Indonesia final


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Indonesia final

  1. 1. IT Issues & Opportunities GMBA 5885 Richa Arora & Shiya Hsu 4-27-2011
  2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>Environment Overview </li></ul><ul><ul><li>Social Environment </li></ul></ul><ul><ul><li>Cultural Environment </li></ul></ul><ul><ul><li>Economic Environment </li></ul></ul><ul><ul><li>Technological Environment </li></ul></ul><ul><li>Issue: </li></ul><ul><ul><li>Telecommunication Infrastructure Quality </li></ul></ul><ul><ul><li>IT Regulatory Environment </li></ul></ul><ul><ul><ul><li>IPR Protection (Software Piracy) </li></ul></ul></ul><ul><ul><li>IT Personnel Supply </li></ul></ul><ul><li>Opportunities: </li></ul><ul><ul><li>Internet Access/Usage </li></ul></ul><ul><ul><li>Opportunities for IT Outsourcing </li></ul></ul><ul><ul><li>Existing IT Providers and Potential Partners </li></ul></ul><ul><ul><li>IT Enabled Opportunities </li></ul></ul><ul><li>Recommendations </li></ul>
  3. 3. Social Environment <ul><li>Republic of Indonesia- Southeast Asian country. </li></ul><ul><li>Capital - JAKARTA </li></ul><ul><li>17,508 islands with distinct ethnic, </li></ul><ul><li>and religious groups. </li></ul><ul><li>Official Language- Indonesian </li></ul><ul><li>Currency- RUPIAH </li></ul><ul><li>Population- 245 million (est. 2011) </li></ul><ul><li>(world’s 4 th populous country) </li></ul>
  4. 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. 5. <ul><li>The majority, 86% of the population follow Islam. </li></ul><ul><li>Culture- mix of Chinese, European, Indian, and Malay. </li></ul><ul><li>The families have traditional structure </li></ul><ul><li>Hierarchical-structure with group </li></ul><ul><li>orientation. </li></ul><ul><li>Decisions on group discussion and </li></ul><ul><li>consensus. </li></ul><ul><li>Indonesian language has 12 ways of saying &quot;No&quot; and other ways of saying &quot;Yes&quot; when the actual meaning is &quot;No&quot; !! </li></ul>Cultural Environment
  6. 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,
  7. 7. but still falls behind others .... Per Capita GDP (in 2000 $)     - Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.7, - Labour and Social Trends in Indonesia 2010: Translating Economic Growth into Employment Creation, International Labour Organization, Jakarta, p.7 & 8, Services sector drives GDP growth
  8. 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,
  9. 9. 13.3% below poverty line & 50% borderline poor Headcount Indexes based on Four Poverty Lines in Selected Southeast Asian Countries (2002-2006, %)     <ul><li>Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.15, </li></ul><ul><li>- Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.14, </li></ul>Poverty is region-specific Poverty Headcount Rate by Region (1996-2009, %)
  10. 10. Technological Environment <ul><li>Substantial Improvements </li></ul><ul><ul><li>34 million use landlines </li></ul></ul><ul><ul><li>260 million cell users </li></ul></ul><ul><ul><li>Mobile penetration @ 54% in 2010 </li></ul></ul><ul><ul><li>20 million online users </li></ul></ul><ul><ul><li>Top 10 Facebook markets worldwide </li></ul></ul><ul><ul><li>4 th Twitter market worldwide </li></ul></ul>Mobile Phone penetration in Indonesia Triples in Five Years, Feb. 23, 2011,
  11. 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, Low infrastructure = Low Global Competitiveness Quality of Key Infrastructure (among 133 countries)
  12. 12. Areas lacking in Telecommunication Infrastructure: <ul><li>low level of teledensity, due to low investment in and unequal distribution of infrastructure </li></ul><ul><li>low and uneven Internet penetration </li></ul><ul><li>lack of competition in the sector as state-owned businesses occupy the majority of the market </li></ul><ul><li>lack of consistent and independent regulations on telephone and Internet services </li></ul><ul><li>- Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.31, </li></ul>
  13. 13. Impacts to Poor Infrastructure: <ul><li>Higher cost of doing business </li></ul><ul><ul><li>Unstable electricity = generating one’s own power </li></ul></ul><ul><ul><li>Poor road conditions = prolonged unnecessary travel time </li></ul></ul><ul><li>- Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.75 & 77, </li></ul>
  14. 14. ISSUE 2: IT Regulatory Environment <ul><li>Decentralization ineffectiveness & corruption </li></ul><ul><li>Dissatisfaction towards regulatory environment </li></ul><ul><li>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 </li></ul><ul><li>Administrative agencies are weak & ineffective </li></ul><ul><li>Overlapping authorities between governing agencies add confusion </li></ul><ul><li>New laws conflict with the old </li></ul><ul><li>Institution to ensure competitive behavior lacks legislative backing and is ineffective in enforcing rules </li></ul>
