Hello guys,

This “Indonesia Now! 2012” article supposed to be in coolfounders<dot>com around two years ago. However, due to certain issues, it’ s never published. Therefore, I decided to publish it now in my weblog.

Enjoy!

Andika Priyandana 🙂

 

Executive Summary

Economic Data

In March 2006, PricewaterhouseCoopers (PwC) published a report titled “The World in 2050, Beyond the BRICs: a broader look at emerging market growth prospects”. The report highlights the increasing global significance and rapid growth of emerging countries called the E7.

Not surprisingly, Indonesia is included as one of these E7 Emerging Countries, together with Brazil, Russia, India, China, Mexico, and Turkey. Furthermore, according to Goldman Sachs, Indonesia economy will be the 7^th largest in the world by 2050, larger than Japan, United Kingdom and Germany economies.

What makes the above prediction seems very much possible to happen? In the recent years, Indonesia has enjoyed and is still riding on a high and stable real GDP growth, which becomes one of the highest in South East Asia region and also made Indonesia as the only G20 member to record economic growth during the global financial crises of 2008-09.

At that time, when the neighboring countries suffer from a negative or near zero real GDP growth (Singapore -2.10%, Malaysia – 2.20%, Thailand -2.80%, Philippine 0.90%), Indonesia gained a positive growth at 4.5% and keep onto higher number at 6.1% (2010), 6.4% (2011) (Source: CIA The World Factbook 2012) and is estimated to score 6.3% in 2012 (Source: World Bank).

When the GDP per capita is adjusted by purchasing power parity, it is also rising gradually from USD 4085 (2009), USD 4325 (2010) and is estimated to reach USD 4657by the end of 2011. Related to Indonesia Consumer Confidence Index, the number climbs from 122.4 (2009), 136.7 (2010) and finally sets world record by 146.8 since no other index in any other country has ever scored 145 (Indonesia Chamber of Commerce, Roy Morgan, 2011).

This means there is an indication that Indonesian consumer ignores the depressing signals, either in local politics or the global economy. This growing confidence of Indonesian consumer shrugs off the alarm from Europe and the US economies. Indonesian people want to show the world that they set out with their daily business with higher enthusiasm than ever before.

Regarding Indonesia trade, exports and imports, Indonesia has been known as important hub of international trade and in effort to promote it, Indonesia has become the member of APEC, ASEAN, WTO and G-20. In January 2012, Indonesia exports were worth 15.493 billion USD, a 112% increase from the 7.28 billion USD of exports in January 2009, whilst for the imports, they were worth 14.570 billion USD in January 2012, 129% higher compared to imports in 2009 that valued at 6.340 billion USD (Indonesia Bureau of Statistics).

On the subject of Indonesia financial market, the Indonesia Stock Market started from 1983 to 2012 has an average value at 875.83 with historical high of 4193.44 points in August 2011 and lowest record of 61.56 points in November 1986. The Rupiah (Indonesian currency) condition unfortunately is not as good as the stock market, especially during 2011as it depreciated around 2 percent against the US Dollar. In history, from 1991 till 2012, the USD – IDR exchange averaged 7604 and reached its highest at 16650 in June 1998 whereas the lowest at 1977 in November 1991.

As regards Indonesia’s investment climate, it remains competitive amid the global financial crisis. This can be seen from total domestic and foreign investment in 2011 which valued 2.73 billion USD or 20.5% higher compared to 2010 achievement at 2.26 billion USD. This 2011 result has also exceeded 4% of expectation (Indonesia Investment Coordinating Board, 2012).

The numbers speak for themselves. Compared to much of the world, Indonesia’s economy looks strong with record foreign currency reserves, home to the world’s best-performing emerging stock market over the period 2009 – 2011, huge number of middle class (134 million or 56.5% of total population with 29 million of them are considered as premium middle class (Nielsen 2011)) as well as the restoration to investment grade after 14 years by Moody’s and Fitch Ratings. Thus, Indonesia is a good place for every business entity that looks for long-term investment.

