a n d Usually, irms tend to import quality
breakthrough package being launched by materials from abroad as a part of their
the government. Therefore, in this period, production process. The drawback of doing
the stability of rupiah has become a very big this is that it is quite expensive; combined
issue for businesses, especially the ones that with unstable currency, it would inancially
linked intensively with international trade harm the companies. However, reliable
and investment activity. suppliers of raw materials–in term of
production scale and quality–are not yet
The main message here is that keeping the available at the domestic level, so that
currency low to support manufacturing switching to source input domestically is not
competitiveness is essential to be done, a viable option at the moment. There is a gap
however it should not interfere with the between the capacity of local supporting
need to have a signi icant degree of industry (such as raw material suppliers)
stability. That is to say, the central bank of and the potential demand of manufacturing
Indonesia (Bank Indonesia) should not let sector, especially, the light industries, such as
Rupiah moving down very aggressively and textile and apparels. Sourcing the raw
in a high variability in the name of boosting materials domestically would be of their
manufacturing export competitiveness, signi icant bene it, as they will be able to gain
because it will create instability and more given the narrow margin in the lower-
u n p r e d i c t a b i l i t y e n v i r o n m e n t f o r value added market.
b u s i n e s s e s , t h u s h a r m i n g t h e i r
FIGURE 2. Major Obstacles to Business Competitiveness

Major Impediments to Business
Business Regula on (Licensing) 35%
Customs Procedures and Trade Regula on 32%
Access to Finance 30%
Infrastructure, Transporta on, Logis cs (including ICT Infrastructure) 28%
Limited Availability of Skilled-Workers 28%
Legal Uncertainty and Weak Jus ce System, esp related to Business 26%
Taxa on 23%
Labor Regula on 22%
Electricity 21%
Corrup on 11%
Poli cal Instability 10%
Others 9%
Land-related problems 5%
Crime and The 2%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Note: the igure is in the percentage to total respondents

Source: Author's calculation based on APINDO's survey on business competitiveness (2014)
We also found that as the irms' scale the regulation can be ine-tuned so that they
varies, they tend to perceive a different won't get so burdened by the signi icant
degree of severity for each problem compliance cost usually created by excessive
( F i g u r e 3 ) . Fo r s m a l l e n t e r p r i s e s business regulation/licensing. On the other
(employing less than 10 workers), it is the hand, larger enterprises concern more about
access to inance (said more than half of customs, trade regulation, trade infrastructure
respondents), then followed by business and logistics as they are dealing with trading
activities more intensively than SMEs. Labor
licensing (50%) and limited availability of
regulation is also a more pressing issue for them,
skilled workers (43%) that are perceived to
as they have to deal with labor union, high
be the most hampering problems. It still uncertainty in minimum wage setting process, as
h o l d s t r u e fo r t h e c a s e o f m e d i u m well as high severance pay. The main reason why
enterprises (employing 50 to 100 workers), these problems are more prevalent in large
except now they perceive a more balance enterprises than in SMEs might be that pressure
degree on the severity of those problems.³ for compliance to labor regulation is higher
The condition is quite different for the large in large enterprises than in SMEs. Although
enterprises (employing more than 100 SMEs will expectedly be the one that is hurt the
workers), whereby labor regulation, most by high minimum wage and severance pay,
customs procedures and trade regulation, they can still go “underwater” (informal)
without having signi icant pressure for
infrastructure, transportation, and logistics,
compliance because labor union is not that
as well as legal uncertainty are perceived as
powerful in SMEs. Legal uncertainty is
the major impediments for their business. perceivably a more concerning problems for
large enterprise than for SMEs because large
Small-and-Medium Enterprises (SMEs) are enterprises often have to secure million or even
struggling to expand their business billion dollar business transaction, sometimes
scale/activity, that's why the most important with foreign partners, so that they become more
aspects for them is how to get enough demanding for improvement in legal system
inancial support and quality workers to than SMEs do.
help grow their companies, as well as how
FIGURE 3. Major Impediments to Businesses: SMEs Vs. Large Enterprises
Access Infrastructure,
Transporta on,
to Logis cs (include ICT)
Finance
Customs Large
Procedures & Labor
SMEs Trade Regula on Enterprises Regula on
Limited
Business Availability
Licensing of skilled Legal
workers Uncertainty
Notes: SMEs employ less than 100 workers; Large Enterprises employ more than 100 workers
3 Around 35% of respondents in medium enterprises category chooses access to inance, business licensing,
and limited availability of skilled workers as their top 3 major impediments for their businesses.
This survey was asking the respondents on resources yet unlimited, or very high,
how they perceived about the position and expectation from the business sector. The
trajectory of business competitiveness in vertical axis, on the other hand, provides an
Indonesia in general as compared to other insight about the competitiveness trajectory
developing countries in Asia. The tendency in Indonesia, by measuring the extent to
of responses is that in general the current which the respondents felt that the business
position of business competitiveness in competitiveness in Indonesia is improving,
Indonesia is considered worse as in the sense that it is keeping the pace, if not
compared to other developing countries pulling ahead of other developing Asian
in Asia (majority of 49.52% respondents countries over time.
said so), however they felt that at least it
keeps improving over time (61% of At one edge, there are competitiveness'
respondents). It means that though the elements that experience signi icant
current position of competitiveness is still improvement and position well above
lacking to other developing Asia countries, others, included here are political stability,
there's still positive trajectory in place. macroeconomic policy, availability of
clusters, ICT infrastructure, taxation,
This study disaggregates competitiveness inance, and business regulation (group 1 as
indicators into 16 elements (see Appendix depicted in Figure 4). At the other edge,
A). Most respondents perceived that all the t h e r e a r e a l s o t h e e l e m e n t s o f
16 elements are considered as Indonesia's competitiveness that have both stagnant
structural weaknesses, meaning that all the improvement and poor position in the
1 6 co m p e t i t ive n e s s e l e m e n t s a re competitiveness level, such as logistics
perceived to be worse than those of other infrastructure, innovation infrastructure,
developing countries in Asia. However at and legal certainty and enforcement (group
the same time, most respondents also felt 4). In between, there are improving
that the quality of all the 16 competitiveness elements, yet still positioned poorly in term
elements are keeping the pace to those of of their competitiveness level, such as IPR
other developing Asian countries, if not system, the quality of education system,
pulling ahead. linkage between universities and private
s e c t o r s , a s w e l l a s s u p p o r t f o r
Figure 4 summarizes the assessments on entrepreneurship (group 2). The practice of
t h o s e 1 6 e l e m e n t s o f b u s i n e s s hiring and iring of the workers in Indonesia,
competitiveness. The horizontal axis albeit ranked very poorly in the GCI 2014-
captures the current position of business 2015 data, is still perceived as less
competitiveness in Indonesia for each disadvantaged elements compared to other
element. It records the portion (%) of components, with a stagnant improvement
respondents perceiving each element in (group 3).
Indonesia to be worse than other developing
countries in Asia. The motivation of why the In term of policy sequencing (given limited
data on the horizontal axis is presented in government's resources), it might be best
this way is that we want to highlight which t o i r s t l y p r i o r i t i z e o n t h e
competitiveness' elements are perceived c o m p e t i t ive n e s s ' e l e m e n t s wh i c h
to be the worst among others, so that it Indonesia's lacking the most, namely the
might bene it policy makers in term of elements that fall under the group 4 and
policy prioritization given limited group 2. However, considering that the
competitiveness trajectory of group 4 is less

satisfying than group 2, the government
might want to prioritize group 4 irst, then
moving on to group 2. After nurturing those
disadvantaged elements, it is equally
important for the government to paying
attention also in improving the lexibility of
hiring and iring of the workers (group 3),
while also keeping the relatively stronger
elements under the group 1 from falling
behind, and making their competitiveness
level even better compared to other
developing countries in Asia.
FIGURE 4. Assessments on the Elements of Business Competitiveness
Group 2:
80
Poli cs Disadvantaged
Signi icant improvement
Macro Clusters
ICT Infrastructure
75
Taxa on
Finance
Improvement
70
Group 1: Reguler
Less disadvantaged IPR Educa on System
Signi icant improvement
Universi es
65
Skilled labor
Entrepreneurship
60
Group 3: hiring and firing Group 4: Innova on

