Q2 2015 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 1750-5070 Published by:Business Monitor International Indonesia Information Technology Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: January 2015 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 © 2015 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 Q2 2015 CONTENTS BMI Industry View . SWOT IT . Wireline SWOT . 11 Political . 12 Economic . 14 Operational Risk . 16 Industry Forecast 18 Table: IT Industry - Historical Data And Forecasts (Indonesia 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Macroeconomic Forecasts . 25 Economic Analysis . 25 Industry Risk Reward Ratings 29 Table: Asia Pacific Risk/Reward Index - Q2 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Market Overview . 32 Hardware . 32 Software . 41 IT Services 49 Industry Trends And Developments 54 Regulatory Development 59 Table: Key Ministers And Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Competitive Landscape 63 International Companies . 63 Table: Lenovo Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Table: Intel Indonesia Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table: Microsoft Indonesia PT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Table: IBM Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Table: Foxconn Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Local Companies . 68 Table: Performance PT Multipolar Technology Tbk (MLPT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Table: Walden Global Services (WGS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Table: Aprisma Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Table: ALTiUS ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Company Profile 71 Sigma 71 © Business Monitor International Page Indonesia Information Technology Report Q2 2015 Regional Overview 75 Demographic Forecast . 79 Table: Population Headline Indicators (Indonesia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table: Key Population Ratios (Indonesia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table: Urban/Rural Population And Life Expectancy (Indonesia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table: Population By Age Group (Indonesia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table: Population By Age Group % (Indonesia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Methodology 84 Industry Forecast Methodology 84 Sources 85 Risk/Reward Index Methodology . 86 Table: It Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 © Business Monitor International Page Indonesia Information Technology Report Q2 2015 BMI Industry View BMI View: The depreciation of the rupiah against the US dollar was a small drag on IT market growth, but caused no significant disruption, a state of affairs we expect to be maintained into 2015. We again expect the drag of rupiah depreciation to be outweighed by the upside from strong economic growth, a low PC penetration rate, enterprise and public service modernisation and an emerging middle class. As such we identify retail hardware, enterprise software and cloud computing as medium-term growth opportunities. However, there is short-to-medium term downside if the Indonesian growth story is derailed by regional or global economic headwinds. In the short-term, IT spending is forecast to increase to IDR170.2trn in 2015, up 11.1% from 2014, with the IT market estimated to account for almost 1.5% of GDP. Headline Expenditure Projections Computer Hardware Sales: IDR97.0trn in 2015 to IDR132.9trn in 2019, at a compound annual growth rate (CAGR) of 7.4% in local currency terms. Even after strong growth in recent years, we expect momentum to be maintained by a deepening of the market as incomes rise and device prices continue to decline as Android tablet vendors and Microsoft notebook vendors compete aggressively on price. Software sales: IDR28.2trn in 2015 to almost IDR53.0trn in 2019, at a CAGR of 17.0% in local currency terms. Piracy is a major drag on software market growth, but new legislation could help reduce the drag from 2015. IT Services Sales: IDR45.0trn in 2015 to IDR85.3trn in 2019, at a CAGR of 17.2% in local currency terms. Improvements in network infrastructure and increased awareness among local enterprises will ensure strong growth in cloud service adoption, which we expect to be a key demand driver for IT services 2015-2019. Key Trends & Developments Piracy has been a drag on the development of the Indonesia software market for many years. The antipiracy lobby group estimated Indonesia had the highest incidence of piracy in BMI's APAC coverage at 84% in 2013 - a figure that was unchanged from 2007. In light of slow progress and the scale of the squeeze on software spending, we welcome the passage of new