Indonesia - Why Google, BlackBerry avoided Indonesia

Two recent moves by global tech giants to bypass Indonesia and set up shop in neighbouring countries have put a damper on Jakarta's efforts to woo big-name investors and boost its technology sector.

Despite the lure of Indonesia's vast middle-class market, infrastructure woes appear to have cost the country the lucrative deals - at least for the time being.

Early last month, BlackBerry smartphone producer Research In Motion (RIM) said it would open a manufacturing plant in Penang. The news made headlines in Indonesia, one of its fastest-growing markets with four million BlackBerry users.

Then last week, Google announced plans to set up three new Asian data centres - in Singapore, Hong Kong and Taiwan, skipping Indonesia altogether.

In response, some Indonesian officials called on the government to take punitive action on the two companies.

For their part, both RIM and Google - which are still in talks with the Indonesian authorities - have stressed that they remain committed to Indonesia in the long term.

No less than Indonesia Investment Coordinating Board (BKPM) chief Gita Wirjawan, who was closely involved in courting these companies, said of RIM to reporters last month: "Why build a factory in Malaysia? They are obviously developing it there to sell it in Indonesia, right?"

Industry Minister M.S. Hidayat was swift to suggest imposing an extra value-added or luxury tax on BlackBerry smartphones so producers such as RIM will choose to invest in Indonesia instead to get around it.

This week, Mr Wirjawan asked visiting Canadian Trade Minister Ed Fast to lobby Ontario-based RIM to build a production base in Indonesia.

A sympathetic Mr Fast said the decision was for RIM to make, but added: "I do understand Indonesia's disappointment."

The episode, outcry and all, is emblematic of the ongoing challenge of doing business with and in Indonesia, where the allure of an increasingly affluent consumer base still has to be weighed against a woefully inadequate physical and legal infrastructure.

They include an unreliable power supply, bad roads, excessive red tape and slow Internet speeds - which affect the country's attempt to draw tech players and get more of its 240 million citizens online. Only one in six is an Internet user.

The government is taking some steps: This week, it disbursed 290 billion rupiah (S$42.4 million) to improve roads in the greater Jakarta area.

With each new snub, pressure from officials to get tough on investors who pass on Indonesia has been mounting.

Some Indonesians have also called on the government to fix shortcomings.

Indonesian Chamber of Commerce and Industry (Kadin) chairman Suryo B. Sulisto said: "RIM's decision to locate in Malaysia rather than Indonesia is a clear indicator that our business environment is still not competitive.

"Our government should be taking a long, hard look at our regulatory environment to make it less bureaucratic."

Mr Aulia Masna, who writes for the technology blog Daily Social, called for greater transparency and legal certainty.

He told The Straits Times: "The government desperately needs to be much more transparent and open about technology companies coming in to the country and sort out the technology and e-commerce Bill that is currently being discussed in Parliament."

"Unfortunately, the government does not seem to understand how the technology works or if it does, it is working really hard to ensure that the freedom that technology offers does not end up being used to undermine its authority," he said.

Officials have come under criticism for making what some see as unreasonable demands of big-name companies as a condition for expanding operations.

For example, they have asked RIM to set up a data centre in Indonesia, to allow law enforcement officials to intercept its encrypted BlackBerry Messenger services and to filter pornographic content.

RIM has fulfilled the last requirement since January, and is in talks on the other areas. But it is maintaining a diplomatic silence on contentious issues.

A RIM spokesman told The Straits Times this week that the company remained fully committed to Indonesia, 'where we enjoy strong partnerships and tremendous positive enthusiasm for our BlackBerry products'. She added: "Like other smartphone providers, we plan our manufacturing on a global basis."

Google has also been asked to set up a data centre in Indonesia, in spite of concerns about the reliability of electricity supply, and continues to express interest in opening an office in the country.

Its chairman, Mr Eric Schmidt, was in Indonesia in July and met Vice-President Boediono.

Some analysts say the Indonesian government needs to get its act together.

"We can't expect RIM, Google and other big tech companies to have local operations if we cannot give them mutual benefit," said Mr Muhammad Ilman Akbar, who writes for Asian technology site Penn Olson.

Zakir Hussain

The Straits Times

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