Q1 2010 www.businessmonitor.com INDoNeSIa information technology Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 1750-5070 Published by Business Monitor International Ltd. Indonesia Information Technology Report Q1 2010 Including 5-year industry forecasts by BMI Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Publication date: January 2010 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 © 2010 Business Monitor International. All rights reserved. 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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 2010 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2010 CONTENTS Executive Summary .5 SWOT Analysis .8 Indonesia IT Sector SWOT . Indonesia Telecoms Industry SWOT Indonesia Political SWOT 10 Indonesia Economic SWOT . 11 Indonesia Business Environment SWOT 12 Industry Business Environment Overview 13 Table: Regional IT Business Environment Ratings 15 Asia Regional IT Markets Overview 16 IT Penetration 16 Market Growth And Drivers 18 Sectors And Verticals . 20 Market Overview .22 Government Authority 22 Table: Key Ministers 22 Background 22 Table: Bandung High-Tech Valley SWOT . 23 Hardware . 24 Table: Computer Spending By Sector, 2007e . 25 Software . 25 Services 26 SMEs 28 Industry Developments 28 Open Source Software . 28 Industry Forecast .31 Table: Indonesian IT Industry – Historical Data & Forecasts (US$mn Unless Otherwise Stated) 33 Country Context . 33 Table: Consumer Expenditure, 2000-2012 (US$) 33 Table: Rural & Urban Breakdown, 2005-2030 34 Internet 35 Internet 35 Table: Telecoms Sector – Internet – Historical Data & Forecasts 35 Competitive Landscape .37 Hardware . 37 Software . 39 IT Services . 39 Internet Competitive Landscape 40 Company Profiles .41 IBM Indonesia . 41 Oracle 42 Sigma Cipta Caraka (SCC) 43 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2010 HP 45 Country Snapshot: Indonesia Demographic Data 46 Section 1: Population . 46 Table: Demographic Indicators, 2005-2030 46 Table: Rural/Urban Breakdown, 2005-2030 . 47 Section 2: Education And Healthcare 47 Table: Education, 2000-2005 47 Table: Vital Statistics, 2005-2030 47 Section 3: Labour Market And Spending Power 48 Table: Employment Indicators, 2001-2006 48 Table: Consumer Expenditure, 2000-2010 (US$) 48 Table: Average Annual Manufacturing Wages, 2000-2012 (IDR) . 49 BMI Methodology .50 How We Generate Our Industry Forecasts 50 IT Industry . 50 IT Ratings – Methodology 51 Table: IT Business Environment Indicators . 52 Weighting . 53 Table: Weighting Of Components 53 Sources 53 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2010 Executive Summary The Indonesian IT market should grow at a compound annual growth rate (CAGR) of around 15% over 2010-2014 despite a deceleration in 2009, when demand was affected by the global economic crisis. In H109, some manufacturing organisations deferred IT procurements, but there was continued spending in the financial sector, which had previously accounted for as much as 30% of total spending. IT spending is expected to increase to US$4.0bn in 2010, up from US$3.5bn last year. Some fundamental drivers, including low computer penetration and growing affordability, should ensure that the market remains in positive growth territory. Indeed, Indonesia is projected to be one of the best regional IT market growth prospects over BMI’s five-year forecast period. By 2014, Indonesia’s hardware-dominated IT market is projected to reach a value of US$6.9bn, higher than previously projected. With information and communication technologies (ICT) penetration of only around 20% and development restricted to richer areas such as Java, the market has much latent growth potential. However, the country’s uneven development and resultant digital divide are a major barrier to faster growth within this potentially huge IT market. Industry Developments In 2009, a ministerial decree directed that local government offices across Indonesia must adopt open source software (OSS) by 2011. The mayor of Surabaya revealed in July 2009 that his city had launched a pilot project for OSS applications. According to the mayor, all Surabaya municipal offices were now using the software and civil servants had been given relevant training. The local government hoped that the municipality could save 20-25% of its budget. E-government is expected to emerge as an area of growing opportunity for IT vendors over the next couple of years. Currently, several ministries at both federal and province level are planning to implement projects. In 2008, a number of projects were launched, including an e-procurement system by the State Ministry for State Enterprise, which covered 25 state-owned enterprises, including oil and gas company Pertamina and electricity company Perusahaan Listrik Negara. The government is also rolling out new e-learning initiatives, which could see education’s share of local IT spending rise from its estimated level of around 4%. The current ratio of PCs to students in public schools is around 1:3,200 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. