Indonesian Young Entrepreneur, Obstacles and Solution

8/6/2019 Indonesian Young Entrepreneur, Obstacles and Solution

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INDONESIAN YOUNG ENTREPRENEUR; OBSTACLES AND SOLUTION

Galih Prasetya Utama1, Naturalife Greenworld, Pinteraktif Inc, PT. SGT, West Java, Indonesia

Abstract

The accumulation of production factors cannot alone explain economic development. They are necessary input in

production, but they are not in themselves sufficient for economic growth to occur. Human creativity and productive

entrepreneurship are needed to combine these inputs in profitable ways, and hence an institutional environment that

encourages free entrepreneurship becomes the ultimate determinant of economic growth. Economic growth will

require productivity on real sector, the current face of local business player age, will determine the future map of

Indonesia’s economic achievement. Indonesian young entrepreneurs ( age 15- 35) face abundance of obstacles,

internally from closest relatives, while externally from unstable condition of macroeconomic, bad infrastructure,

and weak law supremacy. The challenge to develop the business, will require persistency to face it, while many

uncertainty and risk they will walk through their ambition. Young entrepreneur should build their own network, to

enter the society of old players (competitors ) , while learning to grab the knowledge, and draw the map of

competition. The government role will lies on basic education distribution, political stability, and macroeconomic

goodwill to open a chance for new economic players, such banking credit system, or business incubator.

Keywords: young entrepreneur, macroeconomic, economic growth, business incubator

1. Introduction

The purpose of the study is to define the obstaclesof the start- up entrepreneur in Indonesia, andtrying to find the solution for the problem, onseveral case.

Indonesian young entrepreneurs ( age 15-35)face abundance of obstacles, internally fromclosest relatives, while externally from unstablecondition of macroeconomic, bad infrastructure,and weak law supremacy .

We will find the solution by examiningthe ease of doing business index, andconstructing the solution in each problem

2. The Fact of Unemployment, Economic

Stagnation, and It’s Social Impact

The country enjoyed tremendous economicgrowth in the 1980s and much of the 1990s, dueto Indonesia’s abundant natural resources and

increases in the manufacturing and servicessectors. As a result, Indonesia’s middle class

grew considerably, but poverty remainedwidespread. The agriculture sector led the

Indonesian economy in output until 1991, whenit was overtaken by manufacturing. In 2003agriculture accounted for 17 percent of the GDP.Annual output grew by 3 percent per year duringthe early and mid-1990s. Indonesia has achievedremarkable success in economic development in

recent years. During the last decade GDP growthran as high as 7.8% per year (in 1996), but sincethe economic crisis that hit Indonesia in 1997, asa result of the crisis that year in Thailand growthhas plunged, falling to just 0.85% in 1999.During the first quarter of 2002, however, GDPgrowth has rebounded, climbing to 3.25%.

The rupiah, which had been in a rangearound Rp8,600/$1 since mid-2003, depreciatedby about 12% over the first 6 months of the year

to around Rp9,600. Government subsidiesinsulate consumers from the direct impact of rising oil prices, but higher prices for importedfood and other items put upward pressure onconsumer prices. Indonesia, traditionally anexporter of oil and gas, did not get benefit fromthe rise in global oil prices over the first half of the year. The Government’s subsidies on

domestic fuel are projected to cost $2.4 billion



this year, constituting a major drain on thebudget.

The total population of Indonesia wasestimated to be 213 million as of 2001. At the

same time, the size of the economically activepopulation age 15 and over was estimated to be144,033,873. Between 1997 and 2001, theemployment rate increased 4.32%, from87,049,756 to 90,807,417. The largest share of the workforce is still dominated by workers withonly a primary-school education (50,280,736workers in 2001). The share of workers withhigh school and university degrees, however,has been rising in urban areas, but less-welleducated workers are still a majority even incities.

Indonesia's open unemployment rate ishigh compared to the other developing SoutheastAsian countries. In 2003, the official rate of 9.5% was astronomically higher than those of itsneighbors, Malaysia and Thailand, which were just 3.6% and 1.5% respectively. It is only lowerthan that of the Philippines, which was 10.2%.Taking the comparison a bit further, Korea’s

unemployment rate in the same year was only3.6%. Open unemployment rate jumped from

4.4% in 1994 to 6.5% in 2004, or there was a47percent proportional increase. If one looksbetween 1994 and 1997, just prior to theeconomic crisis, unemployment rate wasrelatively stable. During the crisis, itskyrocketed to almost 6.5% in 1999 beforestarting to descend in the following year andreaching 5.5% in 2001. Afterwards, the ratewent on a generally upward trend up until 2004.More than half of the unemployed are highlyeducated, with at least 12 years of education,and a further quarter having nine years of

education. This is in accordance with the higheropen unemployment rate among the highlyeducated found in other studies. Young workersdominate the unemployed in both areas,hovering between 62% and 68% in urban areasand between 71% and 79% in rural areas. Thisshows that it was more difficult for new entrants,who were generally better educated, to get intothe labor market to find jobs in rural areas.