legislation through Indonesia's House of Representatives in September 2014, with the bill set to come into law in 2015. The new law is aiming to increase efficiency and effectiveness of Indonesia's copyright system, particularly its enforcement mechanisms. The new law has been received well by copyright owners, with the removal of ambiguity © Business Monitor International Page Indonesia Information Technology Report Q2 2015 evident in previous legislation welcomed. However, we argue that anti-piracy legislation is just the first-step in combating the problem, with investment in enforcement and education required to act as a deterrent and shift public opinion in the area of IP protection. A major new push by the public and private sector in Indonesia to increase the coverage and capacity of wireless and wireline infrastructure is expected to provide a boost to both hardware demand, as end-users have new use cases, and to software and services as greater volumes of data, and the potential applications, are generated. Under the 2014-19 Indonesia Broadband Plan, up to IDR278trn (USD23.2bn) is to be invested in extending wireline broadband services to 30% of the urban population and 6% of the rural population, while mobile broadband services are to be rolled out to 52% of rural consumers. Approximately 10% of the ambitious project will be financed by the state, meaning that the onus will fall squarely on Indonesia's wireline and mobile operators. The most significant actor is incumbent operator PT Telkom Indonesia, who plans to triple its investment in broadband in 2015 as part of its support for the new initiative. It will spend IDR45trn (USD3.7bn) installing public Wi-Fi hotspots and backhaul transmission facilities and augmenting its fibre-optic backbones and satellite footprints in its bid to boost take-up of converged services. © Business Monitor International Page Indonesia Information Technology Report Q2 2015 SWOT IT SWOT Analysis Strengths ■ Large potential market with population of almost 250mn at the end of 2013, and forecast to reach almost 267mn in 2019. ■ 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. ■ Local presence of major global vendors in terms of sales and production, providing linkages for local start-ups and entrepreneurs. Weaknesses ■ Underdeveloped telecommunications infrastructure, due to years of government control and slow progress in deregulation. ■ History of recent political instability. ■ High piracy rate continues to be a drag on the software market, with the highest piracy rate in the region and slow progress in reducing incidence of unlicensed software. ■ Indonesia overtook China as the largest source of cyber attack traffic in 2013, with cyber threats becoming an increasingly important issue for domestic users as well. Opportunities ■ Investment in telecoms and datacentre infrastructure should lay the foundations for rapid growth of cloud computing services, with SMEs considering a particularly attractive target group. ■ New copyright law in 2015 should help reduce incidence of software piracy. ■ Computer ownership is low, but rising incomes and wider internet access will enable period of rapid 'catch-up growth'. ■ Strong demand for tablets and low-cost laptops from a youthful population and booming economic performance. © Business Monitor International Page Indonesia Information Technology Report Q2 2015 SWOT Analysis - Continued ■ IT services, with local telcos investing heavily in data centres, networks, machine-tomachine communication and cloud computing services. Threats ■ Continuing lack of government action to support increased PC penetration and internet access, or drive ICT sector development. ■ Regional economic instability could derail economic growth. ■ Cyber security risks, both from criminals and state actors, could undermine confidence in networked infrastructure ie cloud computing and IoT. © Business Monitor International Page 10 Indonesia Information Technology Report Q2 2015 ■ Tel: +62 21 576 2150 ■ Fax: +62 21 576 2155 ■ Web: www.sigma.co.id © Business Monitor International Page 74 Indonesia Information Technology Report Q2 2015 Regional Overview BMI View: Asia Pacific has been the outperforming region in the global IT market over recent years, with IT market growth considerably faster than developed regions, as well as other emerging markets. BMI expects continued strong growth over the medium term as favourable economic trends and policy initiatives drive market expansion. However, we also point to potential spill over to the IT market from regional and global data security trends that could yet stymie growth. Outperformance Set To Continue Asia Pacific has become a major global engine of IT market expansion in the past decade, as is the case