1. 267 million Indonesians will need to be fully insured by 2019, when the universal public healthcare system is established
2. Total national healthcare expenditure will reach USD 363 billion by 2025; a compound annual growth rate (CAGR) of more than 20% compared to 2010 at USD 20 billion
3. A myriad of challenges affect opportunities for foreign healthcare providers, including market diversity, a lack of state-of-the-art medical care and realistic investment returns

Jakarta Pusat, September 15, 2015

As Indonesia's infrastructure becomes increasingly robust, the country is improving healthcare provision by developing a universal healthcare system for all citizens. By 2019, the fully developed system aims to insure 267 million Indonesians and by 2025, expenditure is expected to reach USD 363 billion, up multifold from USD 20 billion in 2010.

This staggering CAGR of more than 20% is attracting many foreign healthcare providers, interested in acquiring a share of the growth. The many positive aspects of this fast-growing market are the subject of an in-depth study produced by Roland Berger, entitled: Capturing the business of health – Opportunities and challenges for international healthcare providers in Indonesia.

The study concludes that there are many opportunities for foreign healthcare providers considering entry into the market and highlights key market entry strategies. These include defining specific target customers and segments, building credibility with local stakeholders and identifying key niches to serve, from a medical or geographical perspective.

But while this is the conclusion, the study highlights extensive challenges for foreign healthcare providers, which they must consider carefully, before making a decision to enter the Southeast Asia growth economy.

Cautions on market entry

"Market diversity is one of most daunting aspects, when it comes to operating in Indonesia. The market is highly segmented with considerable differentiation within the regions. It is therefore unlikely that one single player will dominate a single subsector in the country's healthcare industry," said Yoshihiro Suwa, Principal in Roland Berger's Jakarta office and author of the study.

Currently, public healthcare known as Badan Penyelenggara Jaminan Sosial (BPJS), consists of a number of disparate systems, with major differences in how the system and medical care are accessed, depending on profession and income levels. While the Indonesian government aims to merge all schemes into one single scheme in the future by 2019, this is one of the current major disparities in Indonesia, where those with premium subscriptions enjoy a better range of services and a higher level of more care.

Many of the foreign healthcare providers also do not consider expanding their operations in Indonesia beyond Jakarta. "While Jakarta has advantages, such as infrastructure and manpower, the benefits of starting in other Tier 1 or 2 cities are clear: there are fewer competitors, better growth prospects and demand for higher quality healthcare in urban areas outside of Jakarta," said Mr. Suwa. The study highlighted that Sumatra with a gross regional domestic product (GRDP) of USD 219.2 billion, was comparable to Vietnam's GDP, supporting the study's conclusion that there are many opportunities for foreign healthcare providers outside of Jakarta.

The study further underscored that healthcare revenues are being lost due to a high proportion of medical tourists seeking healthcare in Malaysia and Singapore. More than half a million people seek care abroad annually, with patients travelling to Penang and Kuala Lumpur in Malaysia spending USD 200 per patient, while medical tourists spending USD 3,500 per patient in Singapore. This provides a clear opportunity for foreign healthcare providers to capture these leaked revenues by offering healthcare services locally.

ROI as a key consideration

Going abroad is not only restricted to patients, but also medical professionals seeking greener pastures. This is not only for better salaries; they want to operate in the most-advanced medical environments providing the most-interesting cases with the best equipment available. This is a direct challenge for existing medical providers who want to expand operations to increase revenue and also to foreign healthcare providers wanting to enter the market, as they may struggle finding qualified professionals to man their operations.

Of paramount importance for foreign investors however, is whether operating in Indonesia would be profitable. Indonesia's foreign direct investment complexities stem from extensive regulations on foreign investments by healthcare and pharmaceutical companies and difficulties in distribution nationwide and abroad. Investors also need to be sure that medical products produced in Indonesia meet the regulatory requirements of export markets. For healthcare providers still interested in Indonesia, they would need to consider working with local distributors without setting up manufacturing facilities there.