Q1 2013 www.businessmonitor.com INDoNeSIa information technology Report INCLUDES BMI'S FORECASTS ISSN 1750-5070 Published by Business Monitor International Ltd. INDONESIA INFORMATION TECHNOLOGY REPORT Q1 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: November 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2013 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. 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 2013 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2013 CONTENTS Executive Summary . SWOT Analysis . Indonesia IT SWOT Indonesia Telecoms SWOT Indonesia Political SWOT Indonesia Economic SWOT . 10 Indonesia Business Environment SWOT 11 Asia Pacific IT Risk/Reward Ratings 12 Table: Asia Pacific IT Risk/Reward Ratings, Q113 . 15 Asia Pacific IT Markets Overview . 16 IT Penetration . 16 IT Growth and Drivers 18 Sectors And Verticals 20 Market Overview . 24 Government Authority . 24 Table: Key Ministers And Departments . 24 Table: Bandung High-Tech Valley SWOT . 25 Hardware 26 Software 29 Services . 31 Special Focus: Banks 32 Industry Developments 33 Industry Forecast . 37 Table: Indonesia IT Industry - Historical Data And Forecasts (US$mn unless otherwise stated), 2010-2017 39 Industry Forecast Internet . 40 Table: Telecoms Sector - Internet - Historical Data And Forecasts, 2009-2016 . 40 Competitive Landscape . 42 Hardware 42 Software 44 IT Services 46 Internet Competitive Landscape 47 Macroeconomic Forecast 48 Table: Indonesia - Economic Activity, 2011-2016 . 50 Company Profiles . 51 IBM 51 Oracle Corp . 56 Table: Oracle: Selected Acquisitions . 60 Sigma (telkomsigma) 61 Hewlett-Packard 63 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2013 Country Snapshot 69 Table: Indonesia's Population By Age Group, 1990-2020 ('000) . 70 Table: Indonesia's Population By Age Group, 1990-2020 (% of total) 71 Table: Indonesia's Key Population Ratios, 1990-2020 72 Table: Indonesia's Rural And Urban Population, 1990-2020 72 BMI Methodology . 73 How We Generate Our Industry Forecasts 73 IT Industry . 73 IT Ratings – Methodology 74 Table: IT Business Environment Indicators . 75 Weighting . 76 Table: Weighting Of Components 76 Sources 76 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2013 Executive Summary BMI View: Indonesian IT spending is expected to reach US$6.7bn in 2012, up 12%, although BMI has downwardly revised its forecast due to our expectation of a deteriorating investment climate. BMI still expects the Indonesian market to be one of the region's fastest-growing IT markets over our five-year forecast period. In 2013, continued strength in government spending should offset an expected deceleration in household demand. PC penetration remains at below 10%, giving this huge market unrivalled long-term growth potential. Rising computer penetration and growing affordability should ensure that the market remains firmly in positive growth territory. Headline Expenditure Projections Computer hardware sales: US$4.2bn in 2012 to US$4.7bn in 2013, +11% in US dollar terms. Forecast in US dollar terms downwardly revised after a slowdown in H112, but growing affordability and credit availability are driving sales in the consumer segment. Software sales: US$687mn in 2012 to US$800mn in 2013, +16% in US dollar terms. Forecast in US dollar terms upwardly revised due to analyst modification although progress will depend on the success in bringing down illegal software use. IT services sales: US$989mn in 2012 to US$1.1bn in 2013, +14% in US dollar terms. Forecast in US dollar terms unchanged, with a key growth area being cloud services, which could be worth more than US$100mn by 2017. Risk/Reward Ratings: Indonesia's score was 42.7 out of 100.0. Indonesia remained fifth from bottom of the Asia region in our latest RRR table, behind the Philippines and ahead of Vietnam, Sri Lanka, India and Thailand. Key Trends & Developments An active approach by the government to encourage IT development, led by the National ICT Council, should stimulate spending through a series of infrastructure and education initiatives. The Indonesian government's Master Plan for Acceleration and Expansion for Indonesia Economic Development (MPEEI) states that connectivity between the islands of the country is a priority area. major government infrastructure and ICT initiatives, particularly the Palapa Ring Project, have been rolled out to create the infrastructure to support IT market growth. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2013 With ICT penetration of only 20% and development restricted to richer areas such as Java, the market has much growth potential. However, Indonesia's uneven development and digital divide are major barriers to faster growth within this potentially huge IT market. According to government data, there are 30-35mn Indonesian companies that still not use ITbased solutions, representing a huge potential market. Modernisation is driving spending on applications such as CRM, ERP and financial management in key sectors such as financial services, telecoms, utilities, government, retail and manufacturing. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2013 SWOT Analysis Indonesia IT SWOT Strengths Weaknesses Opportunities Threats Large potential market. The market may be entering a faster growth stage. It is forecast to grow quicker than most other Association of South East Asian Nations (ASEAN) markets over the forecast period due to its underdeveloped nature. Computer penetration is among the lowest in South East Asia, estimated at only 1.5%. Underdeveloped telecommunications infrastructure due to years of government control and slow progress in deregulation. Lack of government support, and there is still no unified ICT ministry. History of recent political instability. 