1. Indonesia An IT Profile MIS 680 Fall 2004 Rick Fenster Steve Dudas
Marty Gagnier
Carolyn Moroz

2. 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

3. Ethnic Groups 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

4. Religious Groups 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?

5. Languages 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

6. 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

7. Geography
Indonesia
CIA Factbook

8. 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

9. History-2
Numerous revolts ensued between 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
characterized by the formation of many political parties demanding independence

10. 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
The Sukarno era characterized by political and economic disorder
President Suharto begins formation of New Order Government in Rules for 32 years as dictator.
1999 – Fall of New Order and the removal of Suharto from power pave way for free elections

11. 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, social-democratic)
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.

12. Government
3 different leaders between 1998 and 2004
1950
1967
1998
2004
1949
First Free Elections
Independence
The Sukarno era
New Order Gov’t of Suharto
End of Suharto Dictatorship
Almost 55 years after Independence is declared from the Dutch before the first truly democratic free elections are held.

13. Politics World’s third largest democracy(
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%)
80% voter turnout (122 million people)

14. 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

15. Economy Economy not good, but is improving
GDP shown as purchasing power parity (in billions)

16. Economy

17. Economy
GDP Per Capita shown as purchasing power parity

18. Economy

19. Economy

20. 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 (2003 est.)
Source:

21. 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

22. Education Literacy - 92.5% of Males / 83.4% Females are Literate
System Overhauled in 1989
Compulsory Education Increases from 6 to 9 Years
Right to an Education For All
Decentralization of the Curriculum
,000 Schools Transferred to Local Govts.
Significant (>US $1Billion) Internal Funding Increases in 2001/2002
Next Generation at Risk Due to Economic Crisis
Millions of “economic-orphans” and 2.5 Million Drop-Outs
USAID – $700 Million in Contributions Targeted Primarily at Education
Currently Approx Native Graduates in IT Annually

23. Source: Central Bureau of Statistics, Indonesia.
Education
Source: Central Bureau of Statistics, Indonesia.

24. 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

25. 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%. (
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.
40% teledensity in Jakarta, 11% in other major cities, 2% in towns. But 2% in most towns, and 43,000+ villages without any connectivity,
Region includes Australia, India, Philippines, Sri Lanka, Thailand, Indonesia, China, Vietnam, Malaysia, Singapore, Korea, Mongolia.
9 million cellular phone subscribers (2002), increasing by 2 million annually. But cellular phone market pentration is still low – 5.3% in terms of subscribers. (source:
Low import duties on cellular phones has resulted in tremendous growth.

26. IT – Internet Growth
Indonesian Internet Service Provider Industry ( )
Source: Indonesia Internet Service Provider Association (APJII)

27. 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 -- few citizen services (e-government, e-health, e-education)
Top 25 source:
Indonesian Internet Industry ( )
Government target 50% usage by 2015.
Internet cost is relatively inexpensive: $5 to $60 (US) per month depending on connectivity (source: “Indonesia: ICT Use in Education”)
Internet usage in education limited due to lack of access, local content, and local language (source: “Indonesia: ICT Use in Education”)

28. IT – Warnet (Cyber Cafés)
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.
90% dial up source: bebas.vlsm.org
Warnet (kiosks) popular due to lack of home PC’s (5/100 households, 1/village in rural areas), telephone lines

29. 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”
Source: AIC Meeting Notes, April, (
Government strategy: “One School, one computer laboratory” (OSOL) program. Microsoft providing software at $2.5 (vs $200 normal)

30. 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
Source:
Indonesia ranks #1 by percentage of transactions and #3 of total volumne in Cyber fraud. (source: “Securing e-Commernce Environment in Indonesia”, Idris Sulaiman,

31. 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
Source:
Indonesia ranks #1 by percentage of transactions and #3 of total volumne in Cyber fraud. (source: “Securing e-Commernce Environment in Indonesia”, Idris Sulaiman,

32. 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

33. IT - Economy 65% of PCs Sold are Locally Assembled
Top 6 PC Sellers Account for 32% of Sales
Little Software Development
Very Little Done due to Piracy and IP Issues
Y Exports of Approx. US$30 Million using 4500 software engineers in roughly 90 companies
Office XP Costs about $4 US on Streets
Pilot Project to make Bandung a “High Tech Valley”
Located Close to the Largest Number of “IT” Capable Universities.

34. 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

35. 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

36. 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:
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% (8.7% in 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)

37. 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

38. Comparison: The Philippines and Indonesia
Ports and Harbors:
Indonesia - 8
Philippines - 15
Strategically located along major sea lanes from Indian Ocean to Pacific Ocean
Favorable location to many of the main bodies of water in Southeast Asia: the South China Sea, Philippine Sea, Sulu Sea, Celebes Sea, and Luzon Strait

39. 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

40. 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

41. Comparison: The Philippines and Indonesia
Number of ISPs (2000):
Philippines: 33 Internet Service Providers
Indonesia: 24 Internet Service Providers

42. Analysis / Summary
Is Indonesia a Good Investment for IT?
Maybe

43. Analysis / Summary IT Industry Pros Cons Software Dev. Hardware Dev. /
Potential of a Vast market
Low Skilled Workforce
IP Laws
Software Piracy
Hardware Dev. /
Complex Manufacturing
Limited Skillset
Limited Power Availability
Component Assembly
Highly Skilled Work Force
Recent Wage Increases
E-Commerce Hosting
Limited Communications Infrastructure
Corruption
Help Desk
Potential Language Barriers

44. Predictions
Source: Global Information Technology and Electronic Commerce, Palvia/Palvia/Roche

45. Some Indonesia Websites
News Portal: and
Newspapers: and
Internet Banking:
Retail:
Travel:

46. Links http://www.cia.gov/cia/publications/factbook/geos/id.html

47. Questions and Comments?