Published by BUSINESS MONITOR INTERNATIONAL LTD Indonesia Information Technology Report Q3 2009 ISSN: 1750-5070 Including 5-year industry forecasts Business Monitor International Mermaid House, Puddle Dock London EC4V 3DS UK Tel: +44 (0)20 7248 0468 Fax: +44 (0)20 7248 0467 email: subs@businessmonitor.com web: http://www.businessmonitor.com © 2009 Business Monitor International. All rights reserved. All information, analysis, forecasts and data provided by Business Monitor International Ltd is for the exclusive use of subscribing persons or organisations (including those using the service on a trial basis). All such content is copyrighted in the name of Business Monitor International, and as such no part of this content may be reproduced, repackaged, copied or redistributed without the express consent of Business Monitor International Ltd. 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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 Q3 2009 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 CONTENTS Executive Summary .5 SWOT Analysis .8 Indonesia IT Sector SWOT . Indonesia Telecoms Business Environment Industry SWOT Indonesia Political SWOT 10 Indonesia Economic SWOT . 11 Asia Regional IT Markets Overview 12 IT Penetration 12 Market Growth &Drivers 14 Sectors & Verticals 16 IT Business Environment Ratings 18 Asia IT Business Environment Ratings 20 Market Overview .21 Government Authorities . 21 Key Ministers . 21 Background 21 Bandung High-Tech Valley SWOT . 22 Hardware . 23 Computer Spending By Sector, 2007e 24 Software . 24 Services 25 Industry Developments 27 Industry Forecast Scenario .30 Indonesian IT Industry - Historical Data & Forecasts (US$mn unless otherwise stated) 32 Country Context . 32 Consumer Expenditure, 2000-2012 (US$) . 32 Rural & Urban Breakdown, 2005-2030 . 33 Internet . 33 Telecoms Sector - Internet - Historical Data & Forecasts . 33 Macroeconomic Forecast 35 Indonesia – Economic Activity . 37 Competitive Landscape .38 Hardware . 38 Software . 40 IT Services . 40 Internet Competitive Landscape 41 Asia - Broadband Penetration Overview, 2007 42 Company Profiles .43 IBM Indonesia . 43 Oracle 44 Sigma Cipta Caraka (SCC) 45 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 HP 47 Country Snapshot: Indonesia Demographic Data 48 Section 1: Population . 48 Table: Demographic Indicators, 2005-2030 48 Table: Rural/Urban Breakdown, 2005-2030 . 49 Section 2: Education And Healthcare 49 Table: Education, 2000-2005 49 Table: Vital Statistics, 2005-2030 49 Section 3: Labour Market And Spending Power 50 Table: Employment Indicators, 2001-2006 50 Table: Consumer Expenditure, 2000-2010 (US$) 50 Table: Average Annual Manufacturing Wages, 2000-2012 (IDR) . 51 BMI Forecast Modelling .52 How We Generate Our Industry Forecasts 52 IT Industry . 52 IT Ratings – Methodology 53 Table: IT Business Environment Indicators . 54 Weighting . 55 Table: Weighting Of Components 55 Sources 55 © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 Executive Summary The Indonesian IT market should grow at a compound annual growth rate (CAGR) of around 13% over 2009-2013 despite an expected slowdown in 2009 as key segments are affected by the global economic crisis. In H109, some manufacturing organisations were cutting IT budgets, but there was continued spending in the financial sector, which had previously accounted for as much as 30% of total spending. 2009 will still undoubtedly be a more difficult year, with pressure for cutbacks, as companies focus more on the bottom line, and immediate needs. However, BMI expects the market to avoid negative growth despite downside risks. In Q109, computer sales were indicated to be only slightly lower than the period last year, with hopes of an upturn in H209. Government IT spending was expected to increase as the government encourages IT spending by state enterprises. By 2013, Indonesia's hardware-dominated IT market is projected to reach a value of US$5.7bn, displaying faster growth than many Association of South East Asian Nations (ASEAN) neighbours. With information and communication technologies (ICT) penetration of only around 20% and development restricted to richer areas such as Java, the market has much latent growth potential. However, the country's uneven development, and resultant digital divide, is a major barrier to faster growth within this potentially huge IT market. Industry Developments E-government is expected to emerge as an area of growing opportunity for IT vendors over the next couple of years. Currently, several ministries at both federal and province level are planning to implement projects. In 2008, a number of projects were launched, including an e-procurement system by the State Ministry for State Enterprise, which covered 25 state-owned enterprises, including state oil and gas company Pertamina and state electricity company Perusahaan