INDONESIAN YOUNG ENTREPRENEUR; OBSTACLES AND SOLUTION

Galih Prasetya Utama1, Naturalife Greenworld, Pinteraktif Inc, PT. SGT, West Java, Indonesia

Abstract

The accumulation of production factors cannot alone explain economic development. They are necessary input in
production, but they are not in themselves sufficient for economic growth to occur. Human creativity and productive
entrepreneurship are needed to combine these inputs in profitable ways, and hence an institutional environment that
encourages free entrepreneurship becomes the ultimate determinant of economic growth. Economic growth will
require productivity on real sector, the current face of local business player age, will determine the future map of
Indonesia’s economic achievement. Indonesian young entrepreneurs ( age 15- 35) face abundance of obstacles,
internally from closest relatives, while externally from unstable condition of macroeconomic, bad infrastructure,
and weak law supremacy. The challenge to develop the business, will require persistency to face it, while many
uncertainty and risk they will walk through their ambition. Young entrepreneur should build their own network, to
enter the society of old players (competitors ) , while learning to grab the knowledge, and draw the map of
competition. The government role will lies on basic education distribution, political stability, and macroeconomic
goodwill to open a chance for new economic players, such banking credit system, or business incubator.

Keywords: young entrepreneur, macroeconomic, economic growth, business incubator

1. Introduction Indonesian economy in output until 1991, when

The purpose of the study is to define the obstacles
of the start- up entrepreneur in Indonesia, and
trying to find the solution for the problem, on
several case.
Indonesian young entrepreneurs ( age 15-35)
face abundance of obstacles, internally from
closest relatives, while externally from unstable
condition of macroeconomic, bad infrastructure,
and weak law supremacy.
We will find the solution by examining
the ease of doing business index, and
constructing the solution in each problem
2. The Fact of Unemployment, Economic
Stagnation, and It’s Social Impact
The country enjoyed tremendous economic
growth in the 1980s and much of the 1990s, due
to Indonesia’s abundant natural resources and
increases in the manufacturing and services
sectors. As a result, Indonesia’s middle class
grew considerably, but poverty remained
widespread. The agriculture sector led the
it was overtaken by manufacturing. In 2003
agriculture accounted for 17 percent of the GDP.
Annual output grew by 3 percent per year during
the early and mid-1990s. Indonesia has achieved
remarkable success in economic development in
recent years. During the last decade GDP growth
ran as high as 7.8% per year (in 1996), but since
the economic crisis that hit Indonesia in 1997, as
a result of the crisis that year in Thailand growth
has plunged, falling to just 0.85% in 1999.
During the first quarter of 2002, however, GDP
growth has rebounded, climbing to 3.25%.
The rupiah, which had been in a range
around Rp8,600/$1 since mid-2003, depreciated
by about 12% over the first 6 months of the year
to around Rp9,600. Government subsidies
insulate consumers from the direct impact of
rising oil prices, but higher prices for imported
food and other items put upward pressure on
consumer prices. Indonesia, traditionally an
exporter of oil and gas, did not get benefit from
the rise in global oil prices over the first half of
the year. The Government’s subsidies on
domestic fuel are projected to cost $2.4 billion
this year, constituting a major drain on the
budget.
The total population of Indonesia was
estimated to be 213 million as of 2001. At the
same time, the size of the economically active
population age 15 and over was estimated to be
144,033,873. Between 1997 and 2001, the
employment rate increased 4.32%, from
87,049,756 to 90,807,417. The largest share of
the workforce is still dominated by workers with
only a primary-school education (50,280,736
workers in 2001). The share of workers with
high school and university degrees, however,
has been rising in urban areas, but less-well
educated workers are still a majority even in
cities.
Indonesia's open unemployment rate is
high compared to the other developing Southeast
Asian countries. In 2003, the official rate of
9.5% was astronomically higher than those of its
neighbors, Malaysia and Thailand, which were
just 3.6% and 1.5% respectively. It is only lower
than that of the Philippines, which was 10.2%.
Taking the comparison a bit further, Korea’s
unemployment rate in the same year was only
3.6%. Open unemployment rate jumped from
4.4% in 1994 to 6.5% in 2004, or there was a
47percent proportional increase. If one looks
between 1994 and 1997, just prior to the
economic crisis, unemployment rate was
relatively stable. During the crisis, it
skyrocketed to almost 6.5% in 1999 before
starting to descend in the following year and
reaching 5.5% in 2001. Afterwards, the rate
went on a generally upward trend up until 2004.
More than half of the unemployed are highly
educated, with at least 12 years of education,
and a further quarter having nine years of
education. This is in accordance with the higher
open unemployment rate among the highly
educated found in other studies. Young workers
dominate the unemployed in both areas,
hovering between 62% and 68% in urban areas
and between 71% and 79% in rural areas. This
shows that it was more difficult for new entrants,
who were generally better educated, to get into
the labor market to find jobs in rural areas.
Hence, it is of little surprise that many of the
young and the educated leave rural areas and
flock to urban areas.
Social impacts of the high rate of
unemployment are, the rise of criminal number,
the decrease of social quality of life, lack of
trust, and the worst, because of most of the open
unemployment are youth and highly educated,
meaning that, the future of Indonesia is still in a
big question mark! The future of country is the
youth, if there are so many young people live
with unclear future, lack of appreciation, and no
guarantee of good social life, meaning no trust,
Indonesia facing unclear future.
3. Start-Up Entrepreneur Obstacles
3.1 Doing Business Index Fact
Globally, doing business remains easiest in
the high-income economies of the Organisation
for Economic Co-Operation and Development
and most difficult in Sub-Saharan Africa and
South Asia. But developing economies are
increasingly active. In the past year, 66 percent
reformed business regulation, up from 34
percent six years earlier.
In the past five years, about 85 percent of
the world's economies have made it easier for
local entrepreneurs to operate, through 1,511
improvements to business regulation. Doing
Business 2011 pioneers a new measure showing
how much business regulation has changed in
174 economies since 2005. China and India are
among the top 40 most-improved economies.
Among the top 30 most-improved economies, a
third are from Sub-Saharan Africa.
For the fifth year running, Singapore leads
in the ease of doing business, followed by Hong
Kong SAR China, New Zealand, the United
Kingdom, and the United States. Among the top
25 economies, 18 made things even easier over
the past year.
 Figure 1. EDB Benchmark
Figure 3. Top Ten Constraints to Firm
Indonesia's overall Ease of Doing Business Investment in Indonesia (2009
ranking improved this year reflecting higher
scores in 4 indicators, especially Starting a According to the Economist Intelligence
Business, Registering Property, and Protecting Unit, Indonesia is expected to grow by 5.3% in
Investors. The government introduced standard 2010, following an estimated growth of 4.5% in
registration forms, cut the requirement to obtain 2009.
a certificate of company domicile and made
business and tax registration faster. Indonesia
also introduced time limits for issuing the
ownership certificate and for registration at the
land registry which cut the time to complete a
property transfer by 17 days.

