Indonesia Stands Out With Strong Potential
Editor / Provider: the Editorial Team | Updated: 2/15/2012 | Article type: Hot Topics
Unlike the devastating aftermath of the 1997 Asian financial crisis, Indonesia sailed through the 2009 global economic storm peacefully and experienced growth. John Shi, Editorial Director of a&s magazines explores the latest developments and hot vertical segments in this dynamic market.
The Asian financial crisis in 1997 and 1998 hammered Indonesia hard. Ten years later, the global recession struck. However, this economic hardship did not hurt the Indonesian market. Even at its lowest point in 2009, GDP growth remained above 4 percent, reaching 6.1 percent in 2010. Strong domestic demand along with government stimulus packages fueled economic growth. New projects, construction and infrastructure are underway and the security market looks promising in the near future.
“Our estimated market size for security system equipment before 2008 is US$25 to $28 million per year. The market grew 30 percent in 2009 so the market size for 2009 could be $30 to $35 million,” said Vincentius Liong, Director of Integrated Security System Solution, Elektro Data Sistem Integrasi.
The security market is growing at an annual rate of 10 to 20 percent. Government projects, private sectors and oil and mining industries each make up a third of the market, said Reyky Yonathan, Account Sales Manager, Honeywell Indonesia.
General security awareness was relatively low in the 90s, with most systems using only access control without surveillance and alarms, said Indah Fajarwati, Sales Manager, Secom Indonesia. “At that time, not too many companies sold security products, mostly international brand. The market was mainly project-based while domestic usage was not so popular,” recalled Ir. Darwin Lestari Tan, Director of TelView Technology.
The Asian financial crisis was a start. It triggered demonstrations, riots and looting. Mass riots typically involved vandalism and the destruction of private and public property, which was how the Indonesian security business first picked up. While most companies were cutting jobs, security companies at the time were hiring more employees. The security market had 40 percent growth since there were bombings and attacks during the Asian financial crisis, Liong said. During the crisis, companies increased their investments into security, as it became a must.
Indonesian security spending dramatically increased after the 9/11 attacks and the 2002 Bali bombings. Police mandates required the installation of surveillance cameras for public monitoring. Also, banks installed surveillance systems due to regulations from the Indonesian central bank, Liong said.
Security awareness increased as well, as it no longer was perceived as a luxury. “The Bali bombing made people aware of the issue of security and the importance of it,” Tan said. “Before that, hotels and the hospitality industry were reluctant to install surveillance equipment and viewed it as a violation of privacy. But now, surveillance equipment is a must.”
Indonesian market is very pricesensitive, while government projects are more concerned about good solutions rather than costs, Yonathan said. While some buyers understand quality differences in price, they cannot afford the price. Only around 30 to 50 percent of buyers do not consider price when quality is concerned, said Lasmaria Agustin, Manager of Business Communication Division, Galva Technovision.
Liong added that some commercial buildings and universities have budget concerns. For example, retail stores or shopping malls just want to purchase cheap solutions that have OK quality.
“Money is no issue for government projects or large banks, telecoms and commercial businesses,” Liong said. “They don't want to buy cheap products. Instead, they prefer not just to buy the right product but the right solution as well. They care about technical support and after-sales service. This is the current market trend these years. The cheapest ones are not always the favorites now.”
Government projects,oil companies or central banks prefer branded products from European or US providers, Fajarwati said. The brand reputation is the first priority along with meeting bid criteria, then price consideration comes next, Fajarwati said.
Lian-Seng Lim, Regional Manager of ASG Asia, agreed. Unless bidders have even better quality offers than leading brands, officials will not take them into consideration.
While price remains the deciding factor in the entry and midrange market,it depends on the application. Despite budget concerns, some verticals such as hotels demand the most suitable price-performance products.
The booming Indonesian market attracts more dealers and distributors, which makes products more price-competitive. Products with the same technology two years ago were too expensive, but are now more affordable. They are not limited to government projects or the petrochemical industry anymore, said Yee Wen Shing, MD of Camware International. More cost-effective and better quality solutions are available, which offers great opportunities for market expansion. [NextPage]
Indonesia comprises more than 17,000 islands scattered over more than one-tenth of the equator, between Southeast Asia and Australia. Despite the spread-out geography,the commercial segment is mostly in the major cities of Jakarta, Surabaya and tourist hotspots in Bali. Oil and gas developments are concentrated in Kalimantan and Sumatra, while government projects depend on different territorial developments.
Some verticals such as financial institutions are thriving because of government regulations and a strong market outlook. Other market segments such as retail and end-users are a direct result of Indonesia's vibrant economy. Currently the most active markets are financial institutions, the commercial sector and airports.
