Q1 2014 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 1750-5062 Published by:Business Monitor International Indonesia Information Technology Report Q1 2014 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: October 2013 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom 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. 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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 2014 CONTENTS BMI Industry View . SWOT IT . SWOT . 11 Political . 13 Economic . 15 Business Environment 17 Industry Forecast 18 Table: Indonesia IT Industry - Historical Data And Forecasts (IDRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Broadband . 23 Table: Internet - Historical Data And Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Macroeconomic Forecasts . 25 Economic Analysis . BI, Government Measures Still Insufficient BI To Remain Vigilant . Stimulus Unlikely To Prevent Growth Slowdown 25 25 26 28 Table: Indonesia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Industry Risk Reward Ratings 30 Table: Asia Pacific IT Risk/Reward Ratings - Q1 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 34 Hardware . 34 Software . 41 IT Services 45 Industry Trends And Developments 49 Regulatory Development 53 Table: Key Ministers And Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Competitive Landscape 57 International Companies . 57 Table: Lenovo Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table: Intel Indonesia Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table: Microsoft Indonesia PT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Table: IBM Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Local Companies . 61 Table: Performance PT Multipolar Technology Tbk (MLPT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table: Walden Global Services (WGS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 © Business Monitor International Page Indonesia Information Technology Report Q1 2014 Table: Aprisma Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table: ALTiUS ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Company Profile 64 Sigma 64 Regional Overview 67 Demographic Forecast . 72 Table: Indonesia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Table: Indonesia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table: Indonesia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Table: Indonesia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Methodology 76 Industry Forecast Methodology 76 Sources 77 Risk Reward Rating Methodology 78 Table: It Risk Reward Rating Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 © Business Monitor International Page Indonesia Information Technology Report Q1 2014 BMI Industry View BMI View: The Indonesian IT market is forecast to be one of the outperforming markets globally over the medium term, on the back of strong economic growth, a low PC penetration rate and an emerging middle class. Despite a downwards revision to BMI's forecasts during Q413, following a slowdown in PC sales in Q113 and uncertainties about Indonesia's economic outlook, we believe the market holds promise going into 2014 and beyond. The rupiah has depreciated in 2013, having a constraining effect on household spending, but BMI believes such effects will not be long lasting. In the immediate future, IT spending is forecast to increase to IDR63.0trn in 2013, up from IDR54.6bn in 2012, with the economy predicted to grow around 6% in 2013. The retail market will be a major driver of growth, with PC penetration estimated at below 10% in 2012, meaning there is significant growth potential from first-time buyers and upgrades/ personal devices. Headline Expenditure Projections Computer Hardware Sales: IDR44.7trn in 2013 to IDR63.7trn in 2017, at a compound annual growth rate (CAGR) of 10.2% in local currency terms. Sales were down in Q113, but rising incomes and the growing affordability of devices, combined with credit availability, will increase sales in the consumer segment. Software sales: IDR7.6trn in 2013 to IDR12.7trn in 2017, at a CAGR of 14.9% in local currency terms. Windows sales will boost spending in 2013, as the government launches a new roadshow to bring down illegal software use. IT Services Sales: IDR10.7trn in 2013 to IDR16.7trn in 2017, at a CAGR of 12.9% in local currency terms. Our forecast has been downwardly revised, but a key growth area is cloud services, which could be worth more than IDR11.8trn by 2017. Key Trends & Developments In October 2013, it was reported that Indonesia is responsible for 38% of the world's malicious internet traffic, surpassing China as the leading root of online attacks. This has grown from only 0.7% of recorded attacks 12 months previously, according to the US-based Akamai Technologies. The reasons behind the growth are under debate, but the implications of a dramatic increase in online attacks have worried officials. Cyber security is notoriously weak in Indonesia. The second-highest cause of the 1.2mn daily attacks © Business Monitor International Page Indonesia Information Technology Report Q1 2014 recorded by the government is attempts at data theft. Network-heavy industries, such as oil and gas, are most susceptible to data phishing attempts. Although the consumer story in Indonesia means that the retail hardware market is set to remain the dominant theme in the Indonesian IT market, the cheaper rupiah - the currency was one of the weakest regional performers in 2013 - has had a constraining effect on household spending. However, there are also opportunities for vendors to generate sales to the public and enterprise sectors. 