for the wider global economy. BMI data show that the region registered the fastest IT market value growth of any region in 2011-2014, and our outlook going into 2015 is for it again to be the fastest growing region in each year except 2018, when we expect it to be narrowly outperformed by Latin America. The booming Asia Pacific IT market is driven by a range of factors including the clustering of hardware production in the region, the contribution of China as the outperforming global economy of the past decade and rapid economic development across the region. Governments in the region have in general shown a high capacity to deploy IT market-promoting policies aimed at increasing domestic demand and expanding the base of local enterprises and expertise. BMI believes the economic environment will remain supportive of IT market expansion in most markets in the region, but there is significant downside risk to this outlook in the event of a hard landing in China. This is not however our core scenario, but would have such far reaching regional impact that it must be considered as part of the medium-term outlook. © Business Monitor International Page 75 Indonesia Information Technology Report Q2 2015 Regional IT Market Growth 2011-2018 (USD, % change y-o-y) e/f = estimate/forecast. Source: BMI However, in our core scenario of strong economic growth, the increasing maturity of regional IT markets is of greater significance. Emerging Asia Pacific markets have undergone a period of rapid catch-up growth, with IT adoption spurred by declining device and solution prices at a global level, after vendors gain scale through demand from early adopters in the US, Western Europe and other developed states. For more advanced, but still emerging, regional markets such as China and Malaysia, BMI believes growth will slow as a result of diminished opportunities for relatively cheap and easy adoptions of IT products and solutions in the public and private sectors. Growth rates will begin to resemble the slower, though still robust, rates seen in regional leaders such as South Korea, Singapore, Australia and Hong Kong. China is demonstrating strong credentials for transition from emerging market catch-up growth to technological leadership. It is home to world leading firms in the PC (Lenovo), server (Lenovo, Inspur, Huawei), and network equipment (Huawei) industries. However it is expected to face challenges in the development of a vibrant software and IT services ecosystem owing to the trust issues from end-users with respect to the relationship between vendors and the Chinese state. © Business Monitor International Page 76 Indonesia Information Technology Report Q2 2015 Late developing markets in the region are in a strong position for rapid IT market development. Not only is strong economic growth deepening markets for retail hardware as incomes rise, but there is potential for countries such as Vietnam, the Philippines and Indonesia to benefit from a restructuring of regional supply chain networks as upward pressure on labour costs continues in China. There have been several major regional investments in 2014, primarily in the handset production industry, but we see similar medium-term potential for a diversification of computer hardware manufacture and assembly. AEC: Adding To The Positive Outlook With a few notable exceptions, namely India and Sri Lanka, most of Asia Pacific's fast-growth emerging markets are in South East Asia, and we consider the push for the creation of the ASEAN Economic Community (AEC) as a welcome boost to market development. Although the deadline of December 31 2015 for the official creation of the AEC is unlikely to be met, there has been strong progress towards achieving this goal in a variety of sectors. In the ICT space we have seen tariffs on hardware and software products reduced to 0% across virtually all ASEAN countries. ASEAN is also working towards the elimination of non-tariff barriers by 2015. The elimination of tariffs and free flow of products and investment makes South East Asia, with a market of 600mn people, more attractive for vendors. As noted already, the region has attracted significant investment for relocation of production from global giants, including Foxconn Technology Group, Samsung Electronics, Intel, Nokia and LG. Another important trend arising from increased IT market integration in South East Asia has been the rapid expansion of e-commerce vendors across the region. BMI expects it will become a battleground for global e-commerce brands. Chinese e-commerce superpower Alibaba, Japanese retailer Rakuten as well as Lazada, the South East Asian e-commerce unit of Rocket Internet, are among those already staking a claim in a region where internet penetration is rising