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Indonesia
An IT Profile
MIS 680 Fall 2004
Rick Fenster
Steve Dudas
Marty Gagnier
Carolyn Moroz
The People
• Over 238 million people in 2004 (4th largest
country in the world)
• 1.5% annual population growth rate
• Median age is approximately 26
• Life expectancy around 70 years
• Age Structure
– 29.4% 0-14yrs
– 65.5% 15-64
– 5.1% 65 and over
Ethnic Groups
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Javanese people 45%
Sudanese people 14%
Madurese people 7.5%
Costal Malays 7.5%
Other 26% (many small groups)
No indication that ethnicity issues would
impact the IT investment decision
Religious Groups
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Islamic 87% (worlds largest Islamic nation)
Protestant 6%
Catholic 3%
Hindu 2%
Buddhist & Other 2%
Does the religious make-up affect the
potential for IT investment?
Languages
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•
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583 languages and dialects spoken
Bahasa Indonesian is the official language
English
Dutch
Local dialects (most widely spoken is Javanese)
Although Bahasa Indonesia has become the
official language, local languages and dialects
continue to be spoken and will not be abolished
• However the common use of Bahasa Indonesian
has helped unify the country since independence
in 1949
Geography
• Located in Southeastern Asia
• Archipelago between the Indian ocean and Pacific
ocean
• Close to 2 million square miles in area (almost 3
times the size of Texas)
• Comprised of 5 main islands (Sumatra,
Java/Madura, Kalimantan, Sulawesi, Irian Jaya)
and 17,000 smaller islands
• Population highly concentrated in these main
islands
• Capital city is Jakarta
• Bridges 2 continents, Asia and Australia
Geography
Indonesia
CIA
Factbook
History
• Early inhabitants were primarily Indian from
Southeast India who adopted the Hindu religion
• Spread of Islam began to take root in the 13th
century and culminated with the capture of the
capital city (Jaya Karta) in 1527
• Dutch merchants in quest for spices arrive in
1600’s and begin period of Dutch Colonialism
• Dutch rule characterized by ruthless exploitation
and monopolization of resources
• Portuguese control Eastern part of Indonesia
• Dutch repel numerous attempts to gain control of
Indonesia, resulting in large casualties
History-2
• Numerous revolts ensued between 1816-1908
against Dutch colonial rule
• Nationalistic movements of a more organized
nature took root in 1908 with the forming of the
“Boedi Oetomo” (noble conduct).
• Dutch embark on restricting Indonesia civil
liberties further by eliminating freedom of
assembly, speech and expression
• Indonesian Nationalist Party (PNI) formed in 1927
adopting a militant policy against Dutch
colonialism
• 1931-1940 characterized by the formation of many
political parties demanding independence
History-3
• Japanese occupation from WWII 1942-1945
• Independence achieved August 17, 1945 with the
formation of the Republic of Indonesia
• Dutch formally surrender in 1949 and agree to
withdrawal
• Sovereign nation status achieved in 1950
• 1950-1967 The Sukarno era characterized by
political and economic disorder
• President Suharto begins formation of New Order
Government in 1967. Rules for 32 years as
dictator.
• 1999 – Fall of New Order and the removal of
Suharto from power pave way for free elections
Government
• Republic of Indonesia (Unitary Multiparty Democratic
Republic)
• Elected People’s Consultative Assembly (Legislative body)
• Current parties in House of Representatives:
– Golkar Party: (21.6%) 128 seats (New Order party of the
wealthy and upper-class)
– PDI-P: (18.5%) 109 seats (Indonesian Democratic Party
supported by nationalists and working class voters)
– PPP Party: (8.2%) 58 seats (Moslem supported)
– PD Party: (7.5%) 57 seats (working class, socialdemocratic)
– PKB Party: (10.6%) 52 seats (Moslem supported)
– PAN Party: (6.4%) 52 seats (Urban middle-class)
– PKS Party: (7.3%) 45 seats (Moslem puritans)
Note: Due to election rules, the number of seats won does
not always correspond to the number of votes received.
Government
3 different leaders
between 1998 and 2004
1949
1950
Independence The Sukarno era
1967
New Order
Gov’t of Suharto
1998
2004
End of Suharto
Dictatorship
First Free
Elections
Almost 55 years after Independence is declared from the
Dutch before the first truly democratic free elections are held.
