Q3 2015 www.bmiresearch.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 1750-5070 Published by:BMI Research Indonesia Information Technology Report Q3 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: April 2015 BMI Research 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@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, 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 Ltd 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 Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Indonesia Information Technology Report Q3 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: April 2015 BMI Research 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@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, 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 Ltd 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 Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Indonesia Information Technology Report Q3 2015 CONTENTS BMI Industry View . SWOT IT SWOT 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 30 Industry Risk Reward Index . 30 Table: Asia Pacific Consumer Electronics Risk/Reward Index - Q315 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Market Overview . 33 Hardware . Software . Cloud Computing . IT Services 33 42 46 51 Industry Trends And Developments 55 Regulatory Development 60 Table: Key Ministers And Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Competitive Landscape 64 International Companies . 64 Table: Lenovo Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table: Intel Indonesia Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Table: Microsoft Indonesia PT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Table: IBM Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Table: Foxconn Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Local Companies . 69 Table: Performance PT Multipolar Technology Tbk (MLPT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Table: Walden Global Services (WGS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Table: Aprisma Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Table: ALTiUS ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Company Profile 72 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2015 Sigma 72 Regional Overview 76 Asia Pacific 76 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 Ltd Page Indonesia Information Technology Report Q3 2015 BMI Industry View BMI View: In 2015, we 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. Balancing these trends, we forecast IT spending to increase to IDR176.3trn in 2015, up 15.1% from 2014, with the IT market estimated to account for 1.5% of GDP. Looking over the medium term, we identify retail hardware, enterprise software and cloud computing as growth opportunities. However, there is short-to-medium term downside if the Indonesian growth story is derailed by regional or global economic headwinds. Headline Expenditure Projections ■ Computer Hardware Sales: IDR100.5trn in 2015 to IDR142.0trn in 2019, at a compound annual growth rate (CAGR) of 9.5% in local currency terms. Even after strong growth in recent years a high hardware spending growth rate should be maintained in Indonesia with plenty of spare capacity due to new entrants to the market 2015-2019 as household incomes rise. ■ Software Sales: IDR29.18trn in 2015 to IDR56.64trn in 2019, at a CAGR of 18.5% in local currency terms. Piracy is a major drag on software market growth, but new legislation could help reduce the drag from 2015, pushing the software growth rate higher as enterprise modernisation initiatives gather pace. ■ IT Services Sales: IDR46.63trn in 2015 to IDR91.12trn in 2019, at a CAGR of 18.7% 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 And Developments In the Q3 update, BMI has added an analysis of household income trends in Indonesia to the IT market forecast, as well as analysis of the wider APAC medium-term story in the regional overview. Household income trends provide additional context to our economic outlook, with particular relevance for retail hardware vendors positioning for medium-term growth. In 2015, Indonesia remains a highly price sensitive market, a view derived from local retailer and vendor reports, and illustrated through the predominance of USD1,000-10,000 households at around two-thirds of the total in Indonesia in 2015. We consider subUSD5,000 households to be external to the IT market due to insufficient purchasing power, but as our forecast shows, we expect this group to reduce in size by around 50% by 2019, which will deepen the IT market, albeit predominantly at the low value end of the market. Another enabler for the development of Indonesia's IT market alongside rising incomes are the investments being made in supporting infrastructure. Under the 2014-19 Indonesia Broadband Plan, up to IDR278trn © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2015 (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, which 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 Ltd Page Indonesia Information Technology Report Q3 2015 SWOT IT SWOT SWOT Analysis Strengths ■ Large potential market with population of 252mn at the end of 2013, and forecast to reach almost 267mn in 2019. ■ The market may be entering a faster stage of 'catch-up' growth. It is forecast to grow quicker than most other Association of Southeast 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 ■ Booming mobile and e-commerce market, creating demand for devices and enterprise retail solutions. ■ Investment in telecoms and datacentre infrastructure should lay the foundations for rapid growth of cloud computing services, with small- and medium-sized enterprises 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'. