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Indonesia

Indonesia. Lisa B. Gall & Julie Marceau. World’s Largest Archipelago. More than 17,000 islands (6,000 inhabited). Area is slightly less than 3x’s the size of Texas. Arable land: 9.9% Permanent crops: 7.2% Other: 82.9% (1998 est.).

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Indonesia

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  1. Indonesia Lisa B. Gall& Julie Marceau

  2. World’s Largest Archipelago More than 17,000 islands (6,000 inhabited) Area is slightly less than 3x’s the size of Texas Arable land: 9.9% Permanent crops: 7.2% Other: 82.9% (1998 est.) Natural Hazards: occasional floods, severe droughts, tsunamis, earthquakes, volcanoes, forest fires

  3. Indonesia - A Snap Shot

  4. The People • Over half of the population resides in Java • Largest City: Jakarta (11.4 million)

  5. The People • Ethnic Groups • 45% Javanese • 14% Sundanese • 7.5% Madurese • 7.5% Coastal Malays • 26% Other • Religions • 88% Muslim • 5% Protestant • 7% Roman Catholic, Hindu, Buddhist, other • Languages • Bahasa Indonesia (official, modified form of Malay) • English • Dutch • local dialects, the most widely spoken of which is Javanese

  6. The Government • A republic with political power organized around the executive, legislative, and judicial branches of government • August 17, 1945 - proclaimed independence; on December 27, 1949 became legally independent from the Netherlands • Legal System: Based on Roman-Dutch law, substantially modified by indigenous concepts & by new criminal procedures code • Suffrage: 17 years of age; married persons regardless of age • Pancasila, the Five Principles, is the basic philosophy of the government • Belief in one God • Just & civilized humanity • Unity of Indonesia • Democracy led by the wisdom of deliberations among representatives • Social Justice for all Indonesian citizens

  7. The Economy • Poverty rate after the 1997/98 economic crisis was at 27.0% • Economic Aid Recipient (1st in the world out of 140 Recipients) • 1.1% of the GDP is from Economic aid • $43 billion from IMF program & other official external financing (1997-2000) • Labor Force: agriculture (45%), industry (16%), services (39%) • Industries: Petroleum/natural gas, textiles, apparel/footwear, mining, cement, chemical fertilizers, plywood, rubber, food, tourism

  8. The Economy • Exports • $52.3 Billion f.o.b. (2002 est.) • Commodities: Oil & gas, electrical appliances, plywood, textiles, rubber • Export Partners (2002): Japan, US, Singapore, South Korea, China, Taiwan • Imports • $32.1 Billion f.o.b. (2002 est.) • Commodities: Machinery & equipment, chemicals, fuels, foodstuff • Import Partners (2002): Japan, South Korea, Singapore, China, US, Australia

  9. Transportation

  10. Communications • Main Lines (2003): 7.5 to 10 million available; usage unknown • General Assessment: domestic service is fair, international service is good • PT Telkon is the state monopolist for domestic calls • PT Indosat is the state monopolist for international calls • Major factor leading to growth in mobile cellular users was the introduction of prepaid phone cards • Internet Users - 85% in Jakarta, and 15% in the rest of the country • ISP’s (2001): 160 with licenses to operate; 45 are operational

  11. Communications • Available Internet Connection Methods: • Dial-up (Basic & Premium) • Cable • Satellite-based • ISDN (Integrated Services Digital Network) Lines • Digital Subscriber Line (DSL) • Asymmetric Digital Subscriber Line (ADSL) • Poor quality of the phone lines makes Dial-up problematic • Other connection methods are costly & not available to the mass population

  12. ICT Initiatives • Project closed in June 2003. Failed to make a real difference by connecting people, with the greatest part of the funding used to pay international consultants & rubber stamp legal documents. • Information Infrastructure Development Program (IIDP) - Development of the logical Network Backbone (ilX backbone). $34.5M given by the World Bank in November 1997 to support this program.