Less disadvantaged Disadvantaged Legal Logis cs
No Signi icant improvement Infastructure
No Signi icant improvement
55
30 40 50 60 70
Comara ve Disadvantage
Note: the red line depicts the general situation on Indonesia's business competitiveness, while the
magenta dot captures the competitiveness condition (horizontal) and trajectory (vertical) for each
element de ined in the survey
All in all, apart from the fact that all the comparable irms in other developing Asia
impediments being identi ied are prevalent countries. However it must be of note that
and deteriorating for the businesses, there as the irms' scale get smaller, they tend to
is still a modest optimism among the feel more unsuccessful in competing with
private sectors showing that they feel quite other comparable irms from developing
successful in competing with the rivals from Asia countries (see Figure 5). Small and
other developing countries in Asia. Around medium enterprises (SMEs) ind it harder to
73% of respondents said that they either feel successfully competing with other irms
quite successful, successful, or very from developing Asia countries than large
s u c c e s s f u l i n c o m p e t i n g w i t h t h e enterprises do.
FIGURE 5. How Successful Are Indonesia's Business in Competing with other

Comparable Competitors in other Developing Asia Countries?
1,92 0,94
100%
7,69
12,26
90% 19,23
80%
Percentage of Respondents
70%
71,43
60%
69,23 60,38
51,92
50%
40%
30%
20%
21,43 21,15 22,64
10% 23,08
7,14 5,77 3,77
0%
Small Medium Large Total
Very Unsuccessful Unsuccessful Quite Successful Successful Very Successful
C.2. Labor Market Condition: regulatory environment surrounding labor

Rigid Regulation, Low market in Indonesia is detrimental for their
business growth and competitiveness. The
Compliance, and Shortage of
agreement rate is even higher for the large
Skilled-Workers enterprises (74.4%) as compared to the
SMEs (53%). It relates to the previous
Labor market condition in Indonesia is inding that the larger enterprises see labor
among the most rigid in the region where regulation as a more concerning problems
regulations concerning the creation and than SMEs do, noting that pressure from
t e r m i n a t i o n o f e m p l o y m e n t trade union and for compliance are higher in
relationships are relatively costly. This large enterprises than in SMEs.
study reveals that the majority of 60.4%
respondents agreed that the current
At the central of rigid labor market than six fold, while the labor productivity has
regulation in Indonesia is minimum wage barely been doubled. This, then, leads to a
that is ever increasing and highly uncertain sharp increase in the cost of labor input
in term of its determination process as well required to produce one unit of output (unit
as highly binding and expensive mandated labor cost), which rises 11.1 % annually or
severance payment. Minimum wage in have almost been quadrupled in the last 13
I n d o n e s i a i s p re t t y ex p e n s ive by years (see Figure 6). If the labor cost
developing-manufacturing countries continues to increase so fast that
standards. It increases in a fast rate and is productivity cannot even keeping the
not really linked much to the productivity pace with it, Indonesia will soon risk
improvement of the businesses. From 2000 l o s i n g i t s c o m p e t i t i v e n e s s a s a
to 2013, minimum wage has increased more production base.
FIGURE 6. The Dynamics of Minimum Wage, Productivity, and Unit Labor Cost in Indonesia,
2000-2013
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Lab Prod (GDP/person employed Minimum wage (Na onal Average) Unit Labor Cost
Note: unit labor cost is de ined as total compensation (in current prices) divided by real output (in constant prices
that is adjusted for increases in output prices). It is assumed that Indonesia's employers pay (or compensate) their
workers at minimum wage rate. Unit labor cost gives an estimation on the cost of labor input required to produce one
unit of output. The value in the igure above is presented as a relative to its 2000's value.
Source: APINDO's staff calculation based on World Bank-World Development Indicators (2014) and Badan Pusat
Statistik (2014)
This study seeks to know deeper on how the rather than laborers). All of this is a response
private sector is likely to respond in the case of from the private sector to maintain the
minimum wage increase. From the survey, we competitiveness and ef iciency of their irms
found that majority of the irms being following the forced increase of wages that is
surveyed will respond through: not n o t o r i g i n a t e d f r o m p r o d u c t i v i t y
recruiting more new workers for a improvement. It appears to us that minimum
certain period, passing the cost increase wage will be neutral in its effect to
onto the consumers, and investing more purchasing power, because of likely higher
on the technology (see Figure 7). In the consumers price following that, and possibly
aggregate terms, it will mean lower aggravate the trend of jobless growth
employment creation, higher consumer Indonesia is experiencing now via more
prices (higher in lation), and higher degree prevalent automation as it is more costly to
of automation (preferring to use machines hire workers than to invest in machine.
and technology in the production process
FIGURE 7. How do Firms Respond to Minimum Wage Increases?
Stop Recrui ng More New Workers for a Certain Periods 57,55%
Raising the Prices to the Buyers 42,45%
Inves ng More on the Technology 29,25%
Reducing the Number of Exis ng Workers 25,47%
Cu ng Down Bonus 23,58%
Outsourcing some of the Business Lines to other Companies 19,81%
Not Relevant 16,98%
Cu ng Down Budget for Training 16,64%
Reloca ng Business to the Cheaper Region 3,21%
Others 7,55%
0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00%

Firing the workers and relocating to a in Indonesia earned less than the provincial
cheaper region are not among the irst minimum wage.
choice the irms have in mind in responding
to minimum wage increase, because it would Not only do businesses need to comply with
create another high cost for businesses expensive hiring and iring cost, they are also
considering the highly expensive and fa c i n g m o u n t i n g p re s s u re f ro m t h e
binding severance payment mandated by g ove r n m e n t t o c o m p ly w i t h ra t h e r
labor regulation in Indonesia. In some cases, premature government's social protection
bringing out a manufacturing plant from p ro g ra m s , n a m e ly t h e B P J S ( B a d a n
Bekasi (west java) to Semarang (central P e n y e l e n g g a r a J a m i n a n S o s i a l ) i n
java) might not be viable since employers employment (BPJS Ketenagakerjaan) as well
will have to pay certain amounts of as in healthcare (BPJS Kesehatan). We found
severance payment to the workers in Bekasi that although the majority of the irms have
that are being dismissed as a response to received government-based socialization
choosing a lot cheaper workers in central program regarding the BPJS, they haven't yet
java instead. Indonesia has the highest fully complied with the regulation. Around
severance pay level (measured in salary 63% respondents admitted that they have
weeks) in the region – it is even higher been given socialization program from the
than that of advanced economies in government, yet 65% of them confessed that
Europe and North America Continent. In not all of their workers have been registered
average, if employers in Indonesia want to as members of either BPJS in employment
dismiss a worker, they have to pay averagely ( B P J S Ke t e n a g a k e r j a a n ) o r B P J S i n
about 58 weeks of salary, as opposed to healthcare (BPJS Kesehatan).
e m p l oye r s i n m a j o r m a n u fa c t u r i n g
economies, like China, which have to pay For those irms, which are not yet fully
only equal to averagely 23 weeks of salary. complied with the BPJS, the average
percentage of their workers being registered
After all, the government capacity to as members of BPJS in either form is only
enforce compliance with minimum wage around 34% for BPJS Ketenagakerjaan and
and severance pay legislation is notably 36% for BPJS Kesehatan. The main reason
limited, making the labor law ineffective of why they are not fully complied with
in protecting the rights of workers. The BPJS is not that they cannot pay for the
World Bank (2010, 2014) reported that the insurance premium. Instead, they are
majority of 66% of employees are not more concerned about the clarity of the
receiving severance pay at all when they are procedures, the legal certainty, as well as
dismissed from their works, while 27% how the BPJS will be overlapping with the
employees still received less than the existing private insurance scheme the
mandated amount. It is estimated that only i r m s a l re a dy p rov i d e d f o r t h e i r
7% of employees are receiving full amount of employees. Speci ically, many irms
severance pay. In addition, during 2000 to ( m a j o r i t y o f 3 4 % re s p o n d e n t s ) a re
2011, the non-compliance rate to minimum questioning the mechanism of Coordination
wage legislation ranges between 30-40%, of Bene it (COB) between BPJS and private
indicating that not all eligible employees insurance scheme that is already provided
receive minimum wage as mandated by previously by the employers. They mostly
legislation. ILO estimation (2013) further complain about the vagueness of COB
shows that around 36.2 percent employees procedures and how it will potentially create
high cost for business because of double workforce. In Indonesia, this is quite an
p a y m e n t , t h u s h a r m i n g b u s i n e s s issue. Indonesia still has a relatively small
competitiveness. size of labor pool equipped with tertiary
education (post-secondary education, including
Rigid labor market regulation combined academy, university, college, etc.). In this
with lack of enforcement, as Indonesia education level, workforces are equipped with
typically does, result in a situation of which relevant analytical and technical capabilities
necessary for middle to higher skilled jobs.
everybody is hurt: business becomes
Based on the latest World Bank data, only 7.1%
increasingly uncompetitive, workers get labor force in Indonesia is having tertiary
u n p r o t e c t e d , a n d e m p l o y m e n t education. This igure is very low as compared to
opportunities for the jobseekers tend to other developing-manufacturing countries,
decrease. It, then, leads towards a lose-lose which are essentially Indonesia's closest
situation, rather than a win-win one. competitors in the global manufacturing
Nobody bene its from the system. markets, such as Malaysia (21%), Philippines
(28%), as well as Pakistan (25%) and Sri Lanka
(17%) for lower-value added market (see Figure
Another element in labor market that is 8). Indonesia is only better than the less-
critical to boost country's productivity, developed countries, namely Cambodia. As
enhance business competitiveness in the Indonesia aspires to be one of high-income
global market , as well as transform countries in the future, it is worth to use South
Korea as a model, where 35% of its workers are
Indonesia into one of high-income countries
already receiving tertiary education.
in the future is the availability of skilled
FIGURE 8. Percentage of Labor Force with Tertiary Education (% of total)
40
35
35
Percentage of Labor Force
30 28,0
25,1
25
21,2
20
16,8
15
9,8
10
7,1
5
2,1
0
South Philippinese Pakistan Malaysia Sri Langka India Indonesia Cambodia
Korea (2008) (2008) (2008) (2010) (2008) (2009)
(2007)
Source: World Development Indicators, World Bank Data (2014)

