Eric Kutcher, a senior partner at McKinsey, talks to the leaders of two of Indonesia’s largest telecommunications providers—Ririek Adriansyah, president director of PT Telkom Indonesia Tbk (Telkom), and Vikram Sinha, president director and chief executive officer of Indosat Oredoo Hutchison (Indosat or IOH). Referencing the diversity of a country that consists of thousands of islands, they talk about the challenges of creating an inclusive society and how global digital trends and connectivity can be used to Indonesia’s advantage to create growth opportunities.
Individual interviews have been edited and combined to create “conversations” on pertinent themes.
McKinsey: What are the main obstacles—and possible solutions—to unleashing inclusive and sustainable growth in Indonesia?
Ririek Adriansyah: I see a great opportunity that comes with digitizing the nation. Indonesia comprises about 17,500 islands and the challenge is how to create connectivity for all of them. If we can do this, it could benefit all aspects of society. Take education, for example—it is difficult to build a school in a remote area and get a good teacher to work there. However, if people are connected to broadband, they can study from wherever they are. This applies to other sectors, too, such as healthcare. There are fewer doctors than are needed in remote areas and connectivity could help—imagine if one good doctor in Jakarta could start taking care of people in very remote areas. That could also aid businesses, big and small alike—for example, large agricultural product companies with remote operations that require connectivity to support their activities, or micro, small, and medium enterprises (MSMEs) that could become more productive and gain greater access to markets if they have increased connectivity. Overall, we at Telkom believe that boosting connectivity in remote areas is key in accelerating inclusive growth.
Vikram Sinha: The big opportunity for Indonesia’s future lies in what I term “growth beyond the metropolitan.” The country’s growth over the past decade has predominantly stemmed from the digital economy within metropolitan hubs, comprising just 15 percent of the nation’s population and contributing 30 percent to national GDP. The substantial opportunity that lies ahead now resides in Tier-2 and Tier-3 cities. Collectively home to approximately 124 million people and constituting 43 percent of GDP in Indonesia, these cities encompass 76 percent of the national urban population.
GDP per capita in these cities—although half that of the metros—is on a trajectory to surpass national growth, with digital technology acting as a primary catalyst. The digital economy in these areas is poised for expansion, buoyed by rising monthly incomes and enhanced digital infrastructure. Tier-2 and Tier-3 cities possess the potential to propel the nation’s overall growth.
Another substantial opportunity lies in Indonesia’s backbone: the MSMEs. Numbering 64 million, they account for 60 percent of the nation’s GDP. Less than 12 percent of these enterprises have embraced digital solutions and a considerable majority lacks access to financial credit. The prospect here lies in facilitating their innovation and providing avenues to access global markets.
Both the opportunities I mention are intricately interconnected, as a significant portion of these MSMEs hail from Tier-2 and Tier-3 cities, creating a symbiotic relationship between the two growth vectors.
McKinsey: What could it take to unlock this potential?
Ririek Adriansyah: We need to create a more inclusive economy. The challenges in doing this are numerous. First, it will be expensive to set up a network and the infrastructure to bring connectivity to so many islands, assuming we can do that. Second, of those people with connectivity, about 80 percent use smartphones, meaning there is still a substantial number of people without devices. One reason for this is that devices are not affordable for many. So, while we wish to give more people connectivity, we face this problem. Another challenge is talent—research shows nearly 90 percent of companies identify shortage of talent as a critical gap in driving their digital transformation journeys. If we can develop our digital talent, I believe Indonesia could leapfrog to become nearly as advanced as a developed country. As this talent pool is cultivated, it’s crucial that growth extends beyond Jakarta, which currently accounts for 70 percent of the nation’s digital talent.
Yet another factor is the need for MSMEs to be better enabled. If you look at Indonesia’s economic structure, more than 97 percent of people work in MSMEs and, as Pak Vikram mentioned, MSMEs contribute to around 60 percent of Indonesia’s GDP; yet relatively few have moved towards active digital implementation. If we could stimulate digital adoption and provide a better environment for these businesses to grow in, the economy would benefit immensely. For example, I have visited coffee farmers in very remote areas in the north of Kalimantan. Their coffee is very good, but they can only sell it locally as it is too expensive for them to access wider markets. There are two things we could do to help—one, create easier access to markets, and, two, provide better logistics management so that they can ship their merchandise more efficiently. A myriad of telco service offerings, coupled with growing public awareness, could play a pivotal role in the customer journey.