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2015 to a strategic partner, with proceeds marked for use as working capital and the partnership expected to be formed in 2015. Telkomsigma has three subsidiaries offering different solutions. Sigma Solusi Integrasi is an Oracle Platinum Partner which implements and maintains Oracle licences. Signet Pratama provides systems integration solutions for business-to-business networking and internet. Sigma Metrasys Solution maintains SAP licences and project implementation. Strategy Sigma management has said that the company will be strengthening its core role as an IT provider for the whole banking sector. As an innovator in the Islamic banking sector, Sigma is well placed to take advantage of the growing trend in the country. While the company has a strong background in banking and financial IT, it is looking to expand into new sectors, such as autos and manufacturing. The acquisition by PT Telkom was part of the incumbent's strategy to expand its communications services into the IT sector. The merger offers opportunities for Sigma to offer a wider range of services. Following its acquisition by PT Telkom, Sigma expanded its operations and spent USD7mn on a new IT disaster recovery centre in Surabaya. It has signed an agreement with Oracle to provide outsourcing services focusing on large companies, particularly in banking and telecoms. The arrangement centres on helping large companies to focus on core businesses, while the IT partners optimise and maintain IT units. Among the 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. Products And Partnerships In April 2015, TelkomSigma officially released its range of IT solutions targeted at startups and SMEs under the STAR Cloud brand. TelkomSigma STARCloud is a self-service for IT development, hosting, backup and other cloud services. Also in April 2015, TelkomSigma and REDtone Data Centre (RDC) entered a memorandum of understanding (MoU) to provide ICT for the Indonesian health market. Under the MoU, RDC and telkomsigma will together set up a Teleradiology Exchange to aid Indonesian hospitals in modification of their radiology service delivery. In addition, the two parties will explore the business opportunities to offer managed ICT valueadded services for the Indonesian market. In September 2014, TelkomSigma joined the EMC business partner program for service providers of Cloud And High Availability Data Center Services. The partnership enables Sigma to target companies from a range of verticals doing business in Indonesia and across the region. Sigma's latest cloud infrastructure combines the EMC VMware virtualization solution with VIPR data services from EMC that transform applications, infrastructure and ability backups to provide agility and high cost efficiency in managing © Business Monitor International Ltd Page 73 Indonesia Information Technology Report Q3 2015 the infrastructure. In November 2014 meanwhile, TelkomSigma signed a strategic cooperation agreement with VMWare for the security of cloud computing services. Sigma's flagship product is AlphaBITS, the software initially developed in 1989. It is a core banking system for day-to-day operations, connecting aspects such as delivery channels (teller and customer services) and back-office activities (accounting and general affairs). Developed as an industry-standard banking application, AlphaBITS offers integrated functionality with six main modules (kernel and security, CIF, retail, deposit, loan and general ledger). Using integrated design architecture, AlphaBITS can be incorporated with third-party applications. In August 2014, the AlphaBITS2:03 was implemented by Bank Victoria International in Jakarta, along with the ITM 4.3 solution. Sigma has been an innovator in the Islamic banking sector, as an increasing number of Indonesian individuals and companies choose to business with banking institutions that comply with shari'a principles. Sigma has capitalised on this, with its shari'a core banking system designed to follow the principles of Islamic banking. The company's services include consulting, managing IT services, software development services and integrated datacentre operations in the banking (conventional and sharia-based), financial, telecommunications, manufacturing, distribution and other sectors. Among the products offered, Sigma offers cloud computing, datacentre, telecoms managed services, software development services and systems integration. Sigma is a local partner for international IT companies including Oracle, QNX Solutions, IBM and Microsoft. In March 2013, Sigma announced a partnership with US computer technology firm IBM to improve data services. The companies will build an energy-efficient datacentre to meet the requirements of local businesses in Sentul. The project will benefit from IBM and Telkom Indonesia's previous research into resisting natural disasters, such as earthquakes, and their effects on telecoms infrastructure. In January 2014, Sigma announced it would prepare its fourth and fifth data centres in Indonesia in 2014. The data centres will be located in Balikpapan and West Java, and will be tier and centres respectively. The construction will take place through Sigma's partnership with IBM. Sigma reported that the tier data centre could enable it to introduce Disaster Recovery Services, which could be a lucrative market given Indonesia is earthquake prone. In March 2014, Sigma signed a Memorandum of Understanding (MOU) with Huawei Tech Investment for the collaboration in the creation of a wholesale data centre to serve Indonesia and its expansion efforts across Southeast Asia. In July 2014, Sigma formed a new strategic partnership with Dimension Data for the development and provision of end-to-end data centre services to local and global enterprises. Specifically, they will pool their resources and capabilities to enable them to reach out to the Japanese business community in Indonesia, a market that © Business Monitor International Ltd Page 74 Indonesia Information Technology Report Q3 2015 Telkomsigma has yet to penetrate. Dimension Data is owned by Japan's NTT and can leverage its parent's global high-capacity fibre backbone and points of presence as well as its proprietary remote networking technology and solutions. 