South Africa

1
Indonesia
An IT Profile
MIS 680 Fall 2004 Rick Fenster Steve Dudas Marty
Gagnier Carolyn Moroz
2
The People

• Over 238 million people in 2004 (4th largest
  country in the world)
• 1.5 annual population growth rate
• Median age is approximately 26
• Life expectancy around 70 years
• Age Structure
• 29.4 0-14yrs
• 65.5 15-64
• 5.1 65 and over

3
Ethnic Groups

• Javanese people 45
• Sudanese people 14
• Madurese people 7.5
• Costal Malays 7.5
• Other 26 (many small groups)
• No indication that ethnicity issues would impact
  the IT investment decision

4
Religious Groups

• Islamic 87 (worlds largest Islamic nation)
• Protestant 6
• Catholic 3
• Hindu 2
• Buddhist Other 2
• Does the religious make-up affect the potential
  for IT investment?

5
Languages

• 583 languages and dialects spoken
• Bahasa Indonesian is the official language
• English
• Dutch
• Local dialects (most widely spoken is Javanese)
• Although Bahasa Indonesia has become the official
  language, local languages and dialects continue
  to be spoken and will not be abolished
• However the common use of Bahasa Indonesian has
  helped unify the country since independence in
  1949

6
Geography

• Located in Southeastern Asia
• Archipelago between the Indian ocean and Pacific
  ocean
• Close to 2 million square miles in area (almost
  3 times the size of Texas)
• Comprised of 5 main islands (Sumatra,
  Java/Madura, Kalimantan, Sulawesi, Irian Jaya)
  and 17,000 smaller islands
• Population highly concentrated in these main
  islands
• Capital city is Jakarta
• Bridges 2 continents, Asia and Australia

7
Geography
Indonesia
CIA Factbook
8
History

• Early inhabitants were primarily Indian from
  Southeast India who adopted the Hindu religion
• Spread of Islam began to take root in the 13th
  century and culminated with the capture of the
  capital city (Jaya Karta) in 1527
• Dutch merchants in quest for spices arrive in
  1600s and begin period of Dutch Colonialism
• Dutch rule characterized by ruthless exploitation
  and monopolization of resources
• Portuguese control Eastern part of Indonesia
• Dutch repel numerous attempts to gain control of
  Indonesia, resulting in large casualties

9
History-2

• Numerous revolts ensued between 1816-1908 against
  Dutch colonial rule
• Nationalistic movements of a more organized
  nature took root in 1908 with the forming of the
  Boedi Oetomo (noble conduct).
• Dutch embark on restricting Indonesia civil
  liberties further by eliminating freedom of
  assembly, speech and expression
• Indonesian Nationalist Party (PNI) formed in 1927
  adopting a militant policy against Dutch
  colonialism
• 1931-1940 characterized by the formation of many
  political parties demanding independence

10
History-3

• Japanese occupation from WWII 1942-1945
• Independence achieved August 17, 1945 with the
  formation of the Republic of Indonesia
• Dutch formally surrender in 1949 and agree to
  withdrawal
• Sovereign nation status achieved in 1950
• 1950-1967 The Sukarno era characterized by
  political and economic disorder
• President Suharto begins formation of New Order
  Government in 1967. Rules for 32 years as
  dictator.
• 1999 Fall of New Order and the removal of
  Suharto from power pave way for free elections

11
Government

• Republic of Indonesia (Unitary Multiparty
  Democratic Republic)
• Elected Peoples Consultative Assembly
  (Legislative body)
• Current parties in House of Representatives
• Golkar Party (21.6) 128 seats (New Order party
  of the wealthy and upper-class)
• PDI-P (18.5) 109 seats (Indonesian Democratic
  Party supported by nationalists and working class
  voters)
• PPP Party (8.2) 58 seats (Moslem supported)
• PD Party (7.5) 57 seats (working class,
  social-democratic)
• PKB Party (10.6) 52 seats (Moslem supported)
• PAN Party (6.4) 52 seats (Urban middle-class)
• PKS Party (7.3) 45 seats (Moslem puritans)
• Note Due to election rules, the number of seats
  won does not always correspond to the number of
  votes received.