T h e s h o r t a g e o f s k i l l e d - l a b o r i n and youth and educated unemployment rate

Indonesia has been evident nowadays. in other countries⁵), it gives us a sense that
From the APINDO's survey, we found a it's not only about lacking the number,
majority of 59% respondents saying that but more importantly also lacking the
they have dif icult times in inding skilled quality, e.g. the skill doesn't match to the
workers, especially the middle-skill updated need of the market, the skill of the
workers⁴. The dif iculty in inding the graduates is still in the low quality, etc.
middle-skill workers, as compared to the
condition of 3 years ago, has been perceived It has been a common perception in the
as remain unchanged by majority of 44% business community that the skill pro ile of
respondents, while the other 29% feel an Indonesian workers has not evolved
increasing dif iculty; only a minority of 27% along with the demands of the labor
respondents saying that it's been easier to market. The problem clearly doesn't
ind so. The data that we found from originate solely from poorly performed
professional association has a similar tone formal education sector, but also from the ill
with our survey indings. For instance, in functioning of the informal education
e n g i n e e r i n g s e r v i c e s , I n d o n e s i a i s offered by the companies, i.e. on-the-job
predictably lacking of around 1.2 million training, which is often more useful,
engineers, which is attributed to the low practical, and critical for workers' skill
growth rate of engineering graduates in acquisition. Early indications are pointing
Indonesia (164 graduates per year per out that rigid labor market regulation
million of people) as compared to other might have something to do with lack of
developing countries, like Malaysia (367 training and education being offered by
graduates per year per million of people). As private sectors. Labor regulation is deemed
for nursing services, if Indonesia fails to to focus too heavily in the protection side,
increase the ratio of nurse per population which it never does because of lack of
from currently low 1:2850 to ideally 1:851, enforcement, yet fails to incentivize and
there would be a shortage of 87,618 nurses stimulate employers to provide training
in relative to the potential demand by 2019 c r i t i c a l f o r w o r k e r s ' p r o d u c t i v i t y
(Keliat, et.al, 2013). improvement. The key is in the more active
engagement from the private sectors as well
A more macro data by the World Bank and as government's will to provide inancial
BPS estimated that by 2025, Indonesia incentive and support for the improvement
would experience a shortage of 10 million of of training capacity and quality in the private
s k i l l e d l a b o r s . G i v e n h i g h y o u t h sectors and designated national training
u n e m p l o y m e n t a n d e d u c a t e d center (“Balai Latihan Kerja”/BLK).
unemployment rate in Indonesia, which is
around 22% and 9% respectively (as
c o m p a r e d t o a v e r a g e n a t i o n a l
unemployment rate, which is around 6%,
The skill that requires a training and technical capability at the level more than a high school diploma, but less than
4
a four-year university degree

5 The youth unemployment rate in the most populous countries like China and India is only less than 10%; while
China has less than 7% and Thailand only near 2% of tertiary graduates that are still unemployed
C.3. Infrastructure and Logistics Thailand. Even worse, the World Bank's
Logistics infrastructure is a Logistics performance Index (LPI) shows
that Indonesia is currently placed 53 out of
serious problem in Indonesia.
160 countries. Even though there are
improvements, Indonesia's LPI is still below
Respondents perceive it as the major
Vietnam, which has become a tough
impediments for business competitiveness,
competitor for manufacturing production
as well as the least improving and the least
base in ASEAN region. Logistics and
competitive elements of competitiveness as
i n f r a s t r u c t u r e s a r e v i t a l f o r t h e
c o m p a re d to t h e s i t u a t i o n i n o t h e r
competitiveness of manufacturing sectors,
developing countries in Asia. The quality of
especially the export-oriented ones. The
infrastructure, logistics, and transportation
limitation of logistics infrastructure
in Indonesia in several global rankings is
hinders national manufacturing supply
ranked unsatisfactory, which is still well
c h a i n , t h u s h a m p e r i n g b u s i n e s s
below the ranking of other major developing
productivity and competitiveness.
countries in ASEAN such as Malaysia and
FIGURE 9. Major Problems in Trade Logistics Issues that Hampering Firms' Trade Activity
Process and Procedures in Customs and other

related Ins tu ons
Conges on
Limited Applica on of ICT in Trade Ac vity
Poor Quality of Roads and Bridges
Poor Quality of Port and/or Airport Infrastructure
Long Dwelling Time
Lack of Quality and Reliable Logis cs Services and Experts
Poor Quality of Logis cs Suppor ng Infrastructures

(e.g. warehouse, cold storage, etc)
Lack of Quality and Reliable Transport Services Providers

(e.g. trucking, etc)
Others
0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00% 70,00%


Through this study, we would like to identify respondents rated congestion as the second
where actually the problems lie. The irst major impediments to their trade activity
m a j o r p r o b l e m i s r e l a t e d t o t h e (after customs problem), while 34%
institutional infrastructure. The majority respondents feel that poor quality of roads
of 64% respondents rated the lengthy and and bridges is hampering the trade
complicated process and procedures in the processes. With highly congested and
customs and other related institutions as their damaged roads, it is then expected that
major impediments to trade (see Figure 9). moving out goods to another center point
This gets worsened by the fact that the will be more expensive and takes longer
application of ICT in trade activity is still time. This then will create not only expensive
notably limited. For instance, many delivery cost, but also delivery uncertainty
export/import documents cannot be and unpunctuality, which is further creating
uploaded via online and still require the disturbance for the whole supply chain
traders to come to the several trade-related system and forcing the irms to bear
institutions which can be very costly to them. higher inventory cost, thus repressing
The Indonesia's National Single Window further their competitiveness.
(NSW) system was established to address
these institutional issues by placing all the
related institutions into one location.
However, it hasn't worked quite effectively.
The majority of 61% respondents expressed
that the Indonesia's NSW has not worked
effectively. The NSW doesn't work the way it
supposed to be, if not ineffective at all.
The second problem lies at the poor

quality of physical infrastructure in
I n d o n e s i a . D e l i v e r y o f g o o d s f r o m
production center to ports/airports is highly
inef icient in Indonesia compared to
neighboring countries in ASEAN. For
example, in Malaysia, transportation from
Pasir Gudang production center to Tanjung
Pelepas Port within 56.4 Km takes 1-2 hours
and needs cost in an amount of USD 450 per
c o n t a i n e r. M e a nwh i l e i n I n d o n e s i a ,
transportation from Cikarang production
center to Tanjung Priok Port within 55.4 Km
takes much longer time of 4-8 hours and
requires higher cost of USD 600 per
container (APINDO, 2014). What makes
distribution in Indonesia more expensive
than in Malaysia is that congestion is
m o r e s e v e r e a n d t h e q u a l i t y o f
infrastructure is poorer in Indonesia
than in Malaysia. Almost half of the
FIGURE 10. Logistics Cost: Indonesia Vs. Selected ASEAN and Advanced Economies
Source: State of Logistics Indonesia 2013
Indonesia's logistics cost could be up to condition of 3 years ago. Most respondents