Vikram Sinha: To fully unlock Indonesia’s vast potential, a strategic focus on two key areas is imperative. First, a substantial commitment to transforming our human capital is paramount. The expansive and diverse nature of our nation has posed challenges to the development of a cohesive national educational infrastructure. Despite increased budget allocations to education, the existing infrastructure falls short of meeting the growing demands. Approximately 50 percent of students face barriers that prevent them from progressing beyond primary education. Consequently, less than 11 percent of Indonesia’s workforce hold tertiary education credentials. Elevating this figure to 25 percent could contribute an additional five percentage points to our GDP.
The second critical area is women’s empowerment. Presently, women’s labor participation stands at 54 percent, notably lower than 84 percent for men. Additionally, there are limitations in women’s literacy and digital literacy, and women “micropreneurs” encounter challenges in accessing credit. By actively promoting and enhancing women’s participation in the workforce, we can unlock substantial economic potential.
McKinsey: Why is digital technology critical to this growth? What role can it play?
Ririek Adriansyah: Digital technology has the potential to empower Indonesians immensely and catalyze the country’s growth and development by providing access to information, fostering innovation, and enabling participation in the global digital economy. Access to connectivity is fundamental to this growth. Every 10 percent increase in broadband penetration can drive a 1 to 1.5 percent increase in GDP per capita. Ensuring that every Indonesian has access to reliable connectivity could provide access to markets and connect them with better education and healthcare opportunities. Beyond connectivity, we need to ensure that the right platforms and services are developed, and that the population is aware of these platforms so that these technologies can be used effectively.
Vikram Sinha: Digital technology is the silver bullet to address the challenges and opportunities. It’s a powerful tool that can connect all of Indonesia’s islands and every part of our nation. It acts as a bridge to create growth that includes everyone and is sustainable. In Tier-2 and Tier-3 cities, where people are getting more familiar with digital tools and their incomes are rising, digital infrastructure is making a big impact. The same goes for our MSMEs. The fact that not many of them are using digital tools right now means there’s an opportunity for growth. Because of the rise of B2B digital marketplaces, MSMEs become more visible as they adopt digital, which makes it easier for them to get credit and grow.
Digital technology is also crucial for solving challenges in education and empowering women. By combining government investments with support from private businesses, we have a great opportunity to bring education to everyone, especially women. Online learning and digital financing offer significant growth opportunities for both new and established businesses. This combination of digital tools and education not only opens up possibilities for the workforce, but also propels businesses toward an innovative and sustainable future.
McKinsey: What are some of the key digital technology trends that you’re seeing globally? How are they affecting Indonesia?
Ririek Adriansyah: We are seeing AI growing around the world and, globally, it is expected to bring about an additional 1 percent or so of GDP growth by 2030. I believe it is going to play a big role in Indonesia, as it can provide huge opportunities for people. Capturing this opportunity is essential as I believe it could give an economic advantage to those who do. Many companies in the country will be able to grow using platforms built on lessons from other parts of the world.
We’re not using AI in a big way yet in our company, but we are planning to. We are using it internally, and we have a team looking at the possibilities it can bring and how we can use it effectively to enhance our internal operations and the way we provide services to our customers. We plan to use AI in a pragmatic manner through testing, learning, and scaling cycles. We are also working with various partners, some of whom are in the United States, that are ahead of us in the AI journey and from whom we can learn more.
Vikram Sinha: The global landscape is witnessing profound shifts, driven by the growth of the digital economy and the pervasive influence of AI. These trends are not just shaping the country’s technological landscape but revolutionizing it.
Undoubtedly, the digital economy stands out as a powerhouse, with Indonesia emerging as an attractive digital economy in Southeast Asia. The sector has seen remarkable growth, reaching US $82 billion in 2023, and is projected to soar to US $210 billion by 2030. This surge has given rise to over 15 unicorns and two decacorns in Indonesia as of 2023, solidifying this sector’s position as a catalyst propelling the country forward. The next wave of innovation in sectors such as agriculture, gaming, education, and entertainment promises to be a captivating development to watch.
In the realm of technology, AI takes center stage in every conversation today. Leading digital players in Indonesia are harnessing AI to personalize experiences.
McKinsey: How can digital technologies be harnessed to accelerate the country’s growth and development?
Ririek Adriansyah: With a vast population spread across thousands of islands, Indonesia faces challenges in access to education, healthcare, and economic opportunities. Digital technology can bridge these gaps by providing online learning platforms, telemedicine services, and remote work opportunities, thus widening access to essential services and unlocking the potential of individuals across the country. Additionally, digital innovation can spur economic growth by empowering entrepreneurs and MSMEs to leverage e-commerce, digital marketing, and fintech solutions to reach new markets and scale their businesses. This not only drives job creation but also fosters economic resilience and inclusivity. All of this can be enhanced and accelerated with widespread connectivity and data center infrastructure, in which Telkom continues to invest.
