Q4 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 Q4 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: September 2013 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2013 Business Monitor International All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Indonesia Information Technology Report Q4 2013 CONTENTS BMI Industry View . SWOT IT . Wireline . 11 Industry Forecast 13 Table: Indonesia IT Industry - Historical Data And Forecasts (IDRmn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Broadband . 18 Table: Internet - Historical Data And Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Macroeconomic Forecasts . 20 Macroeconomic Forecast 20 Moderating Growth Not Yet A Concern, But Darker Clouds Loom . 20 Industry Risk Reward Ratings 25 Industry Risk/Reward Ratings 25 Table: Asia Pacific IT Risk/Reward Ratings - Q4 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Market Overview . 29 Hardware . 29 Software . 37 IT Services 41 Industry Trends And Developments 45 Regulatory Development 49 Table: Key Ministers And Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Company Profile 53 Sigma 53 Regional Overview 56 Demographic Forecast . 61 Table: Indonesia's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table: Indonesia's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Table: Indonesia's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table: Indonesia's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Methodology 65 Methodology . 65 IT Industry Forecasts 65 IT Risk/Reward Ratings - Methodology 66 © Business Monitor International Page Indonesia Information Technology Report Q4 2013 Table: IT Business Environment Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Weighting . 68 Table: Weighting Of Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Sources 68 © Business Monitor International Page Indonesia Information Technology Report Q4 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. However, BMI has downwardly revised its forecast in Q413 following a slowdown in PC sales in the first quarter of the year and uncertainties about Indonesia's economic outlook. The cheaper rupiah - the currency was one of the weakest regional performers - has had a constraining effect on household spending. In the immediate future, IT spending is forecast to increase to IDR63.0trn in 2013, up from IDR54.6bn in 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. Meanwhile an upturn in government spending provided a boost to IT spending in Q113. Headline Expenditure Projections Computer Hardware Sales: IDR44.7trn in 2013 to IDR63.7trn in 2017, at a CAGR of 10.2% in local currency terms. Sales were down in Q113 but rising incomes and the growing affordability of devices, combined with credit availability, will increase sales in the consumer segment. Software sales: IDR7.6trn in 2013 to IDR12.7trn in 2017, a CAGR of 14.9% in local currency terms. Windows sales will boost spending in 2013, as the government launches a new roadshow to bring down illegal software use. IT Services Sales: IDR10.7trn in 2013 to IDR16.7trn in 2017, with a CAGR of 12.9% in local currency terms. Our forecast has been downwardly revised but a key growth area is cloud services, which could be worth more than IDR11.8trn by 2017. 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 © Business Monitor International Page Indonesia Information Technology Report Q4 2013 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 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, the cheaper rupiah - the currency was one of the weakest regional performers - has had a constraining effect on household spending. PC sales were down by a low single-digit factor in Q113, compared with the same period of the previous year. However, there are also opportunities for vendors to generate sales to the public and enterprise sectors. Telkom Indonesia reported 20% growth in its data and IT services revenues in Q113. An active approach by the government to encourage IT development, led by the National ICT Council, should stimulate spending through a series of infrastructure and education initiatives. Government IT spending was up in Q113, with a boost from projects previously delayed from Q412. Meanwhile, according to government data, IT penetration in enterprises is low, particularly in the SME segment, representing a huge potential market. Modernisation is driving spending on applications such as CRM, ERP and financial management in key sectors such as financial services, telecoms, utilities, government, retail and manufacturing. © Business Monitor International Page Indonesia Information Technology Report Q4 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 Q4 2013 SWOT Analysis - Continued Threats ■ IT services, with local telcos investing heavily in data centres and networks. ■ Continuing lack of government action to support increased PC penetration and internet access, or drive ICT sector development. ■ The global economic slowdown may hit key demand segments. ■ A weaker rupiah could have a dampening effect on household and business spending. © Business Monitor International Page 10 Indonesia Information Technology Report Q4 2013 Strategy Sigma management has said 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. Products And Partnerships 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. 