Internet Users

The number of Internet users in Indonesia has dramatically rocketed to 55 million people as of December 31, 2011, jumped from the previous 39.6 million in 2010 according to Markplus Insight study. Through this astonishing number of Netizen births, Indonesia positioned itself as the 4^th largest Internet market in Asia (after China, India and Japan). This number would continue to grow rapidly and exponentially as the internet really became a necessity. This can be viewed in the period 2000 – 2010, where the internet recently accessed by 2 million users, experienced an increase of 1400% (www.internetworldstats.com, 2011).

Furthermore, based on the programs of Ministry of Communication and Information, around 150 million people or 61.2% of the Indonesian population will have access to the internet by 2014. Compared to total population (not Internet users), clearly the number of Internet users in Indonesia will be significantly higher than Singapore (5.1 million), Malaysia (28.4 million), South Korea (48.8 million), Thailand (68.9 million), Vietnam (87 million) and Philippines (101.8 million).

When we delve into the number of Indonesian internet users, the demography is dominated by young audience (more than 70 percent of internet users aged between 15 to 30-year-old), in particular male, from large cities, namely Jakarta, Suarabaya, Bandung, Medan, Makassar, Semarang, Denpasar, Palembang and so on.

The number of Netizens who access via their mobile phones is also growing rapidly (the highest growth in Asia after China) and by the end of 2011, it illustrates around 57 percent of Internet users in Indonesia, a 100 percent increase compared to 2010, mainly due to inexpensive prices of mobile internet services and gadgets (Markplus Insight, 2011).

 

 

As of Indonesian netizen demographics, the young audience is very significant, even when the composition is compared to other Asian countries.

Additionally, based on the data from Yahoo! and TNS Net Index, the demographics of Indonesian internet users are likely from an upper social and economic class.

 

 

Whilst from gender perspective, female audience is still minor (36%) compared to those of male audience.

When the discussion goes into Indonesia’s internet penetration rate, currently around 21% already has access to the internet (Nielsen 2011). This 21% adoption rate means there are approximately 50 million individuals are connected by internet in Indonesia.

For the record, the number of internet users in Indonesia grows exponentially. The example of this exponential growth can be seen from the explosively increasing number of Indonesia internet users which doubled itself from 25 million (2009) to 49 million (2010) (APJII (internet access both retail and business segments) 2011).

Certainly all the above statistics are in line with the programs of Ministry of Communication and Information t reach around 150 million internet users or 61.2% of the Indonesian population will have access to the internet by 2014. The high level of seriousness from the government is shown from their effort to reach the target of Universal Service Obligation Program by 2012. Through this program, as many as 32.000 villages will have access to the internet. Within Universal Service Obligation program, Nusantara Internet Exchange is also on the list. Thus, by the end of 2012, the Ministry of Communication and Information   expects to realize the “Indonesia Connected” label.

Access to Internet

The access to internet mainly comes from big cities and only 4.1% located in rural areas. This happens due to poor infrastructure in the rural areas of Indonesia, plus the fragmented geography. Nevertheless, these numbers are expected to increase largely as the progress of the government’s program keeps running and technology becomes more inexpensive.

The following figure from Roy Morgan, Single Source Indonesia may describe the high rate of internet penetration in urban areas that explains the domination of big cities.

By the end of 2011, the broadband penetration rate in Indonesia set at 2.2%. The Ministry of Communication and Information expects to increase the broadband penetration rate to 30% by the end of 2014.

Regarding mobile devices, according to Google, around 50% Indonesian internet users use mobile devices to browse on the internet which makes an equal rate to internet users who use desktop PC to surf on the internet. Concurrently, the reliance to Internet café is plummeting gradually due to affordable prices of home/mobile internet.

