Kiroyan Partners - Rindo Saio

The disruptive effect of innovative businesses has begun to take a toll on conventional industries in Indonesia. While the polarizing debates on net neutrality and censorship surrounding Netflix’s blockade have barely subsided, taxi and public transportation drivers have recently staged protests to demand an end to Uber and Grab’s operations.

This signals the grapes of wrath that will only grow with time unless the roots of the problem are justly understood and dealt with. A realistic approach to understanding the problem is to take it for what it actually is: as purely commercially or business driven.

In the case of the Netflix blockade, this should preclude unnecessary debates on such normative reasoning as moral policing and national sovereignty that instead obscures the real issue at hand. In this regard, it is important to recognize and take pride in the increasingly critical and well-informed public and netizens alike who find those lines of reasoning deceptive, if not indicative of fear of competition.

This competition-fearing behavior is nothing new and has dated to as far back as the infamous labor movement of the English luddites in the 19th century. The luddites, who until now remain a symbol of violent resistance to technology and innovation, destroyed textile machinery and set factories on fire in fear of losing their jobs to the increasingly efficient machines.

While scholars have since pointed out a few misconceptions (i.e., luddites were not technophobes but labor strategists simply reacting to the social impacts of technological changes), the primary motive behind the fight has always been about economic survival.

In retrospect, the recent example of resistance by local non-metered taxis to Blue Bird Group’s regional expansion should then invoke a sense of irony on how peculiarly similar the circumstances were with the current resistance to online transportation businesses.

What all this implies, as Professor Clayton Christensen of Harvard Business School already cautioned when he coined the term ‘disruptive innovation’, is the inexorable nature of innovative businesses in gradually taking existing markets from already established, relatively inert companies.

However, it is imperative to emphasize that such a nature is also rooted in how the market economy works. This means innovation should not be blamed for the occurring disruption. Innovation arises simply as a response to the need to harness technology to generate better services in meeting market demands that favor constant improvement and wider options.

In other words, the fear of competition at its very core springs from the blow of having to cope with sudden changes after decades of organizational inertia, deeply entrenched in the immense comfort of business-as-usual operating processes.

A sensible answer to this problem thus requires companies in Indonesia to keep up with the wave of innovation by strengthening their competitiveness and winning over customers instead of going all luddite-like by turning fear into rage or using their influence to block the entry of more innovative competitors.

If there is one thing that the market economy has taught us, it is that the dismissal of competition in the name of sustaining dominance always proves counterproductive and eventually results in the bare minimum of service quality, further evoking dissatisfaction among customers. In this sense, a company does not directly compete with other companies but rather with ideas or customers’ expectations of higher service quality made possible by technology.

Two important notes should be made on the above proposition. First, technology, being a form of social relationship, always evolves: it starts, develops, mutates, stagnates and declines. And just like living organisms, it also merges into our way of life and defines our evolving standards of what constitutes efficiency and convenience. Companies, as commercial entities trying to retain customer loyalty would do well to also evolve accordingly and capture these dynamics.

Moreover, customers are becoming all the more powerful as they have more options at their disposal. Uber, Netflix, Tokopedia and Traveloka are really just the tip of the iceberg. And what’s more, the younger and sufficiently educated citizens in Indonesia are getting involved in speaking their minds and scrutinizing their issues of interest through the use of social media platforms.

As regulators often take to the very same social media to quickly gauge public sentiment, netizens who are largely also users of innovative services and products then have a very powerful instrument for policy advocacy at their hands.

This brings us to ponder yet another crucial question of how the government can also make sense in creating a desirable and effective regulatory environment for all involved. In the case of conventional transportation service operators versus app-based transportation service providers, both parties actually have voiced a similar ideal as a prerequisite for competition: a level playing field.

The conventional operators define this as the equal obligation to acquire full licensing for the operation and also paying taxes. Meanwhile, the app-based providers have made their requests for a clearer regulatory framework and a simpler licensing process known.

These inputs are all constructive and can certainly be incorporated among other technicalities into the draft regulation currently being deliberated by the Communications and Information Ministry.

Whichever attributes the government later decides to include, one thing should remain central: The regulation as a whole must promote competitiveness and refrain from favoring one party over another in a way that tarnishes the spirit of competition and the level playing field.

And this should hold true not only for the current need to regulate online transportation, streaming, or shopping, but also for all other future innovations. Failure to do so will result in further inertia and inefficiency that will not sit well with market demands, thus risking the occurrence of other more disconcerting kinds of disruption, rooted in the wrath of a dissatisfied public.


Rindo Sai’o is a consultant at Kiroyan Partners. The views expressed are his own.

Source: The Jakarta Post, March 31, 2016, page 7.

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