27% (see Figure 10), yet its service also see no signi icant improvement in the
quality is still very poor. This cost is higher quality of transportation system and
than those of other major developing infrastructure (see Figure 11). The
countries in ASEAN, like Malaysia (13%) and increasing logistics cost might arguably
Thailand (20%), and still more expensive b e a r e l e c t i o n o f i n f ra s t r u c t u r e
than Indonesia's closest competitor in development failing to keeping up with
manufacturing products, namely Vietnam the fast pace of economic progress. Hence,
(25%). From the survey, we also found that more truck are entering the unchanged
the logistics cost tend to be more expensive roads capacity, more containers are shipped
over time, while the quality of transportation via more crowded ports and/or airports,
and infrastructure remain unchanged. thus longer lead-time and higher cost
Almost 80% of respondents said that their because of congestion in many points.
logistics cost as a relative to the irms' total
cost has increased as compared to the
FIGURE 11. Logistics Cost, Transportation and Infrastructure Quality,

as Compared to 3 Years Ago
100%
90% 20,75 20,75

36,54
80%
70%
60%
50%
40% 79,25 79,25 51,43

79,25
53,85
30%
20%
10% 15,24
9,62
0%
Logis cs Cost Quality of Quality of
Transporta on System Infrastructure
Worse/More Expensive (for Logis cs Cost) Unchanged Be er

Apart from the trade logistics issue, there is there are 8 times of blackout in a month, or
another more essential and profound equal to twice blackout per week or 104
problem regarding the infrastructure in times blackout annually. Every blackout
Indonesia, namely the electricity. The happened for 3 hours long in average. That
percentage of people having access to the means there is a loss of 6 hours per week or 1
electricity is still very low by developing day per month or 13 days per year because of
countries standard (see Figure 12). Only blackout, which can be used instead for
73% of Indonesia's population in 2011 has production activity. The monetary loss of
access to electricity; this means there are this blackout is predicted to be around 11%
more than 60 million of lives that still don't of irm's annual sales.
have access to the electricity. This igure is
very low as compared to those of Malaysia,
China, and Thailand where almost all their
citizens have already had access to
electricity.
The issue on electricity in Indonesia should

not be viewed only in term of the coverage,
but more importantly also in term of the
quality. The APINDO survey found that
almost all the irms have experienced
blackout, at least once in a month. Averagely,
FIGURE 12. Access to Electricity, Year 2011
Source: World Development Indicators, World Bank Data (2014)
It is worth to analyze the issue on electricity the manufacturing plant cannot be operated,
region by region. We found that the thus making Medan to continue highly rely
incidence and the cost of blackout have been on its primary activity and natural resources,
higher in Medan than in other parts of and further get left behind by other regions
Indonesia that were being surveyed. in term of development status. This applies
R e s p o n d e n t s i n M e d a n i s u s u a l l y also for other regions aspiring to improve
experiencing 30 times blackout per month, their welfare; reliable electricity access is
meaning that almost everyday they have to an important determinant for inviting in
deal with the blackout. For 3 hours long of manufacturing plant critical for boosting
every blackout, it is costing private sectors in up the region's development.
Medan up to 20% of their irms' annual sales
(see Figure 13). This brings up a negative
effect to manufacturing development in
Medan in a signi icant amount. As national
and regional governments strive to develop
downstream manufacturing base for
agriculture and forestry sectors in Medan,
there is a pressing need to signi icantly and
immediately boost the quality of electricity
in Medan. Without reliable electricity access,
FIGURE 13. Blackout in Medan as Compared to other Regions
35
30
25
20
15
10
Total Medan Other than Medan
D. Business confidence and tremendously not only domestically but also

regionally in particular for ASEAN countries.
moving forward beyond Only 8,5% of respondents who disagree by
2015 having told they are ready to face tighter
competition in AEC 2015, but over 45% of
This section provides survey analysis on interviewees believe their businesses are
how Indonesian businesses perceived their ready to compete with other ASEAN
con idence in moving forward to ASEAN countries next year. This result shows that
Economic Community (AEC) 2015 and their Indonesian businesses currently have
ability to compete with businesses from high con idence in the quality of their
other countries three years from now. There products and services to be compared
are also several recommendations on w i t h p ro d u c t s f ro m o t h e r A S E A N
respondent's perspective of the role of new countries. In addition, this con idence can
government toward their con idence in be driven as well by their major experiences
doing business for the coming years. i n d o i n g e x p o r t t h e r e f o r e m o s t o f
respondents assumed their competitiveness
D.1. Indonesian businesses are ready to can be challenged toward AEC 2015.
face tighter competition in AEC
2015
Given the fact that AEC 2015 will be

i m p l e m e n t e d n e x t y e a r m e a n s t h e
competition among businesses will increase
A l t h o u g h t h e A E C 2 0 1 5 i s n e a r l y D.2. Perception on the effect to

approaching, there are several policy Indonesian business sector if
recommendations can be taken to perform
FTA between Indonesia and
by both government and business sector in
Indonesia. Changing the operating model is European Union is being
one of steps that can be followed by private implemented
sectors by looking at new, lower cost
operating and delivery models. This can be I n t e r n a t i o n a l t r a d e i s t h e m o d e r n
achieved by considering channels to market, framework of prosperity. It leads to policies
new distribution and production partners, creation which opens up new areas to
and new internal operating model, which competition and innovation. 48% of
focus on the goods and services which respondents con irm that FTA/CEPA
customers want. Furthermore, refocusing between Indonesia and European Union will
on what the customers really value by re- positively affecting their businesses. This
e xa m i n i n g t h e g o o d s , s e r v i c e s a n d indicates most of respondents have
propositions that are offered. Through recognized the advantages of free trade
checking how existing goods and services agreement that initiates better jobs, new
meet changing customer requirements there m a rke t s a n d i n c re a s e d i nve s t m e n t .
is the opportunity to re-designing those Secondly, this result also illustrates the trust
offerings so that they cost less to produce rate of Indonesian private sectors to
and deliver. European Union is high as EU was ranked as
the fourth largest source of import and the
Additionally, there are several actions third largest export destination for
should be delivered by government to equip I n d o n e s i a ' s p r o d u c t s ( L a k s o n o &
private sectors in competing with other Situmorang, 2014, p. 8). It is an evidence for
ASEAN countries for instance to provide r e s p o n d e n t s t o b e l i e v e t h a t F TA
information to SMEs about opportunities implementation with EU will bring
from AEC 2015, educate them on utilization g r e a t e r b e n e i t s f o r I n d o n e s i a n
of FTAs privileges, provide them with useful companies. There are only sixteen out of
network, access to inance, and most 106 interviewees who respond that FTA
importantly is to help them in building their between Indonesia and European Union will
technical capacity particularly to businesses bring negative effects to their businesses.
who have lack “culture of competition” so This condition can be improved by held
they will be able to compete and gain various events and studies to business
maximum pro it from the bene it of AEC. community in order to deliver socializations
Moreover, Geoff Riley (2012) stated when and educate them particularly toward
business con idence is strong then planned Indonesia and EU CEPA prior to its
investment will rise. Thus, investment realization, therefore Indonesia business
p o l i c i e s a n d re g u l a t i o n s s h o u l d b e sector will be able to increase their values
restructured, harmonized and standardized a n d e x p e r i e n c e h i g h e r l e v e l o f
by new government in order to create more competitiveness from bilateral trade
investment-like business environment in agreement with EU countries.
Indonesia.
FIGURE 14. Projection on the Effect of FTA Implementation between Indonesia and the EU
Projection on The Effect of FTA Implementation of

Indonesia and EU to business sector
Very posi vely affec ng my business

Posi vely affec ng my business
Neutral
Nega vely affec ng my business
Very nega vely affec ng my business
0% 10% 20% 30% 40% 50%
be referred to the survey result which