rapidly. © Business Monitor International Page 77 Indonesia Information Technology Report Q2 2015 Top Four Regional Markets For Internet Growth Internet User Net Additions, 2013-2018 ('000) Source: BMI E-commerce firms will face different challenges in ASEAN countries than in their domestic markets, with logistics and supply chain problems, such as unreliable postal services. Furthermore, payments are largely made in cash upon delivery, rather than the credit/debit cards common in the US and Japan. The region still has a long way to go in terms of development but e-commerce will not be put off by these risks: the opportunities are far too enticing. © Business Monitor International Page 78 Indonesia Information Technology Report Q2 2015 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 essential to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy. Population (1990-2050) 400 300 200 100 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Indonesia - Population, mn f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 79 Indonesia Information Technology Report Q2 2015 Indonesia Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Indonesia 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 178,633 208,938 224,480 240,676 255,708 269,413 282,011 Population, % change y-o-y na 1.5 1.4 1.3 1.1 1.0 0.9 Population, total, male, '000 89,350 104,486 112,693 121,087 128,600 135,388 141,553 Population, total, female, '000 89,282 104,452 111,787 119,588 127,108 134,024 140,457 Population ratio, male/female 1.00 1.00 1.01 1.01 1.01 1.01 1.01 Population, total, '000 na = not available; f = BMI forecast. Source: World Bank, UN, BMI Table: Key Population Ratios (Indonesia 1990-2025) 1990 Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International 2000 2005 2010 2015f 2020f 2025f 106,789 135,131 146,201 156,828 170,105 182,748 193,904 59.8 64.7 65.1 65.2 66.5 67.8 68.8 71,843 73,806 78,279 83,848 85,603 86,664 88,107 67.3 54.6 53.5 53.5 50.3 47.4 45.4 Page 80 Indonesia Information Technology Report Q2 2015 Key Population Ratios (Indonesia 1990-2025) - Continued Youth population, total, '000 Youth population, % of total working age Pensionable population, '000 1990 2000 2005 2010 2015f 2020f 2025f 65,054 64,060 67,350 71,791 71,728 69,659 66,483 60.9 47.4 46.1 45.8 42.2 38.1 34.3 6,789 9,746 10,928 12,056 13,875 17,004 21,623 6.4 7.2 7.5 7.7 8.2 9.3 11.2 Pensionable population, % of total working age f = BMI forecast. Source: World Bank, UN, BMI Table: Urban/Rural Population And Life Expectancy (Indonesia 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 54,633.2 87,758.4 103,119.8 120,155.3 137,400.0 154,123.4 170,123.4 30.6 42.0 45.9 49.9 53.7 57.2 60.3 124,000.0 121,180.3 121,361.1 120,521.2 118,308.8 115,290.1 111,888.0 Rural population, % of total 69.4 58.0 54.1 50.1 46.3 42.8 39.7 Life expectancy at birth, male, years 61.5 65.3 66.9 68.2 69.2 70.1 71.0 Life expectancy at birth, female, years 65.5 69.3 70.9 72.2 73.4 74.4 75.4 Life expectancy at birth, average, years 63.5 67.3 68.9 70.2 71.2 72.2 73.1 Urban population, '000 Urban population, % of total Rural population, '000 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group (Indonesia 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 21,904 21,028 22,728 25,073 22,803 22,100 21,839 Population, 5-9 yrs, total, '000 22,097 21,398 22,409 24,066 24,936 22,694 22,008 Population, 10-14 yrs, total, '000 21,051 21,633 22,212 22,651 23,987 24,864 22,634 Population, 15-19 yrs, total, '000 19,613 21,975 21,454 20,780 22,506 23,847 24,730 Population, 20-24 yrs, total, '000 17,769 20,708 20,276 19,749 20,541 22,271 23,619 Population, 25-29 yrs, total, '000 15,423 19,075 20,214 21,224 19,499 20,300 22,035 Population, 30-34 yrs, total, '000 12,983 17,250 18,546 19,762 20,981 19,285 20,095 Population, 35-39 yrs, total, '000 9,959 14,940 16,736 18,456 19,527 20,757 19,090 © Business Monitor International Page 81 Indonesia Information Technology Report Q2 2015 Population By Age Group (Indonesia 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 40-44 yrs, total, '000 7,789 12,488 14,535 16,501 18,194 19,277 20,518 Population, 45-49 yrs, total, '000 7,216 9,446 11,781 14,034 16,178 17,870 18,966 Population, 50-54 yrs, total, '000 6,535 7,222 9,355 11,557 13,625 15,745 17,431 Population, 55-59 yrs, total, '000 5,369 6,466 7,491 8,605 11,041 13,063 15,141 Population, 60-64 yrs, total, '000 4,129 5,557 5,809 6,155 8,010 10,328 12,275 Population, 65-69 yrs, total, '000 2,849 4,209 4,466 4,682 5,496 7,192 9,333 Population, 70-74 yrs, total, '000 1,920 2,840 3,167 3,468 3,887 4,608 6,075 Population, 75-79 yrs, total, '000 1,221 1,584 1,791 1,987 2,555 2,900 3,485 Population, 80-84 yrs, total, '000 579 761 1,099 1,349 1,196 1,569 1,811 Population, 85-89 