Hence, it is of little surprise that many of theyoung and the educated leave rural areas andflock to urban areas.

Social impacts of the high rate of

unemployment are, the rise of criminal number,the decrease of social quality of life, lack of trust, and the worst, because of most of the openunemployment are youth and highly educated,meaning that, the future of Indonesia is still in abig question mark! The future of country is theyouth, if there are so many young people livewith unclear future, lack of appreciation, and noguarantee of good social life, meaning no trust,Indonesia facing unclear future.

3. Start-Up Entrepreneur Obstacles

3.1 Doing Business Index Fact

Globally, doing business remains easiest inthe high-income economies of the Organisationfor Economic Co-Operation and Developmentand most difficult in Sub-Saharan Africa andSouth Asia. But developing economies areincreasingly active. In the past year, 66 percentreformed business regulation, up from 34percent six years earlier.

In the past five years, about 85 percent of the world's economies have made it easier forlocal entrepreneurs to operate, through 1,511improvements to business regulation. DoingBusiness 2011 pioneers a new measure showinghow much business regulation has changed in174 economies since 2005. China and India areamong the top 40 most-improved economies.Among the top 30 most-improved economies, athird are from Sub-Saharan Africa.

For the fifth year running, Singapore leadsin the ease of doing business, followed by HongKong SAR China, New Zealand, the UnitedKingdom, and the United States. Among the top25 economies, 18 made things even easier overthe past year.



Figure 1. EDB Benchmark

Indonesia's overall Ease of Doing Businessranking improved this year reflecting higherscores in 4 indicators, especially Starting aBusiness, Registering Property, and ProtectingInvestors. The government introduced standardregistration forms, cut the requirement to obtaina certificate of company domicile and madebusiness and tax registration faster. Indonesiaalso introduced time limits for issuing theownership certificate and for registration at theland registry which cut the time to complete aproperty transfer by 17 days.

Figure 2. Global Rankings

According to the World Economic Forum'sGlobal Competitiveness Report for 2007-08, thethree most problematic factors for doingbusiness are inadequate supply of infrastructure,inefficient government bureaucracy, and accessto financing. The Index of Economic Freedom

reports that recent reform measures have putgreater emphasis on improving the businessclimate, enhancing regional competitiveness,and creating a more vibrant private sector.

Figure 3. Top Ten Constraints to Firm

Investment in Indonesia (2009

According to the Economist IntelligenceUnit, Indonesia is expected to grow by 5.3% in2010, following an estimated growth of 4.5% in

2009.

Figure 4. Dealing with Government Regulation

Figure 5. % of Firms Expected to Pay

Informal Payment



Figure 6. % of Firms Using Banks to Finance

Investments

Figure 7. Time spent in meetings with Tax

Official

Figure 8. Time to Clear Exports Through

Customs (days)

Indonesia has performed well during theglobal financial crisis because the economy isless exposed to global trade than its peers and is

now set to be boosted by healthy investmentgrowth. This reflects improvement alreadyimplemented in the business environment in theprevious term of the president Susilo BambangYudhoyono and during the new term that startedin 2009

4. The Step for Real Economic Growth

by Youth Entrepreneurship

Movement

Five crucial factors for entrepreneurial

engagement that should be addressed byappropriate programmes to foster youthentrepreneurship. This includes: Social andcultural attitude towards youth entrepreneurship;Entrepreneurship education; Access tofinance/Start-up financing; Administrative andregulatory framework; and Business assistanceand support.

Social and cultural always affected the existenceof entrepreneurial paradigm. Culture is thesystem of collective values that distinguishes the

member of one group from another.“Masculinity”3, “power distance”4 and

“individualism”5 are also linked to

entrepreneurial behavior. Different levels of individualism and power distance (hierarchies)can partly explain the differences inentrepreneurial activity among Japan, Europeand the USA.

Social perceptions and perceived legitimacy of entrepreneurship are also an important factor inhelping of hindering entrepreneurial behavior.

However, for some societies, entrepreneurshipremains undervalued compared to, for example,a career in medicine, law, with a largecorporation or with government. In thesesocieties, perceptions remain that familysacrifices made to help young people gain a highlevel of education are not repaid if they becomeself-employed.

For consideration, the cultural environment inIndonesia is low in masculinity, high powerdistance, and low cultural in invidualism. The

communities in Indonesia are more to befeminism, paternal, and collectivism.

How should education be generally improved tobecome more entrepreneurially orientated?Entrepreneurship programs should be introducedat a school level, not only at college. Theseprograms should be present in other areas of studies and careers, not only business



administration. Besides, the experiences of localyoung entrepreneurs should also be introducedin these programs. Nothing is better thanexamples. Only by meeting young entrepreneursaware of the problems and difficulties of creating a business and who experienced

successes and failures of making a business,young students will believe they can make it aswell. This is keyword. Teaching administrationskills is not enough. It is crucial to teach thespirit, the confidence, the trust, the leadership,the firmness that only those who chased theideal of setting up an enterprise know. Thisshould be incorporated into study plans,pedagogical programs, mentorship facilities andenterprise development programs, which should – in turn – rely on the help and knowledge of young entrepreneurs, besides teachers and

professors.