D.3. Business Prospect: Politics indicate not only the election was held in the
and Global Situation right time but most importantly it can be
seen there is high expectation from business
Over 76% of businesses surveyed in this c o m m u n i t y t o t h e n e w I n d o n e s i a n
report perceived the election held in last July government. Business community in
2014 were running well and conducive, but Indonesia believes they will be able to
it is a task to newly elected government to expand their businesses under new
create more reliable and conducive regime. Hence, aiming maintain growing
environment to business climate in order to business con idence, new government need
reach higher competitiveness of Indonesian to s p e e d u p i n i m p rov i n g b u s i n e s s
economic situation. environment and investment climate.
This result implies that the presidential

election has boost up business con idence
and enforce the Indonesian irms to improve
their business activities in upcoming years.
As Stephen B. Kaplan stated business
con idence could be correlated positively
with election timing (2006, p. 22), then it can
FIGURE 15. Forecast on Business Prospect in 2015 under New Government Role
Forecast on Business Prospect

in 2015 under New Government Role
Very significant
Promising
No improvement
Not really sure
Not sure at all
0,00% 20,00% 40,00% 60,00%
Furthermore, the graph shown above has international trade agreements have
also emphasized more that business encouraged businesses around the world to
con idence among Indonesia business strive and to be prepared in order to be
sectors nowadays is very high. There are in successful in global competition. 51% of
total 65% of respondents perceived the total respondents believe that the ability of
business prospect in 2015 is promising. Indonesian irms competing in global
R e s p o n d e n t s b e l i e v e t h a t n e w markets is becoming better within the next
government will bring positive impacts to three years. This result indicates that most of
n a t i o n a l b u s i n e s s a n d e c o n o m i c businesses in Indonesia have suf icient
development. This is a momentum for resources and dependable business
government to capitalize the business s t ra t e g i e s t o b e e n g a g e d i n g l o b a l
con idence in Indonesia to attract higher competition, a situation that businesses
investment rate that can contribute to faster should respond of in order to enjoy global
income growth the government aspires at. economies of scale. The burden of not
developing a global business strategy is that
In term of business prediction, as a result of you will come off second best in competing
the globalization process world businesses with the big global companies
are increasingly affected by the actions of
international competitors. A number of
Moreover, in facing the global competition it way of conducting training. Moreover,

is a positive approach to identify your s t r u c t u re d a p p ro a c h e s t o b u s i n e s s
competitive advantages therefore you will improvement namely quality improvement
ensure your company remain competitive in and operational costs reduction are
increasingly competitive market place. essential as well to be implemented.
Companies achieve competitive advantage Sustainability is also has become an
through acts of innovation (Porter, M. E. 1990). essential element of competitive advantage
They approach innovation in its broadest sense, w h i c h m o s t l y e n c o m p a s s e s t h r e e
including both new technologies and new ways d i m e n s i o n s a s i n a n c i a l s t a b i l i t y,
of doing things. Innovation can be manifested environmental sustainability, and social
in a new product design, a new production sustainability.
process, a new marketing approach, or a new
FIGURE 16. Forecast on the Ability of Indonesian Companies to Provide Employees with
Higher Wage and Bene its within the next three Years
Forecast on the Ability of Indonesian Companies

to Provide Employess with Higher Wage and
Benefits within the Next Three Years
Much Be er
Be er
Same
Worse
Much worse
0 10 20 30 40
In addition, as can be seen on the chart next three years and yield greater pro it.
shown above, there are 39% of interviewees There are only 19% of respondents who
believe that three years from now irms in p re d i c t I n d o n e s i a n b u s i n e s s e s w i l l
Indonesia are able to afford higher salary remunerate their employees with lesser rate
and bene its to their employees. According and bene its within the next three years.
to this result, it is indicating clearly that
I n d o n e s i a n c o m p a ny o p t i m i s t t h e i r
businesses will much improved within the
D.4. Policy Recommendation on for other competitors, like Vietnam,

Strengthening Business Bangladesh, and other less-developed
countries, to tap into this golden opportunity
Competitiveness
and using it to leapfrog Indonesia sometime
in the near future.
There is a golden opportunity for Indonesia
both to boost the income of its people and
Maintaining a competitive business climate
leading the global manufacturing market.
is a key to attract more FDI and stimulate
However, Indonesia only has one time
higher export, which are critical components
window of opportunity, before demographic
for productivity growth necessary to boost
dividend will be stopped by 2030 and
country's income. Business sector certainly
Indonesia's wage rises too fast that it
needs bold measures to increase Indonesia's
b e c o m e s n o l o n g e r a t t r a c t i v e f o r
competitiveness in the international arena.
manufacturing base. If Indonesia fails to
Several aspects that we highly propose to
optimize the opportunity, it would be there
focus on are:
1. To remove red tape in business licensing, permit and other regulation related to
business
This may include policy breakthrough such as:
o Online processing for all business licensing both for national and regional level (e.g.
SIUP, TDP), permit (e.g. import quota, CoO, etc), and other regulation (e.g. certi icate
from Ministry of Law and Human Rights, etc), with zero fee, no price discrimination,
and speedy service
o Expediting the realization of One Stop Shop for investment and business licensing
o Improving the institutional quality of government's agency especially in the ield of
trade, industrial and SMEs in every region (provinces, city, and municipality)
2. To improve legal certainty, through

o Establishment of task force team to identify and provide recommendation to the
government regarding harmonization of laws at all levels (national, provincial, city,
and municipality level). This may require alignment, adjustment, or annulment of
laws and regulation that are overlapping, or no longer relevant in present time
o Involvement of business player and other related stakeholders during each legislation
process that relates with business activities
o Centralization of online database containing laws at both national and sub-national
levels that is accessible by the public
o Enhancement of law enforcers' professionalism in addition to technical knowledge in
order for them to also understand economic standpoint when implementing their
duties. Their actions/decisions should never impede favorable investment climate
3. To develop priority infrastructure projects in order to reduce logistics cost and

improve connectivity both globally and domestically, through:
o Developing industrial cluster close to seashore based on SME cluster and is

connected with global supply chain, particularly in Central Java, northern area of
East Java, Lampung, and Southern area Kalimantan
o Replace goods transportation system from predominantly car/truck to train as the

main mode of land transportation
o Establishing world-class export supporting infrastructure and manufacturing
clusters, such as: ring road, road access to port, access to warehouse, international
port
o Improving the ratio of electri ication to 100% and enhance further the quality of
electricity in Indonesia, especially at the regional level who experience blackout in a
highly frequent basis (e.g. Medan, etc.)
4. To better the institutional aspects of infrastructure development, through several steps:

o Improving public budget for infrastructure to a comparable level to those of other
major developing countries
o Encouraging and re ining Public-Private Partnership for strategic infrastructure. PPP
scheme needs to have clear standardization, including con idence in private sector to
participate in project inancing
o Lands acquisition needs to be fully settled prior to construction; government should
guarantee full compensation of any losses arising from land acquisition failure, or
implement land fund that is reliable to investors. Land fund implementation consists
of the following, will release risks borne by private investors:
· Land revolving fund: set off land acquisition cost
· Land capping: cover risk of increasing land price
o Re ine government institutions as planner, coordinator, and evaluator of
infrastructure projects. As an institution, the Committee for Priority Infrastructure
Development Acceleration, or KPPIP (Komite Percepatan Pembangunan Infrastruktur
Prioritas) needs to have legal power to execute as well as clear coordination and order
relationship with related stakeholders, to ensure KPPIP's ef icient and effective work.
5. To have a more lexible and conducive employment regulation that support business
productivity and employment creation.
This includes labor policy reforms such as:
o Amendment of labor law 13/2003 to better balance the interest of workers,
employers, and the job seekers
o Minimum wage should be determined through a technocratic and centralized
approach by independent institution, in which heads of the regions may not politically
interfere to it.
o Signi icantly reducing the mandated amount of severance pay
o To delay the implementation of BPJS until it is ready, legally clear, and procedurally
coordinated, especially to have a clear mechanism on the Coordination of Bene it
(CoB) between BPJS and private insurance scheme that has already been provided by
the companies.
6. To Improve workers' skill and productivity, through:

o Establishment of National Training Fund as an instrument to drive training done
internally by industry (on-the-job training) in order to improve the practical skill of
the workers. National training fund functions to help the funding and incentive to
business sectors that seek to conduct training for their workers in order to ful ill the
change in required skills.
o Revitalization of vocational and skill training center (BLK). In order to improve its
effectiveness and to be more able to re lect market dynamics, BLK management needs
to be conferred to industrial/private sector whose funding is sourced from
government.
In complement to those recommendations, to do it, through distortive tax and forcing