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2010 Competitive Landscape Acer continued in 2009 to expand its presence across both consumer and business segments of the Indonesia PC market with more product releases. However, HP has pledged to strike back and has set a target of reclaiming top spot in the Indonesian market from Acer at some point in H110. HP, estimating the market share gap between itself and Acer at around 10%, has been aggressive in launching new notebook and netbook series. The company said it was optimistic that it could be leading Indonesia’s PC market early in 2010 as its products achieved greater penetration. In 2010, Microsoft hopes that the launch of its Windows operating system, released in October 2009, will boost local sales. Last summer, Microsoft continued to lay the groundwork for the new operating system launch and released the enterprise version of the software in August. Software market leader Microsoft Indonesia reported a 30% year-on-year (y-o-y) rise in revenues in FY2008, well above the company’s global average of 18%. IT services vendors have reported a growing demand in the telecoms, manufacturing and banking sectors. Oracle has an agreement with local IT solutions provider PT Sigma Cipta Caraka to provide outsourcing services. Meanwhile, e-government is also being eyed by IT services vendors as a potential growth area. Tata Consultancy Services (TCS) said that it had targeted the government as a future growth driver in the Indonesian market. Currently, TCS’s 15 local clients are principally from sectors such as banking and financial services, telecoms and media. Hardware BMI forecasts 2010 Indonesian computer hardware spending of around US$2.8bn, up from US$2.5bn last year. Growth decelerated in 2009 but is forecast to return to double digits this year, with the market rising to a value of nearly US$4.7bn by 2014. Spending in 2009 surpassed initial expectations, due largely to notebook sales, which surged with the popularity of netbooks; notebook sales grew faster than desktops in H109. Hardware accounts for more than 70% of Indonesian IT spending. In 2009, the main driver was the consumer segment, which accounts for around 25% of computer demand. In H109, consumer demand was resilient, growing 5.5% in Q109. The main drivers were growing affordability and more credit availability. Software Indonesia’s software sales are projected by BMI at US$475mn in 2010, up from an estimated US$410mn in 2009. In 2010, sales of Microsoft’s new Windows operating system has the potential to have an impact, although much will depend on consumer and business confidence. There should also be a boost from systems upgrades delayed from 2009. One market inhibitor is the continuing software piracy © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2010 problem which, by the local government’s own figures, loses Indonesian software companies alone more than US$100mn a year. Over the forecast period, enterprise resource planning (ERP) software continues to be of most interest to the small and medium-sized enterprises (SMEs) market as currently only around 20% of Indonesian SMEs are estimated to make use of IT. IT Services Indonesia’s IT services market is expected to be worth US$683mn in 2010, recording double-digit growth from US$601mn in 2009, based on BMI estimates. Currently, IT services account for only 17% of Indonesia’s hardware-centric IT market sales. Hardware deployment services remain the largest Indonesian IT services category, with approximately a 20% share. In 2009, the banking sector continued to provide opportunities for IT vendors, despite the fallout from the global financial crisis. Banks continued with transformation strategies driven by factors such as new technologies and services as well as regulatory compliance. However, most opportunities are currently in fundamental service areas such as system integration, support systems, training, professional services, outsourcing and internet services. E-Readiness Low telephone line density, high charges and low PC penetration are all significant obstacles to higher internet penetration. 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. The government is encouraging fixed wireless deployments, including WiMAX, to bring the internet to more remote areas. The government is also rolling out an internet-based National Education Network, which involves 1,000 network points in five clusters nationwide, designed to facilitate the use of the 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 2010 SWOT Analysis Indonesia IT Sector SWOT Strengths Weaknesses Opportunities Threats Large potential market Market may be entering faster growth stage; it is forecast to grow faster than most ASEAN markets over the review period (up to end-2014) due to its 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 political instability of late Legal concerns, such as intellectual property rights, are a deterrent to foreign direct investment Some positive trends: computer ownership and internet access are on the rise and the government is showing signs of taking intellectual property more seriously Per capita IT spending to increase by 50% over 2010-2014 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 the 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 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2010 Indonesia Telecoms Industry 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 and the UAE’s Etisalat Security and corruption issues still make Indonesia a risky investment climate Limited mobile spectrum due to overcrowding in the sector, following government decision to open the market to greater competition Mobile broadband spectrum fees remain high for operators, reducing implementation and variety of tariffs Operators struggling with raised costs after the government forced companies to charge a fee based on cost rather than share