Q3 2013 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 1750-5070 Published by:Business Monitor International Indonesia Information Technology Report Q3 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: May 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. 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 Q3 2013 CONTENTS BMI Industry View . SWOT IT . Wireline . 11 Political . 13 Economic . 15 Business Environment 17 Industry Forecast 18 Table: Indonesia IT Industry - Historical Data And Forecasts (IDRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Broadband . 22 Table: Internet - Historical Data And Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Macroeconomic Forecasts . 24 Macroeconomic Forecast 24 Industry Risk Reward Ratings 33 Industry Risk/Reward Ratings 33 Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Market Overview . 37 Hardware . 37 Software . 44 IT Services 47 Industry Trends And Developments 51 Regulatory Development 55 Table: Key Ministers And Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Company Profile 59 Hewlett-Packard . 59 Oracle Corp . 66 Table: Oracle: Selected Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 IBM 73 Table: IBM Acquisitions, 2012 (Total Value, US$3.964bn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Sigma 79 Regional Overview 82 Demographic Forecast . 87 Demographic Outlook 87 © Business Monitor International Page Indonesia Information Technology Report Q3 2013 Table: Indonesia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Table: Indonesia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Table: Indonesia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Table: Indonesia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Methodology 91 Methodology . 91 IT Industry 91 IT Ratings - Methodology 92 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Weighting . 94 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Sources 94 © Business Monitor International Page Indonesia Information Technology Report Q3 2013 BMI Industry View BMI View: The Indonesian IT market is forecast to be one of the outperforming markets globally in the medium term on the back of strong economic growth and an emerging middle class. Spending is expected to reach IDR64.6trn in 2013, up 16.3% from 2012. The retail market will be a major driver of growth, with PC penetration estimated at below 10% in 2012, meaning significant growth potential from first-time buyers and upgrades/personal devices. Continued strength in government spending will also support expansion of the market, boosting long-term growth potential. Headline Expenditure Projections Computer Hardware Sales: IDR45.9trn in 2013 to IDR65.4trn in 2017, at a CAGR of 10.4% in local currency terms. Rising incomes and the growing affordability of devices, combined with credit availability, will increase sales in the consumer segment. Software sales: IDR7.8trn in 2013 to IDR13.0trn in 2017, a CAGR of 15.1% in local currency terms. Windows sales will boost spending in 2013, although progress will depend on the success in bringing down illegal software use. IT Services Sales: IDR11.0trn in 2013 to IDR17.2trn in 2017, with a CAGR of 13.1% in local currency terms. Forecast unchanged, with a key growth area being cloud services, which could be worth more than IDR12.1trn by 2017. Risk/Reward Ratings: Indonesia's score was 47.5 out of 100.0. Indonesia remained in ninth position in our latest RRR table, below the Philippines but ahead of Thailand. Key Trends & Developments The tablet market is expected to experience rapid growth in 2013 as a wide range of low-cost Androidbased tablets hit the market. Consumers have shown a clear preference for mobile computing devices, including netbooks and notebooks, but tablet adoption failed to take off prior to 2012 due the high price of devices, putting them out of reach for the majority of consumers. Higher specification devices are now becoming available at affordable prices, and, with PC penetration at under 10% in 2012, there is a large opportunity for tablets to be adopted as a first device, with consumers skipping ownership of a desktop or notebook. BMI believes OEMs from China, as well as local brands such as S Nexian will be the main © Business Monitor International Page Indonesia Information Technology Report Q3 2013 beneficiaries of demand for low-cost devices. However, global vendors such as Acer have stated their intentions to target mid- and low-specification devices at the market in order to achieve growth. Although the consumer story in Indonesia means the retail hardware market is set to remain the dominant theme in the Indonesian IT market, 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. 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 Q3 2013 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 as of 2011. 