The Indonesia IT Report

Market Overview

The Indonesian IT market should grow at a CAGR of at least 11% between 2007 and 2012. Computer sales were strong in 2007 despite government moves to crack down on software piracy. By 2011, the hardware-dominated IT market will approach a value of US$5bn as Indonesia displays faster growth than many ASEAN neighbours, despite a number of constraints. With information and communication technology (ICT) penetration of only around 20% and development restricted to richer areas such as Java, Indonesia's uneven development (and resultant digital divide) is a barrier to still faster growth within the potentially huge IT market.

A more active approach by the government, including the establishment of a new committee headed by President Susilo, should stimulate spending through a series of infrastructure and education initiatives. Private enterprises, and particularly SMEs, are expected to dominate PC sales, with ERP and other ebusiness applications also finding increasing popularity. Government spending remains relatively small compared with regional neighbours such as Singapore and India, but a relaxed monetary policy and buoyant economy should help the consumer segment.

Industry Developments

A report by Indonesian computer industry association Apkomindo concludes that tighter application of intellectual property rights with regard to IT products has not had a significant negative effect on computer sales volumes. There are signs that the government is beginning to take the issue more seriously, with millions of US dollars of pirate software seized in raids last year. For 2007, computer sales were estimated by Apkomindo at 851mn units, with any negative effect from higher prices seeming to have been overweighed by companies choosing to exchange computers for legal software. Meanwhile, regional governments are being encouraged to adopt the new institution of a CIO (Chief Information Officer). The Director General of Telematics Applications at the Department of Communications and Information said that the new CIO post was needed in every government institution. According to the government, e-government in Indonesia is still at an early stage. Promoting the new CIO position is being described as key to making e-government 'inseparable' from public service.

Competitive Landscape

Vendors are stepping up initiatives to reach out to the Indonesian SMB segment in a market where enterprises account for 70-80% of all sales in the country. IBM Indonesia recently launched a localversion of its Express IT package, which offers a range of hardware, software and related services to SMBs. Prices range from US$1000 to US$150,000 and the new scheme offers various backup features. IBM Indonesia claims to service around 2,500 SMB clients in various industries. The fast growth of the Indonesian computer market is pushing vendors to focus more on a market which has previously been overshadowed by larger countries in the Asia Pacific region. Indonesia is becoming a more attractive market for leading vendors such as HP and Acer, which have been benefiting from rapid growth in PC sales. The top five vendors dominate the Indonesian market, with Acer the leader in the notebook sector and HP the overall leader. Acer set a target share of 10% of the total market for PCs in 2007. Aside from HP and Acer, other market leaders include Dell, Lenovo and Zyrex.

Computer Sales

Computer sales (including notebooks and peripherals) will be worth an estimated US$1.9bn in full year 2008, according to BMI estimates, up from US$1.7bn in 2007. Notebooks are now growing faster than the PC market as a whole and by 2009 are expected to account for around 20% of annual unit sales. Demand for notebooks is being driven by falling prices as well as smaller and lighter form factors and entertainment and wireless networking features. Prices of both notebooks and desktops are falling with desktop prices now as low as US$400 while notebooks start from around US$700. While the consumer market is only around one quarter of the whole, it is growing fast and has become a growing focus of attention for some vendors. Around one-third of the market is accounted for by non-branded locally assembled PCs.

Software

For 2008, legal software sales are forecast by BMI at US$361mn, up from an estimated US$310mn in 2007, despite the continuing piracy problem. One the key functions of the new Information and Communications Technologies Council founded last year (see Industry Developments) is to address the piracy issue, with Indonesia having one of the worst records in the world in terms of its failure to bring down the piracy rate. IT Minister Sofyan recently commented that the president was concerned with Indonesia's rate of piracy and the fact that it has limited the country's development. The piracy issue lay behind the MoU signed last year between the government and Microsoft. Under the agreement, the government reportedly agreed to purchase 35,496 licensed copies of the MS Windows operating system and 117,480 copies of the MS Office package for a total price of around US$41.9mn. Over the 2007-2012 period, overall software sector CAGR is forecast at 15%.

IT Services

Indonesia's IT services market is expected to be worth US$500mn in 2008, recording year-on-year (y-oy) growth of 14% from US$439 in 2007, based on BMI estimates. Hardware deployment services remainthe largest Indonesian 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. Sector CAGR over the 2005-2010 period is expected to be around 13%.

E-Readiness

With an ICT penetration rate of around 20%, only about 14% of Indonesians have internet access currently, translating into around 32mn users. Low telephone line density, high charges and low PC penetration are all significant obstacles. Moreover, research last year indicated that only 42% of those Indonesians with internet access have ever made purchases through the internet. 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 just under 1mn broadband users in 2007, representing a 0.4% penetration rate. The government is encouraging fixed wireless deployments, including WiMax, to bring internet to more remote areas.

The government is also rolling out new e-learning initiatives, attempting to use IT as a means to close the national education gap. The new internet based National Education Network involves one thousand network points in five clusters nationwide and is designed to facilitate the use of internet in schools. Despite some advances in e-education, constraints remains due to poor infrastructure and lack of public awareness in a country where only 20mn people own fixed-line telephones.

Source: http://www.businessmonitor.com/it/indonesia.html