part of their revenues Mobile market expected to surge over the coming years, reaching nearly 431mn people in 2013 Popularity of mobile value-added/data services offers potential to international content providers Growth of 3G telephony will lead to investment opportunities for content providers and distributors Government registration scheme could lead to short-term fall in fixed wireless and mobile users as non-registrants are deactivated Dominance of prepaid market leading to falling average revenue per user rates Mobile operators 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 2010 Software In 2010, Microsoft hopes that the launch of its Windows operating system will boost its local sales. In summer 2009, Microsoft continued to lay the groundwork for the new operating system launch and released the enterprise version of the software in August. Software market leader Microsoft Indonesia reported a 30% y-o-y rise in revenues in FY2008, 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. It recently announced a co-operation with telecoms company PT Telkom and local software company PT Pesona Edukasi on an educational software development programme. Microsoft founder Bill Gates visited Indonesia in May 2008 and discussed supporting the government’s programme to 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 (OSS). In 2005, the government launched the ‘Indonesia Goes Open Source’ 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 2009, the government issued a decree calling for local governments to adopt OSS by 2011 and in July 2009 a pilot project was announced in Surabaya. 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 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 have reported growing demand in the telecoms, manufacturing and banking sectors. Oracle has an agreement with local IT solutions provider Sigma to provide outsourcing services. © Business Monitor International Ltd Page 39 Indonesia Information Technology Report Q1 2010 The arrangement will focus on providing big companies with business-related software that ensures security, performance and business continuity as well as manpower. IBM won a contract from Excelcomindo to supply the telecoms company with a network fault and performance management system. E-government programmes are also viewed by vendors as a potential growth driver. TCS said that it has targeted the government as a future growth driver in the Indonesian market. Currently, TCS’s 15 local clients are principally from sectors such as banking and financial services, telecoms and media. Meanwhile, HP, which is currently promoting the idea of business technology in Indonesia, is to intensify its IT infrastructure recovery service. IBM has recently announced partnership with local firm PT Mitra Integrasi Informatika 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 targeted 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. 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 autos and manufacturing, as well as its core area of finance. Earlier in 2008, Telkom Indonesia acquired an 80% stake in Sigma. The telecoms company is hoping for synergies between Sigma’s core customer base of 170, mainly banks. Telkom said that it 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 1.5mn in 2008, giving it a penetration rate of 0.6%. This has been a due to a lack of PCs, while service take-up has generally been restricted to Java resulting in uneven development. 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 40 Indonesia Information Technology Report Q1 2010 Company Profiles IBM Indonesia Services Local Market Performance Manufacturer, distributor and provider of advanced IT solutions including In 2007, IBM’s Asia Pacific revenues hardware, software, peripherals and data processing equipment. increased by 11% to US$19.5bn. In Indonesia, IBM has already won a number of customers in the SME segment. These include the Surabayabased Bank Antar Daerah and Bogorbased 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, Fully owned subsidiary. IBM has been promoting energy saving technologies and consolidation for data centres. IBM Indonesia also launched a local version of its Express IT package, which offers a range of hardware, software and related services to SMEs. Prices range between US$1,000-150,000 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, drug stores and universities. Future Plans Sectors In 2006, IBM’s Indonesian business consultancy services focused on Government, SMEs and enterprise. three objectives: ERP system development, IT strategy design, and application of HCM system. © Business Monitor International Ltd Page 41 Indonesia Information Technology Report Q1 2010 Oracle Services Local Market Performance Wholesaler of computer equipment and provider of IT services. In FY07, Oracle’s Asia Pacific revenues Oracle reported strong customer momentum and increased total GAAP (generally accepted accounting principles) revenues of 24% to US$2.499bn in the Asia Pacific and Japan (JAPAC) for FY07. increased by 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 Oracle Indonesia is part of Oracle’s Sigma Cipta Caraka to provide outsourcing services. The arrangement South Asia Region and wider Asia will focus on helping big companies to focus core business while the IT Pacific Division, located in Singapore. partners optimise and maintain IT units. The services provided will Oracle has about 1,700 customers include business related software that ensures security, performance and across the Asia Pacific region, of which business continuity as well as manpower to operate the system. Oracle 50% are from South Asia, including Indonesia is the vendor and Sigma the local implementation partner. Indonesia. Future Plans Sectors Oracle is already an active participant in the Indonesian market, where its Oracle has followed a similar path to strategic focus is on capturing 30-35% of the sizable SME market. To that of CA and other competitors in achieve this ambitious target, despite many other vendors competing for targeting the SME sector by introducing the same segment, Oracle has established close business co-operation its Database Standard Edition-1 on the contacts with local organisations and institutions. 