Transcript Romania - School of Business Administration

Indonesia
Lisa B. Gall & Julie Marceau
World’s Largest Archipelago
More than 17,000 islands
(6,000 inhabited)
Arable land: 9.9%
Permanent crops: 7.2%
Other: 82.9% (1998 est.)
Area is slightly less than
3x’s the size of Texas
Natural Hazards: occasional floods, severe droughts, tsunamis, earthquakes,
volcanoes, forest fires
Indonesia - A Snap Shot
The People
•
Over half of the population resides in Java
•
Largest City: Jakarta (11.4 million)
Population – July 2003 est.
Population Growth Rate (%)
Urbanization (%)
Median Age (yrs)
Life Expectancy (yrs)
Net Migration Rate (per 1,000)
Literacy – Total Population (%)
Indonesia
234,893,453
1.52
42 (`01)
55 (`15)
25.8
68.94
0
88.5
United States
290,342,554
0.92
77 (`01)
35.8
77.14
3.52
97.0
The People
• Ethnic Groups
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–
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–
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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
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–
–
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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
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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
GDP
GDP per Capita
Poverty Rate (%)
Gini Index
Inflation Rate (%)
Labor Force
Unemployment Rate (%)
Industrial Prod. Growth Rate (%)
Indonesia
$663 billion
$3,100
18.2 (`01)
31.7
11.9 (`02)
99 million
10.6
4.9
United States
$10.4 trillion
$37,600
12.7 (`99)
40.8
1.6 (`02)
141.8 million
5.8
-0.4
• 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
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
Transportation
Railways (km)
Highways (km) – Total
Airports – Total
Waterways (km)
Ports & Harbors
Indonesia
6,458
342,700
158,670 (paved)
184,030 (unpaved)
631
153 (paved)
478 (unpaved)
21,579
8
United States
194,731
6,370,031
5,733,028 (paved)
637,003 (unpaved)
14,801
5,131 (paved)
9,670 (unpaved)
41,009
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Communications
Telephones – main lines in use
Telephones – mobile cellular
Internet Service Providers (ISP’s)
Internet Users
Indonesia
5,588,310 (`98)
1.07 M (`98)
2.7 M (`03)
24 (`00)
4.4 M (`02)
United States
194 M (`97)
69.2 M (`98)
7,000 (`02)
165.75 M (`02)
• 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
Communications
• Available Internet Connection Methods:
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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
– 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
ICT Initiatives
• E-Government - Focusing on informative websites & eprocurement.
– To date Indonesia ranks 89th out of the top 100 worldwide in terms of EGovernment 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.
IT-Led Development
Industrial
Policy
Environmental
Factors
Political, Social
and Economic
Environment
Education & Skills
Technology Policy
Infrastructure
IT Diffusion
Industry
Structure
Indigenous vs. MNC R&D
IT Production
and Use
Economic
Payoffs $
Employment,
Productivity and
Economic Growth
Environmental Factors
Political
• 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 Factors
Political
• 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 Factors
Social
• 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
• 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
Environmental Factors
Economic
• 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 Policy
Education & 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:
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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 Policy
Technology 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)
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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 Policy
Infrastructure
• 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 Structure
Indigenous 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 Diffusion
IT 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 Diffusion
IT Production & Use
• “WiFi” could be the best way to narrow the digital divide &
bolster economic development
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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
Recommendation:
Do Not Invest at this Time
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
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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