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McKinsey & Company in Indonesia: Unleashing the Potential of the Archipelago’s Economy

Paris-born Guillaume de Gantes started his journey with McKinsey & Company 15 years ago in Paris. He mainly worked in New York, where he was elected as a partner of the firm. This Harvard Business School alumnus moved to McKinsey’s office in Indonesia two years ago and he talks to us about the opportunities and challenges in ASEAN’s largest economy.

Guillaume, tell us how you’ve found working in this region so far.

I love Southeast Asia as a region because there’s so much happening here. For me, the professional aspect of coming to Indonesia was really about being in the heart of what is going on in ASEAN. I was very keen to be in such an exciting country.

Can you give us some background information on McKinsey’s growth in Indonesia and Southeast Asia?

We are present in most countries in Southeast Asia: Indonesia, Thailand, Malaysia, Singapore, the Philippines, and most recently, Vietnam. We work with government institutions and enterprises in all major sectors, to translate the region’s rich opportunities into transformative economic and social impact. We also help leading multinationals build and grow successful businesses in Southeast Asia.

We have been present in Indonesia since 1988, and the office was McKinsey’s first in Southeast Asia. We help many of Indonesia’s leading enterprises drive growth, transform operational and organisational performance, shape new business models, build leadership capabilities, and accelerate economic development.

McKinsey is known as the world’s leading global management consulting firm. In which industries do you consult and in what capacity?

Our mission has always been to help clients make distinctive, lasting, and substantial improvements in their performance. Globally, we serve clients across all industries and sectors with capabilities to support execution and make change happen.

In Southeast Asia in particular, we serve clients in all major sectors including oil and gas, mining, financial services, telecom and media, consumer industries, travel and logistics, and the public sector. I personally serve our clients in the financial services, telecommunications and healthcare sectors.

Your recent work in Indonesia has included building one of the major banks here. How were you involved in redesigning the distribution process of this bank?

Given my background, I am personally passionate about working with banks and the financial services industry, which is hugely impacted by digitization. We have done a great deal of work in digital – building digital banks and digitizing current processes. There is a growing recognition that banks will have to change the way they work dramatically or entire businesses will be taken over by ‘Fintech’, nimble financial technology firms. You see this in the US; you have small firms that have already taken over parts of the banking value chain. Every single part of a bank in the US is ‘under attack’ by small firms. So, there is a scenario where banks could disappear. As Bill Gates said, banking is necessary, but banks are not. Banks will have to evolve or lose a lot of what they do today.

There are 118 commercial banks in Indonesia and the interesting question is: out of those banks, how many are ready for competition in the digital age?

Your latest report, Winning in Indonesia’s Consumer Good’s Market, discovered that 7 of the 16 companies you surveyed were winners in at least one of the performance areas. Only one company won in all of them – what traits must a consumer goods company possess in order to succeed in Indonesia?

We did extensive customer research in a number of categories and one of the things we looked at is how consumers make decisions. Indonesian consumers tend to be very family and group-oriented when it comes to making decisions, as opposed to Chinese consumers, who are fairly individual. Indonesians like to ask family and friends if they have tried the product, putting a lot of value in their opinion. They also like products that can be shared.

People here rely on their social network quite a bit, especially through social media, much more than other countries we’ve looked at. There is also a very brand-loyal culture here and shoppers take fewer risks – people typically know what they are going to buy ahead of time. Based on our study, these two things do not change with level of affluence.

Indonesians also really value local brands. In our survey, we noticed a lot of Indonesian people think KitKat is a local brand, when it isn’t. Brands that can understand all of the above and market themselves well locally, as well as integrate into social media will be able to do well here.

Can you please debunk some of the common recent myths of Indonesia’s economy?

The first myth is that Indonesia’s growth is Jakarta-led. If we look back a few years, the economy was already driven outside of Jakarta, and even outside of Java, in Sumatra, Sulawesi, Kalimantan. In fact, 90 percent of the fastest growing cities are outside of Java.

Another myth is that Indonesia is an export or raw material-driven growth, when increasingly, it is a consumption driven growth. The population of Indonesia’s urban consuming class is growing by the equivalent of one Singapore every year and will grow to 86 million by 2020.

The most interesting myth, however, is that Indonesia is an unstable economy. We have found that among OECD and BRIC countries, the standard deviation of growth in Indonesia in the first 10 years of the century actually makes Indonesia the most stable economy.

Let’s discuss growth. You believe by 2030, Indonesia could be a global top 10 economy, surpassing the UK, France and possibly Germany. How could this be achieved and what hurdles do we face?

Yes, it could be. Indonesia has strong intrinsics – the growing consumer market, becoming an international food hub, and being a lean resource provider and user.

However, there are also relevant challenges. Our research shows that Indonesia needs to increase productivity by 25 percent to maintain historic growth rates. One major sector that will benefit from this is farming, agriculture and fisheries. A simple example – in Japan, people freeze fish so if the price of fish depreciates, they don’t have to sell their fish right away. Here, the infrastructure to freeze fish is not in place.

There is a big need to improve infrastructure. To grow, the country will need to spend about US$2.7 trillion in infrastructure in the next 15 or so years.

Indonesia also needs to have greater financial inclusion – getting people to be able to save. We have 250 million people in the country but only 70 million bank accounts. Getting more people to save, access credit and use banking systems will be important towards achieving this growth and unlocking its potential.

Do you think the world’s eyes are on this region at the moment?

Yes, very much so. Southeast Asia is one of the fastest growing markets in the world. If it were a single country, it would be the seventh largest in the world, with a combined GDP of US$2.4 trillion. It is projected to rank as the fourth-largest by 2050. I am reminded of the opportunities in these economies by the sheer number of companies that have reached out to us to help unlock the potential – it’s amazing. For many companies, they see Indonesia as the next big frontier.

When these companies reach out to you for investment opportunities, which sectors do you suggest they invest in?

It’s very hard to name a sector in Indonesia which does not offer investing opportunities. We have found that there is US$1.8 trillion in opportunities for businesses who invest in Indonesia’s four priority sectors: consumers, agriculture, resources and talent. We believe this potential is going to be further unleashed and accelerated by the power of digital, whether through mobile and internet banking, e-commerce, education, manufacturing, government service delivery and more.

Thank you, Guillaume.

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