Wired Internet

Currently, broadband wired Internet connection is still relatively expensive for many Indonesians. To some extent, this may delay the growth of internet subscribers. Nevertheless, the recent development of technologies in mobile broadband can moderately overcome the problem of fixed technologies needed by Indonesia, especially with its fragmented topography.

Here is the trends overview of Indonesian internet users from 2005 to 2010 (in millions).

 

Wireless/Mobile Internet

As we have mentioned before, mobile is big in Indonesia. The numbers of people who use mobile devices to access the internet reach ed around 50% internet users by 2011. About the demographic, the highest penetration of mobile phone is teenagers aged 15 to 19 (Nielsen Company Indonesia 2011).

There are three primary reasons why mobile is really big in Indonesia: price, infrastructure, and culture. Wireless/mobile Internet service is much cheaper compared to wired broadband. Subscribers can get a Blackberry Internet service for as low as $7.7 per month. Unlike wired Internet infrastructure, mobile infrastructure is much more developed in Indonesia.

The infrastructure covers 90% of Indonesia’s population and offers fast connection through 3G networks. Starting June 2010, a WiMax or 4G connection is also available for subscribers in Jakarta area. Many young Indonesians spend most of their free time hanging out with their friends outside their home. In addition, bad traffic condition is a daily menu for most Indonesian workers especially in Jakarta area, forcing them to spend a significant amount of their time on the road. Mobile Internet access is becoming a necessity, not a nice to have anymore.

Obviously, mobile is the future of internet access in Indonesia.

“Warung” Internet (Internet café)

Currently, as prices of Personal Computers (PC) and home/mobile internet decrease, so the access to internet from Warung Internet or Internet café. Only those who cannot afford to pay for monthly subscription fee will go to Warung Internet and pay an hourly fee.

The following figure from Yahoo and Taylor Nelson Sofres (TNS ) Indonesiaexplains the downfall of Internet Café.

 

Internet Use

Though internet is relatively a new communication media in Indonesia, it already became a necessity. Internet in Indonesia positioned itself in the second place after television. Around 89% of users connected to social sites (i.e. Facebook), 72% browsed the web and 61% read the online news (Yahoo Net Index 2011).

Along the same line, Nielsen also found the same result regarding Indonesian consumer behaviors in spending their time on communication media. As we can see from the chart below which describes South East Asian countries (left to right: Indonesia – Malaysia – Philippines – Singapore – Thailand – Vietnam), 14% of Indonesian internet users aged 15+ spend 14% of their time on the internet, second place after television (20.3%). The chart also shown these Indonesian audiences spend 8.3% of their time to listen to the radio and 4.0% to read a print newspaper.

 

How about their conducted activities in the internet? Social media activities dominate the undertaken activities and social networking is heavily admired in Indonesia due to popularity of Facebook and Twitter. According to Firefly Milward Brown, Indonesian people consider social media as tools for establishing their social status through the form of admiration and recognition. Moreover, they also use social media to bond relationship and share information.

In Southeast Asia, where Indonesia is located, online retail is growing rapidly. A study by comScore shows only 50% of Indonesian Internet users do online shopping and they spend only 1% on their online time for shopping. Though online shopping is still not the main reason for Indonesians to go online, but obviously it grows.

As we have mentioned before, social media activities dominate the undertaken activities amongst Indonesian internet citizens, such as private messages (71%), public comments (61%), browsing people’s profiles (59%), updating own profile (56%) and lastly, email (51%).

 

Related to Facebook as the most popular social networking site, Indonesia is the 3^rd-largest Facebook nation in the world. Yes, you read it right, 3^rd and not 2^nd. According to checkfacebook.com, India has surpassed Indonesia as the 2^nd biggest Facebook user in the world after The US on early February 2012. The same as Indonesia, the demography is dominated by youngsters aged 18 to 24-year-old. Based on the latest data we read on March 29^th, 2012, Indonesia’s total audience is 43.52 million and is dominated by male (59.2%).

