Published by BUSINESS MONITOR INTERNATIONAL LTD Indonesia Information Technology Report Q1 2009 ISSN: 1750-5070 Including 5-year industry forecasts Business Monitor International Mermaid House, Puddle Dock London EC4V 3DS UK Tel: +44 (0)20 7248 0468 Fax: +44 (0)20 7248 0467 email: subs@businessmonitor.com web: http://www.businessmonitor.com © 2009 Business Monitor International. All rights reserved. All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Business Monitor International Ltd. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Indonesia Information Technology Report Q1 2009 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 CONTENTS Executive Summary .5 SWOT Analysis .8 Indonesia IT Sector SWOT . Indonesia Telecoms Sector SWOT . Indonesia Business Environment SWOT 10 Indonesia Political SWOT 11 Indonesia Economic SWOT . 12 Asia Regional IT Markets Overview 13 IT Penetration 13 Market Growth And Drivers 15 Sectors And Verticals . 16 IT Business Environment Rating 19 Table: Asia IT Business Environment Ratings . 21 Market Overview .22 Government Authority 22 History And Market Structure 22 Bandung Hi-Tech Valley SWOT . 23 Hardware . 24 Table: Computer Spending By Sector, 2007 Estimate 24 Software . 25 Services 26 End Users 26 Industry Developments 27 Industry Forecast Scenario .30 Table: Indonesia’s IT Industry – Historical Data And Forecasts (US$mn unless otherwise stated) 31 Internet Forecast . 32 Table: Indonesia’s Internet Market – Historical Data And Forecasts . 32 Macroeconomic Forecast 34 Table: Indonesia – Economic Activity 37 Country Context .38 Table: Consumer Expenditure, 2000-2012 (US$) 38 Table: Rural/Urban Breakdown, 2005-2030 . 38 Competitive Landscape .39 Hardware .39 Software 40 IT Services 41 Internet Competitive Landscape 41 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 Table: Regional Broadband Penetration Overview, 2007 . 42 Company Monitor .43 IBM Indonesia . 43 Oracle 44 Sigma Cipta Caraka (SCC) 45 HP 47 Country Snapshot: Indonesia Demographic Data 48 Section 1: Population . 48 Table: Demographic Indicators, 2005-2030 48 Section 2: Education And Healthcare 49 Table: Education, 2000-2005 49 Table: Vital Statistics, 2005-2030 49 Section 3: Labour Market And Spending Power 50 Table: Employment Indicators, 2001-2006 50 Table: Average Annual Manufacturing Wages, 2000-2012 (IDR) . 50 BMI Forecast Modelling .51 How We Generate Our Industry Forecasts 51 IT Industry . 51 IT Ratings – Methodology 52 Table: IT Business Environment Indicators . 53 Weighting . 54 Table: Weighting Of Components 54 Sources 54 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 Executive Summary Market Overview The Indonesian IT market should grow at a compound annual growth rate (CAGR) of around 11% between 2008 and 2013, despite 2008 signs of a spending slowdown as business and consumer confidence was affected by the global economic crisis. Some organisations were cutting IT budgets, particularly in the financial sector which had previously accounted for as much as 30% of total spending. . BMI expects growth to dip further in 2009 before recovering in 2010. By 2013, the hardware-dominated IT market should reach a value of US$5.7bn, with Indonesia displaying faster growth than many Association of Southeast Asian Nations (ASEAN) neighbours. With information and communication technology (ICT) penetration of only around 20% and development restricted to richer areas such as Java, the market has much latent growth potential. Private enterprises and particularly small- and medium-sized enterprises (SME) will dominate PC sales, with enterprise resource planning (ERP) and other e-business applications also finding increasing popularity with the SME market. The SME sector of 42.2mn companies will drive demand for basic hardware and applications, as enterprises look to enhance productivity through automating inventory, accounting and other functions. Industry Developments The government is rolling out new e-learning initiatives, which could see Education’s share of the local IT spending rise from its estimated level of around 4%. The current ratio of PCs to students in public schools is around 1:3200 and the government wants to increase this to 1:20. As there are 53mn students in Indonesia’s schools system, this would require at least 2.5mn computers. There has been some progress in e-government in recent years, but a lack of interoperability among institutions has been identified as a weakness. The national government has promoted a policy of adopting open source software to save costs, and distributed some software for free. In addition, there have been a number of pan-departmental initiatives. In 2008 Indonesia’s state enterprises ministry launched an e-procurement system which will standardise procurement in 25 state-owned companies. The companies include some of the largest in Indonesia, such as oil and gas company PT Pentamina and electricity firm PT PLN. The new system is expected to be live by the end of the year. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 Competitive Landscape International vendors dominate the Indonesian brand PC market, with Acer the leader in the notebook sector and HP the overall leader. A number of local PC and notebooks brands also enjoy increasing success, including Zyrex and Ion. In 2008 Dell, the leading desktop supplier in the government and big corporate segments with around a 12% share, rolled out a new strategy to target Indonesia’s consumers. Dell introduced new products and added new channel partners such as its new partnership with retail network Metrodata. Market leader Microsoft Indonesia reported a 30% year-on-year rise in revenues in its fiscal year 2008, well above the company’s global average of 18%. Microsoft has recently been involved in IT for Education initiatives, announcing a cooperation with telecoms company PT Telkom and local software company PT Pesona Edukasi on an educational software development program. Meanwhile in the enterprise applications segment, leading global vendor SAP has said that it was optimistic that it could maintain its recent 60% annual growth momentum in Indonesia, despite the global economic slowdown. In 2008 the company predicted that it would surpass the 90 contracts secured in 2007. However, it admitted that most growth potential currently would come from up-selling to existing customers. Computer Sales Hardware accounts for more than 70% of Indonesia IT spending. Computer sales (including notebooks and peripherals) will be worth nearly US$2.2bn in calendar year 2009, according to BMI estimates, up from US$1.9bn in 2008. Growth slowed a bit in 2008 and is seen as easing further in 2009 before ticking up again in 2010. Spending on IT hardware is likely to slow from some organisations, particularly in the financial sector, or amid trading companies with exposure to export markets affected by the global economic slowdown. However the low levels of computer penetration in both consumer and manufacturing segments mean that there is still plenty of momentum for growth. Software For 2009, software sales are projected by BMI at US$114mn, up from an estimated US$113mn in 2008, despite the continuing piracy problem, which, by the local government’s own figures, loses Indonesian software companies alone more than US$100mn a year. Indonesia is currently ranked as the country with the fourth-highest level of software piracy in the world, at around 88%. Given these developments, over the 2008 2013 period, software sector CAGR is forecast at 14%. Application software accounts for more than 40% of the total software market currently. Within the applications segment, the single largest segment is back-office applications, accounting for around two-thirds of sales. Inventory is an entry-point applications for many businesses. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 IT Services Indonesia’s IT services market is expected to be worth US$635mn in 2009, recording y-o-y growth of 15% from US$564mn in 2008, based on BMI estimates. Hardware deployment services remain the largest Indonesian IT services category, with approximately a 20% share. Currently, opportunities are mainly in fundamental services such as system integration, support systems, training, professional services, outsourcing and internet services. Sector CAGR over the 2008-2013 period is expected to be around 13%. E-Readiness Only about 18% of Indonesians have internet access currently, translating into around 41mn users. Low telephone line density, high charges and low PC penetration are all significant obstacles. However, the picture is not all bad, as there are signs of faster growth in user numbers, and recent surveys have shown that among a very small elite, there is fast adoption (by regional standards) of broadband and a willingness to pay for video conferencing, security and other additional features. BMI estimated that there were around 1.4mn broadband users in 2007, representing a 0.6% penetration rate. The government is encouraging fixed wireless deployments, including WiMax, to bring internet to more remote areas. The government is rolling out an internet-based National Education Network, which involves 1,000 network points in five clusters nationwide and is designed to facilitate the use of internet in schools. Despite some advances in e-education, constraints remain due to poor infrastructure and lack of public awareness in a country where only 20mn people own fixed-line telephones. