Embracing the Industrial Internet of Things
    Category: Column By : Tzern Tzuin Toh Read : 1003 Date : Wednesday, November 30, 2016 - 12:33:54

    Before the 1997 Asian financial crisis, Indonesia experienced the Asian Economic Miracle as investment flowed freely into the region. Many recall how the crisis eroded the bedrock of East Asian exports. Indonesia, blessed with large petroleum and mineral resources, was spared the full impact of this, as the commodities boom from the 2000s spurred growth. China’s emergence as a manufacturing powerhouse at the turn of the 21st century resulted in a surge in commodity prices. Consequently, in Indonesia, commodity exports have surpassed manufacturing exports since 2002. Over the past three years, the Chinese economy has slowed down and commodity prices have dipped.

    Manufacturing’s contribution amounted to 17.8% and 18.2% of GDP in 2014 and 2015 respectively, according to the Indonesian Ministry of Industry. The main contributor to the Indonesian manufacturing industry in 2015 was the food and beverage sector at 5.6% of GDP, followed by oil and gas manufacturing at 2.7%.

    Although the overall contribution from manufacturing has declined from the levels experienced in pre-2000, its increasing contributions  are especially crucial because of declining commodity prices. President Joko Widodo has focused on high-value manufacturing to achieve an ambitious GDP growth target of 7%, and he has established the National Medium-Term Development Plan 2015–2019 to increase manufacturing’s GDP contribution to 21.6% by 2019.

    A key global trend in manufacturing is the Industrial Internet of Things (IIoT), which refers to the convergence of cyber and physical systems through the Internet. On a global scale, Cisco predicts that companies adopting IIoT solutions could grow four times faster and cut maintenance costs by 67%. Regionally, South Korea, Japan, and Singapore offer pragmatic examples of IIoT that Indonesia could follow to boost its status as a regional manufacturing hub. In fact, several Indonesian manufacturers have already begun implementing IIoT solutions to gain a competitive advantage. Frost & Sullivan research shows investments in IIoT in Indonesia reached $1.4 billion in 2015, with a year-on-year growth of 6.7% forecasted for 2016.

    Indonesia’s possible renewal of its free-trade agreement with the EU and the Trans-Pacific Partnership could increase investments in automation technologies. Furthermore, the ASEAN Economic Community is an opportunity to tap into a regional consumer base of approximately 700 million. Frost estimates the Indonesian automation revenues to be worth $114 million for the food and beverage sector, and $215 million for the oil and gas sector.

    Indonesian manufacturers need to seize the opportunities arising from an expanding regional customer base and the IIoT is a viable solution to upgrade Indonesia’s manufacturing capabilities.