Entrepreneurship has been a theme of Indonesian President Joko Widodo’s policies from the outset. One of his most enterprising decisions was the appointment of Harvard-educated Nadiem Makarim as his new minister of education, culture, research, and technology in 2019.
Makrim co-founded the Indonesian ride-hailing app Gojek in 2010. By 2016, it had become Indonesia’s first unicorn, a technology company with a valuation over US $1 billion. Since then, Indonesia has become one of the most vibrant startup locations in Asia, and is now home to 13 unicorns. The entrepreneur-friendly policies of the Widodo-Makarim duo have no doubt accelerated its development.
However, Indonesia’s startup success is also a story of globalisation and emigration. Research I was involved in last year reviewed the backgrounds of over 300 successful Indonesian technology co-founders. It showed that 61% had either studied or worked overseas.
This begs the question – why have so many successful Indonesian entrepreneurs traveled abroad?
Innovation and brain circulation
The role of international knowledge and experience in technology entrepreneurship is not new or unique to Indonesia. Engineers returning from Silicon Valley – so-called ‘sea turtles’ – also helped build high-tech enclaves in China and India. Economic geographer AnnLee Saxenian believes this ‘brain circulation’ is critical for stimulating innovation in emerging economies.
Supporting the emigration of talent can sometimes go against the instincts of policymakers and aid workers in developing countries. For instance, while the Indonesian Endowment Fund for Education (LPDP) invests in international scholarships for its brightest students, students must return to Indonesia within 90 days of graduation. Similar requirements exist for the Australia Awards scholarships.
These measures are designed to protect against a brain drain – the emigration of high skilled labour to markets with greater opportunity. However, Saxenian’s argument for brain circulation is that citizens can actually be more productive when they study and work abroad. They acquire new knowledge and skills. They act as bridges into high-value technical and financial networks.
And when they do return home, they often build very successful companies.
Where are they going?
A further breakdown of the data highlights the central role of the US in Indonesian startups – and Australia’s relative insignificance.
Of all Indonesian startup founders with international education experience, almost half studied in the US, compared to just 16% in Australia.
Similarly, over a third of technology founders with international experience worked in the US, compared to just 8% in Australia.
The preeminent role of the US is no surprise. It’s the home of Silicon Valley, many top ranked universities and the largest venture capital market in the world.
But Australia’s diminutive role in Indonesian startups should raise eyebrows. We are neighbours, we have a bilateral free-trade agreement, and we are the number one international education destination for Indonesian students.
This suggests a disconnect between Australian and Indonesian entrepreneurs.
To turn this around, Australia needs to learn from the US and start circulating Indonesian brains through its economy – not just its universities.
Strict visa conditions have historically locked Indonesian talent out of the Australian market. Opening the labour market to Indonesian talent can strengthen the competitiveness of the Australian startups, as it has in Silicon Valley, where foreign-born engineers are the backbone of the workforce.
Australia also needs to better leverage its competitive advantage as Indonesia’s favourite education destination. For example, a renewed focus on work-integrated learning at our universities can help connect Indonesian students with Australian industry. The Australian government’s recent decision to extend work rights for international students for two more years is a big step forward, but much more is needed.
For example, we need to deepen our digital collaboration. Some economists are predicting a new wave of white-collar offshoring in a post-pandemic economy that is embracing remote work and distributed teams. Global human resources platforms, like Deel and Employment Hero, are making it far easier for Australian startups to navigate Indonesia’s complex and opaque labour laws. Similar time zones could make a distributed Indonesian team the norm for Australian startups wanting to bootstrap and enter the Southeast Asian market.
But Australia also needs to circulate Australian brains through Indonesia’s economy. The Australian government’s support for international internships, through the New Colombo Plan, is a start. The Indonesian government’s recent embrace of digital nomads will also help, as it did in Estonia, where imported talent helped build Europe’s strongest per-capita startup environment.
But for Indonesia to benefit from the wave of young Australian digital nomads headed for Bali, it needs to get Australian expatriates and local Indonesians mingling to facilitate networks and knowledge spill overs. The cultural differences between Australian and Indonesian entrepreneurs are still pronounced, and it will take effort to change that.
Perhaps it is time for the Australian government to make startup ecosystems – instead of exports – our primary focus. The US has backed Indonesian startups for over a decade – US Aid funded Indonesia’s first startup accelerator and angel investment network back in 2011. By contrast, Australia’s investments in Indonesia’s startup ecosystem have been modest since the death of the InnovationXchange, the Australian government’s aid innovation lab.
Economic diplomacy or innovation diplomacy?
It’s hard to overstate the importance of startups. Founders are the next generation of business leaders. But the migration patterns of Indonesians suggest the future of Australia-Indonesia business relations – much like their past – might be underwhelming.
If Australia is serious about deepening economic ties with Indonesia, it needs to better connect our two startup ecosystems. This would require a fundamental shift in Australia’s export-centric economic diplomacy, which has historically asked ‘what can we sell to Indonesia?’ This myopic focus on trade is becoming outdated in a world where innovation is now the engine room of prosperity, soft power and strategic influence.
Saxenian’s studies of high-skill migration show us that innovation emerges from trading brains, not trading goods. Perhaps it is time for Australia to embrace innovation diplomacy, which asks a fundamentally different question – ‘what can we create with Indonesia?’