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 are predicted to grow faster than almost anywhere else 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, or drive ICT sector development. The global economic slowdown may hit key demand segments. © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2013 Indonesia Telecoms SWOT Strengths Weaknesses Opportunities Threats A rapidly growing mobile sector due to the emergence of greater competition. The presence of key strategic investors, including SingTel, ST Telemedia of Singapore, Telekom Malaysia, 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 the government decision to open the market to greater competition. Mobile broadband spectrum fees remain high for operators, reducing the 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. The mobile market expected to surge over the coming years, reaching nearly 431mn people over the forecast period. The popularity of mobile value-added/data services offers potential to international content providers. The growth of 3G will lead to investment opportunities for content providers and distributors. A government registration scheme could lead to short-term fall in fixed wireless and mobile users as non-registrants are deactivated. The dominance of the 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 2013 Indonesia Political SWOT Strengths Weaknesses Opportunities Threats Indonesia managed a successful transition to democracy in 2004. In addition, the 2009 parliamentary and presidential elections passed peacefully, signalling the consolidation of the democratic process. Since 2009, the government has shown further signs of improvement in both efficacy and engagement. The military's role in politics has gradually been reduced. The prospects of a military coup - which seemed a real possibility in the late 1990s and early 2000s - have diminished substantially. As the military's role in politics continues to wane, Indonesia's political stability should likewise improve. 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. Prospects for reform are beset with numerous challenges, such as the long-running practice of politicians promising government positions to campaign supporters. The country was impacted by separatist rebellion and ethnic violence in the late 1990s and early 2000s, which took great efforts to bring to heel. In the event of a new economic crisis, calls for regional secession could re-emerge. President Susilo Bambang Yudhoyono's Democratic Party had a strong showing in the 2009 parliamentary elections. Coupled with a strong mandate following his re-election in the same year, the implementation of policies in the legislature should become less problematic. Indonesia's status as the world's most populous Muslim country leaves it well positioned to speak out on global Islamic issues and act as a bridge between the Middle East and the Asia Pacific region. Regional militant group Jemaah Islamiah (JI) poses a lingering threat to security in Indonesia. JI is blamed for a series of attacks, including the Bali bombings of October 2002 and 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. Additionally, Indonesia's population is extremely young, with more than 50% of Indonesians younger than 30. Younger populations have historically been a predictor of political instability. © Business Monitor International Ltd Page Q1 2012 www.businessmonitor.com INDoNeSIa information technology Report INCLUDES BMI'S FORECASTS ISSN 1750-5070 Published by Business Monitor International Ltd. INDONESIA INFORMATION TECHNOLOGY REPORT Q1 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published by: Business Monitor International Copy Deadline: January 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2012 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. 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 2012 © Business Monitor International Ltd Page Indonesia Information Technology Report Q1 2012 CONTENTS Executive Summary . SWOT Analysis . Indonesia IT SWOT Indonesia Telecoms SWOT Indonesia Political SWOT 10 Indonesia Economic SWOT . 11 Indonesia Business Environment SWOT 12 Business Environment Ratings 13 Regional IT Business Environment Ratings . 13 Asia IT Markets Overview 18 IT Penetration 18 IT Growth And Drivers .42 6.01 6.23 6.53 6.85 50-54 years 3.64 3.54 3.45 4.07 4.91 5.18 5.52 6.07 55-59 years 2.98 3.12 3.09 3.03 3.61 3.94 4.44 5.06 60-64 years 2.29 2.48 2.64 2.63 2.61 2.78 3.18 3.98 65-69 years 1.58 1.81 1.99 2.14 2.17 2.15 2.21 2.75 70-74 years 1.06 1.15 1.34 1.50 1.64 1.68 1.72 1.81 75+ years 1.12 1.17 1.28 1.49 1.74 1.90 2.08 2.41 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Ltd Page 71 Indonesia Information Technology Report Q1 2013 Table: Indonesia's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f 67.3 60.8 54.7 51.2 48.3 47.3 45.9 43.8 Dependent population, total, '000 74,142 75,371 75,430 77,020 78,172 78,598 79,283 79,957 Active population, % of total 59.8 62.2 64.7 66.1 67.4 67.9 68.5 69.5 Active population, total, '000 110,204 124,029 137,966 150,283 161,699 166,171 172,597 182,612 Youth population, % of total working age 61.0 54.1 47.5 43.5 40.1 38.9 37.2 33.8 Youth population, total, '000 67,210 67,133 65,581 65,358 64,853 64,576 64,143 61,651 Pensionable population, % of total working age 6.3 6.6 7.1 7.8 8.2 8.4 8.8 10.0 Pensionable population, '000 6,932 8,238 9,849 11,662 