Indonesia also needs a more pro-active regulation. A misplaced tax and regulation
trade and investment policy as well as will not entail industrial development,
clear and market-friendly industrial but rather depressing further business
development strategy. To be more competitiveness. Therefore, it is better for
competitive at the global level, policy makers the government to do it via market-based
need to consider a rather pro-active trade strategy that is to use market price as a basis
policy, such as free trade agreement (FTA) or for industrial development. Let the market
comprehensive economic partnership decide whether or not they want to
agreement (CEPA) as it offers tariff specialize in a higher value chain. If
e l i m i n a t i o n a n d n o n - t a r i ff b a r r i e r s government wants to expedite further the
relaxation which translates to: (i) cheaper downstream industrial development of
input, i.e. raw material and capital goods, for speci ic sector, better to use the incentive
domestic industry, as well as (ii) better policy rather than tax. In Indonesia, there is a
market access for Indonesia's export. This speci ic need to eliminate 10% value added
w i l l e v e n t u a l l y b o o s t i n d u s t r i a l tax (VAT) imposed on coffee and cocoa bean.
development and export competitiveness in In the market, that particular VAT doesn't
Indonesia. Moreover, since getting fresh stimulate downstream industry of cocoa and
liquidity/capital has now been harder coffee products, but rather reduce their
following the monetary tightening in US, competitiveness in export market. Instead,
certain policy measures are needed to better we recommend the government to set up
attract foreign investment, especially the appropriate incentive both to stimulate a
measures, which focus to regain investors new market niche and encourage
con idence, such as investment protection, downstream industrial production of
liberalization, and incentives as typically cocoa and coffee products.
featured under the FTA/CEPA.
For any recommendations set out above
Now that the global commodity boom is over, to work, it needs a political certainty and
there's wider opportunity to develop stability. First, the disharmony between
manufacturing sectors, not only in labor- legislative and executive must be put to an
intensive industry, but also in downstream- end. This is very crucial for business
higher value added products. However, certainty and more importantly for any
government should not force private sectors reform measures to work effectively by not
having inappropriate interpellation from the

House. Secondly, government must be able to
capitalize the high expectation from the
business sectors and translate it as a
foundation to do any necessary bold
m e a s u r e s t o i m p r o v e b u s i n e s s
competitiveness, even though it's a hard
thing to do. Government must be able to
sacri ice inef icient public budget earmark
(such as subsidy) and have it allocated to
other more productive sectors, such as
infrastructure development, education, and
healthcare. The government must keep its
consistency to do necessary reform and do it
as soon as possible; before the political
capital begins to slower, and business
con idence will not be that high anymore.
REFERENCES
APINDO (2014). Economy Roadmap: The Creation of Three Million Good Jobs per Year, APINDO’s
Contribution to the 2014-2019 National Leadership. Jakarta: APINDO
ILO (2013). Labor and Social Trends in Indonesia 2013: Reinforcing the Role of Decent Work in
Equitable growth. Jakarta: ILO Country Of ice for Indonesia
IMF (2013). World Economic Outlook: Special Focus. Washington, DC: International Monetary
Fund
Kaplan, S. B. (2006). Do Elections Hurt Developing Economies. Connecticut: Yale University
Keliat, M., A. Virgianita, S. Al Banna, A. C. Aryanto (2013). Pemetaan Pekerja Terampil Indonesia
dan Liberalisasi Jasa ASEAN. Depok: ASEAN Study Center FISIP UI
Laksono, R. and Situmorang R. (2014). In Facing the Indonesia-European Union Comprehensive
Economic Partnership Agreement: Perspective from Indonesia's Business Sector. Jakarta:
APINDO
Papanek, G., R. Pardede, and S. Nazara (2014). The Choice for the Next 5 years: 5% growth and 0.8
million good jobs a year or 10% growth and 3 million good jobs. Presentation at APINDO
Economic Roadmap Discussion Series
Porter, M. E. (1990). The Competitive Advantage of Nations. Massachusetts: Harvard Business
Review
Riley, G. (2012). Economic Growth. Retrieved from http://tutor2u.net/economics/revision-
notes/as-macro-economic-growth.html
The Conference Board (2014). Total Economy Database, January 2014
World Bank (2010). Towards Better Jobs and Security for All. Indonesia Jobs Report. Jakarta:
World Bank
World Bank (2013). State of Logistics Indonesia 2013. Jakarta: World Bank Of ice Jakarta
World Bank (2014). World Development Indicators. Downloaded from http://data.worldbank.org
World Economic Forum (2014). Global Competitiveness Index 2014-2015. Genè ve: World
Economic Forum
APPENDICES
Appendix A. Elements of Competitiveness
No Abbreviation (as in Figure 4) Description

1 Logis cs Infrastructure Logistic infrastructure (roads, railways, ports,
and transportations)
2 ICT Infrastructure ICT Infrastructure (telephone, internet, etc.)
3 Taxa on Taxation system
4 Educa on System The quality of educational system
5 Universi es Linkage between University and industry
6 Entrepreneurship Support to entrepreneurship, especially

start-ups
7 Skilled labor Skilled labor availability
8 Hiring and firing Flexibility in hiring and iring workers
9 Innova on Infrastructure to support innovation

(research institution, government support
to R&D, and researcher's availability)
10 Regula on Business regulation
11 Clusters Industrial cluster availability
12 Finance Access to Finance
13 Macro Macroeconomic policies
14 Poli cs Political stability
15 IPR Protection to intellectual property rights
16 Legal Law certainty and enforcement

Appendix B. Distribution of Respondents:

by Size, Ownership Status, 2 digit HS Code, and
Main Business Operation Area
Size
Type of Firms Percentage
Small Enterprises (less than 10 employees) 13.34
Medium Enterprises (10-99 Employees) 49.53
Large Enterprises (more than 100 employees) 37.14
Ownership Status
Status of Ownership Percentage
Fully Domes c 80.19
Fully Foreign 14.15
Joint (Domes c-Foreign) 5.66
Hs Code 2 Digit
Sector Percentage
Manufacturing 55.65
Agriculture, Forestry, and Fishery 18.87
Wholesale Trade and retail 16.04
Professional Services 1.89
Mining and Quarrying 1.88
Rental services, Employment, Travel Agencies and 1.88
Other Business Support
Construc on 0.94
Communica on 0.94
Finance & Insurance 0.94
Real Estate 0.94
Main Business Operation Area
Central Java and Yogyakarta
Sumatera
Jabodetabek (Greater Jakarta)
East Java
West Java (except Bogor, Depok, Bekasi)
Kalimantan
Banten (except Tangerang)
Sulawesi
Bali and Nusa Tenggara
Papua
Maluku
Appendix C. Export and Import Activities of Respondents
Export Activities Number of Yes No

respondents
Are you expor ng? 106 40.57 59.43

Are you exporting raw materials? 104 83.65 16.35
Are you exporting semi- inished/intermediate goods? 103 90.29 9.71
Are you exporting inished/ inal goods? 103 53.40 46.6
Import Activities Number of Yes No

respondents
Are you importing? 105 61.90 38.10

Are you importing raw materials? 101 74.26 25.74
Are you importing semi- inished/intermediate goods? 102 88.24 11.76

Are you importing inished/ inal goods? 103 80.58 19.42
Appendix D. The Questionnaire
Kode Kuesioner J K T -
Indonesia Business Compe veness Survey