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 42 Indonesia Information Technology Report Q1 2010 Sigma Cipta Caraka (SCC) Services Local Market Performance Sigma Cipta Caraka (SCC) is a leading Indonesian IT company SCC achieved revenues of about specialising in the banking sector, offering services such as software US$23mn in 2007. Following the development and customisation, network and systems integration, acquisition by Telkom, Sigma targeted managed resources and internet access. SCC is one of IBM’s major revenues of US$40mn in 2008, a 50% channels to sell hardware to local banks. increase. In 2008, leading telecoms company Telkom Indonesia acquired an 80% stake in SCC. The company is hoping for synergies between its 6,000 corporate customers and 170 of SCC’s customers, 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 telecoms company Telkom Indonesia, SCC is Over 500 employees. expanding operations, and spent US$7mn on a new IT disaster recovery centre in Surabaya. 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 Indonesians choose to business with banking institutions that comply with its principles. SCC has capitalised on this, with its shari’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 SCC targeted 40% growth in its strengthening its core role as an IT provider for banking sector, both managed services business in 2008. conventional as well as shari’a. 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 finance. SCC’s flagship product is AlphaBITS, the software developed by SCC in 1989. It is a core banking system for © Business Monitor International Ltd Page 43 Indonesia Information Technology Report Q1 2010 day-to-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 44 Indonesia Information Technology Report Q1 2010 HP Services Revenues Technology services, consulting and integration. HP has benefited from increasing demand in the PC segment and is currently second in the brand PC market with around a 30% share. HP sells upwards of US$300mn worth of products in Indonesia annually, including its printers, desktops, notebooks and PDA lines. Recent Developments Presence HP has intensified its focus on SMEs by launching several new computer Fully owned subsidiary. portfolios specifically targeted at SMEs. The company is the market leader in the SME segment in Indonesia. HP is also expanding its presence in Makassar, South Sulawesi and Yogakarta. HP has also strengthened its IT infrastructure recovery service. The main demand driver has been the banking industry, with major sector players such as the Central Bank of Indonesia becoming highly concerned with disaster recovery services. HP has also won disaster recovery contracts from telecoms operators. HP opened its 11th Indonesian outlet in Bandung, West Java, in February 2006. HP said that they expected the new store to help achieve its target of doubling its sales in the city, which accounted for about 5% of nationwide sales. Future Plans Sectors HP has set a target of reclaiming top spot in the Indonesian PC market Currently investing in manufacturing from Acer at some point in H110. HP, which estimates the market share and the public sector. gap between itself and Acer at around 10%, has launched new notebook and netbook series. New notebook products introduced to the regional market include the HP Probook 5130 M, HP Pavilion dm1-dm3, and the HP Mini 110-311. © Business Monitor International Ltd Page 45 Indonesia Information Technology Report Q1 2010 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 46 Indonesia Information Technology Report Q1 2010 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 47.9 53.2 62.6 68.9 Rural population, % of total 52.1 46.8 37.4 31.1 Urban population, total, ‘000 106,668 125,346 163,850 192,805 Rural population, total, ‘000 116,114 110,409 98,018 86,861 Total population, ‘000 222,782 235,755 261,868 279,666 f = forecast. Source: UN Population Division 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 47 Indonesia Information Technology Report Q1 2010 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: Consumer Expenditure, 2000-2010 (US$) 2000 2006 2007e 2008f 2009f 2010f Consumer expenditure per capita 416 961 1,195 1,283 1,450 1,802 Poorest 20%, expenditure per capita 175 404 502 539 609 757 Richest 20%, expenditure per capita 900 2,081 2,588 2,778 3,138 3,902 Richest 10%, expenditure per capita 1,185 2,739 3,407 3,657 4,131 5,137 335 774 962 1,033 1,167 1,451 1,570 2,499 2,658 na na na Poorest 20%, expenditure per capita 659 1,050 1,116 na na na Richest 20%, expenditure per capita 3,399 5,411 5,755 na na na Richest 10%, expenditure per capita 4,475 7,123 7,576 na na na Middle 60%, expenditure per capita 1,264 2,012 2,140 na