Figure 4. Dealing with Government

Regulation

Figure 2. Global Rankings

According to the World Economic Forum's

Global Competitiveness Report for 2007-08, the
three most problematic factors for doing
business are inadequate supply of infrastructure,
inefficient government bureaucracy, and access
to financing. The Index of Economic Freedom
reports that recent reform measures have put
greater emphasis on improving the business
climate, enhancing regional competitiveness, Figure 5. % of Firms Expected to Pay
and creating a more vibrant private sector. Informal Payment

Figure 6. % of Firms Using Banks to Finance
Investments
Figure 7. Time spent in meetings with Tax
Official
Figure 8. Time to Clear Exports Through
Customs (days)
Indonesia has performed well during the
global financial crisis because the economy is
less exposed to global trade than its peers and is
now set to be boosted by healthy investment
growth. This reflects improvement already
implemented in the business environment in the
previous term of the president Susilo Bambang
Yudhoyono and during the new term that started
in 2009
4. The Step for Real Economic Growth
by Youth Entrepreneurship
Movement
Five crucial factors for entrepreneurial
engagement that should be addressed by
appropriate programmes to foster youth
entrepreneurship. This includes: Social and
cultural attitude towards youth entrepreneurship;
Entrepreneurship education; Access to
finance/Start-up financing; Administrative and
regulatory framework; and Business assistance
and support.
Social and cultural always affected the existence
of entrepreneurial paradigm. Culture is the
system of collective values that distinguishes the
member of one group from another.
“Masculinity”3, “power distance”4 and
“individualism”5 are also linked to
entrepreneurial behavior. Different levels of
individualism and power distance (hierarchies)
can partly explain the differences in
entrepreneurial activity among Japan, Europe
and the USA.
Social perceptions and perceived legitimacy of
entrepreneurship are also an important factor in
helping of hindering entrepreneurial behavior.
However, for some societies, entrepreneurship
remains undervalued compared to, for example,
a career in medicine, law, with a large
corporation or with government. In these
societies, perceptions remain that family
sacrifices made to help young people gain a high
level of education are not repaid if they become
self-employed.
For consideration, the cultural environment in
Indonesia is low in masculinity, high power
distance, and low cultural in invidualism. The
communities in Indonesia are more to be
feminism, paternal, and collectivism.
How should education be generally improved to
become more entrepreneurially orientated?
Entrepreneurship programs should be introduced
at a school level, not only at college. These
programs should be present in other areas of
studies and careers, not only business
administration. Besides, the experiences of local
young entrepreneurs should also be introduced
in these programs. Nothing is better than
examples. Only by meeting young entrepreneurs
aware of the problems and difficulties of
creating a business and who experienced
successes and failures of making a business,
young students will believe they can make it as
well. This is keyword. Teaching administration
skills is not enough. It is crucial to teach the
spirit, the confidence, the trust, the leadership,
the firmness that only those who chased the
ideal of setting up an enterprise know. This
should be incorporated into study plans,
pedagogical programs, mentorship facilities and
enterprise development programs, which should
– in turn – rely on the help and knowledge of
young entrepreneurs, besides teachers and
professors.
Key entrepreneurship educative constraints are :
General lack of introduction and adoption of
enterprise education; Inadequate curricula and
study programs; Wrong learning methods;
Negligence of students’ personal environment
(parents and family members); Lack of
trained/educated teachers; Lack of career
information and business possibilities; Lack of
business and education linkages; and Lack of
ICT infrastructure/capability.
Education is a key issue. Schools should send
out the message that being an employee is not
the only option after the completion of studies.
The advantages of being an entrepreneur should
be promoted and the hopes of those young
entrepreneurs who face the risks of starting their
own business should be nurtured.
Young entrepreneurs often launch their
businesses without carefully estimating the
amount of capital (start-up and working capital)
they will need to actually get started. Many
insist that passion and enthusiasm will be
enough to get them through the rough periods.
