Indonesia’s robust growth over the past few years suggests that the country will break into the top 15 economies within the next decade. However, despite promising demographic trends (a large population of working age, growing affluence) Indonesia faces a talent challenge that could undermine that growth potential.

The situation will become more complex as the economy aims to diversify and expand its sources of value creation. The immediate task for the country is to determine how to accelerate talent management and turn Indonesia’s demographic bonus into a pillar of economic growth. This topic should be a priority for policy-makers and chief executives.

At the management level, particularly middle-management, there is a lack of qualified talent. In a survey conducted by the Boston Consulting Group and the World Federation of People Management Associations, senior executives said that developing leadership and managing talent were the two most critical problems in Indonesia. At the current trajectory, the country will fall short of middle-management talent by 40-60% in 2020. Yet most Indonesian companies manage talent in traditional ways that will not overcome the looming talent crunch.

At the operations level, stringent labour laws created to ensure workers’ welfare are hobbling competitiveness. Policies that mandate high severance payments and raise minimum-wage levels are a disincentive to hiring. Like many emerging countries, Indonesia is finding it difficult to supply the skills required of a modern workforce, particularly in the face of increasing globalization, the rapid rise of new technology, the digital revolution and changing work patterns. Training programmes are often out of date and inadequate. The severe shortage of skilled labour and the lack of training capacity threaten to limit growth, particularly when labour-intensive industries such as manufacturing are pivotal to Indonesia’s long-term economic plan.

Finally, talent shortages also affect the entrepreneurial and self-employed sector. MSMEs (micro, small, and medium enterprises) remain a pillar of the Indonesian economy, accounting for more than 50% of GDP. However, as in many other emerging countries, the rate of failure in the MSME sector negates the value created by new MSMEs.

MSME owners often lack the technical skills to run a business, such as effective planning, financing and negotiation. Social enterprises and microfinance entities have achieved some success in building MSME capabilities, but generating sustained growth and employment requires a wider effort. Clearly, multistakeholder involvement is required to tackle these challenges.

It is possible for proactive companies and investors to meet their growth aspirations. One strategy is to invest in upgrading their senior management. Rather than relying on the job market to supply new talent, managers should focus attention on fine-tuning the workforce: actively recruiting and developing key talent. They should also take a disciplined approach to performance management and better identify, reward and develop tomorrow’s leaders (an added benefit is that a high-performance culture will raise the overall performance of the organization). And they should provide their top talent with differentiated, accelerated development paths by creating fast-track promotion programmes.

A reform of labour regulations would boost job creation as well as workforce productivity. Minimum-wage policies can be differentiated depending on skill sets or productivity measures. Policy-makers should also consider relaxing the current labour laws to prompt companies to employ full-time employees and invest more in building required skill sets, rather than taking the lower-risk approach of using contract employees.

Reform should also extend to the education system. The scale, reach and role of vocational training should be expanded and its content should be continually refreshed to reflect changing demands in a globalized world. Regulators should also encourage scalable partnerships as a means to build entrepreneurial skills. Government agencies can team with local academia, trade associations and financial institutions to develop strong connections with the private sector and equip MSMEs to succeed.

The time has come for the highest-level stakeholders (CEOs and leaders of government) to establish a platform – perhaps a presidential taskforce – to accelerate talent development in Indonesia. The platform should convene all parties, who can together consider the talent challenges in Indonesia. They should emerge with a consensus that is beneficial for people, companies and the overall economic growth of the country. This will be a dynamic process and must be ongoing for Indonesia to realize its growth potential.

Author: Ernest Saudjana, Principal, Boston Consulting Group; World Economic Forum Global Shaper, Jakarta hub

Image: Indonesian job seekers queue to buy career fair tickets in Jakarta April 28, 2012. REUTERS/Supri