Listrik Negara (PLN). A framework for Indonesian e-government development was set out by presidential instruction No. 3/2003. A number of projects are ongoing, and these can be expected to increase. Indonesia's Department of Communications and Informatics (Depkominfo) is rolling out a new platform to increase the efficiency of a number of department services. The new system will be deployed to help expedite processing of permit applications, as well as increasing transparency of department operations. The government is also rolling out new e-learning initiatives which could see education's share of the local IT spending rise from its estimated level of around 4%. The current ratio of PCs to students in public schools is around 1:3,200, and the government wants to increase this to 1:20. As there are 53 million students in Indonesia's schools system, this would require at least 2.5mn computers. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 Competitive Landscape Toshiba revealed recently that it planned to rely on low-end notebooks as its mainstay products in the Indonesia market this year. The company defines low-end as notebooks sold for less than IDR8mn. Toshiba's Indonesian notebook distributor, PT Techking Enterprises, said that Toshiba planned for lowend notebooks to account for 70% of sales this year, an exact reverse of the situation last year. Software market leader Microsoft Indonesia reported a 30% year-on-year (y-o-y) rise in revenues in FY08, well above the company's global average of 18%. Microsoft has recently been involved in IT for Education initiatives, announcing a co-operation with telecom company PT Telkom and local software company PT Pesona Edukasi on an educational software development programme. Major IT services vendors have reported a growing demand in the telecoms, manufacturing and banking sectors. Oracle has an agreement with local IT solutions provider PT Sigma Cipta Caraka (Sigma) to provide outsourcing services. Meanwhile, e-government is also being eyed by IT services vendors as a potential growth area. Tata Consultancy Services (TCS) said that it was targeting government as a future growth driver in the Indonesia market. Currently, TCS's fifteen local clients are principally from sectors such as banking and financial services, telecoms and media. Hardware Computer hardware sales, including notebooks and peripherals, will be worth around US$2.5bn in 2009, according to BMI projections, up from US$2.4bn in 2008. Growth slowed in Q408 following robust growth in the first three quarters of last year, and is seen as easing further this year before ticking up again in 2010. Early results from 2009 are moderately encouraging, with sales in January at a similar level to the period of 2008, according to industry figures. However, vendors remained cautious, with some still expecting a y-o-y market contraction. Software For 2009, software sales are projected by BMI at US$402mn, up from an estimated US$377mn in 2008, despite the current economic slowdown. There were signs in H109 that many firms were planning to increase software spending. One market inhibitor is the continuing software piracy problem, which, by the local government's own figures, loses Indonesian software companies alone more than US$100mn a year. Over the forecast period, enterprise resource planning (ERP) software continues to be of most interest to the small and medium-sized enterprises (SME) market as currently only around 20% of Indonesian SMEs are estimated to make use of IT. IT Services Indonesia's IT Services market is expected to be worth US$589mn in 2009, recording y-o-y growth of 4% from US$564mn in 2008, according to BMI estimates. Currently, IT services account for only 17% of the country's hardware-centric IT market sales. Hardware deployment services remain the largest Indonesian © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 IT services category, with approximately a 20% share. Currently, opportunities are mainly in fundamental services such as system integration, support systems, training, professional services, outsourcing and internet services. E-Readiness Only about 6.6% of Indonesians have internet access, translating into around 14.5 million users. Low telephone line density, high charges and low PC penetration are all significant obstacles. However, the picture is not all bad as there are signs of faster growth in user numbers, and recent surveys have shown that among a very small elite, there is fast adoption, by regional standards, of broadband and a willingness to pay for video conferencing, security and other additional features. BMI estimated that there were around 1.4 million broadband users in 2007, representing a 0.6% penetration rate. The government is encouraging fixed wireless deployments, including WiMAX, to bring internet to more remote areas. The government