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. Government IT spending was up in Q113, with a boost from projects previously delayed from Q412. Meanwhile, according to government data, IT penetration in enterprises is low, particularly in the SME segment, 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 Page Indonesia Information Technology Report Q1 2014 SWOT IT SWOT Analysis Strengths ■ 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. Weaknesses ■ Computer penetration is among the lowest in South East Asia, estimated at only 9% in 2012. ■ 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. ■ High piracy rate continues to be a drag on the software market, with one of the highest piracy rates in the region. Opportunities ■ Some positive trends: computer ownership and internet access are on the rise, and the government is showing signs of taking intellectual property more seriously. ■ Strong demand for tablets and low-cost laptops from a youthful population and booming economic performance. ■ Per capita IT spending to increase rapidly as the middle class increases in size. ■ 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 region over the next few years, although from a lower base. © Business Monitor International Page Indonesia Information Technology Report Q1 2014 SWOT Analysis - Continued Threats ■ IT services, with local telcos investing heavily in data centres and networks. ■ 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. ■ A weaker rupiah could have a dampening effect on household and business spending. It is the worst performing Asian currency of the year as of October 2013 © Business Monitor International Page 10 Indonesia Information Technology Report Q1 2014 recent wins for the partnership is a tender from Bussan Auto Finance, one of the leading multi-finance companies in Indonesia, to implement various Oracle applications. Company Details ■ ■ PT Sigma Citra Caraka DEA I Tower, 8th Floor Kawasan Mega Kuningan JI. Mega Kuningan Barat IX Kav. E43 No. Indonesia ■ Tel: +62 21 576 2150 ■ Fax: +62 21 576 2155 ■ Web: www.sigma.co.id © Business Monitor International Page 66 Indonesia Information Technology Report Q1 2014 Regional Overview Asia Pacific IT markets are on the whole developing rapidly, boosted by strong underlying economic growth and proactive government policy. However the region is diverse in terms of geography, levels of development and population, which is reflected in the makeup of IT markets and their medium term prospects. Cyber Security Could Derail Bright Outlook For Regional Leaders In terms of the contribution to GDP there is great diversity across APAC. The higher income markets generally have IT account for a greater share of GDP, as is the case at the global level. However a few lower income markets have carved a position out for themselves in global supply chains boosting the share of IT in GDP, for instance Thailand for production of semiconductors and the Philippines in outsourcing. Singapore is expected to have the largest IT sector relative to the size of its economy at 2.3% in 2014, slightly ahead of Hong Kong and Thailand at 2.1%. Singapore and Hong Kong share many similar characteristics, with both high-income city-states benefiting from domestic spending, as well as positioning themselves as regional hubs for IT services vendors in the wider APAC region. Hong Kong and Singapore are competing to become the leading regional cloud computing hub, with significant inward investment taking place from cloud vendors and telecoms providers such as NTT. The latest research from Rackspace shows that Hong Kong had the highest adoption rate for cloud services by mid-2013, boosted by demand from the financial services sector. However, it should be noted that Hong Kong and Singapore both trail leading global cloud markets in terms of the deployment of more complex cloud solutions such as hybrid clouds, disaster recovery, and testing and development. Singapore's government has put in place policies to close the gap with Hong Kong and global leaders by boosting local expertise in the emerging technology of Big Data applications. In August 2013 it was announced that the Infocomm Development Authority of Singapore (IDA) had partnered with Revolution Analytics, a commercial provider of software, services and support for the open source "R" project, to form a Business Analytics Centre of Excellence. The IDA's efforts will help Singaporean enterprises utilise Big Data, and tap into local