Indonesia information technology report q4 2010

Q4 2010
Published by Business Monitor International Ltd.
www.businessmonitor.com
INFORMATION TECHNOLOGY REPORT
ISSN 1750-5070
Published by Business Monitor International Ltd.
INDONESIA
INCLUDES 5-YEAR FORECASTS TO 2014
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INDONESIA INFORMATION
TECHNOLOGY REPORT
Q4 2010
INCLUDES 5-YEAR FORECASTS TO 2014


Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Production Date: October 2010

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CONTENTS
Executive Summary 5
SWOT Analysis 8
Indonesia IT SWOT 8
Indonesia Telecoms SWOT 9
Indonesia Political SWOT 10
Indonesia Economic SWOT 11
Indonesia Business Environment SWOT 12
IT Business Environment Ratings 13
Asia IT Business Environment Ratings 13
Table: Asia Pacific IT Business Environment Ratings 13
Asia Regional IT Markets Overview 16
Indonesia Market Overview 23
Government Authority 23
Table: Key Ministers And Departments 23
Table: Bandung High-Tech Valley SWOT 24
Table: Computer Spending By Sector, 2007e 26
Industry Developments 30
Industry Forecast Scenario 33
Table: Indonesian IT Industry, 2007-2014 (US$mn Unless Otherwise Stated) 35
Country Context 36
Table: Consumer Expenditure, 2000-2012 (US$) 36
Table: Rural & Urban Breakdown, 2005-2030 36
Internet 37

Table: Telecoms Sector – Internet, 2007-2014 37
Macroeconomic Forecast 39
Table: Indonesia – Economic Activity 41
Competitive Landscape 42
Hardware 42
Software 44
IT Services 45
Internet Competitive Landscape 46
Company Profiles 47
IBM Indonesia 47
Oracle 48
Sigma 49
HP 50
BMI Methodology 51
How We Generate Our Industry Forecasts 51
IT Industry 51
IT Ratings – Methodology 52
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Table: IT Business Environment Indicators 53
Weighting 54
Table: Weighting Of Components 54
Sources 54

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Executive Summary
The Indonesian IT market should grow at a CAGR of around 15% over 2010-2014, with a revival in
business spending building on momentum from consumer spending in the second half of last year. In
2010, demand for IT products and services is forecast to return to double-digit growth territory, after
some manufacturing organisations deferred IT procurements in 2009. There was continued spending
however in the financial sector, which previously accounted for as much as 30% of total spending.
Indonesia is expected to be one of the best regional IT market growth prospects over BMI's five-year
forecast period. IT spending is forecast to increase to US$4.5bn in 2010, up from US$3.6bn in 2009.
Some fundamental drivers, including low computer penetration and growing affordability, should ensure
that the market remains firmly in positive growth territory. Growing investment in data centres and
other ICT infrastructure will drive demand for IT services.
By 2014, Indonesia's hardware-dominated IT market is projected to reach a value of US$8.1bn. With
information and communication technology (ICT) penetration of only around 20% and development
restricted to richer areas such as Java, the market has much growth potential. However, the country's
uneven development and digital divide are major barriers to faster growth in this potentially huge IT
market.
Industry Developments
In April 2010, the government said it was ready to eliminate duties on PC components in a bid to assist
the local PC industry. Nearly all PC components, such as motherboards and graphic cards, used by the
industry are imported, which means manufacturers have to pay import duties.
In 2009, a ministerial decree directed that local government offices across Indonesia must adopt open-
source software (OSS) by 2011. The city of Surabaya launched a pilot project for OSS applications with
the goal of saving 20-25% of the municipality's budget.
The government is rolling out e-learning initiatives, which could cause education's share of local IT
spending to rise from its estimated level of around 4%. The ratio of PCs-to-students in public schools is
around 1:3,200. The government wants to increase this to 1:20. As there are 53mn students in the

