Indonesia’s ICT spending to hit US$29.5bil in 2020: IDC

• Majority of the country’s IT spending still goes to devices
• IT spending alone will reach US$11.9 billion in 2020

US-BASED research firm International Data Corporation (IDC) Indonesia reported that the country’s information and communication technology (ICT) spending will increase 16% to Rp394 trillion (US$29.5 billion) in 2020, from the 2017’s prediction of Rp339 trillion (US$25.4 billion).

The information technology (IT) spending alone, excluding communication spending will reach Rp159 trillion (US$11.9 billion) in 2020, increase 24.2% from the 2017’s prediction of Rp128 trillion (US$9.6 billion).           

The majority of the country’s IT spending goes to devices, such as smartphones, PCs, and tablets, which will reach Rp106 trillion (US$7.9 billion) in 2020, a 15.2% increase from an estimated Rp92 trillion (US$6.9 billion) in 2017.

“Indonesia’s IT spending is always driven by consumers rather than enterprise. The split is always about 57% to 58% for consumer IT spending against 42% to 43% for enterprise, simply because the consumer market is big, and people are buying more devices,” said IDC Indonesia’s consulting research manager, Mevira Munindra (pic, above).

However she said the growth of consumer IT spending in the next three years will slow down to single digits, with a compound annual growth rate (CAGR) of 6.96%.

While hardware and devices will still dominate Indonesia’s IT spending, the research firm also sees a change in the behaviour of companies across the country that will make IT services become one of the main components of growth in 2020.

“So far, devices is still the biggest contributor to Indonesia’s IT spending. However we are seeing more and more companies in Indonesia embracing emerging technologies such as cloud, analytics, managed services, data centre management that are provided by tech vendors,”

She noted that IT services spending will increase 61.1% in 2020 to Rp29 trillion (US$2.2 billion) from the estimated of Rp18 trillion (US$1.3 billion) in 2017.

“Digital transformation awareness is increasing, especially as the end-user is now starting to demand more efficient and high-quality service, as well as the heightened competition created by many startup players,

“Companies really need to step up their game, innovate, and ensure that they can still be relevant in the digital business era. Without utilising IT and technology, there is no way they can survive,” she added.

Another driver for Indonesia’s IT spending is software. Thanks to the blossoming application industry in the country, software spending will increase 33% to Rp12 trillion (US$896.7 million) in 2020, from the estimated Rp9 trillion (US$672.5 million) in 2017.

Top three verticals in IT spending

From all the industries and verticals in the country, retail, banking, financial services and insurance (BFSI), and manufacturing come up as the top three verticals for IT spending, each with 20.37%, 7.49% and 4.62% CAGR respectively.

“The story here is because these three verticals faced the most disruption, especially in the past two years; all retailers now are going online because of e-commerce pressure, BFSI are innovating or working together with startups, and manufacturing needs to increase productivity and maintain costs,” Mevira explained.

Digital transformation investment in the retail industry is seen to double by 2019, as 66% of Indonesian retailers believe that digital transformation will help them compete in the hyper-digital era. Retail leaders want to increase their competitive advantage by moving towards online platforms.

“Indonesian retailers are expected to move capital way from physical stores to better manage their online presence, and to automate their back-end processes for better customer experience and inventory management,” she added.

For BFSI, the digital transformation story is dominated with migration to cloud, with IDC Indonesia seeing 85% of Indonesian financial institutions making this move.

“Most Indonesian banks, around 70% of them, are looking at cloud as a way to alleviate infrastructure costs in the next three years,” she said.

In the manufacturing industry, even though the pressure is high especially for labour-intensive manufacturing, more than 75% of the country’s manufacturers have no aspirations to change digitally.

“Those who have done so mostly are multinational companies who have implemented transformation programmes on a global level. This has resulted in a major setback for the industry’s digital transformation agenda in Indonesia,” Mevira warned.

According to IDC, the pressure has forced around 10 manufacturers including General Electric, Panasonic, and Ford to close down operations in the country.

“If you look at major industries and verticals in Indonesia right now, none of them are really growing at a level that will impact the macroeconomic condition in a big way. The country needs a new catalyst for economic growth, and believe it or not, it comes from the ICT,” IDC Indonesia’s country manager Sudev Bangah added.

“When companies and the government start putting their attention on ICT, it can boost companies’ growth, and when companies are growing the industry will grow. This will impact the growth of gross domestic product (GDP) in the long run; we are talking about sustainability,” he added.

IDC Indonesia also has revealed its top 10 predictions for ICT in Indonesia, including a few points already mentioned above:

1. By 2019, 50% of IT companies will create new customer-facing and ecosystem-facing services to meet business digital transformation needs.
2. By 2018, the lack of vision, credibility, or ability to influence will keep 80% of IT executives from attaining leadership roles in enterprise digital transformation.
3. By 2020, Indonesian firms will use open innovation to allocate expertise to 15% of new projects, aiming to increase their new product introduction success rates by over 50%.
4. By 2020, nearly 20% of operational processes will be self-healing and self-learning, minimising the need for human intervention or adjustments.
5. By 2018, online brand ambassadors and social media influencers will have more marketing power
6. By 2019, retail’s digital transformation investments will double, drawing funds away from store capital and profoundly changing the retail industry.
7. By 2019, only 30% of manufacturers investing in digital transformation will be able to maximize the outcome, while outdated business models and technology hold the rest back.
8. By 2019, cloud adoption will reduce infrastructure spend by 25% among top-tier banks.
9. By 2019, 20% of local and regional governments will use Internet of Things (IoT) to turn infrastructure like roads, street lights, and traffic signals into assets instead of liabilities.
10. By 2017, 90% of Indonesian cities will fail to take full advantage of smart city data and digital assets due to a lack of processes, project management, and change management skills.

Sudev added that companies should use 2017 as an opportunity to fully unlock their digital economy potential by eliminating archaic thinking and pushing forward with an innovation agenda.

“It really depends on what the country and companies do this year that will determine whether Indonesia will be a digital explorer or digital player in 2020,” Mevira concluded.

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