Politics
• World’s third largest democracy
(http://news.inq7.net/world/index.php?index=1&story_id=12539)
• Sept 20, 2004 elections could see 4th leader since
Suharto was ousted in 1998
– President Megawati Sukarnoputri, incumbent
– Retired General Susilo Bambang Yudhoyono
• Official results available October 5
• Predictions:
• General Yudhoyono won by a “landslide” (60% to 39%)
(http://news.inq7.net/world/index.php?index=1&story_id=12539)
• 80% voter turnout (122 million people)
(http://news.inq7.net/world/index.php?index=1&story_id=12539)
Natural Resources
• Petroleum, tin, natural gas, nickel, timber,
bauxite, copper, fertile soils, coal, gold,
silver.
• Agriculture products:
Rice, cassava (tapioca), peanuts, rubber,
cocoa, coffee, palm oil, copra, poultry, beef,
pork, eggs
Economy
• Economy not good, but is improving
GDP
GDP
$800
$600
$400
$200
$0
GDP
1999
2000
2001
2002
2003
$610
$654
$687
$663
$758
GDP shown as purchasing power parity (in billions)
Economy
RealReal
Growth
RateRate
Growth
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Real Growth Rate
1999
2000
2001
2002
2003
0.0%
4.8%
3.3%
3.5%
4.0%
Economy
GDP Per
GDPCapita
Per Capita
$3,300
$3,200
$3,100
$3,000
$2,900
$2,800
$2,700
$2,600
GDP Per Capita
1999
2000
2001
2002
2003
$2,800
$2,900
$3,000
$3,100
$3,200
GDP Per Capita shown as purchasing power parity
Economy
Inflation
Inflation
Rate Rate
15.0%
10.0%
5.0%
0.0%
Inflation Rate
1999
2000
2001
2002
2003
2.0%
9.0%
11.5%
11.9%
6.6%
Economy
Unemployment Rate
20.0%
15.0%
10.0%
5.0%
0.0%
Unemployment Rate
1998
2001
2002
2003
17.5%
8.0%
10.6%
8.7%
Economy
• Economic Aid: $43 billion
• Indonesia finished its IMF program in
December 2003 but still receives bilateral
aid through the Consultative Group on
Indonesia (CGI), which pledged $2.8 billion
in grants and loans for 2004. (2003 est.)
Source: http://www.cia.gov/cia/publications/factbook/geos/id.html
Business & Culture
• Indonesia is a very stratified and hierarchical society
• Time is considered limitless and they view hurrying as a
sign of impoliteness
• Flexibility and patience are critical for success
• Strong relationships are essential for business to succeed
• Harmony is a major cultural value for achieving consensus
• Aggressiveness and conflict are avoided at all costs
• Embarrassment is also avoided thus only positive
information is passed on to superiors
• Government widely involved in business affairs
• Chinese dominate much of Indonesian business
Education
• Literacy - 92.5% of Males / 83.4% Females are Literate
–
http://www.cia.gov/cia/publications/factbook/geos/id.html
• System Overhauled in 1989
– Compulsory Education Increases from 6 to 9 Years
– Right to an Education For All
– Decentralization of the Curriculum
–
http://www.worldedreform.com/intercon/kedre9.htm
• 2001 - 220,000 Schools Transferred to Local Govts.
• Significant (>US $1Billion) Internal Funding Increases in
2001/2002
–
http://www.thejakartapost.com/special/os_21.asp
• Next Generation at Risk Due to Economic Crisis
– Millions of “economic-orphans” and 2.5 Million Drop-Outs
•
http://www.unicef.org/sowc00/panel2.htm
• USAID – $700 Million in Contributions Targeted
Primarily at Education
• Currently Approx. 5000 Native Graduates in IT Annually
Education
Source: Central Bureau of Statistics, Indonesia.
Challenges
• Alleviating widespread poverty (In 1999, 27% of
population lived below the poverty line)
• Terrorism (Bali / Jarkarta Embassy)
• Transition from authoritarianism to elected
governments
• Banking sector reforms
• Cronyism and corruption
• Human rights violations by military and police
• Electricity
– Only 60.5 percent of the population on the islands of
Java and Bali have electricity, and only 44.6 percent in
other regions of Indonesia
IT-Telecommunications
• Fixed line teledensity is 4%, one of lowest in the
region. Cellular teledensity is 10% and growing fast.
• Country has a poor telecommunications
infrastructure. Why?
1. Challenges due to geography (see map)
– More than ½ of 70,000 villages have no public telephones.
