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Indonesia final

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  • 1. IT Issues & Opportunities GMBA 5885 Richa Arora & Shiya Hsu 4-27-2011
  • 2. Agenda
    • Introduction
    • Environment Overview
      • Social Environment
      • Cultural Environment
      • Economic Environment
      • Technological Environment
    • Issue:
      • Telecommunication Infrastructure Quality
      • IT Regulatory Environment
        • IPR Protection (Software Piracy)
      • IT Personnel Supply
    • Opportunities:
      • Internet Access/Usage
      • Opportunities for IT Outsourcing
      • Existing IT Providers and Potential Partners
      • IT Enabled Opportunities
    • Recommendations
  • 3. Social Environment
    • Republic of Indonesia- Southeast Asian country.
    • Capital - JAKARTA
    • 17,508 islands with distinct ethnic,
    • and religious groups.
    • Official Language- Indonesian
    • Currency- RUPIAH
    • Population- 245 million (est. 2011)
    • (world’s 4 th populous country)
  • 4. Literacy rate has been consistently improving with over 90% of people able to read and write, but education remains unequal and levels remain low. Population by Age group- 245 million
  • 5.
    • The majority, 86% of the population follow Islam.
    • Culture- mix of Chinese, European, Indian, and Malay.
    • The families have traditional structure
    • Hierarchical-structure with group
    • orientation.
    • Decisions on group discussion and
    • consensus.
    • Indonesian language has 12 ways of saying "No" and other ways of saying "Yes" when the actual meaning is "No" !!
    Cultural Environment
  • 6. Economic Environment – Economy on the raise Indonesia’ Economic History – Per Capita Real GDP (1961-2008. Rp million) Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.6, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
  • 7. but still falls behind others .... Per Capita GDP (in 2000 $)     - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.7, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp - Labour and Social Trends in Indonesia 2010: Translating Economic Growth into Employment Creation, International Labour Organization, Jakarta, p.7 & 8, http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---ilo-jakarta/documents/publication/wcms_154355.pdf Services sector drives GDP growth
  • 8. Underemployment rate shows employment quality has not improved Unemployment Rate, Underemployment Rate, and Real GDP (2000=100, 1980-2009) Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.54, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
  • 9. 13.3% below poverty line & 50% borderline poor Headcount Indexes based on Four Poverty Lines in Selected Southeast Asian Countries (2002-2006, %)    
    • Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.15, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
    • - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.14, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
    Poverty is region-specific Poverty Headcount Rate by Region (1996-2009, %)
  • 10. Technological Environment
    • Substantial Improvements
      • 34 million use landlines
      • 260 million cell users
      • Mobile penetration @ 54% in 2010
      • 20 million online users
      • Top 10 Facebook markets worldwide
      • 4 th Twitter market worldwide
    Mobile Phone penetration in Indonesia Triples in Five Years, Feb. 23, 2011, http://blog.nielsen.com/nielsenwire/global/mobile-phone-penetration-in-indonesia-triples-in-five-years/
  • 11. ISSUE 1: Assessing Telecommunication Infrastructure from Physical Infrastructure Infrastructure Quality & Global Competitiveness Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.28 & 29, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp Low infrastructure = Low Global Competitiveness Quality of Key Infrastructure (among 133 countries)
  • 12. Areas lacking in Telecommunication Infrastructure:
    • low level of teledensity, due to low investment in and unequal distribution of infrastructure
    • low and uneven Internet penetration
    • lack of competition in the sector as state-owned businesses occupy the majority of the market
    • lack of consistent and independent regulations on telephone and Internet services
    • - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.31, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
  • 13. Impacts to Poor Infrastructure:
    • Higher cost of doing business
      • Unstable electricity = generating one’s own power
      • Poor road conditions = prolonged unnecessary travel time
    • - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.75 & 77, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
  • 14. ISSUE 2: IT Regulatory Environment
    • Decentralization ineffectiveness & corruption
    • Dissatisfaction towards regulatory environment
    • Telecom Regulatory and Policy Environment in Indonesia: Results and Analysis of the 2008 TRE Survey, Wattegama, C., Soehardjo, J. and Kapugama, N., 3/18/2008, p.7
    • Administrative agencies are weak & ineffective
    • Overlapping authorities between governing agencies add confusion
    • New laws conflict with the old
    • Institution to ensure competitive behavior lacks legislative backing and is ineffective in enforcing rules
  • 15. Impacts to Weak Regulatory Environment
    • Low Government effectiveness = slow delivery of government services and infrastructure
    • High corruption rate = additional entry barrier/constraint