Indonesian schools system, this would require at least 2.5mn computers.
Competitive Landscape
PC market leader Acer has announced its target of increasing its share of the Indonesian PC market in
2010. Indonesia has already become Acer's largest South East Asian PC market, surpassing Thailand and
Malaysia. Acer has said that it expects netbooks to comprise around 30% of its total PC sales in Indonesia
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this year. Meanwhile second-placed vendor HP pledged to strike back and set a target of reclaiming top
spot in the Indonesian market from Acer at some point in 2010.
The next few years should feature a shift away from packaged proprietary software towards other models,
such as cloud computing. Microsoft Indonesia has reported that cloud computing accounts for around
20% of its local revenues and had been growing at about 50% per year. In 2010, Telkom partnered with
Microsoft to launch cloud computing services which target SMEs with applications for tax and finance.
IT service vendors have reported a growing demand in the telecoms, manufacturing and banking sectors.
Oracle has an agreement with local IT solutions provider PT Sigma Cipta Caraka to provide
outsourcing services. E-government is also being looked at by IT service vendors as a potential growth
area. Tata Consultancy Services (TCS) said it has targeted the government as a future growth driver in
the Indonesian market. TCS' 15 local clients to date are mainly from sectors such as banking, financial
services, telecoms and media.
Hardware
BMI forecasts Indonesian computer hardware spending in 2010 of just under US$3.2bn, up from
US$2.5bn in 2009. Market growth is forecast to return to double digits this year and rise to a value of
US$5.5bn by 2014. In 2010, consumer spending is expected to be reinforced by a revival in business IT
hardware spending, which could account for about two-thirds of sales opportunities during the forecast
period, with sales value doubling by 2014.
Hardware accounts for more than 70% of Indonesian IT spending. The real PC volume sales driver in

2009 was small-form factor netbooks, which achieved triple-digit shipments growth and sold over
400,000 units. The low prices and additional mobility were the main factors behind their success.
Netbooks are popular as basic connectivity devices, and with internet penetration still below 10% there is
plenty of room for further growth.
Software
Indonesia's software sales are projected by BMI to reach US$535mn in 2010, up from an estimated
US$414mn in 2009. During BMI's five-year forecast period, the software sector CAGR is forecast at
20%. In 2010, migrations too Microsoft's new Windows 7 operating system have the potential to make an
impact, although much will depend on consumer and business confidence. There should also be a boost
from systems upgrades delayed from 2009. One market inhibitor is the continuing software piracy
problem, which according to the government's own figures loses Indonesian software companies more
than US$100mn per year.
Over the forecast period, enterprise resource planning (ERP) software continues to be of most interest to
small and medium-sized enterprises (SMEs) as only around 20% of Indonesian SMEs are estimated to
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make use of IT. In addition to cost savings, businesses will look to boost efficiency and increase the
flexibility of responses to customer needs.
IT Services
Indonesia's IT services market is forecast to be worth US$769mn in 2010, with double-digit growth from
US$607mn in 2009, based on BMI estimates. IT services account for 17% of Indonesia's hardware-
centric IT market sales. Hardware deployment services remain the largest Indonesian IT services category
with a 20% market share.
In 2009, the banking sector still provided opportunities for IT vendors, despite the fallout from the global
financial crisis. Banks continued with transformation strategies, driven by factors such as new
technologies and services and regulatory compliance. However, most opportunities are in fundamental

service areas such as system integration, support systems, training, professional services, outsourcing and
internet services.
E-Readiness
Low telephone line density, high charges and low PC penetration are all significant obstacles to higher
internet penetration. However, the situation is not all bad, with signs of faster growth in user numbers and
recent surveys have shown that among a very small elite, there is fast adoption (by regional standards) of
broadband and a willingness to pay for video conferencing, security and other additional features. The
government is encouraging fixed wireless deployments, including WiMAX, to bring the internet to more
remote areas.
The government is also rolling out an internet-based National Education Network, which involves 1,000
network points in five clusters nationwide, designed to facilitate the use of the internet in schools. Despite
some advances in e-education, constraints remain due to poor infrastructure and a lack of public
awareness in a country where only 20mn people own fixed-line telephones.

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SWOT Analysis
Indonesia IT SWOT

Strengths
 Large potential market.
 The market may be entering a faster growth stage. It is forecast to grow quicker than
most other Association of Southeast Asian Nations (ASEAN) markets over the
forecast period to 2014 due to its underdeveloped nature.

Weaknesses

 Computer penetration is among the lowest in South East Asia, estimated at only
1.5%.

 Underdeveloped telecommunications infrastructure due to years of government
control and slow progress in deregulation.

 Lack of government support and there is still no unified ICT ministry.
 History of recent political instability.
 Legal concerns, such as intellectual property rights, are a deterrent to foreign direct
investment.

Opportunities
 Some positive trends: computer ownership and internet access are on the rise and
the government is showing signs of taking intellectual property more seriously.

 Per capita IT spending to increase by 50% over 2010-2014.
 Opportunities exist in services such as system integration, support systems, training,
professional services, outsourcing and internet services.

 Computer sales are predicted to grow faster than almost anywhere else in the
ASEAN over the next few years, although from a lower base.

Threats
 Continuing lack of government action to support increased PC penetration and
internet access, or drive ICT sector development.

 The global economic slowdown may hit key demand segments.

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Indonesia Telecoms SWOT

Strengths
 A rapidly growing mobile sector due to the emergence of greater competition.
 The presence of key strategic investors, including SingTel, ST Telemedia of
Singapore, Telekom Malaysia, Maxis of Malaysia, Hong Kong’s Hutchison and the
UAE’s Etisalat.


