Why Global Startups Fail in Indonesia: Top 5 Challenges and How to Overcome Them

Expanding into Indonesia presents a wealth of opportunities for global startups, given its status as Southeast Asia’s largest economy and its burgeoning digital landscape. However, the journey is fraught with challenges that have led many foreign ventures to falter. Understanding these pitfalls is crucial for any startup aiming to establish a foothold in this dynamic market.

Notable Global Startups That Faced Challenges in Indonesia

Several global startups have encountered significant hurdles in the Indonesian market over the past five years. Notable examples include:

1. CoHive: Formerly known as EV Hive, CoHive was a prominent coworking space provider in Indonesia. Despite rapid expansion, the company declared bankruptcy in January 2023, citing the long-term effects of the COVID-19 pandemic and high availability of office space as contributing factors. (Wikipedia)

2. JD.ID: The Indonesian arm of Chinese e-commerce giant JD.com faced intense competition in the local e-commerce sector. In December 2022, JD.ID laid off approximately 30% of its employees as part of efforts to streamline operations amid global challenges. (Jakarta Globe)

3. Airlift: A Pakistani-based logistics startup, Airlift expanded into Indonesia but ceased operations in July 2022 due to financial constraints and an inability to secure additional financing. (CB Insights)

4. Guvera: An Australian music streaming service, Guvera entered the Indonesian market but faced challenges, including a blocked IPO and financial difficulties, leading to its shutdown. (CB Insights)

5. Zume: A U.S.-based startup specializing in automated pizza-making technology, Zume expanded into Indonesia but struggled with technological difficulties and eventually ceased operations. (CB Insights)

6. Mindstrong: A digital mental health company from the U.S., Mindstrong faced challenges in Indonesia’s healthcare sector and terminated operations after failing to secure additional financing. (CB Insights)

7. Freshly: A U.S.-based meal delivery service, Freshly halted direct-to-consumer meal deliveries in Indonesia due to economic challenges and shifting consumer behaviors. (CB Insights)

8. Argo AI: An autonomous vehicle technology company, Argo AI faced difficulties in Indonesia’s regulatory environment and ceased operations after failing to attract new investors. (CB Insights)

Let's examine the five primary reasons why global startups did not succeed in Indonesia.

1. Navigating Complex Regulatory Compliance

Indonesia’s regulatory environment is intricate and can be daunting for newcomers. The country enforces stringent local content requirements across various sectors, compelling foreign companies to source a significant portion of their materials domestically. For instance, recent policies mandated that products like smartphones must contain at least 40% locally sourced components. Non-compliance has led to bans on products from tech giants such as Apple and Google, underscoring the critical importance of adhering to these regulations. (Financial Times)

Moreover, Indonesia’s legal framework is characterized by frequent changes and a lack of transparency, making it challenging for foreign startups to stay compliant. The World Economic Forum has identified corruption and inefficient government bureaucracy as significant obstacles to doing business in Indonesia, further complicating regulatory navigation. (Wikipedia)

2. Cultural Misalignment

Foreign startups often err by transplanting business models that succeeded in their home countries without tailoring them to local preferences and behaviors.

Understanding and integrating into Indonesia’s unique cultural landscape is vital for business success. Foreign startups often err by transplanting business models that succeeded in their home countries without tailoring them to local preferences and behaviors. This oversight can result in products or services that fail to resonate with Indonesian consumers.

For example, the Indonesian market places a high value on personal relationships and trust. Business dealings often require a nuanced approach that considers local customs and social norms. Startups that neglect these cultural factors may struggle to build the necessary relationships and trust, leading to poor market reception. (Tech in Asia)

3. Product-Market Fit Challenges

The high failure rate of new product launches globally—estimated at around 95%—highlights the difficulty of achieving product-market fit.

Achieving product-market fit in Indonesia requires a deep understanding of local consumer needs and preferences. Foreign startups sometimes assume that products successful elsewhere will automatically appeal to Indonesian consumers, leading to misaligned offerings.

The high failure rate of new product launches globally—estimated at around 95%—highlights the difficulty of achieving product-market fit. In Indonesia, this challenge is compounded by diverse consumer behaviors and preferences across its vast archipelago. Without thorough market research and localization strategies, startups risk launching products that fail to gain traction. (Demand Sage)

4. Underestimating Local Competition

Indonesia’s startup ecosystem is vibrant and competitive, with numerous local players deeply attuned to the market. Foreign startups may underestimate the strength and agility of local competitors who possess better market insights and established customer bases.

Local startups often have the advantage of being more adaptable to market changes and consumer demands. They can quickly iterate on their products and services, making it challenging for foreign entrants to compete effectively without a robust understanding of the local landscape. (Tech in Asia)

5. Infrastructure and Operational Hurdles

Indonesia’s infrastructure varies significantly across its regions, presenting logistical challenges for startups. Issues such as inconsistent internet connectivity, complex supply chains, and varying levels of urban development can hinder operations, especially for tech-based startups reliant on robust infrastructure.

Additionally, navigating Indonesia’s vast geography requires efficient distribution networks and localized operational strategies. Startups that fail to account for these logistical complexities may encounter operational inefficiencies that impede their growth.

The Myth of a One-Size-Fits-All Approach

Indonesia’s diversity sets it apart from other Southeast Asian markets. With over 17,000 islands, 700 languages, and a multitude of ethnic groups, consumer behaviors and preferences are far from homogeneous. Strategies that succeed in neighboring countries like Singapore or Malaysia may not translate effectively due to these cultural and demographic differences.

For instance, payment preferences in Indonesia differ markedly from other markets, with a significant portion of the population unbanked and relying on alternative payment methods. Startups must tailor their approaches to accommodate such unique market characteristics.

Conclusion: The Imperative of Engaging Local Expertise

The challenges outlined underscore the importance of engaging business matchmakers and advisory services when entering the Indonesian market. These experts provide invaluable insights into local regulations, cultural nuances, and market dynamics, enabling startups to navigate complexities effectively.

By leveraging local expertise, foreign startups can develop tailored strategies that align with Indonesia’s unique landscape, increasing their chances of success and sustainability in this promising yet challenging market.

We will explore the list of advisors and match maker services in Indonesia in the next post.