Indonesia Stands Out With Strong Potential

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.

Market Drivers
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.”

Buying Behavior
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.