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 Ltd Page 75 Indonesia Information Technology Report Q3 2015 Regional Overview Asia Pacific BMI View: As the largest region by far, Asia remains a key target for consumer electronics vendors seeking to capture the household spending growth story. However, major markets such as China and India offer a plethora of home-grown device manufacturers to appeal to new entrants to the ICT market, challenging the strong position of regional powerhouses Samsung, Sony and LG. Key Features ■ Asia is the largest addressable market globally, with over 1.05bn households in 2015, forecast to reach 1.1bn in 2019. ■ In China, and to a lesser extent India, huge numbers new global middle class consumers are expected to emerge over the medium term. ■ Bangladesh, India, Indonesia, Pakistan, Philippines, and Vietnam are characterised by large scale migration of households upwards to the USD5,000-USD10,000 band. In 2015, Asia-Pacific markets will account for 56.3% of global households, a figure BMI expects to increase slightly to 57.8% in 2019. More significant however is the forecast for the continuation of the trend of households moving up the income scale across the most significant markets in the region. The most significant trends for 2015-2019 are the growth in USD25,000-USD50,000 households, a trend dominated by China, and large numbers of new households in the low-end of the IT and consumer electronics devices market in the USD5,000-USD10,000 income bracket. The China growth story is of huge historical significance for the devices market, both as a consumer and producer. In line with economy wide macro trends, including rising wages and political impetus towards a more consumption-centric model, BMI forecasts China's significance will skew towards the consumption side during the 2015-2019 period. We forecast a large migration of Chinese households up the income scale, with our forecast envisaging the addition of almost 64.6mn households in the USD25,000USD50,000 band between 2015 and 2019. This migration will see the number of USD1,000-USD5,000 and USD5,000-USD10,000 households decline markedly, but the pool of sub-USD1,000 households will increase slightly in China's more remote and undeveloped regions. © Business Monitor International Ltd Page 76 Indonesia Information Technology Report Q3 2015 Strongest Gains In The Middle APAC Change In Households By Income Level ('000), 2015-2019 Source: BMI forecasts BMI considers these medium-term household income trends to be supportive of the strategies of leading Chinese brands such as Lenovo, Huawei, Xiaomi and a host of others, to focus on brand development and maximising market share in recent years. This has allowed them to create a platform for capturing a share of higher value, and higher margin volume growth, over the medium term as vendors aim to become household fixtures in the smartphone, tablet, smart TV, notebook and wearables/home automation markets popularised by China's expanding middle class. Beyond China (and the premium markets of Australia, South Korea and Japan) the medium-term outlook differs considerably. In these markets we expect households to have more in common with China's development pattern in the past decade as large numbers of consumers purchase their first devices as they reach the USD5,000-USD10,000 income level. This can benefit local and global brands with targeted strategies for price sensitive consumers, including investment in local production (see 'Lenovo Growth Plan Highlights Market Appeal', March 2015) - and investment in distribution and marketing capabilities. However, there will be a huge challenge for local brands such as the Philippines' Cherry Mobile from lowcost Chinese handsets that have the advantage of scale after success in their domestic market, and have demonstrated capacity of improve quality. Meanwhile, global leader Samsung Electronics faces a continued strategic squeeze as it is undercut in terms of price and specification by Chinese brands targeting © Business Monitor International Ltd Page 77 Indonesia Information Technology Report Q3 2015 market share. Meanwhile, Samsung's flexibility is hamstrung by the necessity of not undercutting its highly profitable flagship lines on price and specification. With that in mind we expect brands such as Samsung, but also other product leaders from the region such as LG, Sony and others, to become increasingly premium- and component-focused over the medium term. One way of doing this is to develop brand- and device-specific services and applications, as Sony has been doing through leveraging its vast media empire. However, the competition is only a few steps behind in this regard and Xiaomi stands out as a prime example of a new player emulating its global peers by tying its devices to a burgeoning service and content business. © Business Monitor