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 over the next few years, although from a lower base. © Business Monitor International Page Indonesia Information Technology Report Q3 2013 SWOT Analysis - Continued Threats ■ 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 Page 10 Q3 2014 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 1750-5070 Published by:Business Monitor International Indonesia Information Technology Report Q3 2014 INCLUDES 5-YEAR FORECASTS TO 2018 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: April 2014 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 © 2014 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 Q3 2014 CONTENTS BMI Industry View . SWOT IT . Wireline SWOT . 11 Political . 13 Economic . 15 Business Environment 17 Industry Forecast 18 Table: IT Industry - Historical Data And Forecasts (loccur mn) (Indonesia 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Wireline . 24 Table: Telecoms Sector - Wireline - Historical Data & Forecasts (Indonesia 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Macroeconomic Forecasts . 26 Economic Analysis . 26 Table: Indonesia - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Industry Risk Reward Ratings 30 Table: Asia-Pacific Risk/Reward Ratings - Q3 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 33 Hardware . 33 Software . 40 IT Services 46 Industry Trends And Developments 49 Regulatory Development 53 Table: Key Ministers And Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Competitive Landscape 56 International Companies . 56 Table: Lenovo Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table: Intel Indonesia Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table: Microsoft Indonesia PT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table: IBM Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Table: Foxconn Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Local Companies . 61 Table: Performance PT Multipolar Technology Tbk (MLPT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table: Walden Global Services (WGS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table: Aprisma Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table: ALTiUS ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 © Business Monitor International Page Indonesia Information Technology Report Q3 2014 Company Profile 64 Sigma 64 Regional Overview 67 Demographic Forecast . 71 Table: Indonesia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Table: Indonesia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Table: Indonesia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table: Indonesia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Methodology 75 Industry Forecast Methodology 75 Sources 76 Risk/Reward Ratings Methodology 77 Table: It Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 © Business Monitor International Page Indonesia Information Technology Report Q3 2014 BMI Industry View BMI View: the Indonesian IT market is forecast to be a regional outperformer over the medium term with IT market growth benefitting from strong economic growth, a low PC penetration rate and an emerging middle class. Retail hardware, enterprise software and cloud computing are expected to be key drivers of medium-term growth. The retail market will be the 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. However, there is short-to-medium term downside in Indonesia as vendors face depreciation of the rupiah, which has raised the cost of dollar denominated hardware and software imports, or required vendors to absorb the costs. In the immediate future, IT spending is forecast to increase to IDR71.7trn in 2014, up 12.3% from 2013, with the IT market accounting for 0.7% of GDP. Headline Expenditure Projections Computer Hardevelopments in Australia focusing on lowering costs - which will reduce margins for IT vendors. In Q113 the Australian parliament summoned Apple, Microsoft and Adobe to challenge them over the high prices charged in the local market. Meanwhile, reform of the government's procurement procedures are targeting cost reductions via the consolidation of contracts and coordinated negotiation. The Asia Pacific region offers IT vendors huge rewards, given the potential arising from large populations and rising incomes. As households purchase PC hardware, enterprises modernise and public authorities move to IT systems there is scope for large increases in market value. However, the rewards will not be distributed evenly, with notebook and desktop manufacturers vulnerable to the rise in popularity of tablets. There is also downside risk posed by economic crisis and the potential for fiscal austerity drives hitting government spending. There are great opportunities, but vendors will still need to target their