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 of telecoms infrastructure. Developments Following its acquisition by PT Telkom, Sigma expanded its operations and spent US $7mn 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 business while the IT partners optimise and maintain IT units. Among the recent © Business Monitor International Page 54 Indonesia Information Technology Report Q4 2013 wins for the partnership is a tender from Bussan Auto Finance, one of the leading multifinance companies in Indonesia, to implement various Oracle applications. Company Details ■ ■ PT Sigma Citra Caraka DEA I Tower, 8th Floor Kawasan Mega Kuningan JI. Mega Kuningan Barat IX Kav. E43 No. Indonesia ■ Tel: +62 21 576 2150 ■ Fax: +62 21 576 2155 ■ Web: www.sigma.co.id © Business Monitor International Page 55 Indonesia Information Technology Report Q4 2013 Regional Overview IT markets in the Asia Pacific region are incredibly IT Market As % Of GDP diverse in terms of the contribution to GDP, the 2012 extent of local production and innovation, and the reach of supporting infrastructure such as broadband penetration. For instance, PC penetration in the most developed markets such as Singapore is above 50%, while in the least developed markets such as Indonesia, it is below 5%. As a result of these different levels of development the growth rates forecast across the region vary, as the major market trends. Singapore, Thailand and Hong Kong are the only markets in the region where the IT market accounts for 2% or more of GDP. Meanwhile, in Indonesia Source: BMI. and Sri Lanka the IT market is far smaller, accounting for just 0.7% of GDP. The difference separating these markets is not only in terms of the spending of consumers and enterprises in the market, but also in the policies of government and the development of local IT production and research facilities. For instance, Thailand is a key part of the global semiconductor market, while IT software and services companies have chosen Singapore and Hong Kong as hubs for regional operations. Most recently, SAP opened a co-innovation lab in Singapore in March 2013, its fourth in Asia-Pacific and 21st globally. The Singapore innovation lab is part of SAP's Global Research and Business Incubation centre in Singapore, the research HQ for its Asia-Pacific operations. BMI expects the gap to narrow over the medium term as the less developed IT markets experience a period of catch-up on regional leaders. This will be the result of a wide range of factors, including the strong economic performance of the lower income catch-up group, the falling average price of PCs bringing them into line with the purchasing power of middle income consumers in emerging markets, improvements in the reach of wireless and wireline broadband infrastructure, and government policies to promote the development of local IT sectors and the adoption of IT systems by enterprises. © Business Monitor International Page 56 Indonesia Information Technology Report Q4 2013 The two most important catch-up markets in the region, and globally, are China and India. Taking these markets as a whole, they are relatively undeveloped, with for instance, computer ownership remaining the preserve of a minority. However, the sheer size of the markets in terms of population and the inequality between regions and within cities means they are, in a sense, representative of the variety across the whole region. In China, PC penetration was only around 30% in 2012 - although it is far higher in cities such as Shanghai and Beijing and urban PC penetration is projected to pass 60% by 2017. In India, less than 5% of people own a computer. However, about 45% of the population is under 25, which provides a promising demographic context for increased PC ownership. Another market worthy of specific mention is Vietnam, which has been developing rapidly and we expect to continue outperforming many of its peers as the outsourcing segment is well positioned to expand. In January 2013 the Information Technology Promotion Agency survey of 1,100 Japanese IT firms showed Vietnam was the first choice outsourcing destination, with 31.5% of firms choosing it, ahead of India (20.6%), China (16.7%), Thailand (9.7%) and Philippines (7.4%). However 75-80% of the outsourcing contract value still goes to Chinese firms, with Vietnam estimated to account for 5%. Vietnam has significant cost advantages, which we expect to result in a shift of outsourcing from China to Vietnam, which will gain momentum through 2013 and 2014 as local firms such as Global Cyber Soft, TMA Solutions and FPT Software continue to expand their operations. A key trend driving the development of IT markets in Asia Pacific is the increase in internet and broadband penetration. Like IT's contribution to APAC Broadband Penetration (%) 2010-2017 GDP and PC penetration, there is a broad range of penetration rates across the region and there is rising penetration forecast across the region over the medium term to 2017. Looking at the region as a whole, broadband penetration is forecast to rise from 8.6% at the end of 2012 to 11.3% at the end of 2017. However, this figure is for population penetration of subscriptions, with the figure for those with access to broadband services considerably higher, given the prevalence of shared subscriptions. Asia Pacific internet penetration is forecast to rise from 28.5% at the end of 2012 to 34.2% by the end of 2017. f - BMI forecast. Source: BMI. © Business Monitor International Page 57 Indonesia Information Technology Report Q4 2013 The development of broadband services will be uneven across the region, with implications for the demand of hardware, as well as the scope for the development of IT services such as data analytics and cloud computing. The higher income markets will lead in terms of internet and broadband penetration, including Australia, Hong Kong and Japan. There will, however, be substantial improvements in broadband penetration in other key markets, most notably China, but also Sri Lanka, Malaysia and the Philippines. The underperformer in terms of broadband development is expected to be India, which BMI forecasts to have the lowest broadband penetration in 2017 at 1.6%, up by just 0.4pps. The lack of broadband and internet infrastructure development in India will be a drag on the development of the hardware and services