Furthermore, young entrepreneurs are often not
aware of all available types of finance, funding
forms and special support programs. They often
do not understand the concept, the benefits, the
possibilities and the drawbacks of the numerous
forms of debt and equity (venture capital)
financing. Key constraints to start-up finance are
;Lack of personal savings and resources; Lack of
securities and credibility (for debt financing);
Lack of business experience and skills (for debt
financing); Strict credit-scoring methodologies
and regulations; Complex documentation
procedures; Long waiting periods (time needed
to decide on an application for funding); Lack of
knowledge, understanding, awareness of start-up
financing possibilities; Unfavorable firm
characteristics and industry; Legal status/form of
enterprise; Lack of (successful) micro lending/-
finance and seed funding.
Promotional efforts can be broadly divided into
four categories: Research into start-up and
business finance; Provision of start-up and
business capital; Improving the regulatory
environment for start-up finance; Information
and counseling on access to finance and funding.
The impact of administrative and regulatory
burdens on youth entrepreneurship and business
in general is also a fairly new area of research.
However, these burdens are among the most
important barriers to start-ups of young people
in high-income and developing countries.
Government regulations and bureaucratic
formalities also are seen as one reason for large
informal sectors in many developing countries,
since the costs of formalizing are higher than the
gain in productivity from entering the formal
sector. Key administrative burdens are:
Unsupportive tax regimes (system and tax
levels); Business registration procedures and
costs; Bankruptcy laws; Time and costs involved
in insolvency proceedings; Ineffective
competition law; Regulatory framework changes
and lack of transparency; Property rights,
copyright, patent and trademark regulations.
Minimizing and simplifying regulatory and
administrative procedures, as well as
maximizing the support needed to comply with
them, will make it easier for young people to
start-up and run their business. In the following
section, we outline some of the major strategies,
initiatives and policy-instruments currently used
in different countries to reduce these burdens.
What are corresponding government approaches 4) Balance speed with scale of impact and cost
to and structures for policymaking? of implementation
Entrepreneurship policy has been defined as: 5) Focus on enterprise education
6) Mobilize, activate and involve all major
Policy measures taken to stimulate stakeholders
entrepreneurship; Aimed at the pre-start-up, 7) Close the gap between national policy and
start-up and post-start-up phases of the grass-root, regional and local initiatives
entrepreneurial process; Designed and delivered
to address the areas of motivation, opportunity I believe that Indonesia is able to reach our
and skills; With the primary objective of dream by youth empowerment, especially in
encouraging more people to consider entrepreneurship.
entrepreneurship, to move into the nascent stage
and proceed into start-up and early phases of a References
business.
Ease of Doing Business Index 2011, World Bank
Drawing up on this definition, youth
entrepreneurship policy can be defined as: Global Entrepreneurship Index 2009, Global
Policy measures taken to foster entrepreneurial Entrepreneurship Monitor
activity of young people; Aimed at the pre-start-
up133 (including entrepreneurship education), Global Entrepreneurship Index, Jena Economic
Research Paper
start-up and post-start-up phases of the
entrepreneurial process; Designed and delivered
to address the areas of motivation, opportunity
and skills; with the main objective of
encouraging more young people to start an
entrepreneurial undertaking or venture and at the
same time to improve young peoples’ general
employability.

Entrepreneurship policy in general and youth

entrepreneurship policy in particular, are still
fairly recent and evolving areas. Therefore, it is
crucial to understand where these policies are or
should be situated. Youth entrepreneurship
policy is cross-cutting in nature and therefore
necessitates a collaborative multi-stakeholder
approach on the part of government and society.
This means that for successful policy
development in youth entrepreneurship
collaboration between different line ministries
(educations, labour, industry, youth and finance
in particular) is vital.

The short advice for Indonesian government to

emerging youth entrepreneurship are:

1) Develop an individual, tailor-made approach

2) Invest in research, benchmarking and testing
3) Carry out detailed evaluations and impact
assessments