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Indonesia’s smaller cities attract start-up investors

New Indonesian companies focused on so-called tier 2 and 3 cities and engaged in sectors ranging from fintech and social commerce to digitising family-run shops have raised tens of millions of dollars in the past few years. Investors are attracted to such start-ups as they are essentially diving into a potential blue-ocean market -smaller Indonesian cities that are digital laggards and far from the ultra-competitive tech scene in places like the capital, Jakarta.

A local venture capital investor says the archipelago will see about three unicorns – private companies valued at over USD 1 billion – emerge in the next five years from start-ups focused on the smaller population centres. Tier 2 and tier 3 cities are three to five years behind tier 1 cities when it comes to digital adoption, the venture capitalist said in a recent report. But it expects that a large prize awaits investors, as the digital economy in those locales is expected to expand about fivefold by 2025.

Digitising small businesses in smaller cities have gained traction. In the past year alone, start-ups that provide digital bookkeeping apps for small roadside shops and stalls, and start-ups that aim to help small retailers streamline their supply chains, have each received over USD 10 million in funding from global and local investors.

Other sectors have also attracted attention. In fintech, a start-up that operates a branchless banking agent network that provides services to unbanked people in rural areas, received USD 53 million in July last year. Meanwhile, a peer-to-peer lending start-up serving female entrepreneurs in villages secured a USD 50 million lending facility from a US-based lending platform. Social commerce start-ups, which both allow individuals to become resellers of consumer products have also obtained funding in recent years.

Jakarta trumps all cities in digital competitiveness, according to a report by an Indonesian venture capital investor. The capital had an index score in that category of 71.9 in the 2021 research, which considers things such as infrastructure and human resources, ahead of second-place Bandung, capital of West Java Province and home to the Bandung Institute of Technology, Indonesia’s version of the Massachusetts Institute of Technology. Other Indonesian tier-one cities include the likes of Surabaya and Bandung, both on Java.

However, reports say that nonmetropolitan areas are growing faster and increasing in economic importance. The country grows and the government intensifies the economic diversification efforts. Tier 2 and 3 cities will be more prominent economically, increasing their share of GDP by 3% to 5%.

Another factor affecting start-ups is the COVID-19 pandemic, which has forced people even in remote places to digitise their lives to some extent as movement restrictions were put in place to slow the spread of infection.

Accordingly, studies say that Indonesia is on its way to becoming the 4th biggest economy in the world by 2040. But being ‘big’ is not enough, a country should serve its people and make their lives better in every way. Hence, the country’s president set out his national priority programmes, including economic transformation and economic equity.

In this modern world, the country needs to increase its competitiveness in various industries and human equality. Leaders should also believe that welfare should be distributed evenly throughout Indonesia. Prosperity will not be achieved if wealth and progress are concentrated in some areas while others are struggling to survive. For the past six years, they have worked to achieve those goals.

Technology is one sector that can answer these challenges. Indonesia raised six unicorns and thousands of rising technology start-ups in less than a decade. Also, digital solutions changed Indonesians’ ways of life, from the use of e-commerce for easier daily trades to the rising number of SMEs due to better access to lending brought by fintech companies. The report shows that industry players have focused only on the metropolitan areas, but now, the other parts of Indonesia are ready to join the digital revolution as well.

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Qlik’s vision is a data-literate world, where everyone can use data and analytics to improve decision-making and solve their most challenging problems. A private company, Qlik offers real-time data integration and analytics solutions, powered by Qlik Cloud, to close the gaps between data, insights and action. By transforming data into Active Intelligence, businesses can drive better decisions, improve revenue and profitability, and optimize customer relationships. Qlik serves more than 38,000 active customers in over 100 countries.

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CTC Global Singapore, a premier end-to-end IT solutions provider, is a fully owned subsidiary of ITOCHU Techno-Solutions Corporation (CTC) and ITOCHU Corporation.

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SIRIM is a premier industrial research and technology organisation in Malaysia, wholly-owned by the Minister​ of Finance Incorporated. With over forty years of experience and expertise, SIRIM is mandated as the machinery for research and technology development, and the national champion of quality. SIRIM has always played a major role in the development of the country’s private sector. By tapping into our expertise and knowledge base, we focus on developing new technologies and improvements in the manufacturing, technology and services sectors. We nurture Small Medium Enterprises (SME) growth with solutions for technology penetration and upgrading, making it an ideal technology partner for SMEs.

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HashiCorp provides infrastructure automation software for multi-cloud environments, enabling enterprises to unlock a common cloud operating model to provision, secure, connect, and run any application on any infrastructure. HashiCorp tools allow organizations to deliver applications faster by helping enterprises transition from manual processes and ITIL practices to self-service automation and DevOps practices. 

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IBM is a leading global hybrid cloud and AI, and business services provider. We help clients in more than 175 countries capitalize on insights from their data, streamline business processes, reduce costs and gain the competitive edge in their industries. Nearly 3,000 government and corporate entities in critical infrastructure areas such as financial services, telecommunications and healthcare rely on IBM’s hybrid cloud platform and Red Hat OpenShift to affect their digital transformations quickly, efficiently and securely. IBM’s breakthrough innovations in AI, quantum computing, industry-specific cloud solutions and business services deliver open and flexible options to our clients. All of this is backed by IBM’s legendary commitment to trust, transparency, responsibility, inclusivity and service.

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