Echelon Indonesia: Disrupted and disruptor, like a horse and carriage
By Masyitha Baziad April 6, 2016
- Brick-and-mortar companies are making the innovation leap
- Startups can benefit from partnerships with traditional companies
THERE is no secret that startups are disrupting the traditional business environment across many industries, but in the middle of this battleground, there is space for collaboration and partnerships.
If both parties can stop looking at each other as threats, that is.
Startups are emerging out of lifestyle changes. They are built on innovation, something which traditional companies lack.
“You can ask yourself this question: Are the incumbents in the best position to innovate?” said Lippo Group executive director John Riady.
“I do not think so. Startups can, because that is the beat of their heart. They start from scratch with a foundation of innovation and building materials of technology, while traditional companies are really built with brick and mortar.
“You know how expensive it is to renovate your own house – imagine how much you’ll need to renovate an even bigger house.
“Take that number, multiply it by 10. Innovation for traditional companies is costly,” he said in a panel discussion at Echelon Indonesia, the local iteration of the regional series of startup and investor events organised by Singapore-based technology blog e27.
Lippo Group is one of the oldest and most successful conglomerates in Indonesia, but even it had to acknowledge its limits.
Rather than fight the e-commerce boom enveloping Indonesia, it decided to embrace it by launching its MatahariMall.com online marketplace, despite the possibility of it cannibalising its physical Matahari Department Store.
“Startups are clearly a threat, but rather than be disrupted, we jumped in and created our own disruption with MatahariMall.com,” said John (pic).
“It is competing against Matahari Department Store, but guess what? We have no choice but to follow the trend. We need to follow customers and their lifestyles,” he argued.
John said most of Indonesia’s large corporations are looking into technology, but while some have been quick enough, others are still strategising.
“Indonesia is experiencing its first technology boom … this is a generational opportunity and also the reason why big corporations like Lippo, even Ciputra, Saratoga and KompasGramedia are jumping in,” he said.
Still, the competitiveness between startups and traditional companies remain, with one prime example being the acrimony between taxi drivers/ companies and ride-sharing startups like Grab and Uber, which even caused a violent protest in Jakarta in March.
“The fact that the protest ended violently tells us a story of how big the impact of startups such as Uber and Grab have had on big taxi companies’ business,” said Abraham Hidayat (pic), director of KompasGramedia’s SkyStar Capital.
However, protests were not the best way to handle the threat, he argued.
“Traditional companies should handle this competition with care: They can either cooperate, or step up their own game and win customers back – there is not much of a choice left,” he said.
“Disruption is going to happen no matter what, and the impact will get bigger each time it happens. Traditional companies need to always prepare for this, or even get involved in the disruption,” he added.
Startups not silver bullets
But startups also need to wake up to the fact that they are not a panacea to customers’ problems. Both startups and traditional businesses have their own strengths and weaknesses, which makes even more sense for them to work together.
“There is this complicated dynamics between startups and traditional companies that is interesting yet complementary,” said Sinarmas Digital Ventures (SMDV) partner Mario Suntanu (pic).
“It is competition that can actually benefit customers if both manage to get along,” he said at the Echelon Indonesia panel discussion.
And it should not just be traditional companies reaching out to startups – startups need to put in the effort too.
“For startups to reach the next level, they need to leverage partnership with corporations,” said Mario.
“For example, HappyFresh, one of our portfolio companies, cannot work by buying all the foodstuffs or goods itself and then selling it to the customer.
“It needs to work with a large supermarket chain to be able to deliver on what it promises its own customers,” he adds, referring to the online grocer that raised a US$12-million Series A round last September.
HappyFresh has partnered with SuperIndo, one of Indonesia’s largest supermarket chains with 130 outlets across the country, to deliver fresh goods to its customers in the Jakarta area.
Mario argued that it was important for a startup to examine brick-and-mortar businesses and embed this in its own roadmap or strategy.
“Whether you want to put traditional companies as competitors or partners, it does not matter – what matters is that startups need to have a strategy on how to deal with the disrupted,” he said.
Despite the disruption from startups, most traditional companies in Indonesia are still experiencing growth rates of around 20% to 30% yearly, according to Lippo’s John.
“It means that while business may not grow as much as before, traditional companies can still survive,” he said.
However, he emphasised that traditional companies “need to start doing their homework.”
They need to get into technology, and if needs be, establish a separate entity that focuses on innovation.
According to John, a separate entity that focuses on innovation allows the core business to run traditionally, while the new entity can work to solve problems using digital technology.
But for such a strategy to work, traditional companies would need to hire the right people as well – younger, digital-savvy people.
“But remember, isolate these new hires. It is useless to hire people with ideas and then put them in a room together with the older generation which has been running the business in the same way for the past 40 years,” he said.
Another strategy would be to invest in startups, using them as research and development (R&D) centres, said SMDV’s Mario.
The competition between traditional companies and startups will only get more intense in the next few years, and both parties will have to figure out how to best serve the customer. In some cases, this might mean working together.
“When the winds of change begin to blow, are you going to build a giant wall, or are you going to build windmills?” quipped Lippo’s John.