  13. ICT Initiatives • Nusantara 21 Project - Calls for all major islands & cities to be linked either by submarine & terrestrial cable or by satellite by the year 2001. Purpose was for all Indonesians to have access to online information & multimedia services • Project currently on hold • On April 25, 2001, Presidential decree No. 6/2001 was announced. Sets the new guidelines in the development of the legal framework, telecommunication infrastructure, human resources & content for the ICT industry • To date, not in effect

  14. ICT Initiatives • E-Government - Focusing on informative websites & e-procurement. • U.S. Digital Freedom Initiative (DFI) - A public-private partnership to promote transfer of information & communication technology to benefit entrepreneurs & small businesses in developing countries. • To date Indonesia ranks 89th out of the top 100 worldwide in terms of E-Government rating (U.S. is 4th). Global e-government = the delivery of public sector information and online services through the Internet. • October 21, 2003: Indonesia, along with Peru, joined the DFI • U.S. is committed to helping countries bridge the digital divide & generate economic growth & opportunity.

  15. Education & SkillsTechnology PolicyInfrastructure Industrial Policy Environmental Factors IT Diffusion Political, Social and Economic Environment IT Production and Use Industry Structure Indigenous vs. MNC R&D IT-Led Development Economic Payoffs $ Employment, Productivity and Economic Growth

  16. Environmental FactorsPolitical • Government Corruption - Ranks 6th in the world • Rating the degree of corruption as seen by business people, academics and risk analysts • Indonesia rates 8.1; U.S. rates 2.3 (0 - clean, 10 - highly corrupt) • Has a tangled regulatory & legal environment where most firms, both foreign & domestic, attempt to avoid the justice system • Transparency problems & red tape are factors that routinely hinder U.S. operations in Indonesia • Protection of intellectual property rights remains weak • Inadequate enforcement of the laws & regulations passed since 1987 • April 2001, USG placed Indonesia on the Special 301 priority watch list

  17. Environmental FactorsPolitical • Lack of legal certainty surrounding contract enforcement & differential treatment of domestic versus foreign companies. • February 1, 1997: an amendment to the U.S.-Indonesia tax treaty went into effect that reduced withholding rates to 10%.

  18. Environmental FactorsSocial • Indonesians do not hurry – only a true emergency (death or a serious injury) will impel most Indonesians to haste or punctuality. • Many laborers consider themselves punctual if they arrive within a few hours of an appointment • Strong relationships are essential to successful business ventures • Indonesians avoid embarrassment - business information can often be distorted. • Contracts are seen as too rigid - deviations from a contract should be tolerated & expected • Social obligation is very important in the community

  19. Hofstede’s Dimensions • Power Distance - High • Indonesian society is very stratified & hierarchical • Uncertainty Avoidance - High • They prefer balance • Behavior is conservative in nature • Astrologers are often consulted; signing of a contract may be delayed until a “lucky” day arrives • Masculinity - Low • Aggressiveness & conflict are avoided at all costs • General welfare at core of government & business activities; profit never takes precedence • Individualism - Low • Beyond family, the power of community is essential

  20. Environmental FactorsEconomic • Experienced severe financial crisis in 1997/1998 • Approximately 75% of Indonesian businesses were in technical bankruptcy following the economic collapse in 1998 • Economic growth increased modestly in 2002 despite the continuing global economic slowdown • GDP grew at a rate of 3.7% (2002), up from 3.1% (2001) • GDP growth is forecast at 3.8% (2003) - sign that the economy will continue its recovery from the 1997 fiscal crisis • Bank Indonesia is predicting that the economy will expand to follow the trend of growing domestic demand in the remaining part of 2003. • Indonesia spans 3 time zones & is economically dispersed • Illicit producer of cannabis largely for domestic use; possible growing role as transshipment point for Golden Triangle heroin

  21. Industrial PolicyEducation & Skills • Foreign investors are expected to contribute to the training & development of nationals, allowing the transfer of skills/technology • Acute shortage of trained Indonesian IT personnel • Lack of English capabilities • Prior to the economic crisis: • 26% of non-agricultural workers had graduated from high school • 5% on non-agricultural had educational achievement at a university level • 25% of the non-agricultural workers had not completed primary school • 50% of the agricultural workers had not completed primary school • High inflation & large-scale layoffs caused about 6 - 8 million students to drop out of school since the onset on the economic crisis.