  15. 15. Impacts to Weak Regulatory Environment <ul><li>Low Government effectiveness = slow delivery of government services and infrastructure </li></ul><ul><li>High corruption rate = additional entry barrier/constraint </li></ul><ul><li>86% business have had informal payment & bribes to officials which averaged 6% of annual production </li></ul><ul><li>Government officials visited the firms often and are expected to receive gifts or bribes during their visits </li></ul><ul><li>Weak regulation leads to operational uncertainty </li></ul><ul><li>Regulatory bodies unable to maintain a fair market and are often prejudiced toward protecting local business </li></ul><ul><li>- Indonesia: Critical Development Constraints, Asian Development Bank, July 2010, p.38, </li></ul>Weak Regulation = Higher Cost of Doing Business
  16. 16. Strategies to Weak Regulatory Environment <ul><li>Be region-selective as laws are often region specific </li></ul><ul><li>‘ local manufacturing policy’ (50% locally produced) </li></ul><ul><li>Up to 65% foreign ownership in telecom sector </li></ul><ul><li>Work with local partners </li></ul><ul><li>Hire local and employ then for management position </li></ul><ul><li>Maintain good relationship with government agencies </li></ul>Indonesia: Cellular Services, U.S. Commercial Service, Kalung Riang, 9/2010
  17. 17. ISSUE 2.1: IPR Protection <ul><li>Piracy & Counterfeiting thrives (especially optical disc piracy) </li></ul><ul><li>Cable signal piracy and illegal downloading are pervasive </li></ul><ul><li>Impact is costly </li></ul><ul><ul><li>Estimated 40% of drugs in Indonesia are counterfeits, costing losses in tax revenue of $65.4 million in 2005 along </li></ul></ul><ul><li>Actions: </li></ul><ul><ul><li>Write a cease and desist letter </li></ul></ul><ul><ul><li>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) </li></ul></ul><ul><ul><li>Bring the infringer to court (can be ineffective as the court may favor local) </li></ul></ul><ul><li>Best to have a comprehensive Indonesia-registered IP portfolio </li></ul>ndonesia, Kin Wah Chow, p.2, Pharmaceutical Trademarks 2010 - A Global Guide, Managing Intellectual Property, Indonesia Supreme Court Strengthens Protection for Well-Known Marks, Oct. 1, 2007,
  18. 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, - Translating Economic Growth into Job Creating and Poverty Reduction, Lack of Education Poor Labor Quality Low Labor Productivity
  19. 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, Low Educational Attainment = Less highly skilled workers Disaggregation of Exports by Technological Sophistication Group
  20. 20. Labour and Social Trends in Indonesia 2010: Translating Economic Growth into Employment Creation, International Labour Organization, Jakarta, p.38, 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. 21. Strategies to Shortage of IT Talent Pool <ul><li>Jobs with Lower level of technological sophistication and value addition </li></ul><ul><li>Equip the young with skills through company sponsored education </li></ul><ul><li>Offer better employee benefits/compensation program for talent retention </li></ul>Indonesia: Cellular Services, U.S. Commercial Service, Kalung Riang, 9/2010
  22. 22. First Internet Service… <ul><li>UUCP (Unix to Unix Copy Protocol) </li></ul><ul><li>Exchange of emails. </li></ul><ul><li>First ISP – INDONET (1994) </li></ul><ul><li>Some ISPs in Indonesia </li></ul><ul><li>Indonet, Telkom, CBN, Rednet, Centrin, Biznet </li></ul>First Internet Service…
  23. 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
  24. 24. T he highest percent growth in 2009-10, with 32% rise in the internet users over other Southeast Asian countries
  25. 25. <ul><li>International ISPs- </li></ul><ul><li>AOL & AT&T with US$ fee. </li></ul><ul><li>Broadband usage only 18% of all internet users </li></ul><ul><li>ISP purchase bandwidth from INDOSAT. </li></ul><ul><li>Newer modems have max </li></ul><ul><li>transmission speed of 56 kbps </li></ul>- &
  26. 26. Internet Users in Indonesia <ul><li>30 million in 2010 (13% of the population) </li></ul>Internet Users in Indonesia
  27. 27. Developments… <ul><li>Enable higher efficiency for access </li></ul><ul><li>of foreign websites. </li></ul><ul><li>Growth of Web 2.0 </li></ul><ul><li>Promoting wireless broadband </li></ul><ul><li>(Bakrie Telekom and PT Telekom were the first movers ) </li></ul><ul><li>(Bakrie Telecom acquired the CDMA unit of PT Telekomunikasi for $1 billion - 2010) </li></ul>Developments…
  28. 28. Outsourcing to Indonesia? Why? <ul><li>Avg. labor cost going up in China </li></ul><ul><li>Cheap & skilled labor </li></ul><ul><li>force </li></ul><ul><li>Lower cost </li></ul><ul><li>Tax benefits. </li></ul><ul><li>American-type </li></ul><ul><li>democracy system </li></ul>Outsourcing to Indonesia? Why?