    • 86% business have had informal payment & bribes to officials which averaged 6% of annual production
    • Government officials visited the firms often and are expected to receive gifts or bribes during their visits
    • Weak regulation leads to operational uncertainty
    • Regulatory bodies unable to maintain a fair market and are often prejudiced toward protecting local business
    • - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.38, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp
    Weak Regulation = Higher Cost of Doing Business
  • 16. Strategies to Weak Regulatory Environment
    • Be region-selective as laws are often region specific
    • ‘ local manufacturing policy’ (50% locally produced)
    • Up to 65% foreign ownership in telecom sector
    • Work with local partners
    • Hire local and employ then for management position
    • Maintain good relationship with government agencies
    Indonesia: Cellular Services, U.S. Commercial Service, Kalung Riang, 9/2010
  • 17. ISSUE 2.1: IPR Protection
    • Piracy & Counterfeiting thrives (especially optical disc piracy)
    • Cable signal piracy and illegal downloading are pervasive
    • Impact is costly
      • Estimated 40% of drugs in Indonesia are counterfeits, costing losses in tax revenue of $65.4 million in 2005 along
    • Actions:
      • Write a cease and desist letter
      • File a compliant to the police who will conduct a raid (However, all operational costs generated by the police have to be covered by the initiator and prosecution process may be hindered by corruption)
      • Bring the infringer to court (can be ineffective as the court may favor local)
    • Best to have a comprehensive Indonesia-registered IP portfolio
    ndonesia, Kin Wah Chow, p.2, Pharmaceutical Trademarks 2010 - A Global Guide, http://www.iprights.com/document.aspx?fn=load&media_id=787 Managing Intellectual Property, Indonesia Supreme Court Strengthens Protection for Well-Known Marks, Oct. 1, 2007, http://www.managingip.com/Article/1450509/Indonesia-Supreme-Court-strengthens-protection-for-well-known-marks.html
  • 18. ISSUE 3: Assessing IT Personnel Supply from the National Labor Pool Share of Labor Force by Age Group and Educational Attainment (age 15+, %)   - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.27, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp - Translating Economic Growth into Job Creating and Poverty Reduction, http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---ilo-jakarta/documents/presentation/wcms_154512.pdf Lack of Education Poor Labor Quality Low Labor Productivity
  • 19. Skill Shortage = High-tech, Knowledge-intensive jobs cannot be generated Hourly Nominal Wages by Educational Attainment (Rp) - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.28 & 48, http://www.adb.org/Documents/Studies/indonesia-critical-development-constraints/main-report-Indonesia-Critical-Development-Constraints/default.asp Low Educational Attainment = Less highly skilled workers Disaggregation of Exports by Technological Sophistication Group
  • 20. Labour and Social Trends in Indonesia 2010: Translating Economic Growth into Employment Creation, International Labour Organization, Jakarta, p.38, http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---ilo-jakarta/documents/publication/wcms_154355.pdf A labor-intensive work force may indicate opportunities for foreign businesses…. Indonesia IT Pay scale in Comparison to U.S. Title Pay scale Source date Software Engineer 7.9% of US Feb. 2010 Senior Software Engineer 26.7% of US March 2010 IT Project Manager 30.8% of US March 2010 Junior Business Process Outsourcing 9.5% of US March 2010 Skilled Business Process Outsourcing 21.3% of US March 2010 Operations Manager 32% of US March 2010
  • 21. Strategies to Shortage of IT Talent Pool
    • Jobs with Lower level of technological sophistication and value addition
    • Equip the young with skills through company sponsored education
    • Offer better employee benefits/compensation program for talent retention
    Indonesia: Cellular Services, U.S. Commercial Service, Kalung Riang, 9/2010
  • 22. First Internet Service…
    • UUCP (Unix to Unix Copy Protocol)
    • Exchange of emails.
    • First ISP – INDONET (1994)
    • Some ISPs in Indonesia
    • Indonet, Telkom, CBN, Rednet, Centrin, Biznet
    First Internet Service… http://www.internetworldstats.com/asia/id.htm
  • 23. The number of Internet subscribers have been gradually increasing ….. Indonesia had an estimated 30 million internet users in 2010 (13% of the total population). Internet World Stats http://www.internetworldstats.com/asia/id.htm
  • 24. T he highest percent growth in 2009-10, with 32% rise in the internet users over other Southeast Asian countries
  • 25.
    • International ISPs-
    • AOL & AT&T with US$ fee.
    • Broadband usage only 18% of all internet users
    • ISP purchase bandwidth from INDOSAT.
    • Newer modems have max
    • transmission speed of 56 kbps
    - www.indo.net & www.expat.org.id
  • 26. Internet Users in Indonesia
    • 30 million in 2010 (13% of the population)
    Internet Users in Indonesia
  • 27. Developments…
    • Enable higher efficiency for access
    • of foreign websites.
    • Growth of Web 2.0
    • Promoting wireless broadband
    • (Bakrie Telekom and PT Telekom were the first movers )
    • (Bakrie Telecom acquired the CDMA unit of PT Telekomunikasi for $1 billion - 2010)
    Developments…
  • 28. Outsourcing to Indonesia? Why?
    • Avg. labor cost going up in China
    • Cheap & skilled labor
    • force
    • Lower cost
    • Tax benefits.