Vikram Sinha: Generative AI has demonstrated its potential to democratize access to complex technology, making it accessible to everyone. This revelation has led me to envision that the most significant innovation opportunities for Indonesia lie at the crossroads of social media, e-commerce, education, and AI. Consider the possibilities if AI integrated in social media or mobile applications could facilitate financial inclusion or deliver education seamlessly within existing consumer journeys—this could be a groundbreaking achievement in overcoming numerous challenges.
With the foundational pillars of a robust network infrastructure nearly in place, Indosat’s current focus is on investing in the subsequent building blocks of data centers, cloud services, and AI. I am optimistic that, by the end of this decade, substantial progress will have been made, paving the way for transformative advancements in Indonesia’s technological landscape.
McKinsey: Your organizations aspire to create digital inclusivity in Indonesia and empower people. Tell us about this journey.
Ririek Adriansyah: We have three pillars in Telkom. The first is connectivity, which is still our core business. The second is the natural extension of connectivity—data centers, cloud, big data. The third one is what we call digital service and here we might have to partner with somebody.
As I said earlier, about 80 percent of the population already own smartphones. There are two factors that contribute to this. First, the cost of mobile phones seems to be declining. And second, which might be different from the United States, is that the second-hand mobile phone market is huge in Indonesia. So, smartphones are more readily available—except for that 20 percent of the population. The question is how to address that challenge. Take for example, in India—Jio is able to provide people with limited budget smartphones at no cost. Indonesia does not yet have a similar ecosystem. The other challenge is after-sales services. In Indonesia, it may not be viable to have a service center on an island that might have ten or 400 people. The logistics of serving customers is getting better but we are not 100 percent there.
Also, networks can be challenge—even though 95 percent of the country is covered, the remaining areas still need connectivity and we should not discount that. There are more than 5,000 villages that have limited connectivity and over 80 percent of households do not yet have fixed broadband access. Telkom remains committed to be at the forefront of advancing connectivity access in the country, with a focus on expanding mobile, as well as fixed access and backbone networks.
Vikram Sinha: In response to the dynamic changes in the telecom landscape and the imperative for growth, we embarked on a strategic merger with Hutchison Tri, making us the second-largest telco in the nation, with a user base of 100 million subscribers. This successful merger marked a significant milestone, enabling us to make substantial investments in expanding our scale and coverage throughout the country.
Our focus is aligned with the belief that the key to Indonesia’s prosperity lies in fostering inclusive and sustainable growth. This conviction underpins our significant investments in driving growth beyond metropolitan areas and supporting MSMEs, the backbone of our nation. We recognize that the pervasive influence of digital technology holds the potential to drive human capital transformation and empower women. Our journey is about delivering tangible benefits to every Indonesian, ensuring that the power of connectivity and digital experiences reaches every corner of our diverse nation.
McKinsey: What personal leadership qualities are critical in this journey?
Ririek Adriansyah: I tend to see the big picture and think about what is best for the country and its people, and how to bring inclusivity. For example, I have been inspired by Google. The first time I used Google was when I set up a personal email account when Gmail was first introduced, and I still use it. At the time, I was amazed that Google search is free. Back then, I wondered if Google knew how to monetize and, of course, now I can see that it did. Our purpose as an organization is to create a more prosperous and competitive nation and provide added value for stakeholders. My own North Star is aligned to this and is about bringing digital access and services to as many people as possible. As long as we deliver that, we will know how to grow and monetize our journey. We deeply reflect on our purpose and spend time as a leadership team considering whether our actions reflect our commitment to “bring the world to your hand.”
Vikram Sinha: As I reflect on my five-year journey in this country, numerous interactions with remarkable leaders have unveiled three pivotal leadership qualities that encapsulate the essence of this nation and, in my belief, can propel us forward on our journey.
The first quality is encapsulated in the phrase, “aspire big, play for purpose.” This nation is defined by an immense sense of national pride—nothing resonates more deeply with every Indonesian. By uniting the pursuit of ambitious goals with a commitment to a larger purpose, we can bring the nation's collective aspirations to fruition.
The second quality is rooted in the Indonesian spirit of gotong royong, a selfless cultural tradition fostering collaboration for shared benefits. By embracing this ethos, we can cultivate win-win partnerships, recognizing that collective success is the true measure of our achievements.
Last, the third quality lies in what I call Standard Operating Process mastery. To achieve our goals, there must be an unwavering focus on execution. Witnessing firsthand Indosat teams’ exceptional organization and dedication to delivering outcomes once a plan is set, I understand the critical importance of meticulous execution in our journey forward.