Banking is a booming industry fueled by government security regulations. In addition, financial institutes tend to have more budgets for security. Many distributors are optimistic because banks and ATMs are increasing in major Indonesian cities, Lim said. In addition to surveillance cameras, alarms and integrated solutions are required as well, making banking a market with strong potential.
The commercial sector, with offices, hotels and retail stores, has increased security demand after the Bali bombings, especially in Jakarta, Yonathan said. Jakarta is the center of security market.
As Indonesia moves from mom-and-pop stores and street vendors to supermarkets and shopping malls, demand for electronic security equipment increased as well. This market segment is more price-sensitive, compared to banks and public projects. However, no one can ignore the increased number of offerings for entry-level cameras and equipment. The volume of this segment should not be underestimated, Shing said.
“Airports are the big ongoing projects since we are an island country,” Fajarwati said. With more than 17,000 islands under the republic's flag, the main mode of transportation for interisland travel in Indonesia is air. It is reported that Indonesian government will boost capital spending to ($140 billion) next year to solve infrastructure bottlenecks and spur growth, among fears of a global economic slowdown. These infrastructure projects include the development of 14 airports. Airport modernization and expansion will be significant for surveillance and access control players.
IP solutions and network cameras are growing in Indonesia. “IP applications in Indonesia may not be as widespread as in Japan, Korea or Singapore but more Indonesian customers are looking at it for surveillance,” Fajarwati said. It is a popular trend as it enables flexibility in remote monitoring and integration.
Network camera market development in Indonesia depends on several key factors — the development of new infrastructure in major cities and the improvement of compression and storage technology. Increases in megapixel resolution are not the driving force, while bandwidth stability has always been a crucial issue in expanding the local market, Lim said. Bandwidth availability presents one of the major challenges for network surveillance. The realization of IP application is still limited in major cities and only for entry-level network cameras.
Large corporations are still the major users of network cameras, while government projects may not specify them. Budget is another key factor. “If companies understand which megapixel network cameras have quality, they definitely know the cost and they have budget for that,” Lim said.
End users are getting more interested in network cameras and IP applications. This might be attributed to the popularity of smartphones in Indonesia, as nearly every businessman owns one. Users can access security cameras via tablets or smartphones. “Security is more like a lifestyle,” Tan said.
Remote access ibility and smartphone monitoring are the best selling points. “Many retail store owners want to install network equipment because of smartphones,” said Shing.
However, analog cameras still remain dominant and are doing very well. For installers and system integrators, the introduction of network cameras is good news since IP has clear benefits and offers higher margins than analog cameras. However, for distributors, network cameras may require too much work, requiring time and money in network maintenance. In the long run, the heavy maintenance cost may cancel out the margin, said Shing. [NextPage]
Stay in the Game
As the Indonesian market is picking up the pace, more players are moving in and intensifying the competition. Price, quality and service that meet customer needs are keys for survival. Chinese products are more price-competitive, while some manufacturers focus on cus tomized products. For instance, to cope with hot temperatures, humidity and stormy weather in Indonesia, Camware designed its own cameras by assembling Korean parts locally. By doing so, its products were more price-competitive without sacrificing quality, Shing said.
Bosch, on the other hand, offers its clients timely service with 25 branches across Indonesia. “Compared with other brands, this is our advantage,” Liong said. These branches assure immediate support in every major city. In rural areas, Bosch works closely with local dealers, partners and engineers to provide service.
Indonesia's banking system virtually collapsed in the late 1990s during the Asian financial crisis. The global recession was a completely different Indonesian story. Indonesia eme rg ed f rom the e c onomi c downturn nearly unscathed. “Despite the global market being hit, the domestic demand for security was still strong,” Lim said. “There was no sense of an economic downturn, since people increased their spending on safety.”
Security players are confident that 2011 will yield stronger growth than 2010. “We grew 30 percent in 2010 and expect 40- to 45-percent growth in 2011, due to new projects, public service and new buildings,” Fajarwati said. “Infrastructure and the economy have been good.”
“Profit margin is shrinking due to numerous players,” Tan said. The booming market attracted more players and intensified competition. Competition is tough, especially for surveillance. Local brands are competing with products from China and well-known brands. Even global brands are lowering costs by moving production to China, Liong said.
Compared to markets such as Thailand and Malaysia, the Indonesian market is relatively young, price-sensitive and lacking education. There are still many customers who cannot tell the difference between quality and cheap solutions, Shing said.
The outlook for the Indonesian economy is stable. Inflation is low, and national reserves are larger. Its investment climate and communications have been favorable. “The infrastructure and bandwidth were fairly limited five years ago,” Liong said. “Today we have broadband, fiber-optic and 3-G networks. Everything is possible now.”
In all aspects, the Indonesian security market looks promising