Weaknesses
 Security and corruption issues still make Indonesia a risky investment climate.
 Limited mobile spectrum due to overcrowding in the sector following the government
decision to open the market to greater competition.

 Mobile broadband spectrum fees remain high for operators, reducing the
implementation and variety of tariffs.

 Operators struggling with raised costs after the government forced companies to
charge a fee based on cost rather than share part of their revenues.


Opportunities
 The mobile market expected to surge over the coming years, reaching nearly 431mn
people over the forecast period.

 The popularity of mobile value-added/data services offers potential to international
content providers.

 The growth of 3G will lead to investment opportunities for content providers and
distributors.


Threats
 A government registration scheme could lead to short-term fall in fixed wireless and
mobile users as non-registrants are deactivated.

 The dominance of the prepaid market leading to falling average revenue per user
rates.

 Mobile operators could put too much emphasis on 3G mobile network expansion
when consumer demand is unproven at the expense of 2G growth.



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Indonesia Political SWOT
Strengths
 Indonesia managed a successful transition to democracy in 2004. In addition,
the 2009 parliamentary and presidential elections passed by peacefully,

signalling the consolidation of the democratic process.
 The military’s role in politics has gradually been reduced. The prospects of a
military coup – which seemed a real possibility in the late 1990s and early
2000s – have diminished substantially.

Weaknesses
 Indonesia’s domestic political scene is characterised by a proliferation of
minority parties, and formal and informal coalitions are necessary to govern and
legislate. Moreover, the efficiency of state institutions is encumbered by
bureaucracy and corruption.
 Indonesia’s cultural and ethnic diversity saw the archipelago wracked by
separatist rebellion and ethnic violence in the late 1990s and early 2000s, which
took great efforts to bring to heel. In the event of a new economic crisis, calls for
regional secession could re-emerge.

Opportunities
 President Susilo Bambang Yudhoyono’s Democratic Party had a strong
showing in the 2009 parliamentary elections. Coupled with a strong mandate
following his re-election in the same year, the implementation of policies in the
legislature should potentially become less problematic.
 Indonesia’s status as the world’s most populous Muslim country leaves it well
positioned to speak out on global Islamic issues, and act as a bridge between
the Middle East and the Asia Pacific region.

Threats
 Regional militant group Jemaah Islamiah (JI) poses a lingering threat to security
in Indonesia. JI is blamed for a series of attacks, including the Bali bombings of
October 2002 and other such incidents, including the Jakarta bombings of July
2009.
 The fact that Indonesia subsidises basic goods means that when the

government raises prices, there is a risk of public unrest, or at least a political
backlash.

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Indonesia Economic SWOT
Strengths
 Indonesia’s strategic location between the Indian and Pacific Oceans and its
adjacency to major East-West trade routes make it an important economy in the
region.
 Indonesia has a low cost and large supply of available labour resources.

Weaknesses
 Indonesia’s economy is not growing fast enough to reduce joblessness.
Although unemployment has been decreasing, the unemployment rate is still
relatively high, at 7.1% in February 2010. Many are forced to work in the
informal sector.
 Indonesia’s physical infrastructure is considered substandard. The archipelagic
nature of the country makes it difficult to weave national infrastructure together.

Opportunities
 Indonesia could attract much-needed foreign investment by strengthening its
business environment, particularly through reform of its unreliable legal system.
 Indonesia stands to benefit from the rise of Islamic financing, having adopted
new legislation in early 2008 designed to tap into this rapidly expanding sphere.

Threats
 Production at Indonesia’s ageing oil fields has been in decline since the mid-
1990s. Thus, the country has become a net importer of crude oil in recent years,
adding downward pressure on its current account position. But the resumption
of the Cepu field in late 2009 may change this.
 Indonesia is perceived as one of Asia’s riskier destinations. This leaves the
economy vulnerable to sudden capital outflows at times of risk aversion, which
can lead to sharp swings in the currency.

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Indonesia Business Environment SWOT
Strengths
 Indonesia is South East Asia’s largest economy with a nominal GDP of
US$500bn, and is the world’s fourth-most populous country with almost 240mn
people. It thus offers investors a vast home market in which to do business.
 Indonesia is also a founding member of the Association of South East Asian
Nations (ASEAN). As a member of ASEAN’s Free Trade Area (AFTA),
Indonesia is committed to lowering tariff and non-tariff barriers to trade.

Weaknesses
 Corruption remains a major problem. Indonesia ranked 111th out of 180
countries surveyed in Transparency International’s 2009 Corruption Perceptions
Index, where a low ranking denotes a higher degree of corruption.