2. Lack of funding.
– Joint Operating Service hit hard by Asian economic crisis.
– $330 million (US) to raise teledensity 1%. (www.worldbank.org)
3. Overregulation and Monopolies.
– Telkom provided domestic services, Indostat and Satelindo
provide international.
– Lack of competition has resulted in high rates, slow growth.
– Recent deregulation and privatization to increase
competition.
IT – Internet Growth
15,000,000
10,000,000
5,000,000
0
1998 1999 2000 2001 2002 2003 2004
(est)
Subscribers
Users
Source: Indonesia Internet Service Provider Association (APJII)
IT – Internet Usage
• Top 25 worldwide in terms of number of Internet users.
• But less than 5% penetration – one of lowest in Asia.
– poor infrastructure, low PC ownership, high ISP charges
• Access: kiosks (43%), offices (41%), homes (12%),
schools/universities (4%) (source: APJII)
• 90 operational ISP’s, 10 of which own 80% market share.
Largest is the state owned TELKOM.
• Access is slow dial-up – broadband is too expensive or
simply not available.
• Most use for chat and email -- few citizen services (egovernment, e-health, e-education)
IT – Warnet (Cyber Cafés)
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Extension of the Wartel model – Telephone Cafes
~ 4,000 public kiosks (1/2 in Jakarta).
Average of 8 PC’s, almost all use dial-up service.
Most users are young, many located near colleges.
Access is ~ $1(US) per hour
Is this the answer to Indonesia’s large digital divide?
– Overcomes issues related to low PC ownership, lack of
connectivity, and high ISP costs.
– But limited to where adequate infrastructure already exists.
– And competition is tough, and many struggle to be profitable.
IT - Internet Programs
• Government policy: Let competition play out in
commercial regions, but assist other regions.
– But government has had trouble providing adequate financing.
• USO
– Provide telephony to 43,000 villages by end of 2005
– Sometimes a single public phone per village.
– Funded with 0.75% telephone usage tax
• School 2000
– Provide Internet access to 2,000 schools per year.
• OSOL
– “One School, One Computer Lab”
IT – e-Commerce Use
• Large potential -- Internet users growing fast!
• Only 5% use Internet for shopping (APJII, 2002)
• Global reputation for credit card fraud results in
many international sites boycotting Indonesian
orders/deliveries.
• Other barriers to e-commerce use:
– Low Internet usage
– Low credit card use
– Culture – Shopping is considered an act of leisure or
recreation.
– Delivery costs to rural areas
IT – e-Commerce
Development
• Hundreds of commercial sites, few making any
money – high operational costs, low advertising
revenue, poorly skilled human resources.
• Many dot.com start ups failed during the
NASDAQ crash in 2001.
• New generation focus on mobile phone business
and tourism.
• Barriers to e-commerce development:
– Government regulation
– Banks won’t secure Internet transactions
– Weak infrastructure
Foreign IT Investment
• Intel – 5 Employees / Opened in 1996
• IBM – Initial Presence in 1937.
– Formally Incorporated as PT IBM Indonesia in
1999.
• Hardware Manufactures
– MAG Innovision – Computer Monitors
– Sony – Closed Audio Component Factory due
to Wage Hikes
IT - Economy
• 65% of PCs Sold are Locally Assembled
– Top 6 PC Sellers Account for 32% of Sales
•
http://strategis.gc.ca/epic/internet/inimr-ri.nsf/en/gr121741e.html
• Little Software Development
– Very Little Done due to Piracy and IP Issues
• Y2000 - Exports of Approx. US$30 Million using 4500
software engineers in roughly 90 companies
• Office XP Costs about $4 US on Streets
•
http://www.ejisdc.org
• Pilot Project to make Bandung a “High Tech
Valley”
– Located Close to the Largest Number of “IT” Capable
Universities.