The Employer’s Associa on of Indonesia (APINDO), 2014
Welcome to Compe veness Survey, APINDO
Thank you for your par cipa on in Indonesian Compe veness Survey in 2014 conducted by The
Employers’ Associa on of Indonesia (APINDO). In general, this survey aims to map the ability of
Indonesian firms to compete in global market by iden fying many recognizable business obstacles.
Prac cally, this study is expected to become an indicator of compe veness in Indonesia, comple ng
other indicators in global level (such as Doing Business, Global Compe veness Index, etc). In long
term, this study is expected to become a systema c mechanism to monitor dynamic and
development of compe veness in Indonesia.
This study is financed by The European Union, through APINDO-EU ACTIVE Project. This survey takes
about 20 minutes to finish and consists of 4 themes of ques on.
The ques ons in ques onnaire are relevant for discussion and policy recommenda on, mainly related
with compe veness and business climate improvement in Indonesia. Your answer and private data
in this ques onnaire will be protected and treated as “confiden al”.
You can complete this ques onnaire whenever you have spare me subject to me span and
deadline, which is latest in 3 November 2014.
If you have ques ons about this study and ques onnaire, you can contact the Person in Charge of this
study, Riandy Laksono through the email: riandy.laksono@apindo.or.id or phone number: 021-
83780824 ext. 122
Basic Informa on
1. Firm’s name : __________________________________________________
2. Posi on in company : __________________________________________________
3. E-mail address : __________________________________________________
4. Main business opera onal area, ck the suitable answer. You can choose more than 1 anwer
1 Sumatera 7 Bali and/or Nusa Tenggara
2 Jabodetabek (Jakarta-Bogor- 8 Kalimantan

Depok-Tangerang-Bekasi)
3 West Java (outside Bogor, 9 Sulawesi
Depok, Bekasi)
4 Banten (outside Tangerang) 10 Maluku
5 Central Java and/or 11 Papua

Yogyakarta
6 East Java
1
5. Fill 2 digit of ISIC code of your firm (if it more than one, choose the mainly one):___
Look 2-digit ISIC code in this link
h p://www.google.com/url?q=h p%3A%2F%2Fapindo.or.id%2Fuserfiles%2Fpublikasi%2Fpdf%2FKBLI_p
df_color.pdf&sa=D&sntz=1&usg=AFQjCNEGypar0jqhMTkUqJ2Y4wmxzLPd3w
6. Number of employee (choose the most suitable answer):

1 Fewer than 5 7 250 – 499
2 5–9 8 500 – 999
3 10 – 19 9 1000 – 2499
4 20 – 49 10 2500 – 4999
5 50 – 99 11 5000 – 9999
6 100 – 249 12 10000 or more
7. Firm’s ownership status (choose the most suitable answer):

1 Wholly domes cally owned
2 Wholly foreign owned
3 Foreign-domes c ownership
A. Reviewing actual condi on and projec on of Business Compe veness in

Indonesia
A.1. Among these elements, choose 3 (THREE) main barriers for your business:
1 Financial accessibility 8 Electricity

2 Land problems 9 Limited skilled labor
3 Business permit 10 Employment regula on
4 Corrup on 11 Poli cal instability
5 Law uncertainty and weak enforcement system, 12 Taxa on problem
especially which related with business
6 Crime and thievery 13 Infrastructure, transporta on, logis c (including
ICT system )
7 Customs and trade regula on 14 Other: ________________________________
A.2. Give your grade about general condi on of compe veness in Indonesia compared with other
developing Asian countries (choose the suitable answer):
1 Much worse than the others 4 Be er than the others
2 Worse 5 Much be er than the others
3 About the same
2
A.3. Within each elements below, give your opinion about business compe veness condi on in Indonesia
compared with the other developing countries in Asia.(put the score 1 to 5, with category: 1. Much
worse, 2. Worse, 3. About the same, 4. Be er, 5. Much be er ) :
Score Score
A.3.1 Logis c infrastructure (roads, railways, A.3.9 Infrastructure to support innova on
ports, and transporta ons) (research ins tu on, government support
to R&D, and researcher’s availability)
A.3.2 ICT Infrastructure (telephone, internet, A.3.10 Business regula on
etc)
A.3.3 Taxa on system A.3.11 Industrial cluster availability
A.3.4 The quality of educa onal system A.3.12 Financial accessibility
A.3.5 University-industry rela on A.3.13 Macroeconomic policies
A.3.6 Support to entrepreneurship, especially A.3.14 Poli cal stability

start-ups
A.3.7 Skilled labor availability A.3.15 Protec on to intellectual property rights
A.3.8 Flexibility in hiring and firing workers A.3.16 Law certainty and enforcement
A.4. Across the me, in your opinion, how is general condi on of business compe veness in Indonesia
compared with other developing Asian countries (choose the suitable answer):
1 Le behind
2 Catching up the other contries
3 In front of the other countries
A.5. Within each element below, across the me, in your opinion, how is business compe veness
condi on in Indonesia compared with the other developing countries in Asia (put the score from 1 to 3, with
category : 1. Le behind, 2. Catching up the other countries, 3. In front of the other countries ) :
Score Score
A.5.1 logis c infrastructure (road, railway, A.5.9 Infrastructure to support innova on
ports, and transporta on) (research ins tu on, government support
to R&D, and researcher’s availability)
A.5.2 ICT Infrastructure (telephone, A.5.10 Business regula on
internet, etc)
A.5.3 Taxa on system A.5.11 Industrial cluster availability
A.5.4 The quality of educa onal system A.5.12 Financial accessibility
A.5.5 University-industry rela on A.5.13 Macroeconomics policies
A.5.6 Support to entrepreneurship, A.5.14 Poli cal stability

especially start-ups
A.5.7 Skilled labour availability A.5.15 Protec on to intellectual property rights
A.5.8 Flexibility in hiring and firing workers A.5.16 Law certainty and enforcement
3
A.6. In your opinion, how successful the firms opera ng in Indonesia in compe ng with its compe tor (in
same industry) at other developing Asian countries (choose the suitable answer):
1 Very unsuccessful 4 Successful
2 Unsuccessful 5 Very successful
3 Somewhat successful
A.7. In your opinion, within next three years, how is the ability of firms in Indonesia (put the score 1 to 5,
with category: 1. Much worse, 2. Worse, 3. About the same, 4. Be er, 5. Much be er ) :
Ability: Score
A.7.1 Compe ng in global market
A.7.2 Paying its employee with high wage and benefit
B. Employment Aspect
B.1. How difficult for you to find the employee at the middle- to high-skill level* ? (choose the suitable
answer):
*workers at middle- to high- skill level = workers with the skills equal to educa on or training higher than
SMA/SMK (e.g: D1, D3, University, etc.)
1 Very hard 4 Easy

2 Hard 5 Very easy
3 Normal
B.2. Compared with 3 years ago, do find the worker with middle- to high-skill level* becomes more easy or
more difficult? (choose the suitable answer) :
*workers at middle- to high- skill level= workers with the skills equal to educa on or training higher
than SMA/SMK (e.g: D1, D3, University, etc.)
1 Very hard 4 Easy

2 Hard 5 Very easy
3 Normal
B.3. Does your firm provide formal training for the worker (either conducted internally or externally by the
course/workshop)? (choose the suitable answer):
1 Yes 2 No
B.4. Compared with 3 (three) years ago, how changes in propor on of types of worker below to the total of
worker in your firms ( ck the suitable answer, with category : 1. Decrease significantly , 2. Decrease,
3. The same, 4. Increase slowly, 5. Increase significantly):
1 2 3 4 5
Part- meworker
Skilled/educated worker
Outsourced worker
4
B.5. The condi on of manpower regula on in Indonesia now hampers the improvement of compe veness
and growth of your business: (choose the suitable answer)
1 Very agree 4 Disagree
2 Agree 5 Very disagree
3 Neutral
B.6. How does your company usually respond the increasing of minimum wage (choose maximum 3 most
relevant answer) :
1 Cut the number of worker 6 Outsourcing several business division to other firms
2 Do not recruit new worker within certain 7 Increasing the consumer price
period
3 Decreasing the training budget 8 Reloca ng the business to other region with lower
minimum wage
4 Decreasing amount of bonus 9 Minimum wage is irrelevant with my firm
5 Inves ng more in technology 10 Other
B.7. Has your firm/yourself accepted BPJS socializa on from the government (choose the suitable answer):
1 Yes, it has 2 No, it has not
B.8. Status of worker’s social protec on (choose/ ck the suitable answer):
B.8.1 BPJS ketenagakerjaan 1 All of worker owns BPJS 2 not all worker owns BPJD
(Manpower) ketenagakerjaan/kesehatan ketenagakerjaan/kesehatan
B.8.2 BPJS Kesehatan (Health) 1 All of worker owns BPJS 2 not all worker owns BPJD
ketenagakerjaan/kesehatan ketenagakerjaan/kesehatan
B.9. Scope of social protec on for the workers (only answer if not all workers has BPJS Kesehatan (Health)
/Ketenagakerjaan (Manpower)) :
B.9.1 How much, in percentage, the worker owns BPJS

Ketenagakerjaan from total of worker in your firms? (answer ……%
in percentage)
B.9.2 How much, in percentage, the worker owns BPJS Kesehatan
from total of worker in your firms? (answer in percentage) ……%
B.10. Why do not all of workers in your firm own BPJS ketenagakerjaan? (Only answer if NOT ALL workers
owns BPJS Ketenagakerjaan) (Choose only 1 suitable answer):
1 Companies cannot pay the bill
2 Lack of informa on/ has not received socializa on from

government
3 Other : ______________________________________
5
B.11. Why don’t all of workers in your firm own BPJS Kesehatan? (only answer if NOT ALL worker owns BPJS
Kesehatan)(choose maximum 2 suitable answers):
1 Has not understand the mechanism of BPJS Kesehatan, especially regarding benefit coordina on aspect
2 Worker has other health insurance
3 Firm cannot pay the bill
4 Lack of informa on/ has not yet socialized by government
5 Other (Please men on): _____________________________
C. Infrastructure and Logis c Condi on

C.1. Has your firm suffered blackout?
1 Yes, it has 2 No, it hasn’t
C.2. If it has, how o en the blackout happens in a month (in average)?