 Indonesia’s excessive bureaucracy makes it a difficult place to do business.
Among Asian economies, Indonesia has the longest period to start a business.
Labour laws are also considered excessive.

Opportunities
 The Yudhoyono administration has gradually been reforming the business
environment, particularly by strengthening the legal system and fighting
corruption. If sustained, this would boost investor interest in Indonesia.
 Indonesia has been amending its debt and banking regulations in 2008, with the
aim of attracting Islamic financial activities.

Threats
 Recent high-level business disputes between the government and foreign
investors demonstrate that even after investments become up-and-running,
there is still scope for legal problems or obstacles posed by legal wrangling.
 Security threats are a concern for investors. Despite several of its top leaders
having been arrested in recent years, Jemaah Islamiah, the radical Islamist
militant group blamed for the Bali bombings, remains active. There is also a low-
level threat from separatist rebels or from intercommunal tensions.

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IT Business Environment Ratings
Asia IT Business Environment Ratings

Table: Asia Pacific IT Business Environment Ratings

Limits Of Potential Returns
Risks To Realisation Of
Returns

IT
Market
Country
Structure Limits
Market
Risks
Country
Risk Risks
IT BE
Rating
Regional
Ranking
Australia 56

100

71

80

71

75

72.2

1

Singapore 53

100

69

70

84

78

71.9

2

Hong Kong 48

95

65

70

87

80

69.4

3

South Korea 52

75

60

75

71

73

63.9

4

Malaysia 41

50

44

35

77

60

49.2

5

China 52

35

46

35

68

55

48.7

6

India 49

15

37

45

58

53

41.9

7

Philippines 37

45

40

43

50

47

41.9

8

Thailand 40

20

33

35

73

58

40.5

9

Indonesia 38

35

37

35

52

45

39.2

10

Sri Lanka 30

10

23

35

43

40

28.0

11

Scores out of 100, with 100 highest. The IT BE Rating is the principal rating. It comprises two sub-ratings, ‘Limits Of
Potential Returns’ and ‘Risks To Realisation Of Returns’, which have a 70% and 30% weighting respectively. In turn,
the ‘Limits’ rating comprises Market and Country Structure, which have a 70% and 30% weighting respectively and
are based upon growth/size/maturity/govt policy of IT industry (Market) and the broader economic/socio-demographic
environment (Country). The ‘Risks’ rating comprises Market Risks and Country Risk, which have a 40% and 60%
weighting respectively and are based on a subjective evaluation of industry regulatory and IP regulations (Market) and
the industry’s broader Country Risk exposure (Country), which is based on BMI’s proprietary Country Risk ratings.
The ratings structure is aligned across the 14 industries for which BMI provides Business Environment Ratings
methodology and is designed to enable clients to consider each rating individually or as a composite, which the choice
depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please
consult the appendix at the back of the report. Source: BMI

BMI's Asia IT Business Environment Ratings compare the potential of a selection of the region's markets
over our forecast period through to 2014. Our Q310 ratings reflect our consideration of the political and
economic risks, as well as risks associated specifically with IT intellectual property (IP) rights protection
and the implementation of state spending projects.
Across the Asia Pacific region, the onset of the global economic recovery and an upwards trend in
consumer confidence has led to improved trading conditions for IT vendors. India and Malaysia were the

gained most in our rankings for Q310, but many markets recorded stronger than expected year-on-year
growth in computer shipments in Q110.
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Australia retains its top regional rating this quarter. In Q110, a number of IT projects delayed from 2009
were launched across sectors, ranging from telecoms to retail, underlying the opportunities in the market.
Market development will be underpinned by government ICT programmes, such as the National
Broadband Network project, which will drive the development of Australia's digital economy and feed
demand for PCs. Government tenders will also generate opportunities in years to come in areas such as
education, e-government, transport and healthcare.
The smaller, but mature, IT markets of Singapore and Hong Kong take second and third spots
respectively in our ratings table, due primarily to their high Country Structure scores. Computer sales
were strong in Hong Kong in Q110, as the economy recorded positive growth following a contraction in
2009. Hong Kong continues to offer investors in the IT field opportunities associated with its growing
links to the vast Chinese market.
Singapore benefits from high broadband penetration and initiatives such as the government's ambitious
Intelligent Nation 2015 plan and the standard operating environment. IT services spending will be
boosted by the continuing boom in IT-enabled services such as call centres and back-office financial
services. Other promising sectors for IT services include healthcare, as the government launches a series
of initiatives to develop health technology.
On the downside, the continued restructuring of both economies to a more service-oriented model may
limit long-term growth prospects, although this also brings opportunities in sectors such as financial
services and banking. Businesses will probably remain cautious and value-focused over the short term.
South Korea, in fourth place in the table, should have a resurgence in business orders in 2010 and BMI
forecasts that per capita IT spending will rise from US$750 in 2010 to US$921 by 2014. Consumers
appear willing to upgrade their PCs and there is also a trend for households to own more than one

