Rising Investment in Local Content for Indonesia's 4G LTE Smartphones

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}

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