market. However, in addition to the sheer scale of the market, there are government initiatives in place we believe will catalyse the markets development over the medium term. In February 2013 the MCIT published its GI Cloud Adoption and Implementation Roadmap, with the aim of creating a government private cloud environment available for use by central and state government departments, districts and municipalities to accelerate ICT service improvements. The GI cloud will form the basis of adoption of e-government and cloud services in public administration including Infrastructureas-a-Service, Platform-as-a-Service and Software-as-a-Service. Another notable development is the Akash tablet, manufactured by UK company DataWind, that will be available to low-income Indian citizens to be used in the education system. In January 2013 it was reported the cost of the tablet could drop to US$20, with the Indian government subsidising half the total cost of the device to ensure widespread affordability. This initiative could be the foundation for a much wider utilisation of IT hardware in Indian society, where tablets and notebooks have previously been too expensive for large swathes of the population. © Business Monitor International Page 58 Indonesia Information Technology Report Q4 2013 APAC PC Browsing Traffic By OS (%) March 2012-March 2013 Source: Statcounter The Akash is at the bottom end of the market, and government support for the scheme has been critical. However, elsewhere in the region low-cost tablets are also beginning to have a major impact on the PC market. The OEM devices, predominantly running Google's Android operating system and produced in China, have been popular with consumers due to the demand for mobile computing devices and the low price points. For instance in Vietnam these cheap tablets have been popular and have gained traction after being promoted by local dealers, that are able to generate high margins on the product. The availability of low-cost Android tablets will be a major trend in lower income markets in future. While Microsoft Windows dominates the region in March 2013, with Microsoft's Windows 7, XP, Vista and combining to account for over 93% of PC browsing traffic, according to Statcounter data, Android has the potential to increase its share markedly in the coming years. This has implications for Microsoft and its partner vendors. Tablets have previously been above the price points for mass market adoption in much of Asia Pacific, for instance Apple's iPad and Samsung's Galaxy range. However, the arrival of OEM tablets, as well as competition in the branded segment for Apple and Samsung from lower cost alternatives such as Google's Nexus and Amazon's Kindle Fire range will place downward pressure on prices that will see tablets take a far larger share of the market. The tablet market will not be unchallenged, with reports from several markets © Business Monitor International Page 59 Indonesia Information Technology Report Q4 2013 that vendors of notebooks and ultrabooks have already moved to produce lower cost models and accept lower margins to remain price competitive. Rising incomes and expansion of broadband penetration underpins a bright outlook for hardware sales across the region as a whole. This outlook is not shared right across the region however, with recent developments 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 60 Indonesia Information Technology Report Q4 2013 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements. The accompanying charts detail Indonesia's population pyramid for 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. Source: BMI, World Bank, UN © Business Monitor International Page 61 Indonesia Information Technology Report Q4 2013 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 62 Indonesia Information Technology Report Q4 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 63 Indonesia Information Technology Report Q4 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 64 Indonesia Information Technology Report Q4 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, ie, 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. 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 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. © Business Monitor International Page 65 Indonesia Information Technology Report Q4 2013 Within best-practice techniques of time-series modelling, BMI's quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ■ Overall economic context, and GDP and demographic trends; ■ Underlying 'information society' trends; ■ Projected GDP share of industry; ■ Maturity of market structure; ■ Regulatory developments and government policies; ■ Developments in key client sectors such as telecommunications, banking and e-government; ■ Technological developments and diffusion rates; ■ Exogenous events. Estimates are calculated using BMI's own macroeconomic and demographic forecasts. IT Risk/Reward Ratings - Methodology Our approach in BMI's IT Risk/Reward 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 industries covered by BMI, offers an industry-leading insight into the prospects and risks for companies across the globe. Ratings System Conceptually, the ratings 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. 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. © Business Monitor International Page 66 Indonesia Information Technology Report Q4 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 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 Denotes sector dynamism. Scores based on annual average growth over five-year (y-o-y) forecast period. Government initiatives and spending Hardware, % of total sales Denotes spending boost provided by public sector, which can be a crucial determinant of sector development. 