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 SWOT Analysis Indonesia IT Sector SWOT Strengths Weaknesses Opportunities Threats ! Large potential market ! Market may be entering faster growth stage; forecast to grow faster than most other ASEAN markets over the review period, due to currently underdeveloped nature ! Computer penetration among the lowest in South East Asia, estimated at only around 1.5% ! Underdeveloped telecommunications infrastructure, due to years of government control and slow progress in deregulation ! Lack of government support. Still no unified ICT ministry ! History of recent political instability ! Legal concerns such as intellectual property rights a deterrent to foreign investment ! Some positive trends: computer ownership and internet access is on the rise, and government is showing signs of taking intellectual property more seriously ! Per-capita IT spending to increase by 50% between 2008 and 2013 ! Opportunities exist in services such as system integration, support systems, training, professional services, outsourcing and internet services ! Computer sales predicted to show faster growth than almost anywhere in ASEAN over the next few years, although from a lower base ! Continuing lack of government action to support increased PC penetration and internet access, and drive ICT sector development ! Global economic slowdown may hit key demand segments, including Banks © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 Indonesia Telecoms Sector SWOT Strengths Weaknesses Opportunities Threats ! Fast growing mobile sector due to the emergence of greater competition ! Presence of key strategic investors including SingTel, ST Telemedia of Singapore, Telekom Malaysia and Maxis of Malaysia, Hong Kong’s Hutchison, UAE’s Etisalat ! Increased competition in fixed wireless market following the award of nationwide licences to Bakrie and Mobile-8 ! Security and corruption issues still make Indonesia a risky investment climate ! Geographical nature (densely forested archipelago) makes nationwide network coverage highly difficult ! Low teledensity rates, especially in the fixed-line sector ! Operators struggling with raised costs after the government forced companies to charge a fee based on costs rather than share part of their revenues ! Mobile market to surge over the coming years, reaching nearly 282mn in 2012 ! Popularity of mobile value-added/data services offers potential to international content providers ! Growth of 3G telephony to show opportunities for content providers and distributors ! Government registration scheme did lead to short-term fall in fixed wireless, and mobile users as non-registrants are deactivated ! Dominance of prepaid market leading to falling ARPU rates ! Cellcos could put too much emphasis on 3G mobile network expansion when consumer demand is unproven at the expense of 2G growth © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2009 Vendors were also stepping up initiatives to reach out to SMEs. Enterprises account for 70-80% of all sales in the country, while SMEs make up more than 90% of businesses. HP intensified its focus on SMEs in 2008 by launching several new computer portfolios specifically targeted at SMEs. Meanwhile, IBM Philippines launched a local version of its Express IT package, which offers a range of hardware, software and related services to SMEs. Prices range from US$1000 to US$150,000 and the new scheme offers various backup features. IBM Indonesia claims to service around 2,500 SME clients in various industries. For its part, Microsoft was offering an up to 25% discount to SMEs that purchased the Windows Starter Edition. Software Market leader Microsoft Indonesia reported a 30% year-on-year rise in revenues in its fiscal year 2008, well above the company’s global average of 18%. Microsoft has more than 3,500 business partners in Indonesia and has been active in IT for Education initiatives, recently announced a cooperation with telecoms company PT Telkom and local software company PT Pesona Edukasi on an educational software development program. Microsoft founder Bill Gates visited Indonesia in May 2008 and discussed supporting the government’s programme provide low-cost computers plus software for schools. However, the government’s proposed co-operation with Microsoft and Intel on a US$200 affordable PC programme has been criticised by some parties in Indonesia. Over the years the government has made a number of attempts to promote open source software. In 2005, the government launched the ‘Indonesia Goes Open Source’ (IGOS) initiative, hoping to counter software piracy, reduce dependency on proprietary software and encourage local manufacturers. The government has also launched repeated, largely unsuccessful, campaigns to convince consumers to shift to open source. In June 2004, five ministries had signed a declaration to use open source. However, of the five, only the Ministry of Research and Technology really acted, with 92% of its computers now running on open source. The barrier appears to be the reluctance of civil servants to invest time in learning how to use the open source applications. The government has now said that it is drafting ‘new kinds of co-operation agreements’ that could be made between Microsoft and the Indonesian government. In the enterprise applications segment, leading global vendor SAP has said that it was optimistic that it could maintain its recent 60% annual growth momentum in Indonesia, despite the global economic slowdown. In 2008 the company predicted that it would surpass the 90 contracts secured in 2007. However, it admitted that most growth potential currently would come from up-selling to existing customers. Overall SAP has 350 enterprise clients in the country, spread across segments. The company © Business Monitor International Ltd Page 40 Indonesia Information