computer. There will be a number of key growth areas, including industry-specific software applications
and IT outsourcing, which is expected to show a strong demand trajectory.
In China, factors such as the vast potential rural market, government spending and demand from key
verticals such as telecoms should drive growth. Over the forecast period, expectations about China's long-
term economic growth will drive IT investments. Key sectors include telecoms, government, energy,
social security, education and transport. However, there are still risks associated with IP rights protection
and piracy and a lack of business environment transparency. Pressure on hardware prices is also a risk in
the current environment.
Malaysia rose from sixth to fifth in our regional ratings in Q210 and keeps its place. IT spending growth
will be driven by a rise in the PC penetration level from around 35%, rising incomes and a hi-tech-
focused national development plan. The subsidised rollout of a high-speed broadband network will
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address a relative lack of ICT infrastructure outside the Klang Valley. There are also increasingly
attractive opportunities in the IT services area as the government implements measures to make Malaysia
a growing regional services and outsourcing hub.
In the Philippines, the IT market will be driven by further growth in the local IT and business process
outsourcing (BPO) sector. The Philippines has a lower PC penetration than many other Asian countries
and the IT market offers correspondingly high growth potential over the forecast period. However, there
are challenges such as labour shortages and rising wages.
India was the another country to make gains in our IT market ratings last quarter, following year-on-year
computer sales growth of approximately a third in Q110. Even so, the market has yet to return to the high
growth recorded before the global economic crisis. The potential is obvious, with less than 2% of the
population owning a computer, about a fifth of the level in China. Realisation of this long-term
growth potential depends on fundamental drivers such as increasing India's low computer penetration,
rising incomes, falling computer prices and the government's ambitions to connect the country's vast rural

areas to the rest of the world.
Three South East Asian markets occupy the final three positions in the table, with low scores due
primarily to business environment factors, despite considerable growth potential. In Thailand, once an
upturn starts IT spending could drive forward again as customers make good on pent-up demand. The
fundamentals of growing affordability and low PC penetration should keep the market in positive territory
during the forecast period. A number of factors should also support momentum, including the
government's PC for Education programme and 3G mobile and WiMAX broadband service rollouts.
Similarly, with ICT penetration of only about 20% and development restricted to richer areas such as
Java, the Indonesian IT market has much growth potential. BMI expects the Indonesian market to bounce
back strongly from the deceleration in 2009 and become one of the best regional IT market growth
prospects over the five-year forecast period. The SME sector will drive demand for basic hardware and
applications as enterprises look to enhance productivity.
Sri Lanka's IT market has felt the effects over the years of the country's political and economic instability,
from disruption of distribution channels and a flourishing grey market to underdeveloped telecoms
infrastructure. However, the market will feature on IT vendors' radars as one of the best potential growth
prospects in South Asia. Computerisation has only just got started in government services and major
public and private sector organisations remain largely underpenetrated in terms of basic enterprise
software.

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Asia Regional IT Markets Overview
IT Penetration
Across Asia, government ICT initiatives
and growing affordability will drive
increases in PC penetration during BMI’s

five-year forecast period. While some
cities and regions stand out, there is an
unbalanced pattern of regional
development, with PC penetration in
countries like Singapore being above
50%, while in other countries such as
Indonesia, it is less than 2%.
The two Asian giants, China and India,
embody the region’s growth potential, as
computer ownership remains the preserve of a minority in both countries. In China, PC penetration was
only around 18% in 2008 – although it was far higher in cities like Shanghai and Beijing – and projected
to pass 30% overall by 2014. In India, less than 2% of people own a computer. However, some 45% of
the population is under 25, which provides a promising demographic context for increased PC ownership.
Lower price will help to drive higher PC
penetration in developing markets. The
average price of a PC in India has nearly
halved over the past few years, and rising
incomes and greater credit availability
will continue to bring computers within
the reach of lower-income demographics.
Around the region, affordable computer
programmes continue to find favour with
governments. In 2009, China launched a
subsidised PC initiative aimed at rural
residents. Australia’s computers for
schools programme had provided almost AUD260mn of computers by the end of 2009. In Indonesia,
penetration of around 2% could double by 2013 if government initiatives are followed through. The
Indonesian government is also rolling out new e-learning initiatives, with a target of raising the current
1:3,200 ratio of PCs to students in public schools to 1:20.
Narrowband Penetration

(per 100 population)