12
Government
3 different leaders between 1998 and 2004
2004
1998
1967
1950
1949
First Free Elections
Independence
End of Suharto Dictatorship
New Order Govt of Suharto
The Sukarno era
Almost 55 years after Independence is declared
from the Dutch before the first truly democratic
free elections are held.
13
Politics

• Worlds third largest democracy
• (http//news.inq7.net/world/index.php?index
  1story_id12539)
• Sept 20, 2004 elections could see 4th leader
  since Suharto was ousted in 1998
• President Megawati Sukarnoputri, incumbent
• Retired General Susilo Bambang Yudhoyono
• Official results available October 5
• Predictions
• General Yudhoyono won by a landslide (60 to
  39)
• (http//news.inq7.net/world/index.php?index1
  story_id12539)
• 80 voter turnout (122 million people)
• (http//news.inq7.net/world/index.php?index1
  story_id12539)

14
Natural Resources

• Petroleum, tin, natural gas, nickel, timber,
  bauxite, copper, fertile soils, coal, gold,
  silver.
• Agriculture productsRice, cassava (tapioca),
  peanuts, rubber, cocoa, coffee, palm oil, copra,
  poultry, beef, pork, eggs

15
Economy

• Economy not good, but is improving

GDP shown as purchasing power parity (in billions)
16
Economy
17
Economy
GDP Per Capita shown as purchasing power parity
18
Economy
19
Economy
20
Economy

• Economic Aid 43 billion
• Indonesia finished its IMF program in December
  2003 but still receives bilateral aid through the
  Consultative Group on Indonesia (CGI), which
  pledged 2.8 billion in grants and loans for
  2004. (2003 est.)
• Source http//www.cia.gov/cia/publications/factb
  ook/geos/id.html

21
Business Culture

• Indonesia is a very stratified and hierarchical
  society
• Time is considered limitless and they view
  hurrying as a sign of impoliteness
• Flexibility and patience are critical for success
• Strong relationships are essential for business
  to succeed
• Harmony is a major cultural value for achieving
  consensus
• Aggressiveness and conflict are avoided at all
  costs
• Embarrassment is also avoided thus only positive
  information is passed on to superiors
• Government widely involved in business affairs
• Chinese dominate much of Indonesian business

22
Education

• Literacy - 92.5 of Males / 83.4 Females are
  Literate
• http//www.cia.gov/cia/publications/factbook/geos/
  id.html
• System Overhauled in 1989
• Compulsory Education Increases from 6 to 9 Years
• Right to an Education For All
• Decentralization of the Curriculum
• http//www.worldedreform.com/intercon/kedre9.htm
• 2001 - 220,000 Schools Transferred to Local
  Govts.
• Significant (gtUS 1Billion) Internal Funding
  Increases in 2001/2002
• http//www.thejakartapost.com/special/os_21.asp
• Next Generation at Risk Due to Economic Crisis
• Millions of economic-orphans and 2.5 Million
  Drop-Outs
• http//www.unicef.org/sowc00/panel2.htm
• USAID 700 Million in Contributions Targeted
  Primarily at Education
• Currently Approx. 5000 Native Graduates in IT
  Annually

23
Education
Source Central Bureau of Statistics, Indonesia.
24
Challenges

• Alleviating widespread poverty (In 1999, 27 of
  population lived below the poverty line)
• Terrorism (Bali / Jarkarta Embassy)
• Transition from authoritarianism to elected
  governments
• Banking sector reforms
• Cronyism and corruption
• Human rights violations by military and police
• Electricity
• Only 60.5 percent of the population on the
  islands of Java and Bali have electricity, and
  only 44.6 percent in other regions of Indonesia

25
IT-Telecommunications

• Fixed line teledensity is 4, one of lowest in
  the region. Cellular teledensity is 10 and
  growing fast.
• Country has a poor telecommunications
  infrastructure. Why?
• 1. Challenges due to geography (see map)
• More than ½ of 70,000 villages have no public
  telephones.
• 2. Lack of funding.
• Joint Operating Service hit hard by Asian
  economic crisis.
• 330 million (US) to raise teledensity 1.
  (www.worldbank.org)
• 3. Overregulation and Monopolies.
• Telkom provided domestic services, Indostat and
  Satelindo provide international.
• Lack of competition has resulted in high rates,
  slow growth.
• Recent deregulation and privatization to increase
  competition.