Technology Report Q1 2009 has been targeting the financial sector, with Bank Ekonomo among recent customers, implementing SAP’s Human Capital Management solution. IT Services Major IT services vendors report a growing demand in the telecoms, manufacturing and banking sectors. Oracle recently signed an agreement with local IT solutions provider PT Sigma Cipta Caraka (Sigma) to provide outsourcing services. The arrangement will focus on providing big companies with business related software that ensures security, performance and business continuity as well as manpower. Meanwhile, HP, which is currently promoting the idea of Business Technology (BT) in Indonesia, is to intensify its IT infrastructure recovery service. IBM has recently announced partnership with local firm PT Mitra Integrasi Informatika (MII) to introduce its technology and consolidate servers at its branch offices across the country. Local companies are also looking to leverage their advantages in the market. Sigma is targeting a 40% growth in its managed services business in 2008. To achieve this, the company is expanding operations, and recently spent US$7mn on a new IT Disaster Recovery Centre in Surabaya. The new facility is due to start operation in 2008. Managed services currently account for around 42% of Sigma’s total revenues, and the company is planning to expand across a number of verticals, including auto and manufacturing, as well as its core area of financial. Earlier in 2008, Telkom Indonesia acquired an 80% stake in Sigma. The giant telecoms company is hoping for synergies between Sigma’s core customer base of 170, mainly banks. Telkom said that they saw the move as the beginning of Telkom Group’s entry into Indonesia’s IT services market. The move is one of the largest IT services acquisitions in Indonesia’s history. Internet Competitive Landscape The Indonesian government has licensed more than 150 internet service providers (ISPs), although only around 40 were operating. The number of broadband users in Indonesia was estimated at around 900,000 in 2007, giving Indonesia a penetration rate of 0.4%. This has been a due to a lack of PCs, while service take-up has generally been restricted to Java resulting in uneven development. Further, with more than 250 internet cafes in Indonesia, of which the overwhelming majority are located in Jakarta, has not aided growth. That said, the PC market has been growing, and this, together with liberalisation in the sector, should lead Indonesia’s broadband market to develop further. © Business Monitor International Ltd Page 41 Indonesia Information Technology Report Q1 2009 Table: Regional Broadband Penetration Overview, 2007 Country Broadband penetration, % Regional rank South Korea 31.1 Australia 29.4 Hong Kong 26.4 Taiwan 23.6 Japan 22.3 Singapore 21.5 Malaysia 6.3 China 5.3 Thailand 4.0 Vietnam 1.2 10 Philippines 1.1 11 Bangladesh 0.5 12 Indonesia 0.4 13 India 0.3 14 Pakistan 0.2 15 Source: BMI © Business Monitor International Ltd Page 42 Indonesia Information Technology Report Q1 2009 Company Monitor IBM Indonesia Services Local Market Performance Manufacturer, distributor and provider of advanced IT solutions including In 2007, IBM’s Asia Pacific hardware, software, peripherals and data processing equipment. revenues increased by 11% to US$19.5bn. In Indonesia IBM has already won a number of customers in the SME segment. These include the Surabaya based Bank Antar Daerah and Bogor based PT Belfood Indonesia frozen food company. IBM has predicted that the SME segment will grow 94.6% by 2008. Recent Developments Presence In response to the tougher economic conditions faced by businesses, IBM was Fully owned subsidiary. promoting energy saving technologies and consolidation for data centres. IBM Indonesia also recently launched a local version of its Express IT package, which offers a range of hardware, software and related services to SMEs. Prices range from US$1,000 to US$150,000 and the new scheme offers various backup features. IBM Indonesia claims to service around 2,500 SME clients in various industries. The IBM Express programme for SMEs includes integrated solutions such as Linux based suites for banking and the finance industries, ERP solutions for manufacturing industry inventory, supply chain management for retail and services industry, and Web based applications for hospitals, health centres, drugstores and universities. Future Plans Sectors In 2006 IBM’s Indonesian business consultancy services focused on three Government, SMEs, enterprise. objectives: ERP system development, IT strategy design, and application of HCM system. © Business Monitor International Ltd Page 43 Indonesia Information Technology Report Q1 2009 Oracle Services Wholesaler of computer equipment and provider of IT services. Oracle reported strong customer momentum and increased total GAAP revenues of 24% to US$2.499bn in Asia Pacific and Japan (JAPAC) for its full fiscal year FY07. Local Market Performance In Fiscal Year 2007 Oracle’s Asia Pacific revenues increased 24% to US$2.5bn. Oracle reported revenues growth across many of its major product