is rolling out an internet-based National Education Network, which involves 1,000 network points in five clusters nationwide, designed to facilitate the use of the internet in schools. Despite some advances in e-education, constraints remain due to poor infrastructure and lack of public awareness in a country where only 20 million people own fixed-line telephones. © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 SWOT Analysis Indonesia IT Sector SWOT Strengths Weaknesses Opportunities Threats ƒ Large potential market ƒ Market may be entering faster growth stage; it is forecast to grow faster than most ASEAN markets over the review period (up to end-2013) due to its underdeveloped nature ƒ Computer penetration among the lowest in South East Asia, estimated at only around 1.5% ƒ Underdeveloped telecommunications infrastructure due to years of government control and slow progress in deregulation ƒ Lack of government support. Still no unified ICT ministry ƒ History of political instability of late ƒ Legal concerns, such as intellectual property rights, are a deterrent to foreign direct investment (FDI) ƒ Some positive trends: computer ownership and internet access are on the rise, and the government is showing signs of taking intellectual property more seriously ƒ Per capita IT spending to increase by 50% over 2008-2013 ƒ Opportunities exist in services such as system integration, support systems, training, professional services, outsourcing and internet services ƒ Computer sales predicted to show faster growth than almost anywhere in the ASEAN over the next few years, although from a lower base ƒ Continuing lack of government action to support increased PC penetration and internet access, and drive ICT sector development ƒ Global economic slowdown may hit key demand segments © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 Indonesia Telecoms Business Environment Industry SWOT Strengths Weaknesses Opportunities Threats ƒ Fast-growing mobile sector due to the emergence of greater competition ƒ Presence of key strategic investors including SingTel, ST Telemedia of Singapore, Telekom Malaysia and Maxis of Malaysia, Hong Kong's Hutchison and the United Arab Emirates (UAE)'s Etisalat ƒ Security and corruption issues still make Indonesia a risky investment climate ƒ Limited mobile spectrum due to overcrowding in the sector, following government decision to open the market to greater competition ƒ Mobile broadband spectrum fees remain high for operators, reducing implementation and variety of tariffs ƒ Operators struggling with raised costs after the government forced companies to charge a fee based on cost rather than share part of their revenues ƒ Mobile market expected to surge over the coming years, reaching nearly 431 million people in 2013 ƒ Popularity of mobile value-added/data services offers potential to international content providers ƒ Growth of 3G telephony will lead to investment opportunities for content providers and distributors ƒ Government registration scheme could lead to short-term fall in fixed wireless and mobile users as non-registrants are deactivated ƒ Dominance of prepaid market leading to falling ARPU (average revenue per user) rates ƒ Mobile operators could put too much emphasis on 3G mobile network expansion when consumer demand is unproven at the expense of 2G growth © Business Monitor International Ltd Page Indonesia Information Technology Report Q3 2009 E-government is also being eyed by vendors as a potential growth area. TCS said that it is targeting the government as a future growth driver in the Indonesia market. Currently TCS's fifteen local clients are principally from sectors such as banking and financial services, telecoms, and media. Meanwhile, HP, which is currently promoting the idea of Business Technology (BT) in Indonesia, is to intensify its IT infrastructure recovery service. IBM has recently announced partnership with local firm PT Mitra Integrasi Informatika (MII) to introduce its technology and consolidate servers at its branch offices across the country. Local companies are also looking to leverage their advantages in the market. Sigma is targeting a 40% growth in its managed services business in 2008. To achieve this, the company is expanding operations, and recently spent US$7mn on a new IT Disaster Recovery Centre in Surabaya. Managed services currently account for around 42% of Sigma's total revenues, and the company is planning to expand across a number of verticals, including autos and manufacturing, as well as its core area of financial. Earlier in 2008, Telkom Indonesia acquired an 80% stake in Sigma. The giant telecoms company is hoping for synergies between Sigma's core customer base of 170, mainly banks. Telkom said that they saw the move as the beginning of Telkom Group's entry into Indonesia's IT services market. The move is one of the