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Indonesia Information Technology Report Q1 2010
Business Monitor International, Jan 2010, Pages: 53
Business Monitor International's Indonesia Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Indonesia's information technology industry.
The Indonesian IT market should grow at a compound annual growth rate (CAGR) of around 15% over 2010-2014 despite a deceleration in 2009, when demand was affected by the global economic crisis. In H109, some manufacturing organisations deferred IT procurements, but there was continued spending in the financial sector, which had previously accounted for as much as 30% of total spending. IT spending is expected to increase to US$4.0bn in 2010, up from US$3.5bn last year. Some fundamental drivers, including low computer penetration and growing affordability, should ensure that the market remains in positive growth territory. Indeed, Indonesia is projected to be one of the best regional IT market growth prospects over BMI’s five-year forecast period.
By 2014, Indonesia’s hardware-dominated IT market is projected to reach a value of US$6.9bn, higher than previously projected. 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 are a major barrier to faster growth within this potentially huge IT market.
Industry Developments In 2009, a ministerial decree directed that local government offices across Indonesia must adopt open source software (OSS) by 2011. The mayor of Surabaya revealed in July 2009 that his city had launched a pilot project for OSS applications. According to the mayor, all Surabaya municipal offices were now using the software and civil servants had been given relevant training. The local government hoped that the municipality could save 20-25% of its budget.
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 oil and gas company Pertamina and electricity company Perusahaan Listrik Negara.
The government is also rolling out new e-learning initiatives, which could see education’s share of 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 53mn students in Indonesia’s schools system, this would require at least 2.5mn computers.
Competitive Landscape Acer continued in 2009 to expand its presence across both consumer and business segments of the Indonesia PC market with more product releases. However, HP has pledged to strike back and has set a target of reclaiming top spot in the Indonesian market from Acer at some point in H110. HP, estimating the market share gap between itself and Acer at around 10%, has been aggressive in launching new notebook and netbook series. The company said it was optimistic that it could be leading Indonesia’s PC market early in 2010 as its products achieved greater penetration.
In 2010, Microsoft hopes that the launch of its Windows 7 operating system, released in October 2009, will boost local sales. Last summer, Microsoft continued to lay the groundwork for the new operating system launch and released the enterprise version of the software in August. Software market leader Microsoft Indonesia reported a 30% year-on-year (y-o-y) rise in revenues in FY2008, well above the company’s global average of 18%.
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 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 had targeted the government as a future growth driver in the Indonesian market. Currently, TCS’s 15 local clients are principally from sectors such as banking and financial services, telecoms and media.
Hardware BMI forecasts 2010 Indonesian computer hardware spending of around US$2.8bn, up from US$2.5bn last year. Growth decelerated in 2009 but is forecast to return to double digits this year, with the market rising to a value of nearly US$4.7bn by 2014. Spending in 2009 surpassed initial expectations, due largely to notebook sales, which surged with the popularity of netbooks; notebook sales grew faster than desktops in H109.
Hardware accounts for more than 70% of Indonesian IT spending. In 2009, the main driver was the consumer segment, which accounts for around 25% of computer demand. In H109, consumer demand was resilient, growing 5.5% in Q109. The main drivers were growing affordability and more credit availability.
Software Indonesia’s software sales are projected by BMI at US$475mn in 2010, up from an estimated US$410mn in 2009. In 2010, sales of Microsoft’s new Windows 7 operating system has the potential to have an impact, although much will depend on consumer and business confidence. There should also be a boost from systems upgrades delayed from 2009. 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 (SMEs) 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$683mn in 2010, recording double-digit growth from US$601mn in 2009, based on BMI estimates. Currently, IT services account for only 17% of Indonesia’s hardware-centric IT market sales. Hardware deployment services remain the largest Indonesian IT services category, with approximately a 20% share.
In 2009, the banking sector continued to provide opportunities for IT vendors, despite the fallout from the global financial crisis. Banks continued with transformation strategies driven by factors such as new technologies and services as well as regulatory compliance. However, most opportunities are currently in fundamental service areas such as system integration, support systems, training, professional services, outsourcing and internet services.
E-Readiness Low telephone line density, high charges and low PC penetration are all significant obstacles to higher internet penetration. 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. The government is encouraging fixed wireless deployments, including WiMAX, to bring the internet to more remote areas.
The government is also 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 20mn people own fixed-line telephones.
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