lines. Recent Developments Presence Oracle recently signed an agreement with local IT solutions provider PT Sigma Oracle Indonesia is part of Cipta Caraka to provide outsourcing services. The arrangement will focus on Oracle’s South Asia Region and helping big companies to focus core business while the IT partners optimise wider Asia Pacific Division and maintain IT units. The services provided will include business related (located in Singapore). Oracle has software that ensures security, performance and business continuity as well as about 1,700 customers across the manpower to operate the system. Oracle Indonesia is the vendor and Sigma Asia Pacific region, of which 50% the local implementation partner. are from South Asia (including Indonesia). Future Plans Sectors Oracle is already an active participant in the Indonesian market, where its Oracle has followed a similar path strategic focus is on capturing 30-35% of the sizable SME market. To achieve to that of CA and other this ambitious target, despite many other vendors competing for the same competitors in targeting the SME segment, Oracle has established close business co-operation contacts with sector by introducing its Database local organisations and institutions. Standard Edition-1 in the Indonesian market. The product claims comparable performance and security to its corporate level product but at more affordable prices, enabling SMEs to build a business information infrastructure rapidly and economically. © Business Monitor International Ltd Page 44 Indonesia Information Technology Report Q1 2009 Sigma Cipta Caraka (SCC) Services Local Market Performance SCC is a leading Indonesian IT company specialising in the banking sector, SCC achieved revenues of about offering services such as software development and customisation, network US$23mn in 2007. Following the and systems integration, managed resources and internet access. SCC is one acquisition by Telkom, Sigma is of IBM’s major channels to sell hardware to local banks. targeting revenues of US$40mn in In 2008, leading telecoms company Telkom Indonesia acquired an 80% stake 2008, a 50% increase. in SCC. The giant telecoms company is hoping for synergies between its 6,000 corporate companies and SCC’s core customer base of 170, mainly banks. Telkom said that they saw the move as the beginning of Telkom Group’s entry into Indonesia’s IT services market. The move is one of the largest IT services acquisitions in Indonesia’s history. Recent Developments Presence Following its acquisition by giant telecoms company Telkom Indonesia, SCC is 500+ employees. expanding operations, and recently spent US$7mn on a new IT Disaster Recovery Centre in Surabaya. The facility will start operation in 2008. SCC signed an agreement with Oracle to provide outsourcing services focusing on large companies, particularly in banking and telecoms. The arrangement will focus on helping big companies to focus core business while the IT partners optimise and maintain IT units. Among recent wins for the partnership, was a tender from Bussan Auto Finance (BAF) one of the leading multi-finance companies in Indonesia, to implement various Oracle applications. SCC has been an innovator in Islamic Banking, as an increasing number of Indonesian’s choose to business with banking institutions that comply with its principles. SCC has capitalised on this, with its Sigma SHARIAH product, a core banking system designed to follow principles of Islamic banking. Future Plans Sectors SCC’s management said in 2006 that the company would be strengthening its SCC is targeting 40% growth in its core role as an IT provider for banking sector, both conventional as well as managed services business in Sharia. 2008. Managed services currently account for around 42% of SCC’s revenues, and it is planning to expand across a number of verticals including auto and manufacturing, as well as its core area of financial. SCC’s flagship product is AlphaBITS, the software developed by SCC in 1989. It is a core banking system for day-to- © Business Monitor International Ltd Page 45 Indonesia Information Technology Report Q1 2009 day operations, connecting aspects like delivery channels (teller and customer services) and back office (accounting and general affairs). Developed as an industry-standard banking application, AlphaBITS offers integrated functionality with six main modules (kernel and security, CIF, retail, deposit, loan, and general ledger). With integrated design architecture, AlphaBITS can be incorporated with third party applications. © Business Monitor International Ltd Page 46 Indonesia Information Technology Report Q1 2009 HP Services Revenues Technology services, consulting and integration. HP has been benefiting from increasing demand in the PC segment, and is the overall market leader. HP sells upwards of US$300mn worth of products in Indonesia annually, including its printers, desktops, notebooks and PDA lines. Recent Developments Presence HP, which is currently promoting the idea of Business Technology (BT) in Fully owned subsidiary. Indonesia, is to intensify its IT