International Ltd Page 78 Indonesia Information Technology Report Q3 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 Ltd Page 79 Indonesia Information Technology Report Q3 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 Ltd 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 Q3 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 Ltd Page 81 Indonesia Information Technology Report Q3 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 Ltd Page 82 Indonesia Information Technology Report Q3 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 Ltd Page 83 Indonesia Information Technology Report Q3 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 Ltd Page 84 Indonesia Information Technology Report Q3 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 Ltd Page 85 Indonesia Information Technology Report Q3 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 Ltd Page 86 Indonesia Information Technology Report Q3 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 Ltd Page 87 Indonesia Information Technology Report Q3 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 Ltd Page 88 [...]... Page 32 Indonesia Information Technology Report Q3 2015 Market Overview Hardware BMI has raised its growth outlook for the Indonesia IT market in Q31 5, but we continue to highlight the squeeze on growth from rupiah depreciation against the US dollar, which will erode Indonesian purchasing power in global markets We forecast local currency growth of 11.2% for the Indonesian hardware market in 2015 to... 10.5% and 12.2% respectively 2015- 2019 - will broaden the addressable market We have added an analysis of household income trends in Indonesia to provide additional context to the income stratification forecast In 2015 Indonesia remains a highly price sensitive market, derived from the © Business Monitor International Ltd Page 20 Indonesia Information Technology Report Q3 2015 predominance of USD1,000-10,000... Page 18 Indonesia Information Technology Report Q3 2015 2015 Outlook BMI forecasts IT market growth of 15.1% in 2015 in local currency terms, with total market value expected to reach a value of IDR176.3trn The strong economic outlook is fundamental to our IT market forecast as Indonesian consumers remain optimistic about job, finance and spending prospects We forecast real GDP growth of 5.3% in 2015. .. International Ltd Page 24 Indonesia Information Technology Report Q3 2015 Macroeconomic Forecasts Economic Analysis BMI View: While we believe that Indonesia' s economy will likely pick up momentum over the course of 2015 following a 5.0% real GDP expansion in 2014, high borrowing costs and a challenging export outlook will cap upside potential As such, we have downgraded our 2015 real GDP growth forecast... contraction in total auto sales in 2015 versus a previous forecast of -4.3% (see 'Acute Headwinds To Push Back Autos Recovery To 2016', March 23) © Business Monitor International Ltd Page 25 Indonesia Information Technology Report Q3 2015 Rupiah Hitting The Pocketbook Indonesia - Exchange Rate, IDR/USD Source: BMI, Bloomberg While the weak rupiah will have a mixed impact on Indonesia' s trade picture, it... position for the Indonesian consumer until late in the year or even H116 As a result of these factors, we have downgraded our private consumption growth forecast to 4.8% in 2015, from 5.0% previously © Business Monitor International Ltd Page 26 Indonesia Information Technology Report Q3 2015 Trade Outlook: A Mixed Bag The weaker rupiah has not yet translated into a boost in real export growth in Indonesia, ... both countries host numerous technology- dependent multinational businesses and pro -technology governments © Business Monitor International Ltd Page 31 Indonesia Information Technology Report Q3 2015 Japan's Country Risks score is lower than those for Singapore and Hong Kong, and this is linked to its less attractive economic growth outlook Our Country Risk team has a bearish 2015 real GDP growth forecast... unrest, or at least a political backlash Additionally, Indonesia' s population is extremely young, with more than 50% of Indonesians younger than 30 Younger populations have historically been a predictor of political instability © Business Monitor International Ltd Page 13 Indonesia Information Technology Report Q3 2015 Economic SWOT Analysis Strengths ■ Indonesia' s strategic location between the Indian... buyers likely to see multi-functionality as a major positive over tablets not running full versions of operating systems © Business Monitor International Ltd Page 22 Indonesia Information Technology Report Q3 2015 Indonesia GVA By Sector (%) 2015f f = forecast Source: National statistics, World Bank, UN, BMI Turning to enterprise software and services enterprise demand, BMI identifies the large manufacturing,... resumption of the Cepu field, which occurred 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 shortlived © Business Monitor International Ltd Page 14 Indonesia Information Technology Report Q3 2015 SWOT Analysis - Continued ■ Indonesia is perceived as one of Asia's riskier destinations This leaves the economy . Q3 2015 www.bmiresearch.com INDONESIA INFORMATION TECHNOLOGY REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 1750-5070 Published by:BMI Research Indonesia Information Technology Report Q3 2015 INCLUDES. contained. Indonesia Information Technology Report Q3 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: April 2015 BMI. the forecast period. Indonesia Information Technology Report Q3 2015 © Business Monitor International Ltd Page 18 2015 Outlook BMI forecasts IT market growth of 15.1% in 2015 in local currency