Key entrepreneurship educative constraints are :General lack of introduction and adoption of enterprise education; Inadequate curricula andstudy programs; Wrong learning methods; Negligence of students’ personal environment

(parents and family members); Lack of trained/educated teachers; Lack of careerinformation and business possibilities; Lack of business and education linkages; and Lack of ICT infrastructure/capability.

Education is a key issue. Schools should sendout the message that being an employee is notthe only option after the completion of studies.The advantages of being an entrepreneur shouldbe promoted and the hopes of those youngentrepreneurs who face the risks of starting theirown business should be nurtured.

Young entrepreneurs often launch theirbusinesses without carefully estimating theamount of capital (start-up and working capital)

they will need to actually get started. Manyinsist that passion and enthusiasm will beenough to get them through the rough periods.Furthermore, young entrepreneurs are often notaware of all available types of finance, fundingforms and special support programs. They oftendo not understand the concept, the benefits, thepossibilities and the drawbacks of the numerousforms of debt and equity (venture capital)

financing. Key constraints to start-up finance are;Lack of personal savings and resources; Lack of securities and credibility (for debt financing);Lack of business experience and skills (for debtfinancing); Strict credit-scoring methodologiesand regulations; Complex documentation

procedures; Long waiting periods (time neededto decide on an application for funding); Lack of knowledge, understanding, awareness of start-upfinancing possibilities; Unfavorable firmcharacteristics and industry; Legal status/form of enterprise; Lack of (successful) micro lending/-finance and seed funding.

Promotional efforts can be broadly divided intofour categories: Research into start-up andbusiness finance; Provision of start-up andbusiness capital; Improving the regulatory

environment for start-up finance; Informationand counseling on access to finance and funding.

The impact of administrative and regulatoryburdens on youth entrepreneurship and businessin general is also a fairly new area of research.However, these burdens are among the mostimportant barriers to start-ups of young peoplein high-income and developing countries.Government regulations and bureaucraticformalities also are seen as one reason for largeinformal sectors in many developing countries,

since the costs of formalizing are higher than thegain in productivity from entering the formalsector. Key administrative burdens are:Unsupportive tax regimes (system and taxlevels); Business registration procedures andcosts; Bankruptcy laws; Time and costs involvedin insolvency proceedings; Ineffectivecompetition law; Regulatory framework changesand lack of transparency; Property rights,copyright, patent and trademark regulations.

Minimizing and simplifying regulatory and

administrative procedures, as well asmaximizing the support needed to comply withthem, will make it easier for young people tostart-up and run their business. In the followingsection, we outline some of the major strategies,initiatives and policy-instruments currently usedin different countries to reduce these burdens.



What are corresponding government approachesto and structures for policymaking?Entrepreneurship policy has been defined as:

Policy measures taken to stimulateentrepreneurship; Aimed at the pre-start-up,

start-up and post-start-up phases of theentrepreneurial process; Designed and deliveredto address the areas of motivation, opportunityand skills; With the primary objective of encouraging more people to considerentrepreneurship, to move into the nascent stageand proceed into start-up and early phases of abusiness.

Drawing up on this definition, youthentrepreneurship policy can be defined as:Policy measures taken to foster entrepreneurial

activity of young people; Aimed at the pre-start-up133 (including entrepreneurship education),start-up and post-start-up phases of theentrepreneurial process; Designed and deliveredto address the areas of motivation, opportunityand skills; with the main objective of encouraging more young people to start anentrepreneurial undertaking or venture and at thesame time to improve young peoples’ general

employability.

Entrepreneurship policy in general and youth

entrepreneurship policy in particular, are stillfairly recent and evolving areas. Therefore, it iscrucial to understand where these policies are orshould be situated. Youth entrepreneurshippolicy is cross-cutting in nature and thereforenecessitates a collaborative multi-stakeholderapproach on the part of government and society.This means that for successful policydevelopment in youth entrepreneurshipcollaboration between different line ministries(educations, labour, industry, youth and financein particular) is vital.

The short advice for Indonesian government toemerging youth entrepreneurship are:

1) Develop an individual, tailor-made approach2) Invest in research, benchmarking and testing3) Carry out detailed evaluations and impactassessments

4) Balance speed with scale of impact and costof implementation5) Focus on enterprise education6) Mobilize, activate and involve all majorstakeholders7) Close the gap between national policy and

grass-root, regional and local initiatives

I believe that Indonesia is able to reach ourdream by youth empowerment, especially inentrepreneurship.

References

Ease of Doing Business Index 2011, World Bank

Global Entrepreneurship Index 2009, GlobalEntrepreneurship Monitor

Global Entrepreneurship Index , Jena EconomicResearch Paper

Documents

Indonesian Young Entrepreneur, Obstacles and Solution