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World’s Largest Archipelago
Area is slightly less than 3x’s the size of Texas
More than 17,000 islands (6,000 inhabited)
Natural Hazards: occasional floods, severe droughts, tsunamis, earthquakes, volcanoes, forest fires
Arable land: 9.9% Permanent crops: 7.2% Other: 82.9% (1998 est.)
The People
• Over half of the population resides in Java
• Largest City: Jakarta (11.4 million)
Indonesia United StatesPopulation – July 2003 est. 234,893,453 290,342,554
Population Growth Rate (%) 1.52 0.92
Urbanization (%)42 (`01)55 (`15)
77 (`01)
Median Age (yrs) 25.8 35.8Life Expectancy (yrs) 68.94 77.14
Net Migration Rate (per 1,000) 0 3.52Literacy – Total Population (%) 88.5 97.0
• Ethnic Groups– 45% Javanese– 14% Sundanese– 7.5% Madurese– 7.5% Coastal Malays– 26% Other
The People
• 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
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
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
Indonesia United StatesGDP $663 billion $10.4 trillion
GDP per Capita $3,100 $37,600Poverty Rate (%) 18.2 (`01) 12.7 (`99)
Gini Index 31.7 40.8Inflation Rate (%) 11.9 (`02) 1.6 (`02)
Labor Force 99 million 141.8 millionUnemployment Rate (%) 10.6 5.8
Industrial Prod. Growth Rate (%) 4.9 -0.4
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
TransportationIndonesia United States
Railways (km) 6,458 194,731Highways (km) – Total 342,700
158,670 (paved)184,030 (unpaved)
6,370,0315,733,028 (paved)637,003 (unpaved)
Airports – Total 631153 (paved)
478 (unpaved)
14,8015,131 (paved)
9,670 (unpaved)Waterways (km) 21,579 41,009Ports & Harbors 8 22
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
Indonesia United StatesTelephones – main lines in use 5,588,310 (`98) 194 M (`97)
Telephones – mobile cellular1.07 M (`98)2.7 M (`03)
69.2 M (`98)
Internet Service Providers (ISP’s) 24 (`00) 7,000 (`02)Internet Users 4.4 M (`02) 165.75 M (`02)
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
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.
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
• 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
– Project currently on hold
– To date, not in effect
ICT Initiatives
• 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.
• E-Government - Focusing on informative websites & e-procurement.
– 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.
IT-Led Development
EconomicPayoffs $
Employment, Productivity and
Economic Growth
IT Diffusion
IT Production and Use
EnvironmentalFactors
IndustrialPolicy
Industry Structure
Education & SkillsTechnology Policy
Infrastructure
Indigenous vs. MNC R&D
Political, Social and Economic Environment
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
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%.
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
Hofstede’s Dimensions
• Power Distance - High– Indonesian society is very stratified & hierarchical
• 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
• 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
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
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.
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
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
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
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
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
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
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??
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