strategies in the region to succeed. © Business Monitor International Page 86 Indonesia Information Technology Report Q3 2013 Demographic Forecast Demographic Outlook 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. Source: BMI, World Bank, UN © Business Monitor International Page 87 Indonesia Information Technology Report Q3 2013 The accompanying charts detail Indonesia's population pyramid for 2011, the change in the structure of the population between 2011 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. Table: Indonesia's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012e 2015f 2020f 184,346 199,400 213,395 227,303 239,871 244,769 251,880 262,569 0-4 years 22,625 22,182 21,526 22,272 21,579 21,017 20,740 19,722 5-9 years 22,818 22,273 21,904 21,296 22,077 22,095 21,416 20,596 10-14 years 21,767 22,678 22,151 21,790 21,197 21,464 21,987 21,333 15-19 years 20,294 21,517 22,483 21,948 21,599 21,320 21,061 21,856 20-24 years 18,354 19,902 21,166 22,079 21,552 21,453 21,331 20,808 25-29 years 15,902 17,975 19,494 20,686 21,589 21,529 21,171 20,979 30-34 years 13,384 15,563 17,603 19,067 20,255 20,748 21,194 20,820 35-39 years 10,341 13,063 15,228 17,233 18,699 19,217 19,916 20,887 40-44 years 8,046 10,037 12,730 14,864 16,860 17,517 18,365 19,606 45-49 years 7,450 7,739 9,690 12,317 14,422 15,260 16,451 17,976 50-54 years 6,711 7,067 7,363 9,242 11,789 12,679 13,916 15,947 55-59 years 5,498 6,229 6,584 6,878 8,667 9,648 11,182 13,290 60-64 years 4,225 4,938 5,624 5,971 6,266 6,800 8,010 10,442 65-69 years 2,911 3,607 4,249 4,871 5,206 5,257 5,571 7,225 70-74 years 1,958 2,288 2,866 3,409 3,944 4,112 4,339 4,742 75+ years 2,064 2,342 2,734 3,382 4,168 4,653 5,230 6,340 Total f = BMI forecast. Source: BMI, World Bank, UN © Business Monitor International Page 88 Indonesia Information Technology Report Q3 2013 Table: Indonesia's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012e 2015f 2020f 0-4 years 12.27 11.12 10.09 9.80 9.00 8.59 8.23 7.51 5-9 years 12.38 11.17 10.26 9.37 9.20 9.03 8.50 7.84 10-14 years 11.81 11.37 10.38 9.59 8.84 8.77 8.73 8.12 15-19 years 11.01 10.79 10.54 9.66 9.00 8.71 8.36 8.32 20-24 years 9.96 9.98 9.92 9.71 8.98 8.76 8.47 7.92 25-29 years 8.63 9.01 9.14 9.10 9.00 8.80 8.40 7.99 30-34 years 7.26 7.80 8.25 8.39 8.44 8.48 8.41 7.93 35-39 years 5.61 6.55 7.14 7.58 7.80 7.85 7.91 7.95 40-44 years 4.36 5.03 5.97 6.54 7.03 7.16 7.29 7.47 45-49 years 4.04 3.88 4.54 5.42 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: BMI, World Bank, UN © Business Monitor International Page 89 Indonesia Information Technology Report Q3 2013 Table: Indonesia's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2012e 2015f 2020f 67.3 60.8 54.7 51.2 48.3 47.3 45.9 43.8 74,142 75,371 75,430 77,020 78,172 78,598 79,283 79,957 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 61.0 54.1 47.5 43.5 40.1 38.9 37.2 33.8 67,210 67,133 65,581 65,358 64,853 64,576 64,143 61,651 6.3 6.6 7.1 7.8 8.2 8.4 8.8 10.0 6,932 8,238 9,849 11,662 13,318 14,022 15,141 18,306 Active population, % of total Youth population, % of total working age Youth population, total, '000 Pensionable population, % of total working age Pensionable population, '000 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: BMI, World Bank, UN Table: Indonesia's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012e 2015f 2020f Urban population, % of total 30.6 35.6 42 48.1 53.5 55.5 58.4 62.5 Rural population, % of total 69.4 64.4 58 51.9 46.5 44.5 41.6 37.5 Urban population, '000 54,279.90 68,174.50 86,217.70 105,440.20 128,450.90 135,773.40 146,972.20 164,105.90 Rural population, '000 123,105.30 123,326.90 119,062.60 113,770.10 111,420.10 108,995.70 104,908.20 98,463.50 f = BMI forecast. Sources: BMI, World Bank, UN © Business Monitor International Page 90 Indonesia Information Technology Report Q3 2013 Methodology Methodology 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 © Business Monitor International Page 91 Indonesia Information Technology Report Q3 2013 methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. Within best-practice techniques of time-series modelling, BMI's quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments, and diffusion rates; ■ Exogenous events. Estimates are calculated using BMI's own macroeconomic and demographic forecasts. IT Ratings - Methodology Our approach in BMI's IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI's proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas:Limits of potential returns: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. © Business Monitor International Page 92 Indonesia Information Technology Report Q3 2013 Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Denotes breadth of IT market. Large markets score higher than smaller ones Sector value growth, % year-on-year Denotes sector dynamism. Scores based on annual average growth over five-year (y-o-y) forecast period Denotes spending boost provided by public sector, which can be a crucial Government initiatives and spending 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 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 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 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 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 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 © Business Monitor International Page 93 Indonesia Information Technology Report Q3 2013 IT Business Environment Indicators - Continued Indicator Rationale 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. 