Source: BMI
Broadband Penetration

(per 100 population)


Source: BMI
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A similarly broad range is found with respect to internet penetration. The highest levels of internet
penetration are found in South Korea, Hong Kong and Australia, with estimated 2010 narrowband
penetration rates of 74.3%, 73% and 67.7% respectively. Singapore has by far the highest rate of
broadband penetration, which was estimated at 134% in 2010. Meanwhile, the Philippines has the lowest
level of internet usage, with just 6.6% narrowband and 8.1% broadband penetration estimated in 2010.
The fastest growth is expected in Indonesia, where narrowband penetration is projected to leap from 30%
in 2010 to 61.2% by 2014. India is now above 20% narrowband penetration despite a lack of fixed-line
infrastructure, and this should reach 30% by 2014. Fast growth is also projected for Sri Lanka, where
penetration is projected to increase from 10.9% to 21.6% by 2014.
Some 48.3% of Malaysians had internet access in 2010. Across the region, government programmes are
an important driver of ICT penetration. The Chinese government has a five-year plan to make the internet
available in every administrative village in central and eastern China and every township in the west.
Dial-up technology is still the dominant access method in many states. However, even in developing

markets, the number of broadband subscribers continues to gain ground steadily. In China, broadband
penetration is on course to reach 43.4% by 2014, surpassing narrowband penetration of 33.6%. In India,
where the government designated 2007 as ‘the year of broadband’, penetration should increase eightfold
to reach 8% by 2013 from around 1% currently. This is far below government targets, however.
Singapore will also see continued strong growth in broadband penetration, which is projected to reach
174% by 2014.
Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places like Hong Kong,
where the government has committed another HKD200mn to the deployment of a Wi-Fi network
covering more than 200 public venues.

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IT Growth And Drivers
Most Asian IT markets are expected to
report stronger growth in 2010. Across
the region, 2010 should see IT spending a
boost from systems upgrades deferred
from the previous year, although much
will depend on business confidence. In
some cases, companies had IT budgets
that were not spent due to economic
uncertainty, and in H110 vendors
reported a pick-up in project flows.
Strong fundamental demand drivers of IT
spending meant that there will be continued opportunities. Key factors common to most markets include
cheaper PCs and reform in sectors such as telecommunications and finance, as well as government

initiatives.
In the largest market, China, an
expansion in consumer credit, as well as
a commitment to modernisation in
sectors like education, healthcare and
manufacturing, will help to sustain
market growth. BMI expects China’s IT
market growth to be maintained by an
expansion into the western region, rural
areas and lower-tier cities, as well as
growing demand from SMEs. IT
spending will also receive a boost from
government spending and IT projects
associated with the Shanghai World Expo
in 2010.
2010 IT Market Sizes

US$mn, est.


Source: BMI
IT Market Sizes
A
s %
O
f National GDPs

2010-2014

Source: BMI
Indonesia Information Technology Report Q4 2010



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The long-term potential of India’s IT market is plain: less than 3% of people in India own a computer
(about one-fifth of the level in China), meaning particular potential in the lower-end product range.
India’s IT market appears to be positioned for a strong recovery in 2010 thanks to improving an economy
and stronger consumer sentiment as well as government support for modernisation in lagging sectors. It is
estimated that around 5% of India’s 7.5mn SMEs could implement a technology solution in 2010.
Meanwhile, India’s business process outsourcing industry is growing at around 40% per annum and will
continue to generate opportunities for vendors of IT products and services.
The Philippines is one of the countries
currently benefiting from low-priced PC
programmes (PC4ALL), which provide
opportunities for vendors to penetrate the
low-income segments. Other regional
computer sale drivers over the forecast
period include education, lower prices, IP
telephony, cheaper processors as well as
notebook entertainment and wireless
networking features. Meanwhile, in
Indonesia, the basic demographics of
rising computer penetration and growing
affordability should drive growth. SMEs
represent a growth opportunity, as currently only around 20% of Indonesian SMEs are estimated to make
use of IT. Compliance with government and international regulations will be a driver in financial,
manufacturing and other sectors.

