Indonesia

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Indonesia
Lisa B. Gall Julie Marceau
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Worlds Largest Archipelago
More than 17,000 islands (6,000 inhabited)
Area is slightly less than 3xs 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
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Indonesia - A Snap Shot
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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

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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

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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

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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

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Transportation
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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
• ISPs (2001) 160 with licenses to operate 45
  are operational

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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

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ICT Initiatives

• 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.

• 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.

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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

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ICT Initiatives

• E-Government - Focusing on informative websites
  e-procurement.

• 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.

• 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.

• 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.

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IT-Led Development
Economic Payoffs
Employment, Productivity and Economic Growth
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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

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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.

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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

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Hofstedes 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

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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

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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.

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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

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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
• Indonesias 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

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Industrial StructureIndigenous vs. MNC, RD

• 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 MNCs 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 RD

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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

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IT DiffusionIT Production Use

• WiFi could be the best way to narrow the
  digital divide bolster economic development
• Uses free radio bandwidth
• Doesnt need an infrastructure
• Initial kit, excluding PC, costs about 80 US
• Doesnt need a powerful PC, so a second-hand PC
  can be used
• What they do have
• turboHOTEL, indo.coms 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

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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

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Recommendation

• Do Not Invest at this Time

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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??

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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