na na Middle 60%, expenditure per capita Purchasing power parity Consumer expenditure per capita e/f = BMI estimate/forecast. na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 48 Indonesia Information Technology Report Q1 2010 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 49 Indonesia Information Technology Report Q1 2010 BMI Methodology 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 and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 50 Indonesia Information Technology Report Q1 2010 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. Indicators The following indicators have been used. Overall, the rating uses three subjectively-measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 51 Indonesia Information Technology Report Q1 2010 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales – compared to services/software – indicates that the overall IT market is immature Country structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower 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 Bureaucracy Corruption 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 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 52 Indonesia Information Technology Report Q1 2010 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 53 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Business Monitor International Ltd Page 21 Indonesia Information Technology Report Q1 2010 Market Overview Government Authority In November 2006, Indonesia s president, Susilo Bambang Yudhoyono, 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 by the president... on its current account position Indonesia is perceived as one of Asia’s riskier destinations This leaves the economy vulnerable to sudden capital outflows at times of risk aversion, which can lead to sharp swings in the currency © Business Monitor International Ltd Page 11 Indonesia Information Technology Report Q1 2010 Indonesia Business Environment SWOT Strengths Indonesia is South East Asia’s largest... incidents, including the Jakarta bombings of July 2009 The fact that Indonesia subsidises basic goods means that when the government raises prices, there is a risk of public unrest, or at least a political backlash © Business Monitor International Ltd Page 10 Indonesia Information Technology Report Q1 2010 Indonesia Economic SWOT Strengths Indonesia s strategic location between the Indian and Pacific Oceans... 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 30 Indonesia Information Technology Report Q1 2010 Industry Forecast The Indonesian IT market should grow at a CAGR of around 15% over 2010- 2014 despite a deceleration in.. .Indonesia Information Technology Report Q1 2010 Indonesia Political SWOT Strengths Indonesia managed a successful transition to democracy in 2004 In addition, the 2009 parliamentary and presidential elections passed by peacefully, signalling... also been a barrier to foreign investment Furthermore, the software piracy rate remains among the highest in the world © Business Monitor International Ltd Page 23 Indonesia Information Technology Report Q1 2010 Hardware BMI forecasts 2010 Indonesia computer hardware spending of around US$2.8bn, up from US$2.5bn last year Growth decelerated in 2009 but is forecast to return to double digits this year,... services remains the largest Indonesian IT services category with an approximate 20% share Growth opportunities are mainly in fundamental services such as system integration, support systems, training, professional services, outsourcing and internet services Sector CAGR over 2010- 2014 © Business Monitor International Ltd Page 26 Indonesia Information Technology Report Q1 2010 is expected to be around... Listrik Negara © Business Monitor International Ltd Page 28 Indonesia Information Technology Report Q1 2010 The framework for Indonesian e-government development was set out by presidential instruction No 3/2003, which called for development of a system covering services such as e-procurement, eannouncements, recruitment, payments and access to information systems The deadline envisaged in that instruction... governments are encouraged to adopt the new institution of a chief information officer (CIO) The Director General of Telematics Applications at the Department of Communications and Information said that the new CIO post was needed in every government institution © Business Monitor International Ltd Page 29 Indonesia Information Technology Report Q1 2010 To ensure interoperability among government applications,... incomes and a high-tech focused national development plan The subsidised roll-out of a high- © Business Monitor International Ltd Page 13 Indonesia Information Technology Report Q1 2010 speed broadband network will address a relative lack of information and communication technology (ICT) infrastructure outside the Klang Valley There are also increasingly attractive opportunities in the IT services area . Publication date: January 2010 Indonesia Information Technology Report Q1 2010 © Business Monitor International Ltd Page 2 Indonesia Information Technology Report Q1 2010 © Business. around 35%, rising incomes and a high-tech focused national development plan. The subsidised roll-out of a high- Indonesia Information Technology Report Q1 2010 © Business Monitor International. India and Indonesia are now above 17% penetration, despite a lack of fixed-line infrastructure in those countries. Both have deployed fixed- Indonesia Information Technology Report Q1 2010