In more developed markets such as Hong Kong and Singapore, robust retail sales led the way in early
2010 as spending recorded positive growth following a contraction in 2009. In Hong Kong, consumer
spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apple’s
iPad. IT market growth will be driven by government IT spending as well as cross-border trade and
cooperation.
The largest IT market in the region is, unsurprisingly, China, estimated at US$86.9bn in 2010, trailed
distantly by Australia (US$19.1bn), South Korea (US$16.1bn) and India (US$16.0bn). Singapore’s IT
market (including communications) is the largest as a proportion of national GDP (2.66%), followed by
Hong Kong (2.07%.)
The fastest-growing IT markets over the forecast period look set to be Sri Lanka and India, with 2010-
2014 compound growth of 109% and 104% respectively, driven by increasing PC penetration. China is
third, with the IT market growing by an estimated 64% over BMI’s five-year forecast period.
IT Markets Compound Growth

2010f-2014f (%)


f = forecast. Source: BMI
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Sectors And Verticals
Regional IT markets remain hardware-centric, with hardware accounting for 42-71% of total spending in
all markets in 2010. However, spending on software and services will grow faster. Notebook sales are
growing much faster than the PC market as a whole, with growth driven by falling prices and more
features.
BMI expects a trend of rising hardware investment to establish itself over the next few quarters. The PC

market contracted in many markets in H109, following a slowdown towards the end of 2008. However,
growth had returned in most markets by the end of 2009. Sales of Microsoft’s Windows 7 operating
system and new Intel core technology also have the potential to help trigger a new cycle of hardware
upgrades in 2010, although much will depend on business confidence.
In mature markets like Australia and Singapore, PC sales are dominated by replacement sales. In the
former, upgrades are estimated to account for at least 80% of business purchases and more than 50% in
the case of households. More than 90% of Australian households now have a PC, but consumers have
appeared willing to spend on upgrading their notebook computers and it is also becoming more popular to
purchase a second household PC. Indeed, around 30% of households have more than one PC.
In less developed markets, demand from under-penetrated rural areas, affordable computer programmes
and growing broadband penetration should generally drive growth. In much of emerging Asia, demand
from smaller towns and rural areas will provide the main source of growth, along with replacement of
desktops with notebooks. SMEs will be one of the strong growth segments over the forecast period, with
SME demand for servers and networking equipment a significant growth opportunity.
In both emerging and more mature markets, the growing popularity of broadband will help to support
computer sales. China Telecom is among regional telecoms companies to have rolled out PC bundling
offers as part of its broadband packages. The Australian government's National Broadband Network plan
should drive development of Australia's digital economy and services such as online banking and
shopping.
Meanwhile, a wave of 3G launches across the region should also provide a stimulus to sales of notebooks,
with Vodafone Hong Kong among service providers offering 3G/HSPA USB modems bundled with
their 3G services. However, netbooks and notebooks face competition from other form factors such as
smartphones - from Palm, Research in Motion, Apple and other vendors - and tablet notebooks,
spearheaded by Apple's iPad.
Due in part to high levels of piracy, software's share of IT spending is relatively low, ranging from 11-
25% among countries covered by BMI. Efforts are being made to tackle the issue of piracy, but despite
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government crackdowns in China and the Philippines, software piracy remains above 70% in most of
emerging Asia.
Across the region, there is a growing trend for smaller companies to seek greater efficiency by using IT to
improve productivity and reduce costs (including labour costs). In general, enterprise resource planning
(ERP) and other e-business products still dominate the enterprise software market, but vendors are also
looking to other areas such as customer relationship management (CRM) and business intelligence, where
faster growth is possible.
The economic slowdown may have encouraged companies to consider cloud computing solutions such as
software-as-a-service (SaaS). The hosted application model may already account for between one-fifth
and one-quarter of China's software revenues. SaaS has also enjoyed steady growth in the Hong Kong
market over the past three years with, according to vendor estimates, around 8% of local enterprises now
use an SaaS security solution. Improved broadband infrastructure will assist the popularisation of the
rented software model in markets such as Indonesia.
New platforms and services in the telecoms field is a driver for that key IT spending segment, where an
industry restructuring with the advent of 3G mobile services has led to more competition. Meanwhile,
expanding technology adoption in the logistics industry and public transport will be a source of IT
services projects. Sectors such as hospitals and real estate will also provide opportunities.
The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI. The
global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,
a brightening business climate should mean more opportunities in key IT-spending verticals like financial
services, telecoms, government, healthcare and logistics.
Market Structure (% Of Tota
l IT Market
)

2010f

2014f

f = forecast. Scores out of 100. Source: BMI
Indonesia Information Technology Report Q4 2010