demand. The outlook for Big Data is positive with 80% of enterprises surveyed by EMC stating that use of Big Data will lead to better decision making in their organisation. The survey, released in September 2013, questioned 130 respondents, of which 63% believed that Big Data will be a key factor determining winners and losers, while 37% stated they had already benefited from competitive © Business Monitor International Page 67 Indonesia Information Technology Report Q1 2014 advantage via the use of Big Data. The areas respondents believed Big Data will prove most beneficial were data centre automation (83%) and cyber security (64%). Other markets in APAC have also been able to carve out a position in global IT markets, for instance, Philippines and Vietnam are both growing centres for outsourcing. The Philippines has a more developed outsourcing industry and is now moving up the value chain to software and application development services, but Vietnam is developing rapidly and is well positioned to benefit from demand from Japanese enterprises. In January 2013 the Information Technology Promotion Agency survey of 1,100 Japanese IT firms showed Vietnam was the first choice outsourcing destination, with 31.5% of firms choosing it, ahead of India (20.6%), China (16.7%), Thailand (9.7%) and Philippines (7.4%). The Vietnamese government is developing policy to maximise the development of the outsourcing industry. In August 2013 a draft resolution from the Ministry of Information and Communications proposed allocating at least 2% of the state budget for boosting the IT sector each year. The fund will be used to help Vietnam catch up with regional rivals and move up the value chain in areas such as outsourcing and software development. Such a financial commitment from the government, combined with Vietnam's attractive cost profile, should see the IT market, and specifically outsourcing, continue on the recent trajectory of rapid development. The markets highlighted above are some of the regional outperformers, and cases where the industry is developing rapidly. However, there is a trend that BMI highlights as a major downside risk across the region - cyber security. Markets in Asia have among the highest incidences of cyber crime globally, and an additional factor is politically driven cyber attacks from North Korea. Many governments in the region updated cyber security policy and legislation in 2013, while also strengthening defensive capabilities, however these steps could prove insufficient. Even after state investment and policy reform we believe the potential for cyber security issues to slow IT market development exists, as the loss of confidence from a severely disruptive attack would be significant and long-lasting. It will be important over the medium term that governments pursue proactive rather than reactive cyber security policy to remain ahead of threats in terms of defensives and retaliatory capabilities. South Korea is the most exposed to this risk due to the activities of North Korea, as demonstrated by the number of attacks in 2013, and recent experience shows how state spending has had to be increased. In March 2013 South Korean banks -including Shinhan, Nonghyup and Jeju - and TV broadcasters were subject to an attack from North Korea which disrupted their operations. The attacks followed a February 2013 statement from North Korean leader Kim Jong-un, expressing confidence in the government's cyber © Business Monitor International Page 68 Indonesia Information Technology Report Q1 2014 warfare capabilities against South Korea. The government had set aside KRW240bn for information protection and less than KRW10bn for strengthening cyber warfare capabilities, but these plans came under pressure following another round of attacks. In late June and early July 2013 there were attacks during which 69 government offices, news outlets and other institutions, including the presidential office website were attacked. It was reported that 2.5 million members of the ruling Saenuri Party, 300,000 military personnel and 200,000 registered users of the presidential office's website had data stolen. The South Korean experience illustrates the scale of the potential threat, and the scope for spending increases. © Business Monitor International Page 69 Indonesia Information Technology Report Q1 2014 Hardware Sales Opportunity Remains IT Market As % Of GDP The most advanced markets in APAC are geared 2014 towards IT software and services, deploying emerging technologies and combating the associated risks of cyber security. However, in the two largest markets in the region - China and India - spending is still weighted towards hardware, and with low PC penetration a significant growth opportunity remains for vendors. Household PC penetration in Australia, Singapore, South Korea and Hong Kong at the end of 2011 was already high at around 80%. These mature markets are high income, and as such the upgrade/ replacement markets are still lucrative for vendors. Source: BMI However it is in the middle income markets that greater