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SpirE-Journal 2012 Q4

Indonesia: The Next Big Thing in the global technology market

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Indonesia: The Next Big Thing in the global technology market

With an economic growth of 6% a year and a high consumption share of GDP, Indonesia has been one of the emerging world’s top economic performers since the financial crisis of 2008. As its politics becomes increasingly stable and progressive, and with rising interest from global manufacturing investors, Indonesia’s prospects have never looked better. Indonesia was the darling of the global telco market when mobile penetration was taking off. With the explosion of smartphones, social media and Cloud services, Indonesia looks set to reclaim that position.

Indonesia – The next frontier for the global technology industry

With a large population of over 250 million and stable economic growth of over 6 percent a year, Indonesia has been a rising star among emerging economies for some time. The Governor of the Bank Indonesia predicted that economic growth in 2012 – 2013 would fall between 6.1 to 6.5 percent and 6.3 to 6.7 percent, respectively.

Indonesia is Facebook’s 4th biggest market and Twitter’s 3rd biggest market.

But what is less well appreciated is Indonesia’s global prominence as a technology market. Technology penetration in the country is high. Ordinary Indonesians are increasingly reliant on technology in their daily lives. Indonesia is ranked third in Asia with 55 million internet users at one time, and it holds the title as Facebook’s 4th biggest market and Twitter’s 3rd biggest market.

This high technology penetration rate is a big draw for global tech companies. Rama Mamuaya, Chairman of Indonesia’s most prestigious tech conference and startup competition, SparxUp Awards 2012, said that foreign ICT investor interest in Indonesia is very high, thanks to the high usage of mobile and internet technology.

In fact, it is predicted that Indonesia’s domestic consumption of technology products will grow faster than economic growth, as the middle-class steadily increases to 150 million people by 2014.

Indonesians going mobile

The proportion of Indonesians using internet cafés dipped from 83 percent to 49 percent between 2008 and 2012. This reflects the rising share of Indonesians using their own mobile devices and computers to access the internet. The share of Indonesians using mobile phones and home internet has risen to 62 percent and 41 percent respectively.

Today, Indonesia sees the most mobile device users in Asia, followed by Thailand and Singapore. This has probably been driven by mobile internet usage, which increased from 22 percent in 2009 to 62 percent in 2012. Jonas Hjelt, CEO of Blaast, a mobile application development company, stated that “Indonesia is quickly emerging as one of the mobile superpowers. The combination of its young and tech-enthusiastic population, as well as the quickly improving infrastructure, makes Indonesia a very interesting ‘mobile first’ country.”

How Information and Communication Technology (ICT) benefits Indonesia

There are several benefits for companies that utilize ICT on the business front:

Ease of showcasing products and business services

Companies can easily showcase their products on their websites, and users can locate the required information and choose the product that best suits their need 24/7. This is a more effective substitute for brochures, proposals and product profiles, and meets the Indonesian shopper’s habit of comparison-shopping.

Ease of business transaction

ICT can create an integrated holistic system to handle ordering, activation of products and customer life cycle management. Customers can place their orders, redeem loyalty points and make payment online. This enables companies to nurture repeat business.

Ease and cost of communication

Blackberry Messenger (which is wildly popular in Indonesia), Skype, Yahoo Messenger and Google Talk are some examples of instant messaging applications that allow users to communicate over the internet or mobile networks. With such applications, users save on their telephone bills.

Ease of business operations

Mobile devices allow us to go online wherever we are and whenever we want, enabling business managers to control their businesses much more effectively.

Going beyond the big cities

With 17,504 islands, Indonesia is not an all urban country. Although urban Indonesians are considered “plugged-in”, the situation is different for those living in the countryside.

A journey of several hours out of Jakarta is enough to understand the situation for rural Indonesians. There are fewer land line cables and more gaps in mobile network coverage in rural Indonesia.

Fortunately, the market is helping to remedy this gap. With vast untapped potential in the rural market, companies are developing ICT solutions to help rural Indonesians stay connected. Here are some examples:

8villages

8Villages is a new social networking venture that is specially developed for world agriculturalists who have been on the fringes of connectivity historically.

According to its founder and chief executive, Mathieu Le Bras, 8villages provides farmers a link to local buyers and sellers, as well as other farmers who are growing the same crops as them. The farmers also receive information about fertilizers, pesticides and the prices of crops from the text messages sent from 8villages.

Nokia: Life Tools services

Nokia Life is an SMS-based subscription information service designed for emerging markets. It offers a wide range of information services covering healthcare, agriculture, education and entertainment.