largest IT services acquisitions in Indonesia's history. Internet Competitive Landscape The Indonesian government has licensed more than 150 internet service providers (ISPs), although only around 40 were operating. The number of broadband users in Indonesia was estimated at around 900,000 in 2007, giving it a penetration rate of 0.4%. This has been a due to a lack of PCs, while service take-up has generally been restricted to Java resulting in uneven development. Further more, with over 250 internet cafes in Indonesia, of which the overwhelming majority are located in Jakarta, has not aided growth. That said, the PC market has been growing, and this, together with liberalisation in the sector, should lead Indonesia's broadband market to develop further. © Business Monitor International Ltd Page 41 Indonesia Information Technology Report Q3 2009 Asia - Broadband Penetration Overview, 2007 Country Broadband penetration, % Regional rank South Korea 31.1 Australia 29.4 Hong Kong 26.4 Taiwan 23.6 Japan 22.3 Singapore 21.5 Malaysia 6.3 China 5.3 Thailand 4.0 Vietnam 1.2 10 Philippines 1.1 11 Bangladesh 0.5 12 Indonesia 0.4 13 India 0.3 14 Pakistan 0.2 15 Source: BMI © Business Monitor International Ltd Page 42 Indonesia Information Technology Report Q3 2009 Company Profiles IBM Indonesia Services Presence Manufacturer, distributor and provider of advanced IT solutions including Fully owned subsidiary. hardware, software, peripherals and data processing equipment. Recent Developments Sectors In response to the tougher economic conditions faced by businesses, IBM has Government, SMEs, enterprise been promoting energy saving technologies and consolidation for data centres. IBM Indonesia also launched a local version of its Express IT package, which offers a range of hardware, software and related services to SMEs. Prices range between US$1,000-US$150,000 and the new scheme offers various backup features. IBM Indonesia claims to service around 2,500 SME clients in various industries. The IBM Express programme for SMEs includes integrated solutions such as Linux based suites for banking and the finance industries, ERP solutions for manufacturing industry inventory, supply chain management for retail and services industry, and Web based applications for hospitals, health centres, drugstores and universities. Future Plans In 2006, IBM's Indonesian business consultancy services focused on three objectives: ERP system development, IT strategy design, and application of HCM system. Local Market Performance In 2007, IBM's Asia Pacific revenues increased by 11% to US$19.5bn. In Indonesia, IBM has already won a number of customers in the SME segment. These include the Surabaya-based Bank Antar Daerah and Bogor-based PT Belfood Indonesia frozen food company. IBM has predicted that the SME segment will grow 94.6% by 2008. © Business Monitor International Ltd Page 43 Indonesia Information Technology Report Q3 2009 Oracle Services Wholesaler of computer equipment and provider of IT services. Oracle reported strong customer momentum and increased total GAAP (generally accepted accounting principles) revenues of 24% to US$2.499bn in the Asia Pacific and Japan (JAPAC) for FY07. Presence Oracle Indonesia is part of Oracle's South Asia Region and wider Asia Pacific Division, located in Singapore. Oracle has about 1,700 customers across the Asia Pacific region, of which 50% are from South Asia, including Indonesia. Recent Developments Sectors Oracle recently signed an agreement with local IT solutions provider PT Sigma Oracle has followed a similar path Cipta Caraka to provide outsourcing services. The arrangement will focus on to that of CA and other competitors helping big companies to focus core business while the IT partners optimise in targeting the SME sector by and maintain IT units. The services provided will include business related introducing its Database Standard software that ensures security, performance and business continuity as well as Edition-1 on the Indonesian manpower to operate the system. Oracle Indonesia is the vendor and Sigma market. The product claims the local implementation partner. comparable performance and security to its corporate level product but at more affordable prices, enabling SMEs to build a business information infrastructure rapidly and economically. Future Plans Oracle is already an active participant in the Indonesian market, where its strategic focus is on capturing 30-35% of the sizable SME market. To achieve this ambitious target, despite many other vendors competing for the same segment, Oracle has established close business co-operation contacts with local organisations and institutions. Local Market Performance In FY07, Oracle's Asia Pacific revenues increased by 24% to US$2.5bn. Oracle reported revenues growth across many of its major product lines. © Business Monitor International