Indonesia

Indonesia!
Assessing the case for a business software
provider entering this market

GIP Group 59!
1121227

1113221

0937052

1120739

1131940

1120642

9!
Political

(Utexas)

Group 59 | Business Software Provider - Indonesia

9 Political

(Masjamal
Blogde2k)
(Sejarahku,
2011)
(Ysulaiman)

Prabowo Subianto Aburizal Bakrie
Megawati
Sukarnoputri

9 Political

•  Global competitiveness
•  Business friendly political climate
•  Increasing political stability

(Umpungeng)


9 Political

•  Wide Spread
corruption

•  Political
intervention


9!
Political

Strengths
Weaknesses

Improving
compe22veness

Widespread
corrup2on

Business-‐friendly
poli2cal
Poli2cal
interven2on

climate


9!
Economic


9 Economic
•  One of the fastest growing and most promising economy in the world
•  Expected to become 7th largest economy of the world by 2030
•  Strong fiscal position, high net capital inflows, growing consumer
class

-> credit rating updated to investment grade by Fitch and Moody’s

-> therefore increasing foreign investors interest

Foreign
direct
investment,
net
inflows
(BoP,
current
US$)

20,000,000,000

15,000,000,000

10,000,000,000

5,000,000,000

0

2003
2004
2005
2006
2007
2008
2009
2010
2011

-‐5,000,000,000

Source:
The
World
Bank


9 GDP trends - Economic

Figure
1.
GDP
and
GDP
growth
in
Indonesia

•  Constant GDP growth of
around 6% since 2010 and 1600
10

trend expected to continue
1400

9

8

1200

7

•  High domestic consumption 1000

Growth
rate
(%)

6

(around 75% of GDP) and

$
Billion

800
5

small contribution of exports 600

4

to GDP allow it to cope well 3

400

with crisis and slowdowns
2

200

1

0
0

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Source:
IMF,
2012
GDP


9 Inflation & Unemployment - Economic
Figure
3.

Indonesia’s
InflaLon,
consumer
prices
(annual
%)

•  In 2012, record low inflation of 16

4.3% because of weaker 14

growth
12

10

•  However, expected to 8

6

increase to 5.2% in 2013 4

because of strong growth 2

momentum
0

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Source:
The
World
Bank,
2012

•  Various government measures
helped decrease
unemployment constantly
since 2006


9 Interest Rates - Economic

•  Central bank holds interest rates at a record low level of 5.75% after
concerns due to 2012 slowing growth

•  Consumer demand has therefore increased


9 Exchange rates - Economic

•  Indonesia Rupiah represent a real risk for foreign investors

•  Considered as one of Asian worst performing currency in 2012

•  Expected to continue its weakening in 2013 before recovering in 2014
Figure
5.
Indonesian
Rupiah
per
US
Dollar

12000

11500

11000

10500

10000

9500

9000

8500

8000

2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Source:
The
World
Bank,
2012


9!
Economic
Strengths
Weaknesses

Solid
macroeconomic
Too
dependent
on
Asian

environment

countries

Stable
economic
growth
Vola2le
exchange
rates

High
FDI
inﬂows
especially
in
IT
Low
GDP
per
capita

High
domes2c
consump2on

Diversiﬁed
economy


9!
Sociological


9 Young Work Force - Sociological

The
Demographics
of
Indonesia

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Popula2on
ages
0-‐14
(%
of
total)
SP.POP.0014.TO.ZS
Popula2on
ages
15-‐64
(%
of
total)
SP.POP.1564.TO.ZS

Popula2on
ages
65
and
above
(%
of
total)
SP.POP.65UP.TO.ZS

Data
from
WorldBank(2012)


9 Skilled? - Sociological

Labour
force
educaLon

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Labor
force
with
primary
educa2on
(%
of
total)
SL.TLF.PRIM.ZS
Labor
force
with
secondary
educa2on
(%
of
total)
SL.TLF.SECO.ZS