Facebook users in Indonesia are concentrated in Jakarta and Bandung. Therefore, business persons who want to reach Indonesians through the use of Facebook outside of Jakarta and Bandung may experience a difficulty. Most of these users also use Facebook in Bahasa Indonesia (>80%). Hence the use of Bahasa Indonesia would be far better to conduct promotion activities on Facebook.

Influenced by social networking sites, online gaming is also on the rise and getting a good traction amongst Indonesians. Around 44.6% of them play online games and they spend 2.9% on their online time on these sites (comScore).

Indonesians also enjoy sharing their photos with their friends and it is becoming a key component of the Social Networking experience. Therefore, many photos shared in Indonesia is dominated by Facebook Photos.

Additionally, many online Indonesians (63.9%) also upload and share their photos in other sites such as flickr and they, on average, 3.5% of their online time in photo sharing sites (comScore).

Regarding online video consumption, Indonesia is still out three biggest markets in Southeast Asia. This happens due to poor internet infrastructure. In this region, Malaysia has the largest number of viewers but the smallest average usage.

Quite different from their neighborhood country, Indonesians spend lots of time in front of their computer/mobile phone watching online videos . A recent study by Nielsen’s Online practice found that online video is most broadly watched among online consumers in China and Indonesia, where consumers are 26% more likely to use video. The number of Indonesians who watch online videos on computer at work and on their mobile phone ranked number 13 and 2 in the world.

According to ComScore, on average, Indonesian internet users use 4.7% of their online time to search news and information. However, this data may not be highly accurate considering that the list of the most visited websites in Indonesia is dominated by news and information websites such as Detik.com and Kompas.com.

Based on comScore’s study, it shows that business and finance sites only reach 24.8% of Internet users in Indonesia. Furthermore, Indonesians spend only 1.1% of their online time in business and finance sites.

Indonesians are also heavy searchers, though searchers in the Philippines had the biggest average number of searchers per searcher (comScore). The average number of Searches per user is 91.4 (comScore). 80% of Indonesian Internet users uses Google to do their Search (comScore). Whist they use Google to do their search, they use desktop and mobile equally (50-50) as a device to conduct this specific activity (Google 2011).

E-commerce

E-commerce is growing in Indonesia. An estimated value of Rp 35 trillion stated from total online transaction in Indonesia, though still dominated by foreign players during year 2009. Now, the number of Indonesian web-entrepreneurs grows rapidly due to promising domestic market. Based on Forrester Research 2010, e-commerce market in Indonesia has potential to reach USD 172.9 billion.

Riding on the same wave, online banking is also on the rise. As a matter of fact, visitation to online banking has developed by double digits, which also occurred in other SEA countries, such as Singapore, Malaysia, Vietnam and Philippines. Percentage reach along the year 2010 touched 8.4. Mandiri.co.id became the first online banking destination by Indonesian audience (comScore 2011).

 

Payment System

Sophisticated payment system is one of the obstacles of E-commerce growth in Indonesia, if not the biggest one. Many e-commerce providers still use offline payment system. They have online stores but run the transactions offline (i.e. bank transfers), or a semi-manual system. Moreover, credit owners still not many and banks in Indonesia do not have a universal payment system which can be utilized by e-commerce.

How about Paypal? It’s getting worse. Apart from unavailability on most Indonesian sites, only a very segmented and small number of Indonesians who have Paypal account. Relatively similar to Paypal, but Kaspay and Klikpay are owned by local non Bank institutions. Prior to Kaspay, unfortunately it is popular among Kaskus (top 5 sites in Indonesia) users only.

E-money is also another form of electronic payment methods which allows transfer fund between subscribers, i.e. i-Pay (Indosat) and T-Cash (Telkomsel). However, e-money still tries to gain trust from its users.