yrs, total, '000 178 282 319 470 592 539 725 Population, 90-94 yrs, total, '000 34 60 75 86 132 171 161 Population, 95-99 yrs, total, '000 11 13 21 28 Population, 100+ yrs, total, '000 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 12.26 10.06 10.13 10.42 8.92 8.20 7.74 Population, 5-9 yrs, % total 12.37 10.24 9.98 10.00 9.75 8.42 7.80 Population, 10-14 yrs, % total 11.78 10.35 9.89 9.41 9.38 9.23 8.03 Population, 15-19 yrs, % total 10.98 10.52 9.56 8.63 8.80 8.85 8.77 Population, 20-24 yrs, % total 9.95 9.91 9.03 8.21 8.03 8.27 8.38 Population, 25-29 yrs, % total 8.63 9.13 9.00 8.82 7.63 7.54 7.81 Population, 30-34 yrs, % total 7.27 8.26 8.26 8.21 8.21 7.16 7.13 Population, 35-39 yrs, % total 5.58 7.15 7.46 7.67 7.64 7.70 6.77 Population, 40-44 yrs, % total 4.36 5.98 6.48 6.86 7.12 7.16 7.28 Population, 45-49 yrs, % total 4.04 4.52 5.25 5.83 6.33 6.63 6.73 Population, 50-54 yrs, % total 3.66 3.46 4.17 4.80 5.33 5.84 6.18 Population, 55-59 yrs, % total 3.01 3.10 3.34 3.58 4.32 4.85 5.37 Population, 60-64 yrs, % total 2.31 2.66 2.59 2.56 3.13 3.83 4.35 Population, 65-69 yrs, % total 1.60 2.01 1.99 1.95 2.15 2.67 3.31 Population, 70-74 yrs, % total 1.08 1.36 1.41 1.44 1.52 1.71 2.15 f = BMI forecast. Source: World Bank, UN, BMI Table: Population By Age Group % (Indonesia 1990-2025) © Business Monitor International Page 82 Indonesia Information Technology Report Q2 2015 Population By Age Group % (Indonesia 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 75-79 yrs, % total 0.68 0.76 0.80 0.83 1.00 1.08 1.24 Population, 80-84 yrs, % total 0.32 0.36 0.49 0.56 0.47 0.58 0.64 Population, 85-89 yrs, % total 0.10 0.14 0.14 0.20 0.23 0.20 0.26 Population, 90-94 yrs, % total 0.02 0.03 0.03 0.04 0.05 0.06 0.06 Population, 95-99 yrs, % total 0.00 0.00 0.00 0.00 0.01 0.01 0.01 Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 f = BMI forecast. Source: World Bank, UN, BMI © Business Monitor International Page 83 Indonesia Information Technology Report Q2 2015 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. They allow us to forecast a variable using more than its 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. We mainly use 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 84 Indonesia Information Technology Report Q2 2015 BMI uses the selected best model to perform forecasting. 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 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, our 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 our 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 85 Indonesia Information Technology Report Q2 2015 Union (ITU), officially released company results and figures, and international and national industry news agencies. Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) 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 RRI 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: ■ Industry Rewards (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 (a country-specific category, factoring 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 broken down into two sub categories: ■ Industry Risks (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 (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 industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Score, 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 Score a weighted average of the total score. As most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly basis. This ensures the score draws on the latest information and data across our broad range of sources, and the expertise of our analysts. © Business Monitor International Page 86 Indonesia Information Technology Report Q2 2015 Sector-Specific Methodology In constructing these indices, the following indicators have been used. Almost all indicators are objectively based. Table: It Risk/Reward Index Indicators 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 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 Urban-rural split Urbanisation is used as a proxy for development. Mainly rural states score lower. GDP per capita, USD 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. Country Short-term external risk Score from BMI's Country Risk Index (CRI). It evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Score from CRI, 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 Score from CRI to denote ease of trading with the state. Legal framework Score from CRI denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Bureaucracy Score from CRI denotes ease of conducting business in the state. Corruption Score from CRI denotes the risk of additional illegal costs/possibility of opacity in tendering/ business operations affecting companies' ability to compete. Source: BMI © Business Monitor International Page 