potential exists. China and India, with their huge populations and respective PC penetrations of Rising Incomes Deepen The Market 38% and 6.9% at the end of 2011 grab the attention, but Indonesia, Philippines, Vietnam and Sri Lanka Household PC Penetration Vs GDP are also notable opportunities. As incomes increase in these markets BMI expects the same pattern of rising PC penetration to occur. Increases in PC penetration will not be uniform as rising incomes are not the only driver of spending on PCs, with factors such as government policy ie PCs for students programmes and financial assistance for low-income families, also determinants. However, there is a strong relationship between higher incomes and PC penetration. We forecast strong growth in GDP per capita for all the catch-up markets to 2017, Source: BMI, national regulators, WEF but the outlook for Vietnam, Sri Lanka and China © Business Monitor International Page 70 Indonesia Information Technology Report Q1 2014 are particularly strong. Vietnam and China are also markets where the government is promoting PC ownership, so we expect them to outperform. Despite the Akash2 initiative we expect India will continue to lag behind its regional peers over the medium term. The medium-term opportunities for hardware vendors in the large catch-up markets of APAC is in stark contrast to the recent experience in their core markets in North America and Europe where maturity, economic weakness and tablet cannibalisation have resulted in market declines. Consumers in APAC may also opt for tablets instead of traditional notebooks and desktops, but we believe the threat is less pronounced in the first time buyer market where productivity features will be important. So far tablet sales have predominantly been to existing PC owners, whereas to tap the emerging market opportunity in the first-time buyer market, BMI believes a mix of mobility and productivity could underpin outperformance, for instance via hybrids/convertibles or tablets with greater functionality. © Business Monitor International Page 71 Indonesia Information Technology Report Q1 2014 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Indonesia's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key data points from these charts, in addition to important metrics including the dependency ratio and the urban/rural split. Population Pyramid 2013 (LHS) & 2013 v 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 72 Indonesia Information Technology Report Q1 2014 Population Indicators Population, mn (LHS) & Life Expectancy, Years (RHS) f = BMI forecast. Source: World Bank, UN, BMI Table: Indonesia's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 178,633 194,113 208,939 224,481 240,676 249,866 255,709 269,413 0-4 years 21,905 21,572 21,029 22,729 25,074 23,869 22,804 22,101 5-9 years 22,098 21,680 21,398 22,410 24,067 24,920 24,936 22,695 10-14 years 21,051 22,064 21,633 22,212 22,651 23,394 23,988 24,864 15-19 years 19,614 20,914 21,976 21,454 20,780 21,697 22,506 23,848 20-24 years 17,770 19,329 20,708 20,276 19,750 20,062 20,541 22,271 25-29 years 15,424 17,489 19,076 20,214 21,225 20,156 19,500 20,301 30-34 years 12,983 15,169 17,250 18,546 19,763 20,769 20,982 19,286 35-39 years 9,960 12,734 14,940 16,737 18,456 19,084 19,527 20,757 40-44 years 7,789 9,715 12,489 14,536 16,502 17,585 18,194 19,278 45-49 years 7,216 7,529 9,446 11,782 14,035 15,356 16,178 17,871 50-54 years 6,535 6,878 7,222 9,355 11,557 12,797 13,626 15,746 55-59 years 5,369 6,095 6,467 7,491 8,606 10,024 11,041 13,063 60-64 years 4,130 4,846 5,557 5,809 6,155 7,136 8,010 10,328 65-69 years 2,850 3,543 4,210 4,467 4,683 5,068 5,496 7,193 70-74 years 1,921 2,251 2,841 3,168 3,469 3,698 3,888 4,609 Total © Business Monitor International Page 73 Indonesia Information Technology Report Q1 2014 Indonesia's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 1,221 1,330 1,585 1,791 1,987 2,328 2,556 2,900 80-84 years 579 687 761 1,100 1,349 1,235 1,196 1,569 85-89 years 179 233 282 319 470 564 592 540 90-94 years 35 46 61 75 87 112 132 171 95-99 years 12 12 14 22 100+ years e/f = BMI estimate/forecast. Source: BMI, World Bank, UN Table: Indonesia's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 12.26 11.11 10.06 10.13 10.42 9.55 8.92 8.20 5-9 years 12.37 11.17 10.24 9.98 10.00 9.97 9.75 8.42 10-14 years 11.78 11.37 10.35 9.89 9.41 9.36 9.38 9.23 15-19 years 10.98 10.77 10.52 9.56 8.63 8.68 8.80 8.85 20-24 years 9.95 9.96 9.91 9.03 8.21 8.03 8.03 8.27 25-29 years 8.63 9.01 9.13 9.00 8.82 8.07 7.63 7.54 30-34 years 7.27 7.81 8.26 8.26 8.21 8.31 8.21 7.16 35-39 years 5.58 6.56 7.15 7.46 7.67 7.64 7.64 7.70 40-44 years 4.36 5.00 5.98 6.48 6.86 7.04 7.12 7.16 45-49 years 4.04 3.88 4.52 5.25 5.83 6.15 6.33 6.63 50-54 years 3.66 3.54 3.46 4.17 4.80 5.12 5.33 5.84 55-59 years 3.01 3.14 3.10 3.34 3.58 4.01 4.32 4.85 60-64 years 2.31 2.50 2.66 2.59 2.56 2.86 3.13 3.83 65-69 years 1.60 1.83 2.01 1.99 1.95 2.03 2.15 2.67 70-74 years 1.08 1.16 1.36 1.41 1.44 1.48 1.52 1.71 75-79 years 0.68 0.69 0.76 0.80 0.83 0.93 1.00 1.08 80-84 years 0.32 0.35 