26
IT Internet Growth
Source Indonesia Internet Service Provider
Association (APJII)
27
IT Internet Usage

• Top 25 worldwide in terms of number of Internet
  users.
• But less than 5 penetration one of lowest in
  Asia.
• poor infrastructure, low PC ownership, high ISP
  charges
• Access kiosks (43), offices (41), homes (12),
  schools/universities (4) (source APJII)
• 90 operational ISPs, 10 of which own 80 market
  share. Largest is the state owned TELKOM.
• Access is slow dial-up broadband is too
  expensive or simply not available.
• Most use for chat and email -- few citizen
  services (e-government, e-health, e-education)

28
IT Warnet (Cyber Cafés)

• Extension of the Wartel model Telephone Cafes
• 4,000 public kiosks (1/2 in Jakarta).
• Average of 8 PCs, almost all use dial-up
  service.
• Most users are young, many located near colleges.
• Access is 1(US) per hour
• Is this the answer to Indonesias large digital
  divide?
• Overcomes issues related to low PC ownership,
  lack of connectivity, and high ISP costs.
• But limited to where adequate infrastructure
  already exists.
• And competition is tough, and many struggle to be
  profitable.

29
IT - Internet Programs

• Government policy Let competition play out in
  commercial regions, but assist other regions.
• But government has had trouble providing adequate
  financing.
• USO
• Provide telephony to 43,000 villages by end of
  2005
• Sometimes a single public phone per village.
• Funded with 0.75 telephone usage tax
• School 2000
• Provide Internet access to 2,000 schools per
  year.
• OSOL
• One School, One Computer Lab

30
IT e-Commerce Use

• Large potential -- Internet users growing fast!
• Only 5 use Internet for shopping (APJII, 2002)
• Global reputation for credit card fraud results
  in many international sites boycotting
  Indonesian orders/deliveries.
• Other barriers to e-commerce use
• Low Internet usage
• Low credit card use
• Culture Shopping is considered an act of
  leisure or recreation.
• Delivery costs to rural areas

31
IT e-Commerce Development

• Hundreds of commercial sites, few making any
  money high operational costs, low advertising
  revenue, poorly skilled human resources.
• Many dot.com start ups failed during the NASDAQ
  crash in 2001.
• New generation focus on mobile phone business and
  tourism.
• Barriers to e-commerce development
• Government regulation
• Banks wont secure Internet transactions
• Weak infrastructure

32
Foreign IT Investment

• Intel 5 Employees / Opened in 1996
• IBM Initial Presence in 1937.
• Formally Incorporated as PT IBM Indonesia in
  1999.
• Hardware Manufactures
• MAG Innovision Computer Monitors
• Sony Closed Audio Component Factory due to Wage
  Hikes

33
IT - Economy

• 65 of PCs Sold are Locally Assembled
• Top 6 PC Sellers Account for 32 of Sales
• http//strategis.gc.ca/epic/internet/inimr-ri.nsf/
  en/gr121741e.html
• Little Software Development
• Very Little Done due to Piracy and IP Issues
• Y2000 - Exports of Approx. US30 Million using
  4500 software engineers in roughly 90 companies
• Office XP Costs about 4 US on Streets
• http//www.ejisdc.org
• Pilot Project to make Bandung a High Tech
  Valley
• Located Close to the Largest Number of IT
  Capable Universities.