  29. 29. Types of Outsourcing services.. <ul><li>BPOs </li></ul><ul><li>Payroll </li></ul><ul><li>Labor supply </li></ul><ul><li>Business Consulting </li></ul><ul><li>Security services </li></ul><ul><li>Maintenance & technical support </li></ul><ul><li>Credit & Risk operations </li></ul><ul><li>Storage & Data services </li></ul>Types of Outsourcing Services
  30. 30. <ul><li>American companies like Microsoft, Cisco, Hewlett Packard, Honeywell, Dell etc. have been outsourcing their services to Indonesia . </li></ul><ul><li>Outsourcing Indonesia (CNN, Citibank, Chevron etc.) </li></ul><ul><li>( ) </li></ul><ul><li>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. </li></ul>Outsourcing Services to Indonesia
  31. 31. IT Providers <ul><li>Accenture, IBM, Microsoft Indonesia, Oracle, HP, TCS </li></ul><ul><li>IT Services Indonesia- $ 898 million (2011) </li></ul><ul><li>($ 769 million in 2010) </li></ul><ul><li>Local IT providers (PT Outsourcing Indonesia, PT Walden Global Services, Bhinneka Mentari Dimensi) </li></ul><ul><li>Oracle has an agreement with local IT provider- PT Sigma Cipta Caraka to provide outsourcing services. </li></ul>IT Providers Reference
  32. 32. IT Opportunities <ul><li>Technology adoption, educated population & deregulation of telecom sector. </li></ul><ul><li>Copyright Protection Laws, internet growth, increase in IT expenditure. </li></ul><ul><li> </li></ul>Due to increase in ….. IT Development Opportunities in Indonesia are boosting up .
  33. 33. <ul><li>Focusing on Telecommunication infrastructure & communication. </li></ul><ul><li>Growing demand for IT in banking & finance. </li></ul><ul><li>Evolving from basic ERP applications to strategic modules like CRM & business analytics. </li></ul><ul><li>Opportunities in support </li></ul><ul><li>system, outsourcing and </li></ul><ul><li>system integration. </li></ul>New IT Trends in Indonesia… Growth OF Service Sector in Indonesia (growing @ 5.9%) 2006 48.9% of GDP 2009 51.9% of GDP
  34. 34. <ul><li>emphasize domestic innovative efforts </li></ul><ul><li>(building domestic R&D) </li></ul><ul><li>utilize external sources </li></ul><ul><li>(FDI, licensing, subcontracting,) </li></ul><ul><li>The two different technology sources – domestic and foreign – have both been used in varying degrees in Indonesia. </li></ul><ul><li>Latest official estimates by the government of Indonesia suggest FDI inflow for the country in 2011 could increase by 174% </li></ul>Getting Technological Capabilities
  35. 35. <ul><li>Many local IT services providers deal in Product development. </li></ul><ul><li>Develop both desktop & web-based applications. </li></ul><ul><li>Software, systems & servers, security system development. </li></ul><ul><li>Huawei Technologies does a lot of R&D work providing next-generation telecommunication network </li></ul><ul><ul><li>Providing software solutions for telecom companies </li></ul></ul><ul><ul><li>GSM & CDMA access products </li></ul></ul><ul><li>IT is used in Rubber Industry R&D facility </li></ul><ul><li>Organization like BATA use IT for their R&D in Shoe Technology </li></ul>Product Development & Research
  36. 36. <ul><li>Microsoft Indonesia reports that cloud computing accounts for 20% of its local revenues is growing at about 50% per year. </li></ul><ul><li>Use of Platform-as- a-service </li></ul><ul><li>(PaaS)- application development </li></ul><ul><li>& delivery. </li></ul><ul><li>SaaS- renting software from a </li></ul><ul><li>provider. </li></ul>Cloud Computing in Indonesia… Accounting-Software-Service-Business
  37. 37. Future plans.. <ul><li>Double Internet users to 1.2 billion by 2015 (with Brazil, Russia, India & China) </li></ul><ul><li>Growth at media companies and phone carriers. </li></ul><ul><li>Wireless subscription to 100% of the population by 2015. </li></ul><ul><li>Promoting WiMax based services </li></ul><ul><li>The Indonesia Information Technology Report </li></ul>Strategies for Future The Indonesia Information Technology Report
  38. 38. <ul><li>4 th most populated country means huge domestic market </li></ul><ul><li>66% of population between 15-64 years indicating a massive work force </li></ul><ul><li>High initial investment due to lack of infrastructure and uneven regional developments </li></ul><ul><li>High entry barrier due to weak and ineffective regulatory environment not always friendly to foreign businesses </li></ul><ul><li>Prolong upfront cost in training local skilled labor </li></ul>Recommendations Are you willing to turn issues into opportunities?
  39. 39. <ul><li>Indonesia shows higher degree of technological sophistication in their exports compared with other Asian countries. </li></ul><ul><li>Pool of skilled professionals at cheaper cost. </li></ul><ul><li>High technological development </li></ul><ul><li>Increased FDI over the coming years. </li></ul><ul><li>Developing domestic R&D capabilities. </li></ul>Recommendations