0.36 0.49 0.56 0.49 0.47 0.58 85-89 years 0.10 0.12 0.14 0.14 0.20 0.23 0.23 0.20 90-94 years 0.02 0.02 0.03 0.03 0.04 0.04 0.05 0.06 95-99 years 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01 © Business Monitor International Page 74 Indonesia Information Technology Report Q1 2014 Indonesia's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 e/f = BMI estimate/forecast. Source: BMI, World Bank, UN Table: Indonesia's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f 67.3 60.8 54.6 53.5 53.5 51.7 50.3 47.4 71,844 73,413 73,807 78,280 83,848 85,201 85,603 86,665 Active population, % of total 59.8 62.2 64.7 65.1 65.2 65.9 66.5 67.8 Active population, total, '000 106,790 120,700 135,132 146,201 156,828 164,665 170,106 182,749 60.9 54.1 47.4 46.1 45.8 43.8 42.2 38.1 65,054 65,316 64,060 67,351 71,792 72,183 71,728 69,660 6.4 6.7 7.2 7.5 7.7 7.9 8.2 9.3 6,789 8,097 9,747 10,929 12,057 13,018 13,875 17,005 Dependent ratio, % of total working age Dependent population, total, '000 Youth population, % of total working age Youth population, total, '000 Pensionable popn, % of total working age Pensionable popn, total, '000 e/f = BMI estimate/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: BMI, World Bank, UN Table: Indonesia's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban popn. % of total 30.6 35.6 42.0 45.9 49.9 52.2 53.7 57.2 Rural popn. % of total 69.4 64.4 58.0 54.1 50.1 47.8 46.3 42.8 Urban popn, total, '000 54,633 69,015 87,758 103,120 120,155 130,453 137,400 154,123 Rural popn, total, '000 124,000 125,098 121,180 121,361 120,521 119,412 118,309 115,290 e/f = BMI estimate/forecast. Sources: BMI, World Bank, UN © Business Monitor International Page 75 Indonesia Information Technology Report Q1 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of 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. Common to our analysis of every industry, 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. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Page 76 Indonesia Information Technology Report Q1 2014 BMI uses the selected best model to perform forecasting. It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Sector-Specific Methodology A number of criteria 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 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. 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 © Business Monitor International Page 77 Indonesia Information Technology Report Q1 2014 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk Reward Rating Methodology BMI's Risk Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market. The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■ Market Rewards (this is an industry specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors) • Country Rewards (this is a country specific category, and the score factors in favourable political and economic conditions for the industry) Risks: 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. This is further broken down into two sub categories: ■ Market Risks (this is an industry specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market) • Country Risks (this is a country specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score). We take a weighted average, combining market and country risks, or market and country rewards. These two results in turn provide an overall Risk Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country. For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall risk/reward rating a weighted average of the total score. Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 78 Indonesia Information Technology Report Q1 2014 BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is fourfold: ■ First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) that represent opportunities to would-be investors. ■ Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors. ■ Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/ trends to avoid subjectivity. ■ Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe. Sector-Specific Methodology In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk Reward Rating Indicators Indicator Rationale Rewards Industry IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones. Sector value growth, % year-on-year (y-o-y) Denotes sector dynamism. Scores based on annual average growth over five-year forecast period. Government initiatives and Denotes spending boost provided by public sector, which can be a crucial determinant of spending sector development. Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales, compared to services/ software, indicates that the overall IT market is immature. Country Urban-rural split Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower. GDP per capita, US$ A high GDP per capita supports long-term industry prospects. Overall score for country rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. ICT policy Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. © Business Monitor International Page 79 Indonesia Information Technology Report Q1 2014 It Risk Reward Rating Indicators - Continued Indicator Rationale Country 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 Rating from CRR to denote ease of trading with the state. Legal framework 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 Rating from CRR denotes ease of conducting business in the state. Corruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete. Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weighting has been adopted: Table: Weighting Of Components Component Weighting (%) Rewards 70 of which - Industry 65 - Country 35 Risks to 30 of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 80 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... from 1.2% in 2012 © Business Monitor International Page 23 Indonesia Information Technology Report Q1 2014 Industry Trends - Broadband Sector 2010-2017 forecast = BMI Source: BMI, ITU, Kominfo, operators © Business Monitor International Page 24 Indonesia Information Technology Report Q1 2014 Macroeconomic Forecasts Economic Analysis BMI View: Indonesian assets have been hit hard by the confluence of... Business Monitor International Page 18 Indonesia Information Technology Report Q1 2014 Market Trends Our forecast for the Indonesian IT market was downgraded in Q413, in response to negative Industry Trends - IT Market currency trends and a weaker global outlook 2010-2017 negatively impacting on the Indonesian economy PC sales were down around 2% year-on-year (y-o-y) in Q11 3 The cheaper rupiah - the currency... Business Monitor International Page 14 Indonesia Information Technology Report Q1 2014 Economic SWOT Analysis 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... take a hit as we move into 2014 As such, we have materially downgraded our 2014 real GDP growth forecast from 6.0% to 5.4%, and we note that we will be looking to downgrade our rupiah forecast for both 2013 and 2014 over the coming days Likewise, as the growth slowdown becomes more acute in © Business Monitor International Page 28 Indonesia Information Technology Report Q1 2014 H114, we believe that... India 66.7 15.0 45.0 50.9 48.6 7 7 Indonesia 53.3 35.0 35.0 51.4 46.3 8 8 Thailand 56.7 20.0 35.0 62.9 46.2 9 9 Philippines 51.7 30.0 42.5 50.9 45.1 10 10 Vietnam 51.7 15.0 35.0 53.7 41.1 11 11 Sri Lanka 41.7 15.0 35.0 50.9 36.0 12 12 © Business Monitor International Page 32 Indonesia Information Technology Report Q1 2014 Asia Pacific IT Risk/Reward Ratings - Q1 2014 - Continued Rewards Average Risks... International Page 34 Indonesia Information Technology Report Q1 2014 Despite the current slowdown, there are a range of factors that combine to underpin our outlook for the Indonesian hardware market and still make it one of our picks for outperforming growth both regionally and globally The Indonesian promise hinges on the following factors: ■ The sheer size of its economy places Indonesia among the... device opportunity In Q11 3, the fastest PC market growth occurred in regions outside of Java and Bali, while some other regions reported negative growth © Business Monitor International Page 19 Indonesia Information Technology Report Q1 2014 The government's masterplan to lift Indonesia into the ranks of the world's top 10 economies by 2025 should fuel ICT investment Spending in some key IT verticals,... resumption of the Cepu field, which occurred in late in late 2009, may help to alleviate Indonesia' s dependence on foreign oil given its small boost to production output, but we expect this bounce to be short-lived © Business Monitor International Page 15 Indonesia Information Technology Report Q1 2014 SWOT Analysis - Continued ■ Indonesia is perceived as one of Asia's riskier destinations This leaves the economy... 16 Indonesia Information Technology Report Q1 2014 Business Environment SWOT Analysis Strengths ■ Indonesia is South East Asia's largest economy with a nominal GDP of US$880bn and is the world's fourth most populous country with more than 240mn people It thus offers investors a vast home market in which to do business ■ As a member of the Association of South East Asian Nations' Free Trade Area, Indonesia. .. up-and-running, there is still scope for legal problems or obstacles posed by legal wrangling © Business Monitor International Page 17 Indonesia Information Technology Report Q1 2014 Industry Forecast Table: Indonesia IT Industry - Historical Data And Forecasts (IDRmn) 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f IT market value 40,532,778 46,570,952 54,646,356 62,958,066 70,097,511 77,560,073 86,303,788 93,087,266 . Q1 2014 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 175 0-5 062 Published by:Business Monitor International Indonesia Information Technology Report. we expect this bounce to be short-lived. Indonesia Information Technology Report Q1 2014 © Business Monitor International Page 15 SWOT Analysis - Continued ■ Indonesia is perceived as one of. officials. Cyber security is notoriously weak in Indonesia. The second-highest cause of the 1.2mn daily attacks Indonesia Information Technology Report Q1 2014 © Business Monitor International Page