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 Page 94 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... International Page 15 Indonesia Information Technology Report Q3 2013 SWOT Analysis - Continued ■ 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 Page 16 Indonesia Information Technology Report Q3 2013 Business Environment... Business Monitor International Page 18 Indonesia Information Technology Report Q3 2013 Market Trends Our forecast for the Indonesian IT market has been downgraded earlier in 2013 in response to a weaker Industry Trends - IT Market global outlook negatively impacting the Indonesian 2010-2017 economy Even after the downgrade, we are still forecasting strong growth of 16.3% in 2013, albeit a slowdown from 19.3%... term, which will be to the detriment of Indonesia' s fixed broadband market We forecast 4.0mn fixed broadband subscribers in Indonesia by end-2017, representing a penetration rate of 1.6%, up from 3.3mn in end -2013 © Business Monitor International Page 23 Indonesia Information Technology Report Q3 2013 Macroeconomic Forecasts Macroeconomic Forecast BMI View: Indonesia' s growth boom is built on solid... Business Monitor International Page 14 Indonesia Information Technology Report Q3 2013 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... allowed Indonesia' s GDP (in US dollar terms) to rise faster than any other country in the region (with the exception of Myanmar) over this period Remarkable Growth Performance Nominal GDP Growth In US Dollar Terms, % Source: BMI, National Statistics Institutes © Business Monitor International Page 24 Indonesia Information Technology Report Q3 2013 We expect 2013 to be another good year for Indonesian... Balanced Indonesia - Trade Balance Breakdown, IDRmn Source: BMI, BI © Business Monitor International Page 25 Indonesia Information Technology Report Q3 2013 Unlike the growth that we have seen in China over the past decade (the third best performer in terms of GDP growth in US dollar terms), we believe that Indonesia' s growth is sustainable We see few signs of major malinvestment threatening Indonesia' s... Indonesia' s business environment has improved markedly over recent years, albeit from a very low base The central and local governments have cut red tape and eased the costs associated with business activity by making regulatory practices more efficient According to the World Bank's Doing Business Report 2012 © Business Monitor International Page 27 Indonesia Information Technology Report Q3 2013 Indonesia, ... expansion for 2013 (up from our previous forecast of 5.4%) We are likely to see renewed headline © Business Monitor International Page 35 Indonesia Information Technology Report Q3 2013 weakness through H113, before the economy turns up in the second half of the year Looking further ahead, we still see growth improving from 2014 onwards Table: Asia Pacific IT Risk/Reward Ratings - Q3 2013 Rewards Country... forecasts on more recent subscriber data from fixed-line operator Telekomunikasi Indonesia (Telkom) © Business Monitor International Page 22 Indonesia Information Technology Report Q3 2013 While the low broadband customer base suggests significant growth potential, we note that development of fixed broadband infrastructure in Indonesia is hampered by the country's fragmented geography, especially in rural... 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 Q3 2013 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 55,574,624 64,638,860 71,968,907 79,630,698 88,607,844 95,572,420 . Q3 2013 www.businessmonitor.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 1750-5070 Published by:Business Monitor International Indonesia Information Technology Report. Outlook 87 Indonesia Information Technology Report Q3 2013 © Business Monitor International Page 4 Table: Indonesia& apos;s Population By Age Group, 1990-2020 ('000) 88 Table: Indonesia& apos;s. territory. Indonesia Information Technology Report Q3 2013 © Business Monitor International Page 18 Market Trends Our forecast for the Indonesian IT market has been downgraded earlier in 2013 in