13,318 14,022 15,141 18,306 Dependent ratio, % of total working age f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+. Source: World Bank, UN, BMI Table: Indonesia's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Urban population, % of total 30.6 35.6 42.0 48.1 53.5 55.5 58.4 62.5 Rural population, % of total 69.4 64.4 58.0 51.9 46.5 44.5 41.6 37.5 54,279.9 68,174.5 Urban population, '000 Rural population, '000 86,217.7 105,440.2 128,450.9 135,773.4 146,972.2 164,105.9 123,105.3 123,326.9 119,062.6 113,770.1 111,420.1 108,995.7 104,908.2 98,463.5 f = BMI forecast. Sources: World Bank, UN, BMI © Business Monitor International Ltd Page 72 Indonesia Information Technology Report Q1 2013 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 73 Indonesia Information Technology Report Q1 2013 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 74 Indonesia Information Technology Report Q1 2013 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 fiveyear 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 75 Indonesia Information Technology Report Q1 2013 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 76 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...].. .Indonesia Information Technology Report Q1 2013 Indonesia Economic SWOT Strengths Indonesia' s strategic location between the Indian and Pacific Oceans and its adjacency to major east-west trade routes make it an important economy in the region Indonesia is also resource-rich and is the world's largest producer of palm oil Indonesia has a low cost and large supply... that 60% of software in use in Indonesia, including in the government sector, is sourced from foreign producers © Business Monitor International Ltd Page 30 Indonesia Information Technology Report Q1 2013 Services Indonesia' s IT services market is forecast to be worth US$1.1bn in 2013, up from US$1.0bn in 2012, based on BMI estimates IT services account for only 17% of Indonesia' s hardware-centric IT... Page 25 Indonesia Information Technology Report Q1 2013 issues such as IP rights have also been barriers to foreign investment, while the level of software piracy remains among the highest in the world Hardware BMI forecasts 2013 Indonesian computer hardware spending of US$4.7bn, up from US$4.2bn in 2012 The market is forecast to rise at a CAGR of 10% to a value of US$6.9bn by 2017 PC shipments reported... Indonesia' s dependence on foreign oil 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 10 Indonesia Information Technology Report Q1 2013 Indonesia Business Environment SWOT Strengths Indonesia is South East Asia's largest... with the Victoria government investing more than US$150mn in IT in schools © Business Monitor International Ltd Page 16 Indonesia Information Technology Report Q1 2013 In Indonesia, PC penetration of around 3% could double by 2016 if government initiatives are followed through The Indonesian government is also rolling out new e-learning initiatives, with a target of raising the current 1:3,200 ratio... for the © Business Monitor International Ltd Page 28 Indonesia Information Technology Report Q1 2013 components tariff to be abolished The low-end price tier will continue to dominate and will account for about 80% of sales, reinforced by the growing popularity of netbooks Software Indonesia' s software sales are forecast by BMI to reach US$687mn in 2013, up from an estimated US$594mn in 2012 During BMI's... costs, new IT delivery models such as software-as-a-service (SaaS) and platform-as-a-service (PaaS) are © Business Monitor International Ltd Page 29 Indonesia Information Technology Report Q1 2013 expected to grow in popularity Microsoft Indonesia has reported that cloud computing accounts for around 20% of its local revenue and it has been growing at about 50% a year In addition to cost savings, businesses... Master Plan for Acceleration and Expansion for Indonesian Economic Development (MP3EI) envisages a major role for ICT The MP3EI plan sets the target for Indonesia to achieve the status of a developed nation by 2025 One of the priorities stated in the plan is improvement of © Business Monitor International Ltd Page 24 Indonesia Information Technology Report Q1 2013 connectivity between the islands of the... telecoms and IT companies are leading to increased competition in this segment, which should fuel further demand from end-users to utilise this technology In December © Business Monitor International Ltd Page 31 Indonesia Information Technology Report Q1 2013 2011 Indonesia telecoms and data service provider Indosat launched end-to-end cloud computing services to businesses and consumers in the country... government organisations and the private sector, which presents business opportunities for solution providers © Business Monitor International Ltd Page 14 Indonesia Information Technology Report Q1 2013 Table: Asia Pacific IT Risk/Reward Ratings, Q11 3 Rewards Risks Industry Rewards Country Rewards Industry Risks Country Risks IT Rating Rank Previous Rank Singapore 57.0 100.0 70.0 85.1 74.1 1 1 Hong . deadline: November 2012 Indonesia Information Technology Report Q1 2013 © Business Monitor International Ltd Page 2 Indonesia Information Technology Report Q1 2013 © Business. in cloud computing models such as software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS). Indonesia Information Technology Report Q1 2013 © Business Monitor International. expense of 2G growth. Indonesia Information Technology Report Q1 2013 © Business Monitor International Ltd Page 9 Indonesia Political SWOT Strengths Indonesia managed a successful