 

Digital Advertising

According to ZenithOptimedia 2011, companies and organizations around the world spent apprx. 14% from their total advertising budget in 2010. It’s a 1.2% increase from from the previous year spending. TV advertising still holds the highest percentage at 40.7% and newspaper on the second place at 21.3%. This is understandable since these two forms of media cover majority of global audiences. Even so, the spending on internet advertising is spiraling steadily year-by-year, also in the predicted ones.

When we put our focus in digital advertising spending in Indonesia, the number is also on the rise. Based on various sources, such as detik.com, kompas.com and yahoo.com, the digital spend increased vastly among 2009 – 2011. This strategy is following the increasing online activity in the years ahead as devices to access internet, 3G and broadband access become more familiar and reasonably priced.

Conclusion

 

Sources:

http://www.goldmansachs.com/our-thinking/brics/brics-dream.html 2003

https://wiki.smu.edu.sg/digitalmediaasia/Digital_Media_in_Indonesia

http://www.scribd.com/blogwatch/d/71370794-The-digital-media-and-habits-attitudes-of-South-East-Asian-Consumers

Nielsen report 2012. The Asian media landscape is turning digital:How can marketers maximise their opportunities?

http://www.checkfacebook.com/

http://salingsilang.com/

 

Sources

E-commerce in Indonesia, Zuraida Boerhanoeddin: http://www.idrc.ca/panasia/ev-9869-201-1-DO_TOPIC.html

E-Commerce Still Doesn’t Quite Click with Cautious Indonesian Shoppers, Yessar Rosendar: http://www.thejakartaglobe.com/business/e-commerce-still-doesnt-quite-click-with-cautious-indonesian-shoppers/377992

Ekonomi RI Tumbuh 5,8 Persen: http://bisniskeuangan.kompas.com/read/2010/07/26/1907591/Ekonomi.RI.Tumbuh.5.8.Persen

World Bank: http://data.worldbank.org/data-catalog/world-development-indicators?cid=GPD_WDI

Indonesian Economy Expands at Fastest Pace Since 2008, Aloysius Unditu and Novrida Manurung: http://www.businessweek.com/news/2010-05-10/indonesian-economy-expands-at-fastest-pace-since-2008-update3-.html

The World in 2050, Beyond the BRICs: a broader look at emerging market growth prospects, PricewaterhouseCoopers (PwC)

President Dedicates Palapa Ring Construction: http://www.antaranews.com/en/news/1259595373/president-dedicates-palapa-ring-construction

PT Telkom: http://www.telkom.co.id/produk-layanan/personal/internet/speedy.html

PT First Media: http://www.fastnetmegaspeed.com/

ITU: http://www.itu.int/ITU-D/icteye/Default.aspx

Monetizing the Indonesian Internet and Mobile Market: http://www.slideshare.net/andisboediman/monetizing-indonesia-internet-mobile

State of the Mobile Web, Opera: http://www.opera.com/smw/2010/06/

Pengguna Internet Indonesia Didominasi Remaja: http://edukasi.kompas.com/read/2009/03/20/2028042/Pengguna.Internet.Indonesia.Didominasi.Remaja

Indonesians Starting to Fill Their Online Shopping Bags: http://www.thejakartaglobe.com/business/indonesians-starting-to-fill-their-online-shopping-bags/385860

Belanja Iklan Tahun Ini Diramal Naik 20 Persen: http://bisniskeuangan.kompas.com/read/2010/04/20/12452134/Belanja.Iklan.Tahun.Ini.Diramal.Naik.20.Persen

Nielsen: Belanja Iklan Indonesia 2009 Tembus Rp 48,5 Triliun: http://bisniskeuangan.kompas.com/read/2010/01/19/13394066/Nielsen:.Belanja.Iklan.Indonesia.2009.Tembus.Rp.48.5.Triliun

Nielsen: How We Watch — The Global State of Video Consumption

Nielsen: Global Trends in Online Shopping

comScore: State of the Internet with focus on Asia Pacific

 

29.4.2014

Andika Priyandana