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Indonesia Information Technology Report Q1 2011
Business Monitor International, Feb 2011, Pages: 61
The 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 17% over the 2011- 2015 period, with a revival in business spending building on momentum from consumer spending in 2010. In 2010, demand for IT products and services recorded double-digit growth, after some manufacturing organisations had deferred IT procurements in 2009. There was continued spending in the financial sector, which previously accounted for as much as 30% of total spending.
Indonesia is expected to be one of the best regional IT market growth prospects over BMI’s five-year forecast period. IT spending is forecast to increase to US$5.1bn in 2011, up from US$4.5bn in 2010. Some fundamental drivers, including low computer penetration and growing affordability, should ensure that the market remains firmly in positive growth territory. Growing investment in data centres and other ICT infrastructure will drive demand for IT services.
By 2015, Indonesia’s hardware-dominated IT market is projected to reach a value of US$9.6bn. With information and communication technology (ICT) penetration of around just 20% and development restricted to richer areas such as Java, the market has much growth potential. However, the country’s uneven development and digital divide are major barriers to faster growth in this potentially huge IT market.
In 2010, Indonesia’s information society development received a boost when the government said that the immigration office would start to introduce e-passports. Indonesia will thus follow in the footsteps of other South East Asian countries like Singapore, Malaysia and Thailand. The immigration department plans to distribute 10,000 e-passports in the first phase, with these being mainly available in immigration offices in Jakarta, Semarang and Surabaya.
In April 2010, the government said it was ready to eliminate duties on PC components in a bid to assist the local PC industry. Nearly all PC components, such as motherboards and graphic cards, used by the industry are imported, which means manufacturers have to pay import duties.
The government is rolling out e-learning initiatives, which could cause education’s share of local IT spending to rise from its estimated level of around 4%. The ratio of PCs-to-students in public schools is around 1:3,200. The government wants to increase this to 1:20. As there are 53mn students in the Indonesian schools system, this would require at least 2.5mn computers.
PC market leader Acer was targeting an increased share of the Indonesian PC market in 2010. Indonesia has already become Acer’s largest South East Asian PC market, surpassing Thailand and Malaysia. Meanwhile Lenovo, the bestselling computer vendor in the Asia region, announced plans to set up a new subsidiary in Indonesia.
The next few years should feature a shift away from packaged proprietary software towards other models, such as cloud computing. Microsoft Indonesia has reported that cloud computing accounts for around 20% of its local revenues and had been growing at about 50% per year. In 2010, Telkom partnered with Microsoft to launch cloud computing services which target SMEs with applications for tax and finance. IT service 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. E-government is also being looked at by IT service vendors as a potential growth area. Tata Consultancy Services (TCS) said it has targeted the government as a future growth driver in the Indonesian market. TCS’ 15 local clients to date are mainly from sectors such as banking, financial services, telecoms and media.
BMI estimates 2010 Indonesian computer hardware spending of US$3.6bn, up from US$3.2bn in 2010. The market is forecast to return to double-digit growth this year and to rise to a value of US$6.5bn by 2015. In 2010, consumer demand was reinforced by a revival in business IT hardware spending, which could account for about two-thirds of sales opportunities during the forecast period, with sales value doubling by 2015.
Hardware accounts for more than 70% of Indonesian IT spending. The main drivers are growing affordability and more credit availability in a country where only about 10% of the population have access to a PC, compared with more than 30% in some other South East Asian countries such as Malaysia or Thailand.
Indonesia’s software sales are forecast by BMI to reach US$636mn in 2010, up from an estimated US$535mn in 2010. During BMI’s five-year forecast period to 2015, the software sector CAGR is forecast at 20%. In 2011, migrations to Microsoft’s new Windows 7 operating system should remain a driver, although much will depend on consumer and business confidence. One market inhibitor is the continuing software piracy problem, which according to the government’s own figures loses Indonesian software companies more than US$100mn per year.
Over the forecast period, enterprise resource planning (ERP) software should continue to be of most interest to small- and medium-sized enterprises (SMEs) as only around 20% of Indonesian SMEs are estimated to make use of IT. In addition to cost savings, businesses will look to boost efficiency and increase the flexibility of responses to customer needs.
Indonesia’s IT services market is forecast to be worth US$898mn in 2011, recording double-digit growth from US$769mn in 2010, based on BMI estimates. IT services account for 17% of Indonesia’s hardware centric IT market sales. Hardware deployment services remain the largest Indonesian IT services category with a 20% market share.
In 2009, the banking sector still provided 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 and regulatory compliance. However, most opportunities are in fundamental service areas such as system integration, support systems, training, professional services, outsourcing and internet services.
Low telephone line density, high charges and low PC penetration are all significant obstacles to higher internet penetration. However, the situation is not all bad, with 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 a lack of public awareness in a country where only 20mn people own fixed-line telephones.
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