_____ mes per month
C.3. If it has, how long the blackout occurs? (you can answer in minute/hour/day)
___ minute / ___ hour / ___ day
C.4. Give the es ma on of the loss suffered by the company because of that blackout (can be per
month or per year)
Percentage from total sales per year____%
Percentage from total sales per month____%
C.5. Export ac vity (choose the suitable answer)
Yes No
C.5.1 Do your firm exports?
C.5.2 Do your firm exports raw material?
C.5.3 Do your firm exports intermediate goods?
C.5.4 Do your firm exports final goods?
C.6. Import ac vity ( ck the suitable answer)
Ya Tidak
C.6.1 Do your firm imports?
C.6.2 Do your firm imports raw material?
C.6.3 Do your firm imports intermediate goods?
C.6.4 Do your firm imports final goods?
If your firm do not export or import at all, con nue to ques on C.9
6
C.7. Choose 3 main problems in infrastructure and logis c that o en prevent your firm in
export/import ac vi es (choose 3 main choices)
1 Process and Procedure in customs and other ins tu on surrounding (example: inspec on, etc)
2 Bad quality of Infrastructure in airports and/or ports
3 Weak ICT applica on in trade ac vity (export/import document cannot be processed on -line, instead its
should be processed manually in hardcopy)
4 Bad road and bridge condi on
5 Traffic/conges on
6 Long dwelling me
7 Lack of reliable and good transporta on services, such as trucking companies, etc.
8 Lack of qualified provider and human resource for logis cs
9 Bad suppor ng logis c infrastructure, such as warehouses, cold storage, distrib u on centre, etc.
10 Other (plesae men on): ____________________________________________________________
C.8. What is your opinion about actual condi on as the outgoing Na onal Single Window in trade
procedure? (choose only 1 most suitable answer):
1 Not works at all 4 Works, effec vely

2 Works, but very ineffec ve 5 Works, very effec vely
3 Works, but ineffec ve
C.9. Compared to 3 years ago, How is the actual condi on from points below:
C.9.1 Logis c cost, as a percentage of firm costs : (choose only 1 most suitable answer)
1 Increasing/more 2 About the same 3 Decreasing/cheaper

expensive
( ck only 1 mosth suitable answer )

Be er About the Worse
same
C.9.2 Quality of transporta on system, example: truck, train, airplane,
etc.
C.9.3 Infrastructure condi on: airport, port, road, railway, bridge, ICT
7
D. Business Confidence
D.1. Your firm is ready to face ghter compe on in ASEAN Economic Community (AEC) 2015 (choose only
1 suitable answer):
1 Very agree 4 Disagree

2 Agree 5 Very disagree
3 Neutral
D.2. In your opinion, if the Free Trade Agreement between Indonesia and European Union is in power, how
is the effect to your business/firm? (choose only ONE most suitable answer):
1 Very nega vely affec ng my business (very bad)
2 Nega vely affec ng my business (bad)
3 Neutral effect (no effect)
4 Posi vely affec ng my business (good)
5 Very posi vely affec ng my business (very good)
D.3. How the situa on a er 2014 Elec on (PEMILU 2014) can influence your business (choose only 1 most
suitable answer)
1 The elec on is conducive, and sure there will be significant changes in business policy for be er
compe veness and investment climate.
2 The elec on is conducive, but s ll not sure with government’s ability in crea ng more conducive
policy for business.
3 The elec on is conducive, but it is predicted no significant effect for business development in
Indonesia.
4 The elec on is rela vely good, but business worries the looser par es will undermine elected
government, thus create instability for business.
5 The elec on is not very sa sfying and business feel confused by the government policy ahead and
the worry on poli cal instability.
D.4. How do you see the prospect for business in next year with the new government? (choose only 1 most
suitable answer) :
1 Not sure at all with the prospect of next year and government ability in doing be er changes
2 Not really sure
3 There will be no significant business development
4 There will be promising business prospect
5 Very bright prospect for business in the future and the b usiness will grow significantly
8
D.5. Recommenda on to increase compe veness and business confidence in Indonesia:
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APINDO Policy Series

Dewan Redaksi ACKNOWLEDGEMENT

APINDO-EU ACTIVE Project Team Members:

Maya Saﬁra (Project Manager)

The content of APINDO-EU ACTIVE working papers is the sole

Hariyadi B.S. Sukamdani Chris Kanter

STRENGTHENING BUSINESS COMPETITIVENESS

A. A One Time Window of Indonesia, on the other hand, only

I with high-income countries, boost

FIGURE 1. Income Growth Path in Selected Asian Countries, 1950-2013

GDP per capita of Selected Asia Countries

China Indonesia South Korea Taiwan Thailand

population employed². Latest research show opportunity by having right policies,

B. About the APINDO's

C. I n d o n e s i a ' s B u s i n e s s Respondents, in general, also indicate the

FIGURE 2. Major Obstacles to Business Competitiveness

Note: the igure is in the percentage to total respondents

FIGURE 3. Major Impediments to Businesses: SMEs Vs. Large Enterprises

competitiveness trajectory of group 4 is less

FIGURE 4. Assessments on the Elements of Business Competitiveness

Group 3: hiring and ﬁring Group 4: Innova on

FIGURE 5. How Successful Are Indonesia's Business in Competing with other

Source: Author's calculation based on APINDO's survey on business competitiveness (2014)

C.2. Labor Market Condition: regulatory environment surrounding labor

FIGURE 7. How do Firms Respond to Minimum Wage Increases?

Stop Recrui ng More New Workers for a Certain Periods 57,55%

Raising the Prices to the Buyers 42,45%

Inves ng More on the Technology 29,25%

Reducing the Number of Exis ng Workers 25,47%

Cu ng Down Bonus 23,58%

Outsourcing some of the Business Lines to other Companies 19,81%

Not Relevant 16,98%

Cu ng Down Budget for Training 16,64%

Reloca ng Business to the Cheaper Region 3,21%

Note: the igure is in the percentage to total respondents

FIGURE 8. Percentage of Labor Force with Tertiary Education (% of total)

Source: World Development Indicators, World Bank Data (2014)

T h e s h o r t a g e o f s k i l l e d - l a b o r i n and youth and educated unemployment rate

a four-year university degree

Process and Procedures in Customs and other

Limited Applica on of ICT in Trade Ac vity

Poor Quality of Roads and Bridges

Poor Quality of Port and/or Airport Infrastructure

Long Dwelling Time

Lack of Quality and Reliable Logis cs Services and Experts

Poor Quality of Logis cs Suppor ng Infrastructures

Lack of Quality and Reliable Transport Services Providers

0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00% 70,00%

Note: the igure is in the percentage to total respondents

The second problem lies at the poor

Source: State of Logistics Indonesia 2013

Indonesia's logistics cost could be up to condition of 3 years ago. Most respondents

FIGURE 11. Logistics Cost, Transportation and Infrastructure Quality,

90% 20,75 20,75

40% 79,25 79,25 51,43

Note: the igure is in the percentage to total respondents

The issue on electricity in Indonesia should

FIGURE 12. Access to Electricity, Year 2011

Source: World Development Indicators, World Bank Data (2014)