Indonesia
Indonesia is positioned to make great strides in the development its Information Technology sector. Today the country is moving away from its dependence on exports and restructuring its strategy to meet the challenges of an economy driven by IT and IT-related services. Many economists expect growth of USD $700M this year, with a compound annual growth rate (CAGR) of around 15% over 2010-2014. As the country’s IT service market grows, most of these will concentrate on services that include system integration, professional services, training, support systems, internet services, and global sourcing.
Indonesia is continually liberalizing economic policies to support its outsourcing industry, including the Indonesian call center market. Aside from this, the government is implementing developmental strategies including the simplification of investment procedure and tax deductible expenses, and of training and research improvements for development programs.
Indonesia was severely impacted by the recent global recession, but has responded effectively and efficiently because of the lessons learned from their 1997-1998 crisis. The Indonesian government established fiscal policy tools to lessen the economic impact, and the two instruments that it used were the tax-saving program for households and businesses and additional spending on infrastructure projects for private sector and household spending.
Country overview
Indonesia, which comprises 17,508 islands, has a population of 245.6 million, the fourth most populous country after China, India, and the United States. It has Muslim population with about 300 ethnic groups, mostly deriving from European, Malay, Chinese, Arabic, and Indian influences.
Indonesia has the largest economy in Southeast Asia, is a member of the G-20 major economies, and is the only Southeast Asian nation belonging to OPEC. Indonesia's market economy is heavily influenced by its government, with over 164 state-owned enterprises are under its management.
Indonesia was hardest hit during the East Asian financial crisis of 1997-1998. Although the Rupiah has since stabilized, the economic recovery was slow due to corruption at all levels of the government and businesses and political instability. It was able to survive the financial crisis because of its strategy to focus more on domestic consumption. However, its economy slowed in 2007 and 2008, but expanded to 4% in the first half of 2009, and 6% in 2010. The administration of President Yudhoyono introduced major changes in the financial sector, which included capital market development and supervision, tax and custom reforms, and the use of Treasury bills. Recently, the country has experienced a steady decline of its debt-to-GDP ratio due to a robust GDP growth and good fiscal control. In 2010, the gross domestic product, measured by current exchange rates, reached USD $695.1 billion, while its purchasing power parity is $1.033 trillion. Yudhoyono's present reelection is expected to continue with its strong economic policies, although there are major challenges to face, such as lack of infrastructure to remove the barrier to economic growth and the conservation of the country's forests and peat lands.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Indonesia can be a lucrative alternative for outsourcing companies. Junior and senior resources are particularly low compared to India, and office occupancy costs in the central business district are lower than the Philippines, Thailand, United States, Canada, and China.
Employee compensation
One of the most basic components of an outsourcing operation is employee compensation. This determines a country's cost competitiveness in the area of information technology. Junior resources, particularly junior software engineers and web developers with one to four years experience are about 8 percent of their US counterparts.
Experienced senior resources are more limited, and the scarcity of highly talented IT professionals narrows the cost differences when compared to its US counterparts. The salaries for IT project managers with ten to twenty years of experience are typically 29 percent, which average 203 million Rupiah or USD $29,400. Project management, another important factor in a country's cost competitiveness in the global IT market, is also relatively scarce. \
Salaries in the BPO sector are comparable. Junior voice and non-voice resources are about 13 percent of their US counterparts. At the more senior levels, high skilled BPO employees and operations mangers command about 23 percent of their American colleagues.
Real estate and taxes
Indonesian offices within the Central Business District have an average of $31.38 US Dollar for every occupancy cost per square foot. Jakarta, a business district in Indonesia, has a 7 percent change in the second quarter of 2010, making it one of the fastest and dynamic changes in Prime Office Space Occupancy Cost this year. There is also an increasing trend of leasing inquiries from banking and financial sectors in Jakarta, which started in the 4th quarter of 2009. Office space in suburban Jakarta offers savings, with real estate costing USD $21.99 per square foot annually according to Colliers International.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
Source: Colliers International, SourcingLine, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Note : Occupancy costs are for Jakarta. Data is from December 2008 and May 2009.
Resources and skills
Indonesia has a work force close to 116.5 million, although its education is notably low despite its manpower. This problem is already being addressed by the government through various reforms and programs. For instance, the Indonesia Education Program Strategy for 2007-2012 has collaborated with the Australian Agency for International Development to help implement a nine-year basic public and private education program to boys and girls. The program also plans to provide non-formal education opportunities for out-of-school men and women in the country.
Work force and offshore outsourcing sector size
Indonesia has the fourth largest work force in the world, next to China, India, and the United States. The volume of its IT services exports is relatively low, with USD $121 million compared to China's $6.3 billion and India's $49 billion.
Education and skills
Indonesians undertake six years of elementary education and three years of junior high. There is a 94 percent literacy rate among males and 87 percent among females, yet despite this, its national spending rates on education is only 3.6 percent of the GDP. This figure is relatively low compared to the US (7.7 percent), Malaysia (6.2 percent), India (4.4 percent), and Thailand (4.2 percent). Indonesia also ranked below average in the PISA survey on Reading Achievement, Mathematics and Science.
Technological readiness
The level of technological readiness of Indonesia is relatively low. It only has 13.2 users per 100 inhabitants—only 1/5 of US and Canada’s. It also has the lowest access to broadband internet, with only 0.1 subscribers for every 100 inhabitants.
Source: CIA Factbook, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Outsourcing Sector : Indonesia does not report at the Misc. Business Services level. Number includes merchant services (i.e. Other Business Services).
Business and economic environment
Indonesia has a score of 4.4 in the Global Economic Competitiveness Report in 2009, with seven being the best possible rating. It is near India, Thailand, and China, with Malaysia being the only Asian country belonging in the top three. Its economic stability is also average, with the Philippines, US, and India trailing behind.
Infrastructure
The country ranks below average in terms of road quality. Traffic in Indonesia is usually congested and dangerous due to undisciplined drivers. The number of vehicles usually exceeds the capacity of existing roadways, and road conditions can be very poor, with the exception of toll roads and major city roads. Indonesia's electric supply is also not reliable, despite government actions aimed at strengthening and promoting new investment in power subjects in early 2000.
Labor market efficiency
The ability of an outsourcing company to manage the workforce flexibly is also important in measuring the general business competitiveness of a country. Indonesia has the least flexible employment market together with Mexico, Pakistan, Romania, and Brazil. The country also ranked 153rd out of 178 companies for the ease of hiring workers in World Bank's annual "Doing Business" survey in 2008.
Regulation
The general ease of doing business in a country places Indonesia in the bottom ranks, together with the Philippines, Ukraine, India, and Brazil. Registering a start-up is relatively long and complex, and it takes an average of 47 days to finish the process.
Legal protection and intellectual property protection
Simplicity and speed in enforcing contracts is desirable in offshore outsourcing operations. The procedure it takes to enforce a contract in Indonesia takes 40 steps, placing it in the bottom half of the survey. However, it only takes around 570 days to finish the process compared to India (1,420 days), Pakistan (976 days), and the Philippines (842 days). Software Piracy is also high in the country. It has a rate of 86 percent compared to China, India, and the Philippines
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009