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Government spending will account for a larger share of spending in many markets. In China, government
stimulus packages have helped to drive IT-related investments, while in Singapore, government ICT
projects such as SOE2 provide significant opportunities, with the government planning to invest around
SGD1.73bn in ICT projects in its last fiscal year through March 2010. Australia's National E-Health
Transition Authority has targeted the creation of a 'paperless environment' for the health sector and was
also expected to launch a standardised reporting system scheme in 2010. Meanwhile, the Hong Kong
government's Digital 21 initiative will continue to generate spending.
Regionally, hardware deployment services remain the largest IT services category, with other
fundamental services including system integration, support systems, training, professional services,
outsourcing and internet services. Main spenders across the region include banks and financial institutions
as well as governments. Even in emerging markets like India, IT vendors are having to pay more attention
to value-added services such as technical support and product troubleshooting, or basic IT and hardware
consulting.
In many countries, the number and size of local outsourcing deals are increasing. Outsourcing could
account for as much as 30% of China's IT services spending by 2013, while in India there have been some
large contracts such as that awarded by Idea Cellular to IBM. Singapore - where the government was to
tender a major outsourcing contract in 2008 - and Hong Kong have both seen a trend towards larger
outsourcing projects in the public and private sectors.
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Indonesia Market Overview
Government Authority
In November 2006, President Susilo Bambang Yudhoyono announced the establishment of a new body to
provide strategic direction for the country’s IT development. The National ICT Council is chaired by the
president and is tasked with formulating IT policy. The other main task for the council is to coordinate a
cross-departmental e-government initiative at all levels. It also includes ministers representing 10 other
ministries, including finance, law, education, trade and research and technology. The council has been
tasked with implementing a large and ambitious programme of ICT initiatives, including completing the
Palapa Ring Project, which is to cover 50% of Indonesian cities. It has responsibilities related to e-
procurement and applying IT to education. The council has a working team with experts drawn from the
business community and IT associations, as well as from the government.
Other relevant government bodies and ministers for the IT sector include:
Table: Key Ministers And Departments
Industry Andung Nitimiharja
Small and Medium Enterprises Soegiharto
Research and Technology Kusmayanto Kadiman
Information and Communication Sofyan A. Djalil
Key Departments
Badan Koordinasi Penanaman Modal (BKPM) Ministry for Investment/Investment Coordinating Board
Badan Pengkajian dan Penerapan Tehnologi
(BPPT)
Ministry for Research and Technology/Agency for the
Assessment and Application of Technology
Departemen Perindustrian dan Perdagangan
(DEPPERINDAG) Department of Industry and Trade
Departemen Perhubungan Department of Communications

Background
The government has a target of providing telephone and IT services to all rural areas in Indonesia by
2015. The programme is being promoted by the Ministry for the Development of Disadvantaged Regions.
Under the 1999 Telecoms Law, all telecoms operators and service providers in Indonesia have an
obligation to universal service, but in reality there are considerable challenges in providing connections,
given the dispersed nature of Indonesia’s population and the country’s difficult terrain.
The local computer hardware market enjoyed a growth rate of 15-20% per year during the 1990s, with
substantial imports and several foreign computer companies establishing production plants in Indonesia,
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despite a competitive market for locally assembled personal computers. At the height of the 1990s boom,
the government established Bandung High-Tech Valley (BHTV), a few hours outside Jakarta. The valley
is an important centre for telecommunications and engineering, as well as being home to several
universities.
Table: Bandung High
-
Tech Valley SWOT

Strengths
 BHTV has many top universities, research centres technology related corporations.
 More than 500,000 hi-tech workers.
 Some tax incentives.
Weaknesses
 Inadequate government incentives.

Weak telecommunications infrastructure.


No international airport.
Opportunities
 A rapidly growing number of small start-up companies.
 The government has talked of new packages to attract investors and cut red tape.
Threats
 Competition from other ‘Silicon Valleys’ in the region, eg: Malaysia MSC, and even
elsewhere in Indonesia, eg: Bali Camp.


The financial crisis in 1997, when there was a 70% fall in the value of the rupiah against the US dollar
and other far-reaching economic and political consequences, had a large impact on the IT market. Several
multinationals withdrew credit from local distributors and there was some planned investments were
cancelled.
The economy has gradually recovered, however the development of the local IT market, despite inherent
potential, is restrained by a number of factors, including poor telecommunications infrastructure, partly as
a result of slow progress in deregulation and liberalisation. Deregulation has been slow in other sectors of
the economy as well, with the local business environment highly bureaucratic even by regional standards.
Another problem has been the lack of government support for the market and domestic sectors, as shown
by the lack of a dedicated IT ministry. Programmes to increase computer ownership and internet access
have been modest in scale and lacking in effect compared to elsewhere in the region, and it remains to be
seen whether this will change under the latest Yudhoyono administration. Legal issues such as IP rights
have also been barriers to foreign investment, while the level software piracy remains among the highest
in the world.
Hardware
BMI forecasts 2010 Indonesian computer hardware spending of US$3.16bn, up from US$2.55bn in 2009.
The market is forecast to return to double-digits this year and to rise to a value of US$5.50bn by 2014.
Spending in 2009 surpassed expectations thanks to consumer notebook sales, which surged due to the
popularity of netbooks. Notebook sales grew faster than desktop sales in 2009.