infrastructure recovery service. The main driver in terms of demand is coming from the Banking Industry, which has become highly concerned with DRC services. Such a service was deemed mandatory by Central Bank of Indonesia. To a lesser extent there is also demand from telecoms operators. HP Services recently provided DRC services to one telecom operator affected by the great flood hitting Jakarta recently. th In another sign of its confidence in the retail sector, HP opened its 11 Indonesian outlet in Bandung, West Java in February 2006. HP said that they expect the new store to help achieve its target of doubling its sales in the city, which currently account for about 5% of nationwide sales. Future Plans Sectors HP has said that it is to intensify its focus on SMEs in 2008 by launching Currently investing in several new computer portfolios specifically targeted at SMEs. The company manufacturing and the public is the market leader in the SME segment in Indonesia. sector. HP plans to expand to Makassar, South Sulawesi and Yogakarta in the near future. © Business Monitor International Ltd Page 47 Indonesia Information Technology Report Q1 2009 Country Snapshot: Indonesia Demographic Data Section 1: Population Population by age, 2005 Population by age, 2005:2030 (total) 75+ 75+ 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 -15.0 -10.0 -5.0 0.0 Male 5.0 10.0 15.0 -30.0 -20.0 -10.0 0.0 2030 Female 10.0 20.0 30.0 2005 Figures in millions. Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 34.2 33.3 30.4 30.7 Dependent population, total, ‘000 75,633 78,049 79,630 85,997 Active population, % of total 65.7 66.6 69.5 69.2 Active population, total, ‘000 144,926 156,238 182,239 193,669 Youth population*, % of total 29.1 27.7 22. 20.0 Youth population*, total, ‘000 64,359 64,980 59,917 56,019 Pensionable population, % of total 5.1 5.5 7.5 10.7 Pensionable population, total, ‘000 11,274 13,069 19,713 29,978 f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 48 Indonesia Information Technology Report Q1 2009 Section 2: Education And Healthcare Table: Education, 2000-2005 2000/01 2004/05 115 115 Gross enrolment, secondary 59 62 Gross enrolment, tertiary 15 17 Adult literacy, male, % 94.0 na Adult literacy, female, % 86.8 na Gross enrolment, primary Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 64.6 67.0 71.4 73.5 Life expectancy at birth, females (years) 68.6 70.5 75.7 77.9 Life expectancy estimated at 2005; f = forecast. Source: UNESCO © Business Monitor International Ltd Page 49 Indonesia Information Technology Report Q1 2009 Section 3: Labour Market And Spending Power Table: Employment Indicators, 2001-2006 2001 2002 2003 2004 2005 2006 Economically active population, '000 na na na na 105,802 106,282 – % change y-o-y na na na na na 0.4 – % of total population na na na na 46.8 46.4 Employment, '000 90,807 91,647 90,785 93,722 94,948 95,177 – % change y-o-y 1.0 0.9 -0.9 3.2 1.3 0.2 – male 57,131 58,583 59,909 60,582 60,769 61,864 – female 33,676 33,064 30,876 33,141 34,210 33,313 — female, % of total 37 36 34 35.3 36 35 Total employment, % of labour force na na na na 89.74 89.55 8,005 9,132 9,531 10,251 10,854 11,105 8.1 9.1 9.5 9.9 10.3 10.5 Unemployment, '000 – unemployment rate, % na = not available. Source: ILO Table: Average Annual Manufacturing Wages, 2000-2012 (IDR) 2000 2006 2007e 2008f 2009f 2010f 2012f Wages, IDR 5,096 11,740 12,717 13,777 14,811 15,881 18,267 Wage growth, % y-o-y 30.15 15.37 8.32 8.33 7.51 7.22 7.28 e/f = BMI estimate/forecast. Source: ILO, BMI © Business Monitor International Ltd Page 50 Indonesia Information Technology Report Q1 2009 BMI Forecast Modelling How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base © Business Monitor International Ltd Page 51 Indonesia Information Technology Report Q1 2009 and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, BMI’s quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ! Overall economic context, and GDP and demographic trends; ! Underlying ‘information society’ trends; ! Projected GDP share of industry; ! Maturity of market structure; ! Regulatory developments and government policies; ! Developments in key client sectors such as telecommunications, banking and e-government; ! Technological developments, and diffusion rates; ! Exogenous events. Estimates are calculated using BMI’s own macroeconomic and demographic forecasts. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. © Business Monitor International Ltd Page 52 Indonesia Information Technology Report Q1 2009 Indicators The following indicators have been used. Overall, the rating uses three subjectively-measured indicators, and 41 separate indicators/datasets. Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones Sector value growth, % year-onyear (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales – compared to services/software – indicates that the overall IT market is immature Country structure Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower Urban-rural split GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment Short-term financial risk Rating from BMI’s CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Legal framework Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Bureaucracy Corruption Rating from CRR denotes ease of conducting business in the state Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete Source: BMI © Business Monitor International Ltd Page 53 Indonesia Information Technology Report Q1 2009 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 54 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... the end of the report Source: BMI © Business Monitor International Ltd Page 21 Indonesia Information Technology Report Q1 2009 Market Overview Government Authority In November 2006, Indonesia s President Susilo announced the establishment of a new guiding body to provide strategic direction for the country’s IT development The National Information and Communications Technology Council Indonesia is chaired.. .Indonesia Information Technology Report Q1 2009 Indonesia Business Environment SWOT ! Corruption remains a major problem Indonesia ranked 126 out of 180 countries surveyed in Transparency International's 2008 Corruption Perceptions Index, where a low ranking denotes a higher degree of corruption Indonesia' s excessive bureaucracy makes it a difficult place to do business Among Asian economies, Indonesia. .. source systems Data from the Indonesian Telematics Software Association (Aspiluki) suggested that 60% of software in use in Indonesia – including in the government sector – is sourced from foreign producers © Business Monitor International Ltd Page 25 Indonesia Information Technology Report Q1 2009 Services Indonesia s IT services market is expected to be worth US$635mn in 2009, recording y-o-y growth... Monitor International Ltd Page 10 Indonesia Information Technology Report Q1 2009 Indonesia Political SWOT ! Indonesia' s domestic political scene is characterised by a proliferation of minority parties, and formal and informal coalitions are necessary to govern and legislate Moreover, the efficiency of state institutions is encumbered by bureaucracy and corruption Indonesia' s cultural and ethnic diversity... backlash © Business Monitor International Ltd Page 11 Indonesia Information Technology Report Q1 2009 Indonesia Economic SWOT ! Indonesia' s economy is not growing fast enough to reduce joblessness Around 8.5% of the country's 111.5mn-strong workforce were unemployed in February 2008, according to official figures Many are forced to work in the informal sector Indonesia' s physical infrastructure is considered... will be 6.9mn broadband subscribers, reflecting a penetration rate of 2.8% © Business Monitor International Ltd Page 33 Indonesia Information Technology Report Q1 2009 Macroeconomic Forecast Robust Domestic Demand To Shelter Economy In 2009 Indonesia' s economy faces downside risks in 2009, owing to severe weakness in its main trading partners, and lower commodity prices We forecast real GDP growth slowing... providing telephone and IT services to all rural areas in Indonesia by 2015 The programme is being promoted by the State Ministry for the Development of Disadvantaged Regions Under the 1999 Telecoms Law, all telecoms operators and service providers in Indonesia have © Business Monitor International Ltd Page 22 Indonesia Information Technology Report Q1 2009 an obligation to universal service, but in reality... foster development of more local IT entrepreneurs the Telecom Technology Institute in Bandung is building an IT development centre The US$2.2mn centre will function as an incubator for small firms in the IT sector © Business Monitor International Ltd Page 29 Indonesia Information Technology Report Q1 2009 Industry Forecast Scenario The Indonesian IT market should grow at a CAGR of around 11% between... notebooks) (US$ m) Servers (US$ m) Source: BMI ITU (Internet and broadband penetration) © Business Monitor International Ltd Page 31 Indonesia Information Technology Report Q1 2009 Internet Forecast Table: Indonesia s Internet Market – Historical Data And Forecasts 2006e 2007e 2008f 2009f 2010f 2011f 2012f 2013f 10,528 12,971 41,498 49,837 60,278 68,227 76,537 85,243 5 6 18 21 25 28 31 34 No of Broadband Internet... Monitor International Ltd Page 23 Indonesia Information Technology Report Q1 2009 have also been a barrier to foreign investment Furthermore, the software piracy rate remains among the highest in the world Hardware Hardware accounts for more than 70% of Indonesia IT spending Computer sales (including notebooks and peripherals) will be worth nearly US$2.2bn in calendar year 2009, according to BMI estimates, . Publication date: February 2009 Indonesia Information Technology Report Q1 2009 © Business Monitor International Ltd Page 2 Indonesia Information Technology Report Q1 2009 ©. segment is back-office applications, accounting for around two-thirds of sales. Inventory is an entry-point applications for many businesses. Indonesia Information Technology Report Q1 2009 . also a low-level threat from separatist rebels or from inter-communal tensions Indonesia Information Technology Report Q1 2009 © Business Monitor International Ltd Page 11 Indonesia