Users who subscribe to information services pertaining to agriculture would receive localized information including weather conditions, crop cycles, general tips and techniques, as well as market prices for crops. Farmers partaking in the pilot scheme say that receiving daily crop prices on their phones has reduced their dependence on agents for basic information; enabling them to negotiate with greater confidence. According to Nokia, the service had more than 600,000 users in Indonesia in 2011.

Nokia Life’s agricultural SMS service has over 600,000 subscribers in Indonesia.
Tech giants in Indonesia

Indonesia’s immense potential has drawn much interest from technology companies which are investing or planning to invest in Indonesia. These companies include:

Foxconn

Taiwanese manufacturer Foxconn Technology Group’s Indonesian factory will begin its operations in December 2012, with the majority of the output being sold in the local market. As the main manufacturer of Apple products such as iPads and iPhones, Foxconn is well-positioned to tap on one of the cheapest labor pools in Asia and a duty-free zone of some 600 million consumers in Southeast-Asia.

M.S. Hidayat, Indonesia Industry Minister, noted that the first phase of Foxconn’s investment in Indonesia will cost “hundreds of millions of dollars”, out of a total investment of USD10 billion. It would also create about one million new jobs for the country.

Samsung Electronics

Though Samsung Electronics already has plants manufacturing consumer electronics products in Indonesia, it is looking at building a mobile phone factory of its own too. However, the investment amount and timeline are still unclear.

Challenges in Indonesia’s ICT space

Alongside the excitement about the vast opportunities, tech vendors competing in the Indonesian market have also learnt the need to be cautious about some of its challenges.

Copyright abuse

The internet now allows people to upload and download copyrighted materials at will. Though some consumers may be overjoyed to be able to download movies, songs and e-books for free, such unauthorized usage of works is not welcomed by Intellectual Property owners.

ICT feeding conspicuous consumption

ICT gadgets are no longer seen as purely tools. They are slowly becoming status symbols. Moreover, take-up of productivity-enhancing solutions has been slower than expected, as consumers are more attracted to social networking functions.

“There are gaps in the adaptive attitudes toward technology. Consequently, the use of ICT is for consumption does not have an impact on efforts to empower themselves,” said Zainal A Hasibuan, Vice Chairman of the Executive Board of National ICT.

This poses a potential challenge to vendors hoping to sell their hardware on the cheap, in order to draw revenue from the sale of software or services; the hoped-for pay-off may not materialize.

Cyber crimes

Uncontrolled and unmonitored internet access for children could lead to social problems, which may trigger a backlash against technology and greater regulations in future. Cyber bullying as well as internet-based fraud and child trafficking are some issues receiving more media attention in Indonesia. These may create political pressure for more regulatory oversight of the internet over the course of the next decade.

Counterfeiting

As e-commerce grows, so does the danger that counterfeit products will be sold on-line. This may create a backlash from brand owners in future, which may eventuate in legal sanctions forcing e-tailers and auction sites to police their sales transactions, thus raising compliance costs.

Conclusion

Indonesia is awash with opportunities for global ICT vendors. This is welcome news. Recent smart-phone, game and tablet launches have not provided the kind of uplift to global ICT revenues that vendors were expecting.

However vendors will need to avoid the pitfalls of selling hardware on the cheap in the hope of recouping profit from software, services or aftermarket products. In the Indonesian market, that promised revenue stream does not always materialize, as consumers are most attracted to free services oriented towards social networking.

The Indonesian market is seeing booming smart-phone and mobile internet demand. However untapped opportunities remain. The big Indonesian growth stories of the future might well be tablets and Cloud services – for consumers and companies alike. Indonesia has the potential to become one of the leading global markets in these two complementary categories. More market development needs to be done by vendors to stimulate demand in these areas.

Global tech giants should not miss the two other big opportunities – low-cost manufacturing for export and domestic consumption, as well as mobile technology solutions for rural Indonesians.

With its attractive domestic market and low labor costs, Indonesia now combines the two key advantages China enjoyed in the early 2000s as a manufacturing center. As investors relocate labor-intensive activities from the coastal regions of China, Indonesia is a prime candidate to host them.

As for rural solutions, the market potential is certainly there but this segment might be difficult to monetize in the short-term. Fortunately there is a great deal of international aid money flowing into rural projects in Indonesia, from the likes of US Aid, the World Bank, the ADB and JICA. New technology solutions that offer poverty-alleviation benefits could utilize some of these funds to defray start-up costs.

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