Ltd Page 44 Indonesia Information Technology Report Q3 2009 Sigma Cipta Caraka (SCC) Services Presence Sigma Cipta Caraka (SCC) is a leading Indonesian IT company specialising in Over 500 employees. the banking sector, offering services such as software development and customisation, network and systems integration, managed resources and internet access. SCC is one of IBM's major channels to sell hardware to local banks. In 2008, leading telecoms company Telkom Indonesia acquired an 80% stake in SCC. The company is hoping for synergies between its 6,000 corporate customers and 170 of SCC's customers, mainly banks. Telkom said that they saw the move as the beginning of Telkom Group's entry into Indonesia's IT services market. The move is one of the largest IT services acquisitions in Indonesia's history. Recent Developments Sectors Following its acquisition by giant telecoms company Telkom Indonesia, SCC is SCC targeted 40% growth in its expanding operations, and spent US$7mn on a new IT Disaster Recovery managed services business in Centre in Surabaya. SCC signed an agreement with Oracle to provide 2008. Managed services currently outsourcing services focusing on large companies, particularly in banking and account for around 42% of SCC's telecoms. The arrangement will focus on helping big companies to focus core revenues and it is planning to business while the IT partners optimise and maintain IT units. Among recent expand across a number of wins for the partnership, was a tender from Bussan Auto Finance (BAF), one of verticals including auto and the leading multi-finance companies in Indonesia, to implement various Oracle manufacturing, as well as its core applications. area of financial. SCC has been an innovator in Islamic banking, as an increasing number of Indonesians choose to business with banking institutions that comply with its principles. SCC has capitalised on this, with its Sharia Core Banking System designed to follow principles of Islamic banking. SCC's flagship product is AlphaBITS, the software developed by SCC in 1989. It is a core banking system for day-to-day operations, connecting aspects like delivery channels (teller and customer services) and back office (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). With integrated design architecture, AlphaBITS can be incorporated with third-party applications. © Business Monitor International Ltd Page 45 Indonesia Information Technology Report Q3 2009 Future Plans SCC's management said in 2006 that the company would be strengthening its core role as an IT provider for banking sector, both conventional as well as sharia. Local Market Performance SCC achieved revenues of about US$23mn in 2007. Following the acquisition by Telkom, Sigma targeted revenues of US$40mn in 2008, a 50% increase. © Business Monitor International Ltd Page 46 Indonesia Information Technology Report Q3 2009 HP Services Presence Technology services, consulting and integration. Fully owned subsidiary. Recent Developments Sectors HP, which is currently promoting the idea of BT in Indonesia, is to intensify its IT Currently investing in infrastructure recovery service. The main driver in terms of demand is coming manufacturing and the public from the banking Industry, which has become highly concerned with DRC sector. services. Such a service was deemed mandatory by the Central Bank of Indonesia. To a lesser extent, there is also demand from telecoms operators. HP Services recently provided DRC services to one telecom operator affected by the great flood that hit Jakarta recently. In another sign of its confidence in the retail sector, HP opened its 11th Indonesian outlet in Bandung, West Java in February 2006. HP said that they expect the new store to help achieve its target of doubling its sales in the city, which currently account for about 5% of nationwide sales. Future Plans HP has said that it is to intensify its focus on SMEs in 2008 by launching several new computer portfolios specifically targeted at SMEs. The company is the market leader in the SME segment in Indonesia. HP plans to expand to Makassar, South Sulawesi and Yogakarta in the near future. Revenues HP has been benefiting from increasing demand in the PC segment, and is the overall market leader. HP sells upwards of US$300mn-worth of products in Indonesia annually, including its printers, desktops, notebooks and PDA lines. © Business Monitor International Ltd Page 47 Indonesia Information Technology Report Q3 2009 Country Snapshot: Indonesia Demographic Data Section 1: Population Population by age, 2005 Population by age, 2005:2030 (total) 75+ 75+ 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 -15.0 -10.0 -5.0 0.0 Male 5.0 10.0 15.0 -30.0 -20.0 -10.0 0.0 2030 Female 10.0 20.0 30.0 2005 Figures in millions. Source: UN Population Division Table: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030f Dependent population, % of total 34.2 33.3 30.4 30.7 Dependent population, total, ‘000 75,633 78,049 79,630 85,997 Active population, % of total 65.7 66.6 69.5 69.2 Active population, total, ‘000 144,926 156,238 182,239 193,669 Youth population*, % of total 29.1 27.7 22. 