34
IT Workforce

• Limited IT Experience (Low Internet Usage)
• Significant Freedom Granted to Workers in 1998
• 2001/2002 Back to Back Minimum Wage Increases
  of 30 and 39 in Jakarta

http//www.ecatt.com/country/indonesia/inhalt_id.h
tm
35
IT - Govt. Policy and Regulation

• Intellectual Property Problems
• Software Piracy Estimated at 80
• Enforcement / Punishment is Rare
• Heavy Regulation of Telecommunication Industry
• Legal System has a History of Corruption
• Loose Bankruptcy Laws

36
Comparison The Philippines and Indonesia

• Much smaller in size and population
• slightly larger than Arizona (3 times the size of
  Texas)
• 86 million people (238 million)
• Speak two languages, Filipino and English (583
  languages)
• Not as severely impacted by Asian financial
  crisis
• Source http//en.wikipedia.org/wiki/Asian_financ
  ial_crisis
• In 2001, 40 of population lived below the
  poverty line (compared to 27 in 1999 for
  Indonesia)
• Higher unemployment rate estimate for 2003 of
  11.4 (8.7 in 2003)
• 2003 GDP (est)
• Purchasing power parity 390.7 billion (758.1
  billion)
• Real Growth Rate 4.5 (4.0)
• Per capita purchasing power parity 4,600
  (3,200)

37
Comparison The Philippines and Indonesia

• Strength comes from cultural affinity with U.S
• Highly westernized
• 3rd Largest English speaking country
• Safety net to larger locations political tensions
• India
• Russia

38
Comparison The Philippines and Indonesia

• Ports and Harbors

Indonesia - 8 Philippines - 15
Strategically located along major sea lanes from Indian Ocean to Pacific Ocean Favorable location to many of the main bodies of water in Southeast Asia the South China Sea, Philippine Sea, Sulu Sea, Celebes Sea, and Luzon Strait
39
Comparison The Philippines and Indonesia

• Telecommunications
• Philippines
• 78 private telephone companies in the Philippines
• 40 lines per 1000 people
• 4 million Internet users, approx. 46 per 1000
  (end of 2002)
• Indonesia
• 1 private and 2 stated owned in Indonesia
• 33 lines per 1000 (2002)
• 8 million Internet users, approx. 33 per 1000
  (2002)
• Source CIA Factbook and www.american.edu

40
Comparison The Philippines and Indonesia

• Cell Phone vs. Land Lines
• 3 million land lines in use in 2002, compared to
  15 million cell phones
• 7.75 million land lines in use in 2002, compared
  to 11.7 million cell phones
• Source CIA Factbook

41
Comparison The Philippines and Indonesia

• Number of ISPs (2000)
• Philippines 33 Internet Service Providers
• Indonesia 24 Internet Service Providers

42
Analysis / Summary

• Is Indonesia a Good Investment for IT?
• Maybe

43
Analysis / Summary
IT Industry Pros Cons
Software Dev. Potential of a Vast market Low Skilled Workforce IP Laws Software Piracy
Hardware Dev. / Complex Manufacturing Limited Skillset IP Laws Limited Power Availability
Component Assembly Highly Skilled Work Force Recent Wage Increases
E-Commerce Hosting Limited Communications Infrastructure Corruption
Help Desk Highly Skilled Work Force Potential Language Barriers
44
Predictions
Source Global Information Technology and
Electronic Commerce, Palvia/Palvia/Roche
45
Some Indonesia Websites

• News Portal www.detik.com and www.indocenter.com
• Newspapers www.kompas.com and www.jawapos.co.id
• Internet Banking www.bankbii.com
• Retail www.plazaindonesia.com
• Travel www.indo.com

46
Links

• http//www.cia.gov/cia/publications/factbook/geos/
  id.html
• http//www.asianinfo.org/asianinfo/indonesia/about
  _indonesia.htm
• http//www.encyclopedia.com/html/section/Indonesi_
  Economy.asp
• http//abc.net.au/ra/federasi/tema6/pol_parties_in
  don.htm
• http//www.nationsonline.org/oneworld/
• http//www.aiccusa.org/cultas.htm
• http//www.gimonca.com/sejarah/sejarah09.shtml
• http//www.bps.go.id/sector/population/table1.shtm
  l

47

• Questions and Comments?