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 GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower. A high GDP per capita supports long-term industry prospects. Overall score for country rewards is also affected by the coverage of the power transmission network across the state. Risks Industry Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting. Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code. Country Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment. Short-term financial risk Rating from BMI's CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding. Trade bureaucracy Legal framework Bureaucracy © Business Monitor International Rating from CRR to denote ease of trading with the state. Rating from CRR denotes the strength of legal institutions in each state - security of investment can be a key risk in some emerging markets. Rating from CRR denotes ease of conducting business in the state. Page 67 Indonesia Information Technology Report Q4 2013 IT Business Environment Indicators - Continued Indicator Rationale Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete. Corruption Source: BMI Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all sub-components equal weight. The following weight has been adopted. Table: Weighting Of Components Component Weighting Rewards 70% - Industry 65% - Country 35% Risks to 30% - Industry 40% - Country 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 68 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Business Monitor International Page 13 Indonesia Information Technology Report Q4 2013 Market Trends Our forecast for the Indonesian IT market has been downgraded in Q41 3 in response to a negative currency trends and a weaker global outlook Industry Trends - IT Market 2010-2017 negatively impacting the Indonesian economy PC sales were down around 2% in the first quarter of 2013, compared with the same period... International Page 26 Indonesia Information Technology Report Q4 2013 Indonesia jumped one position to eighth in Q4 despite a 1.2pps decline in its score to 46.3 Often the Indonesian market is highlighted for its size and underlying economic growth story, views we share; however, we also point to advanced technological developments such as progress made in machine-tomachine communications In February 2013, telecoms... International Page 28 Indonesia Information Technology Report Q4 2013 Market Overview Hardware The hardware market in Indonesia is forecast to reach a value of IDR45trn in 2013, an increase of 14.2% from 2012 BMI has downwardly revised its 2013 forecast following a dip in sales in the first quarter of the year However, BMI still forecasts that hardware spending will increase with a CAGR of 10.2% from 2013 to 2017... 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 12 Indonesia Information Technology Report Q4 2013 Industry Forecast Table: Indonesia IT Industry - Historical Data And Forecasts (IDRmn) 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f 62,958,066 70,097,511 77,560,073... International Page 29 Indonesia Information Technology Report Q4 2013 Despite the current slowdown, there are a range of factors that combine to underpin our outlook for the Indonesian hardware market and still make it one of our picks for outperforming growth both regionally and globally The Indonesian promise hinges on the following factors: ■ The sheer size of its economy places Indonesia among the... Some of the ultrabook models available in Indonesia as of Q41 2 include Acer Aspire S3, Asus © Business Monitor International Page 32 Indonesia Information Technology Report Q4 2013 Zenbook, Dell XPS, HP Folio, Lenovo Ideapad U300, Samsung Series 5 and Toshiba Portege Z series While premium pricing of ultrabooks can be a showstopper in a price sensitive market at Indonesia, Intel is confident economies... device opportunity In Q113, the fastest PC market growth occurred in regions outside of Java and Bali, while some other regions reported negative growth © Business Monitor International Page 14 Indonesia Information Technology Report Q4 2013 The government's masterplan to lift Indonesia into the ranks of the world's top 10 economies by 2025, should fuel ICT investments Spending in some key IT verticals,... building as enterprises invest in ERP and adopt cloud services, while there is also a nascent outsourcing industry © Business Monitor International Page 27 Indonesia Information Technology Report Q4 2013 Table: Asia Pacific IT Risk/Reward Ratings - Q4 2013 Rewards Country Risks Industry Rewards Country Rewards Industry Risks Country Risks IT Rating Rank Previous Rank Singapore 56.7 100.0 70.0 74.4 72.1... IDR2bn, but in H111 IT giants such as PT Telkom and Microsoft launched cloud services in Indonesia and demand should grow as more vendors enter the market © Business Monitor International Page 16 Indonesia Information Technology Report Q4 2013 Summary The value of the hardware market is predicted to grow from IDR44.7trn in 2013 to IDR63.7trn in 2017, with PC sales (including accessories) rising from IDR37.0trn... difficult external position as well as a spate of domestic policy quagmires © Business Monitor International Page 20 Indonesia Information Technology Report Q4 2013 Investment Pillar On The Wane Indonesia - Real GDP By Expenditure Category, % chg y-o-y Source: BMI, BI As we have written before, Indonesia experienced a rapid deterioration in its terms of trade beginning in early 2012, as prices among the . Q4 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. territory. Indonesia Information Technology Report Q4 2013 © Business Monitor International Page 13 Market Trends Our forecast for the Indonesian IT market has been downgraded in Q41 3 in response. the reach for the majority of Indonesians. ■ Growing preference in the consumer segment for mobile broadband solutions. Indonesia Information Technology Report Q4 2013 © Business Monitor International