Labor
force
with
ter2ary
educa2on
(%
of
total)
SL.TLF.TERT.ZS
Data
from
WorldBank(2012)


9 Work culture - Sociological

(Morris
2005)


9 Work culture - Sociological

Data
from
WorldBank(2012)

9 Consumerism …

(TheBestTravelDestinations 2012)
(MercyCorps 2011)


9 Digital Literacy
Internet
users
(per
100
people)
Mobile
cellular
subscripLons

20
(per
100
people)

120

18

16

100

14

12
80

10

60

8

6
40

4

20

2

0

0

1995

1997

1998

1999

2001

2005

2007

2008

2009

2011

1994

1996

2000

2002

2003

2004

2006

2010

2003
2004
2005
2006
2007
2008
2009
2010
2011

Data from WorldBank(2012)

9!
Sociological
Strengths
Weaknesses

Young
and
educated
work
force
Social
tension

Low
Wage
‘Par2cular’
work
culture

Employee
loyalty
Scarce
skilled
labour

Growing
consumerist
culture
Stagnant
labour
produc2vity

Digitally
literate
popula2on


9!
Technological


9 Mobile vs Domestic - Technological

•  Greater use of mobile technology
•  Broadband services mainly business orientated

Internet
users
(per
100
people)
Mobile
cellular
subscripLons
(per
100
people)

20
120

100

15

80

10
60

40

5

20

0

0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2003
2004
2005
2006
2007
2008
2009
2010
2011

Data from WorldBank(2012)

9 R&D - Technological

•  Government’s R&D budget is less than 1% of total
state expenditure
•  Low innovation

However,

•  USA partnership
•  4G due soon


9!
Technological
Strengths
Weaknesses

A
4G
Network
Low
R&D
spending

Strong
current
growth
Lifle
innova2on

Large
poten2al
Sogware
piracy


9!
Legal


9 Anti-Corruption Law - Legal

•  Stricter laws
•  New corruption court

However,

•  Weak Enforcement!

(News.Az,
2011)

9 Intellectual Property Law - Legal

•  Computer software piracy rate
•  87%
•  Weak protection of copyright
•  Lack of transparency in court system
•  Unable to learn legal principles


9 Labour Law - Legal

•  Rigid!
•  Terminating employment contracts?
•  High severance pay
•  Outsourcing?
•  No longer available!

(Anurag
Tomar
and
Associates)

9 Income Tax Law - Legal

•  Reduced from 28% to 25%
•  Relatively low?
•  Germany: 29.48%

However,

•  UK 2013: 23%
•  Hong Kong: 16.5%
•  Slight attraction


9!
Legal
Strengths
Weaknesses

New
an2-‐corrup2on
legisla2on
Social
prevalence
of
piracy

Low
ﬂat
corporate
tax

Corrup2on
and
lack
of

transparency
in
the
court

system

Rigid
labour
laws


9!
Environmental


9 Environmental

SUPPORT
FOR
GEOTHERMAL
AND
GAS
INDUSTRY

• 
Op2mising
energy
mix.

•  Scaling
up
renewable
energy

sources
such
as
geothermal

(Giz
Renewable
Energy
Project)

ABUNDANCE
OF
NATURAL
RESOURCES

• 
Unexplored
due
to
the

lack
of
technology

•  Revising
the
law
to
permit

(The
Wall
Street
Journal,
2010)

foreign
investors


9 Environmental

WATER AND AIR POLLUTION
•  Inadequate measurement in monitoring the air quality
•  Emission test on vehicles and Car Free day
•  Water sanitation program is being launch


9 Environmental
NATURAL DISASTER

•  Situated between the Paciﬁc
Ring of Fire and the Alpide Belt

•  Recent examples :
•  earthquake with a
magnitude of 8.6
•  Mount Lokon, a volcanic
mountain had erupted
•  Flooding in Jakarta

(The
Guardian,
2012)