20.0 Youth population*, total, ‘000 64,359 64,980 59,917 56,019 Pensionable population, % of total 5.1 5.5 7.5 10.7 Pensionable population, total, ‘000 11,274 13,069 19,713 29,978 f = forecast. * Youth = under 15. Source: UN Population Division © Business Monitor International Ltd Page 48 Indonesia Information Technology Report Q3 2009 Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030f Urban population, % of total 47.9 53.2 62.6 68.9 Rural population, % of total 52.1 46.8 37.4 31.1 Urban population, total, ‘000 106,668 125,346 163,850 192,805 Rural population, total, ‘000 116,114 110,409 98,018 86,861 Total population, '000 222,782 235,755 261,868 279,666 f = forecast. Source: UN Population Division Section 2: Education And Healthcare Table: Education, 2000-2005 2000/01 2004/05 115 115 Gross enrolment, secondary 59 62 Gross enrolment, tertiary 15 17 Adult literacy, male, % 94.0 na Adult literacy, female, % 86.8 na Gross enrolment, primary Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: UNESCO Table: Vital Statistics, 2005-2030 2005 2010f 2020f 2030f Life expectancy at birth, males (years) 64.6 67.0 71.4 73.5 Life expectancy at birth, females (years) 68.6 70.5 75.7 77.9 Life expectancy estimated at 2005; f = forecast. Source: UNESCO © Business Monitor International Ltd Page 49 Indonesia Information Technology Report Q3 2009 Section 3: Labour Market And Spending Power Table: Employment Indicators, 2001-2006 2001 2002 2003 2004 2005 2006 Economically active population, '000 na na na na 105,802 106,282 – % change y-o-y na na na na na 0.4 – % of total population na na na na 46.8 46.4 Employment, '000 90,807 91,647 90,785 93,722 94,948 95,177 – % change y-o-y 1.0 0.9 -0.9 3.2 1.3 0.2 – male 57,131 58,583 59,909 60,582 60,769 61,864 – female 33,676 33,064 30,876 33,141 34,210 33,313 — female, % of total 37 36 34 35.3 36 35 Total employment, % of labour force na na na na 89.74 89.55 8,005 9,132 9,531 10,251 10,854 11,105 8.1 9.1 9.5 9.9 10.3 10.5 Unemployment, '000 – unemployment rate, % na = not available. Source: ILO Table: Consumer Expenditure, 2000-2010 (US$) 2000 2006 2007e 2008f 2009f 2010f Consumer expenditure per capita 416 961 1,195 1,283 1,450 1,802 Poorest 20%, expenditure per capita 175 404 502 539 609 757 Richest 20%, expenditure per capita 900 2,081 2,588 2,778 3,138 3,902 Richest 10%, expenditure per capita 1,185 2,739 3,407 3,657 4,131 5,137 335 774 962 1,033 1,167 1,451 1,570 2,499 2,658 na na na Poorest 20%, expenditure per capita 659 1,050 1,116 na na na Richest 20%, expenditure per capita 3,399 5,411 5,755 na na na Richest 10%, expenditure per capita 4,475 7,123 7,576 na na na Middle 60%, expenditure per capita 1,264 2,012 2,140 na na na Middle 60%, expenditure per capita Purchasing power parity Consumer expenditure per capita e/f = BMI estimate/forecast. na = not available. Source: World Bank, Country data; BMI calculation © Business Monitor International Ltd Page 50 Indonesia Information Technology Report Q3 2009 Table: Average Annual Manufacturing Wages, 2000-2012 (IDR) 2000 2006 2007e 2008f 2009f 2010f 2012f Wages, IDR 5,096 11,740 12,717 13,777 14,811 15,881 18,267 Wage growth, % y-o-y 30.15 15.37 8.32 8.33 7.51 7.22 7.28 e/f = BMI estimate/forecast. Source: ILO, BMI © Business Monitor International Ltd Page 51 Indonesia Information Technology Report Q3 2009 BMI Forecast Modelling How We Generate Our Industry Forecasts 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 methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 52 Indonesia Information Technology Report Q3 2009 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: ƒ Overall economic context, and GDP and demographic trends; ƒ Underlying ‘information society’ trends; ƒ Projected GDP share of industry; ƒ Maturity of market structure; ƒ Regulatory developments and government policies; ƒ Developments in key client sectors such as telecommunications, banking and e-government; ƒ Technological developments, and diffusion rates; ƒ 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. Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 53 Indonesia Information Technology Report Q3 2009 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales – compared to services/software – indicates that the overall IT market is immature Country structure Urban-rural split GDP per capita, US$ 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 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 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 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 Legal framework Bureaucracy Corruption 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 Rating from CRR 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 54 Indonesia Information Technology Report Q3 2009 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents 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 Ltd Page 55 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... the report Source: BMI © Business Monitor International Ltd Page 20 Indonesia Information Technology Report Q3 2009 Market Overview Government Authorities In November 2006, Indonesia' s president, Susilo Bambang Yudhoyono, announced the establishment of a new guiding body to provide strategic direction for the country's IT development The National Information and Communications Technology Council Indonesia. .. Telecom Technology Institute in Bandung is building an IT development centre The US$2.2mn centre will function as an incubator for small firms in the IT sector © Business Monitor International Ltd Page 29 Indonesia Information Technology Report Q3 2009 Industry Forecast Scenario The Indonesian IT market should grow at a CAGR of around 13% over 2009- 2013 despite an expected spending slowdown in 2009 as.. .Indonesia Information Technology Report Q3 2009 Indonesia Political SWOT Strengths Indonesia managed a successful transition to democracy in 2004 If the 2009 parliamentary and presidential elections pass peacefully, this would signal the consolidation of the democratic process... security in Indonesia JI is blamed for a series of attacks, including the Bali bombings of October 2002 and other such incidents, including in Jakarta The fact that Indonesia subsidises basic goods means that when the government raises prices, there is a risk of public unrest, or at least a political backlash © Business Monitor International Ltd Page 10 Indonesia Information Technology Report Q3 2009 Indonesia. .. computer prices In early 2009, India's government announced a series of measures in early 2009 to stimulate the market Meanwhile, India's business process outsourcing (BPO) industry is growing at around 40% per annum and will continue to generate opportunities for vendors of IT products and services © Business Monitor International Ltd Page 14 Indonesia Information Technology Report Q3 2009 As mentioned above,... forecast to rise from US$402mn to US$759mn and IT services from US$589mn to US$1.0bn © Business Monitor International Ltd Page 31 Indonesia Information Technology Report Q3 2009 Indonesian IT Industry - Historical Data & Forecasts (US$mn unless otherwise stated) 2006e 2007e 2008e 2009f 2010f 2011f 2012f 2013f 2,568.00 2,978.88 3,366.13 3,467.12 3,813.83 4,347.77 5,043.41 5,749.49 0.70 0.69 0.67 0.66 0.62... is showing strong growth in Indonesia For the year ended September 2008, Telkom reported broadband growth of 184% y-o-y compared with a decline of 100% y-o-y for internet dial-up services over the same period During Q109, two contracts for the deployment of submarine cables were awarded © Business Monitor International Ltd Page 33 Indonesia Information Technology Report Q3 2009 at a combined cost of... public venues © Business Monitor International Ltd Page 13 Indonesia Information Technology Report Q3 2009 Market Growth &Drivers IT Market Size (US$mn) IT Market Size (As % Of National GDP) (2008e) (2008e-2013f) e = estimate Source: BMI e/f = estimate/forecast Source: BMI Most Asian IT markets are expected to remain in positive growth territory in 2009, despite an expected impact on IT spending from the... telecoms operators and service providers in Indonesia have © Business Monitor International Ltd Page 21 Indonesia Information Technology Report Q3 2009 an obligation to universal service, but in reality there is a considerable challenge in providing connections given the geographically dispersed nature of Indonesia' s population and challenging terrain The local computer hardware market enjoyed a growth... intellectual property © Business Monitor International Ltd Page 22 Indonesia Information Technology Report Q3 2009 rights have also been a barrier to foreign investment Furthermore, the software piracy rate remains among the highest in the world Hardware Computer hardware sales, including notebooks and peripherals, will be worth around US$2.5bn in 2009, according to BMI projections, up from US$2.4bn in 2008 . Publication date: July 2009 Indonesia Information Technology Report Q3 2009 © Business Monitor International Ltd Page 2 Indonesia Information Technology Report Q3 2009 © Business. IBM Indonesia 43 Oracle 44 Sigma Cipta Caraka (SCC) 45 Indonesia Information Technology Report Q3 2009 © Business Monitor International Ltd Page 4 HP 47 Country Snapshot: Indonesia. expense of 2G growth Indonesia Information Technology Report Q3 2009 © Business Monitor International Ltd Page 10 Indonesia Political SWOT Strengths  Indonesia managed a successful