    • American-type
    • democracy system
    Outsourcing to Indonesia? Why? http://comm215.wetpaint.com/page/Indonesia%3A+Internet+Penetration
  • 29. Types of Outsourcing services..
    • BPOs
    • Payroll
    • Labor supply
    • Business Consulting
    • Security services
    • Maintenance & technical support
    • Credit & Risk operations
    • Storage & Data services
    Types of Outsourcing Services
  • 30.
    • American companies like Microsoft, Cisco, Hewlett Packard, Honeywell, Dell etc. have been outsourcing their services to Indonesia .
    • Outsourcing Indonesia (CNN, Citibank, Chevron etc.)
    • ( www.outsourcing.co.id )
    • Accenture, IBM, TCS, Cisco- partnership with local clients to manage increasingly specialized business operations, such as finance and accounting, IT, applications development and maintenance, help-desk services and HR.
    Outsourcing Services to Indonesia http://www2.hhs.se/eijswp/124.PDF
  • 31. IT Providers
    • Accenture, IBM, Microsoft Indonesia, Oracle, HP, TCS
    • IT Services Indonesia- $ 898 million (2011)
    • ($ 769 million in 2010)
    • Local IT providers (PT Outsourcing Indonesia, PT Walden Global Services, Bhinneka Mentari Dimensi)
    • Oracle has an agreement with local IT provider- PT Sigma Cipta Caraka to provide outsourcing services.
    IT Providers Reference http://goarticles.com/article/Seven-amazing-information-About-Indonesia/4268186/ http://www.robertsetiadi.net/articles/indo_itoutsourcing.htm
  • 32. IT Opportunities
    • Technology adoption, educated population & deregulation of telecom sector.
    • Copyright Protection Laws, internet growth, increase in IT expenditure.
    • http://www.expat.or.id/business/companyestablishment.html
    Due to increase in ….. IT Development Opportunities in Indonesia are boosting up .
  • 33.
    • Focusing on Telecommunication infrastructure & communication.
    • Growing demand for IT in banking & finance.
    • Evolving from basic ERP applications to strategic modules like CRM & business analytics.
    • Opportunities in support
    • system, outsourcing and
    • system integration.
    New IT Trends in Indonesia… http://www.bhinneka.com/aspx/bhindexpc.aspx Growth OF Service Sector in Indonesia (growing @ 5.9%) 2006 48.9% of GDP 2009 51.9% of GDP
  • 34.
    • emphasize domestic innovative efforts
    • (building domestic R&D)
    • utilize external sources
    • (FDI, licensing, subcontracting,)
    • The two different technology sources – domestic and foreign – have both been used in varying degrees in Indonesia.
    • Latest official estimates by the government of Indonesia suggest FDI inflow for the country in 2011 could increase by 174%
    Getting Technological Capabilities http://www.thejakartapost.com/news/2010/04/12/services-sector-an-alternative-route-high-growth.html
  • 35.
    • Many local IT services providers deal in Product development.
    • Develop both desktop & web-based applications.
    • Software, systems & servers, security system development.
    • Huawei Technologies does a lot of R&D work providing next-generation telecommunication network
      • Providing software solutions for telecom companies
      • GSM & CDMA access products
    • IT is used in Rubber Industry R&D facility
    • Organization like BATA use IT for their R&D in Shoe Technology
    Product Development & Research http://www.thejakartapost.com/news/2010/04/12/services-sector-an-alternative-route-high-growth.html
  • 36.
    • Microsoft Indonesia reports that cloud computing accounts for 20% of its local revenues is growing at about 50% per year.
    • Use of Platform-as- a-service
    • (PaaS)- application development
    • & delivery.
    • SaaS- renting software from a
    • provider.
    Cloud Computing in Indonesia… http://en.indonesiafinancetoday.com/read/3430/Cloud-Computing-Boosts- Accounting-Software-Service-Business
  • 37. Future plans..
    • Double Internet users to 1.2 billion by 2015 (with Brazil, Russia, India & China)
    • Growth at media companies and phone carriers.
    • Wireless subscription to 100% of the population by 2015.
    • Promoting WiMax based services
    • The Indonesia Information Technology Report
    Strategies for Future The Indonesia Information Technology Report
  • 38.
    • 4 th most populated country means huge domestic market
    • 66% of population between 15-64 years indicating a massive work force
    • High initial investment due to lack of infrastructure and uneven regional developments
    • High entry barrier due to weak and ineffective regulatory environment not always friendly to foreign businesses
    • Prolong upfront cost in training local skilled labor
    Recommendations Are you willing to turn issues into opportunities?
  • 39.
    • Indonesia shows higher degree of technological sophistication in their exports compared with other Asian countries.
    • Pool of skilled professionals at cheaper cost.
    • High technological development
    • Increased FDI over the coming years.
    • Developing domestic R&D capabilities.
    Recommendations
  • 40.