  22. Industrial PolicyTechnology Policy • Most of the Internet & Information Technology activities are driven by private & educational sectors • Government Progressive Initiatives for e-business (April 2001 PKI Conference in Seoul Korea) • Accelerate the development of software application industry • Accelerate Commerce on the Net • Increase investments & exports on hardware of IT products • 2010 IT-production target of $14.0M (U.S.) for IT products

  23. Industrial PolicyInfrastructure • Lack of sufficient ICT infrastructure • Under developing infrastructure due to years of government control over the telecommunications industry. • Deregulation & privatization policies are now being strongly promoted • Indonesia’s state-owned Telkom & Indosat signed a benchmark agreement to end major cross holdings in a number of companies • Full foreign ownership is not permitted in the telecommunications sector

  24. Industrial StructureIndigenous vs. MNC, R&D • Current industrial structure is not focused on IT • Prior to the economic crisis of 1997/98, there were about 200 companies producing local personal computers & peripherals in Indonesia. • There appear to be MNC’s present, but not with a major focus on IT related industries • IBM has a presence (Representative office, Trade) • Intel has a presence (Sales & Marketing - 5 employees) • Unable to find sufficient data on R&D

  25. IT DiffusionIT Production & Use • In 1994 & 1995 there was hardware manufacturing in Indonesia, but can find no evidence in 2003 that it still exists. • In 1997, Indonesia spent $102M on software spending, but can find no evidence in 2003 that it still exists. • Computer & peripheral imports experienced a 33.9% growth from 1999 to 2000. • Weak IT due to the under developed infrastructure • Barriers to development of e-commerce - limited use of credit cards, safety of online payment transactions, and relatively low number of Internet users. • Job opportunities via website - It appears that the positions available for IT consist of data entry, and limited to working out of the home

  26. IT DiffusionIT Production & Use • “WiFi” could be the best way to narrow the digital divide & bolster economic development • Uses free radio bandwidth • Doesn’t need an infrastructure • Initial kit, excluding PC, costs about $80 US • Doesn’t need a powerful PC, so a second-hand PC can be used What they do have… • turboHOTEL, indo.com’s hotel room distribution technology, was selected as the Best IT Innovation Tourism in Indonesia. In 2001, represented Indonesia to the International Asia Pacific ICT awards (APICTA) in Malaysia. • When investigated, was found to only be an on-line reservation system

  27. In Summary • Indonesia is riddled with corruption and crime • Dangerous situation cause fear for ones security and safety • The country is recovering from an economic crisis and many businesses are currently in bankruptcy • Insufficient telecommunications and infrastructure • Poor education and skilled labor • Inadequate governmental controls or policies to correct the problems • High unemployment and low wages may be beneficial to an investment opportunity, but language barriers, cultural attitudes and high inflation offset any practical benefits

  28. Recommendation: Do Not Invest at this Time

  29. Future Considerations • Provide Professional Services - provide IT support & training • Assist in the development of a sound infrastructure or “WiFi” • Utilize the local labor for an IT-related production facility. • Provide logistic capability to support e-commerce • Exporting - is it an option??

  30. Resources • www.odci.gov/cia/publications/factbook • www.expat.or.id/info/overview • www.expat.or.id/info/internetaccess • www.tourismindonesia.com/country_facts.asp • www.austrade.gov.au • www.thejakartapost.com • www.aiccusa.org • www.usatrade.gov/website/CCG.nsf/CCGurl • www.american.edu/carmel • www.eia.doe.gov/emeu/cabs • www.nationmaster.com • www.executiveplanet.com/business-culture-in • www.american.edu/carmel • www.indobiz.com • www.indo.com • www.usinfo.gov • OCLC FirstSearch: Oakland Univ; World Almanac • Global Information Technology & Electronic Commerce Textbook

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