87 Indonesia Information Technology Report Q2 2015 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 Rewards Weighting, % 70, of which - Industry 65 - Country 35 Risks to 30, of which - Industry 40 - Country 60 Source: BMI © Business Monitor International Page 88 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... on prices Our view of Indonesia' s potential to be a regional and global outperformer in terms of IT market growth is unchanged in Q2, with a CAGR of 12.1% forecast 2015- 2019, and total sales expected to reach IDR271trn in 2019 © Business Monitor International Page 18 Indonesia Information Technology Report Q2 2015 2015 Outlook BMI forecasts IT market growth of 11.1% in 2015 in Indonesia is unchanged,... Page 31 Indonesia Information Technology Report Q2 2015 Market Overview Hardware BMI extended the forecasts for the Indonesian IT market to 2019 in the Q2 2015, but there is no significant change to our bullish outlook to IT market development, with the potential drag from rupiah depreciation already factored in We maintain our hardware market forecast for growth of 7.4% in local currency terms in 2015. .. Still Short Of The Target Indonesia - Real GDP, % chg y-o-y & Government Target *Real GDP: Historical Data Until 2014, BMI forecast thereafter Source: BMI, BI © Business Monitor International Page 26 Indonesia Information Technology Report Q2 2015 Spate Of Structural Reforms Still Needed As such, we retain our expectations for Indonesian real GDP growth to accelerate to 5.5% in 2015, versus an estimated... 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 Page 13 Indonesia Information Technology Report Q2 2015 Economic SWOT Analysis Strengths ■ Indonesia' s strategic location between the Indian and... using Indonesian terminals as direct ports of call ■ Porous borders, lack of police funding, and costly and slow legal processes mean that intellectual property (IP) protection is likely to remain lax despite the broad coverage of IP legislation © Business Monitor International Page 17 Indonesia Information Technology Report Q2 2015 Industry Forecast Table: IT Industry - Historical Data And Forecasts (Indonesia. .. militant group Jemaah Islamiah poses a lingering threat to security in Indonesia Jemaah Islamiah is blamed for a series of attacks, including the Bali bombings of October 2002 and the Jakarta bombings of July 2009 © Business Monitor International Page 12 Indonesia Information Technology Report Q2 2015 SWOT Analysis - Continued ■ The fact that Indonesia subsidises basic goods means that when the government... and the replacement/upgrade market Household PC penetration reached 15.1% in Indonesia at the end of 2012 - less than half the APAC average of 31% and below the global © Business Monitor International Page 19 Indonesia Information Technology Report Q2 2015 emerging market average of 27.6% This fact, when considered alongside Indonesia' s large and growing population and trajectory of rising incomes, illustrates... buyers likely to see multi-functionality as a major positive over tablets not running full versions of operating systems © Business Monitor International Page 22 Indonesia Information Technology Report Q2 2015 Indonesia GVA By Sector (%) 2015f f = forecast Source: BMI, National Statistics, World Bank, UN Turning to enterprise software and services enterprise demand, BMI identifies the large manufacturing,... market a hard fought battleground among vendors over the medium term © Business Monitor International Page 24 Indonesia Information Technology Report Q2 2015 Macroeconomic Forecasts Economic Analysis BMI View: While we believe that Indonesia' s real GDP growth is likely to accelerate to 5.5% in 2015 from an estimated 5.1% in 2014 on the back of improving terms of trade and fiscal efficiency, we note that... PCs and tariffs could place internet and broadband services out of the reach for the majority of Indonesians ■ Growing preference in the consumer segment for mobile broadband solutions © Business Monitor International Page 11 Indonesia Information Technology Report Q2 2015 Political SWOT Analysis Strengths ■ Indonesia managed a successful transition to democracy in 2004 In addition, the 2009 parliamentary . Q2 2015 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 1750-5070 Published by:Business Monitor International Indonesia Information Technology Report. IDR271trn in 2019. Indonesia Information Technology Report Q2 2015 © Business Monitor International Page 18 2015 Outlook BMI forecasts IT market growth of 11.1% in 2015 in Indonesia is unchanged,. the reach for the majority of Indonesians. ■ Growing preference in the consumer segment for mobile broadband solutions. Indonesia Information Technology Report Q2 2015 © Business Monitor International