9!
Environmental
Strengths
Weaknesses

Government
support
for
High
occurence
of
natural

geothermal
and
natural
gas
disasters
such
as
ﬂoods
and

industry
earthquake

Abundance
of
natural
Need
for
advanced
technology

resources

Ac2ons
against
air
and
water

pollu2on

Resilient
businesses


9!
Porter’s Factors


9 Porters Factors

PHYSICAL RESOURCES
•  Diverse natural resources but largely remains untapped due
to lack of technology.
•  Government is scaling up renewable resources
•  Renewable Energy Sources in Eastern Indonesia,
Metropolitan Sanitation Management and Health Project II,
Water Supply and Sanitation Sector Development,
Geothermal Power Development Project.

KNOWLEDGE RESOURCES
•  Privatisation lead to upgrade in IT system.
•  Companies have low awareness on IT upgrade.
•  High levels of piracy reducing incentives to innovate.


9 Porters Factors

PERSONNEL
•  Labour force is becoming more qualiﬁed
•  Competitive salaries provide cost-saving.
•  Collaboration with Germany, Japan, and US in education
program to improve the quality of personnel in IT industry.

INFRASTRUCTURE
•  Archipelago’s infrastructure need to be improve.
•  Public Private Partnership (PPP) scheme.
•  Extensive roads, railways, waterways and 652 airports
ensuring high accessibility.
•  Fastest growing mobile phone market in Asia-Paciﬁc.


9 Porters Factors

CAPITAL RESOURCES
•  Credit rating improvement.
•  Relatively low-cost of issuing debt.
•  Government is encouraging private ﬁrms to issue bonds.
•  Low liquidity in stock market.
•  Domestic-oriented economy
•  Bond market is vulnerable towards global shrinking in capital
and risk aversion.


9 Conclusion"
! Strengths
Weaknesses

Rising demand Weak IPR
for software
protection

Improving Corruption
infrastructure and
skilled labour force.
Political
Natural disaster- unpredictability
resistant business
environment
Low IT
business
penetration
Low
wages
Unconventional

work
culture

9 References
•  hfp://www.reuters.com/ar2cle/2012/10/22/us-‐indonesia-‐economy-‐fdi-‐idUSBRE89L04220121022

•  Morris,
D.P.
(2005).
Women
work
in
the
Sampoerna
clove
cigarefe
factory
in
East
Java
of

Indonesia.
[Online].
(URL
hfp://dpm888.photoshelter.com/image/I00002XNWM7ytxzA).
(Accessed

06.02.2013)

•  TheBestTravelDes2na2ons.
(2012).
Afrac2ons
in
Jakarta.
[Online].
(URL

hfp://thebesfraveldes2na2ons.com/wp-‐content/uploads/2010/03/Jakarta2-‐600x408.jpg).

(Accessed
06.02.2013).

•  MercyCorps
(2011).
Boos2ng
disaster
resilience.
[Online].
(
hfp://www.mercycorps.org/contributors/bijagutoﬀ?page=3)
(Accessed
06.02.2013).

•  Giz
renewable
energy
project,
Geothermal
Plant
(online
image).
Available
at:
hfp://
www.renewableenergy.org.vn/uploads/news/id1751/Geothermal%201.jpg
(Accessed:
5th
february

2013)

•  The
Guardian,
Mount
Lokon
Erup2on
(Online
image)
available
at:
hfp://cdn.theguardian.tv/bc/
281851582/281851582_1056003248001_20110715volcano-‐4946336.jpg?pubId=281851582

(accessed:
5th
January
2013)

•  The
Wall
Street
Journal,
Oil
Drilling
(online
image).
Available
at:
hfp://si.wsj.net/public/resources/
images/OB-‐HZ730_oildri_G_20100331084657.jpg
(Accessed:
9th
February
2013)

•  The
Jakarta
Post,
Car
Free
Day
Emission
reduc2on
(Online
image).
Available
at:
hfp://si.wsj.net/
public/resources/images/OB-‐HZ730_oildri_G_20100331084657.jpg
(Accessed:
9th
February
2013)


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