IT Workforce
– Limited IT Experience (Low Internet Usage)
– Significant Freedom Granted to Workers in
1998
• 2001/2002 – Back to Back Minimum Wage
Increases of 30% and 39% in Jakarta
http://www.ecatt.com/country/indonesia/inhalt_id.htm
IT - Govt. Policy and Regulation
• Intellectual Property Problems
– Software Piracy Estimated at +80%
– Enforcement / Punishment is Rare
• Heavy Regulation of Telecommunication
Industry
• Legal System has a History of Corruption
• Loose Bankruptcy Laws
Comparison:
The Philippines and Indonesia
• Much smaller in size and population
• slightly larger than Arizona (3 times the size of Texas)
• 86 million people (238 million)
• Speak two languages, Filipino and English (583 languages)
• Not as severely impacted by Asian financial crisis
Source: http://en.wikipedia.org/wiki/Asian_financial_crisis
• In 2001, 40% of population lived below the poverty line (compared
to 27% in 1999 for Indonesia)
• Higher unemployment rate estimate for 2003 of 11.4%
2003)
• 2003 GDP (est):
• Purchasing power parity $390.7 billion ($758.1 billion)
• Real Growth Rate 4.5% (4.0%)
• Per capita: purchasing power parity $4,600 ($3,200)
(8.7% in
Comparison:
The Philippines and Indonesia
• Strength comes from cultural affinity with U.S
– Highly westernized
– 3rd Largest English speaking country
– Safety net to larger locations political tensions
– India
– Russia
Comparison:
The Philippines and Indonesia
• Ports and Harbors:
Indonesia - 8
Philippines - 15
Strategically located along Favorable location to many
major sea lanes from Indian of the main bodies of water
Ocean to Pacific Ocean
in Southeast Asia: the
South China Sea,
Philippine Sea, Sulu Sea,
Celebes Sea, and Luzon
Strait
Comparison:
The Philippines and Indonesia
• Telecommunications
– Philippines
• 78 private telephone companies in the Philippines
• 40 lines per 1000 people
• 4 million Internet users, approx. 46 per 1000 (end of 2002)
– Indonesia
• 1 private and 2 stated owned in Indonesia
• 33 lines per 1000 (2002)
• 8 million Internet users, approx. 33 per 1000 (2002)
Source: CIA Factbook and www.american.edu
Comparison:
The Philippines and Indonesia
• Cell Phone vs. Land Lines
• 3 million land lines in use in 2002, compared to 15
million cell phones
• 7.75 million land lines in use in 2002, compared to
11.7 million cell phones
Source: CIA Factbook
Comparison:
The Philippines and Indonesia
Number of ISPs (2000):
•Philippines: 33 Internet Service Providers
• Indonesia: 24 Internet Service Providers
Analysis / Summary
• Is Indonesia a
Good Investment
for IT?
Maybe
Facts
Positive
238 million people
young - Median age of 26
Numerous Ethnic Groups
87% Islamic
583 languages
geography
history
Government Model
numerous leadership changeovers
natural resources
Economy
culture - avoids conflict
Strong relationships
Government is involved in business transactions
Literacy (Which Language?)
School system transitions
USAID Contributions
Economic Orphans / Drop Outs
School System Funding Improvements
Acts of Terrorism
Human Rights Violations
Electricity Issues
Limited Telephone Access
Lack of Telco Competition
growth of Internet users
Software Piracy
Bandung High Tech Valley
IT Workforce - 5000 IT grads per year
Legal system corruption
Loose Bankruptcy Laws
1
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Neutral
Negative
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11
5
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14
37% 17% 47%
Analysis / Summary
IT Industry
Software Dev.
Pros
• Potential of a Vast
market
•Highly Skilled Work
Force
•Recent Wage Increases
•Limited Communications Infrastructure
•Corruption
E-Commerce
Hosting
Help Desk
•Low Skilled Workforce
•IP Laws
•Software Piracy
•Limited Skillset
•IP Laws
•Limited Power Availability
Hardware Dev. /
Complex
Manufacturing
Component
Assembly
Cons
•Highly Skilled Work
Force
•Potential Language Barriers
Predictions
Source: Global Information Technology and Electronic Commerce, Palvia/Palvia/Roche
Some Indonesia Websites
• News Portal: www.detik.com and
www.indocenter.com
• Newspapers: www.kompas.com and
www.jawapos.co.id
• Internet Banking: www.bankbii.com
• Retail: www.plazaindonesia.com
• Travel: www.indo.com
Links
http://www.cia.gov/cia/publications/factbook/geos/id.html
http://www.asianinfo.org/asianinfo/indonesia/about_indonesia.htm
http://www.encyclopedia.com/html/section/Indonesi_Economy.asp
http://abc.net.au/ra/federasi/tema6/pol_parties_indon.htm
http://www.nationsonline.org/oneworld/
http://www.aiccusa.org/cultas.htm
http://www.gimonca.com/sejarah/sejarah09.shtml
http://www.bps.go.id/sector/population/table1.shtml
Questions and Comments?