Rising Investment in Local Content for Indonesia's 4G LTE Smartphones
Local and foreign smartphone vendors are eager to assemble 4 Generation long term evolution (4G LTE) smartphones in Indonesia. No less than 26 companies (and brand owners) have established assembly plants in Southeast Asia's largest economy with a combined investment value of USD $600 million since 2015. Of these 26 companies, 14 are local players. The number of foreign smartphone manufacturers in Indonesia is expected to grow as a new government regulation comes into force per 1 January 2017.
Starting from 1 January 2017 all smartphone producers in Indonesia that sell their output locally need to comply with a higher minimum local content requirement (Communication and Information Ministry Regulation No. 27/2015 on the Technical Requirements for Long Term Evolution Technology Standard Based Telecommunication Tool and Equipment). The government stipulates products within the 4G LTE spectrum, which includes smartphones, that are sold on the Indonesian market need to have 30 percent local content - both in hardware as well as software - starting from 2017. This minimum local content requirement is not new. In 2016 the minimum requirement was already set at 20 percent. Moreover, in 2019 the government may again raise the figure in a bid to boost the domestic manufacturing industry.
Bambang Suseno, Director of the Post and Information Device Directorate at Indonesia's Communication and Information Ministry, welcomes foreign players into Indonesia's smartphone industry. Usually, foreign brands engage in a partnership with Indonesian content manufacturers to manufacture smartphones that have the correct amount of local input. This creates employment in Indonesia and has a trickle down effect that improves people's lives.
The minimum local content requirement should also make locally sold smartphones more affordable for the Indonesian consumer, implying that smartphone penetration in Indonesia is encouraged to increase further. Currently, around 38 percent of the Indonesian population owns a smartphone. This implies that smartphone penetration is still rather low in Indonesia. However, swift growth is expected. According to the latest report from eMarketer, the number of smartphone users in Indonesia will rise from 55 million in 2015 to 92 million in 2019 (however, the latest Ericsson Mobility Report states that there were a total of 330 million active SIM cards in Indonesia, 100 million of which were used in smartphones). Rising Internet and smartphone penetration are important matters in a modern economy as they boost the e-commerce industry and make the whole economy more efficient.
A higher degree of local content will also curb imports of smartphones into Indonesia and therefore has a positive impact on Indonesia's trade and current account balances. Although Indonesia's trade balance has been recording a surplus since 2015, the nation's current account deficit is still rather wide at around 2 percent of gross domestic product. In 2014 Indonesia imported a total of 54 million smartphones. This figure fell to 29.3 million in 2015 (but these figures exclude the inflow of illegal smartphone; it is assumed that this black market is huge in Indonesia).
Smartphone Growth in the Asia Pacific:
| Number of Smartphone Users (in million) |
2015 | 2016F | 2017F | 2018F | 2019F |
| China | 525.8 | 563.3 | 599.3 | 640.5 | 687.7 |
| India | 167.9 | 204.1 | 243.8 | 279.2 | 317.1 |
| Indonesia |
55.4 | 65.2 | 74.9 | 83.5 | 92.0 |
| Japan | 51.8 | 55.8 | 58.9 | 60.9 | 62.6 |
| South Korea | 33.6 | 34.6 | 35.6 | 36.5 | 37.0 |
| Philippines | 26.2 | 29.9 | 33.3 | 36.5 | 39.2 |
| Vietnam | 20.7 | 24.6 | 28.6 | 32.0 | 35.2 |
Source: eMarketer
Several months ago, the International Data Corporation (IDC) stated that South Korea-based Samsung is market leader in Indonesia's smartphone market controlling 24.8 percent, followed by Taiwan-based Asus (15.9 percent share), Indonesia-based Smartfren (10.8 percent), Advan (9.6 percent), and China-based Lenovo (6.5 percent).
When the Indonesian government announced this minimum local content rule in smartphone products, there emerged plenty of criticism particularly from the USA and other trading partners who were not amused by rising protectionism in a key target market. Meanwhile, there was few confidence that local Indonesian manufacturers were prepared to meet an increase in demand for Indonesian made content for the smartphones.
Failure to comply with the minimum local content requirement can result in the suspension of licenses and the ban on sales and distribution in Indonesia.
Most Popular Smartphones in Indonesia:
| Brand | Country of Origin | Market Share |
| Samsung | South Korea | 26% |
| OPPO | China | 19% |
| Asus |
Taiwan | 9% |
| Advan | Indonesia | 8% |
| Lenovo | China | 6% |
Source: International Data Corporation (IDC)
Vendors & Smartphone Assembly Plants in Indonesia:
| Company/Vendor | Brand | Origin | Production Capacity (unit per year) |
| Hartono Istana Teknologi | Polytron | Local | 3.6 million |
| Aries Indo Global | Evercoss | Local | 1.2 million |
| Arga Mas Lestari | Advan | Local | 3.0 million |
| Tera Data Indonusa | Axioo | Local | 1.2 million |
| Maju Express Indonesia | Mito | Local | 625,000 |
| Sinar Bintang Nusantara | Gosco | Local | 400,000 |
| Supertone | SPC | Local | 600,000 |
| Zhou Internasional | AsiaFone | Local | 600,000 |
| Samsung Indonesia | Sambsung | Foreign | 12 million |
| Oppo Indonesia Electronics | Oppo | Foreign | 1.2 million |
| Haier Electrical Appliances Indonesia | Haier | Foreign | 1.0 million |
| Huawei-Panggung Electrical Citra Buana | Huawei | Foreign | 2.8 million |
| Smartfren Telecom-Satnusa Persada | Smartfren | Local | 1.5 million |
| ZTE-Panggung Electrical Citra Buana | ZTE/Bolt | Local | 350,000 |
| Tridharma Kencana-Lenovo Indonesia | Lenovo & Moto | Foreign | 2.5 million |
| Satnusa Persada-Tata Sarana Mandiri | Ivo | Local | 250,000 |
| Wiko-Parastar | Wiko | Foreign | 795,000 |
| Tiphone Mobile Indonesia-LG | Tiphone | Local | 300,000 |
| LG Electronics | LG | Foreign | - |
| Infinix-Haier Electrica Appliances | Infinix | Foreign | 1.8 million |
| Acer Indonesia | Acer | Foreign | - |
| Vivo Indonesia | Vivo | Foreign | - |
| Asusindo Servistama | Asus | Foreign | 1.8 million |
| Coolpad Indonesia | Coolpad | Foreign | 1.0 million |
| Mitra Komunikasi Nusantara | Cyrus | Local | 60,000 |
| Industri Telekomunikasi Indonesia | IMO | Local | 1.2 million |
Source: Investor Daily