Rabu, 19 Oktober 2011

[inti-net] RIM on edge in Indonesia

 

http://www.atimes.com/atimes/Southeast_Asia/MJ19Ae02.html
Oct 19, 2011

RIM on edge in Indonesia
By Jacob Zenn

JAKARTA - When smartphone maker Research in Motion (RIM) weighed where to build a new production plant for its latest BlackBerry line, Indonesia seemed a logical first choice in Asia. The Canadian communications company commands nearly half of Indonesia's fast-growing smartphone market, one of its most important in the region.

RIM's decision, announced in September, to build the new plant instead in neighboring Malaysia comes at a time when Indonesia is struggling to lure new foreign investments outside of mining, energy and other resource-extraction ventures. Despite a fast expanding middle class and a teflon economy that has sailed through recent global turmoil, high-end industries still shy away from the country's regulatory and legal uncertainty.

RIM is precisely the type of foreign company Indonesian policymakers are, at least in theory, trying to attract. Until now, Indonesia's Facebook-addicted, tech-savvy middle class has favored RIM's BlackBerry over rival smartphones, including Apple's iPhone and Samsung's various models. RIM has seized the market through a low price strategy, dropping BlackBerry unit prices on local gray markets to around US$300. In comparison, iPhones sell for more than $500 at the same local kiosks.

By sacrificing profit and luxury-brand recognition, BlackBerry's market share has risen to around 47% from 9% in 2009. By certain market estimates, there are nearly 4 million BlackBerry units in circulation in Indonesia. As Southeast Asia transitions from regular mobile phones to smartphones, the region is expected to overtake North America as BlackBerry's main market within the next five years.

Despite its dominant position in Indonesia, RIM opted to build its new regional manufacturing plant in Penang, Malaysia, a regional hub for electronics production. RIM made the decision despite considerable commercial risks, including a possible backlash from nationalistic politicians in Indonesia, a potential market of 245 million people.

In the wake of decision, Minister of Industry Mohammad Hidayat suggested imposing an additional value-added tax or luxury tax on imported BlackBerry units as a penalty to deter other smartphone companies from following RIM's lead. A similar protectionist threat was made when Google recently bypassed Indonesia and established three new regional data centers in Hong Kong, Singapore and Taiwan.

A new tax would inevitably force RIM to raise BlackBerry prices and erode the competitive advantage it has leveraged to date to dominate Indonesia's market. Gregory Wade, RIM's regional managing director, responded to the threats by noting that his company has always faithfully paid Indonesia's import duties, customs and other taxes, and that RIM's services provide significant profits for domestic telecom operators.

Xenophobic tax
The arbitrary and retaliatory tax threat may have wider implications for future foreign investment. In September, German company Bosch followed RIM and announced that it was planning to build a solar-panel plant in Malaysia, even though Indonesia is its primary target market in the region. Hidayat's taxation threats, some analysts say, has raised already high regulatory risk perceptions of investing in Indonesia.

RIM's decision was no doubt influenced by previous intrusive and confrontational regulations imposed without warning by Indonesian authorities. In 2010, Indonesia required RIM to help authorities intercept messages that could represent a threat to national security over its encrypted BlackBerry Messenger service, as well as filter for pornographic content.

While RIM ultimately agreed in January to cooperate with the government to filter pornographic websites for BlackBerry subscribers, it did so only under heavy official pressure. At the time, Indonesia's Minister of Communications and Information Tifatul Sembiring had threatened legal action against RIM if the company did not comply.

Sembiring, who is from the conservative and Islamist Prosperous Justice Party, wrote on his Twitter webpage that he was simply "executing the laws" and that "so far, it seems that RIM is dragging time in carrying out its commitment. As a nation, do we want to be treated in that way? We're not negotiating if RIM does not comply with the rules and laws of Indonesia; enough is enough!"

In August, the government told RIM that all messages between BlackBerrys would by this December have to be channeled through a server in Indonesia. Until now, RIM has relied on servers based mainly in Canada, making it nearly impossible for government authorities to monitor BlackBerry-sent communications, according to Reporters Without Borders, a France-based press freedom group.

The government's demand for access to BlackBerry's encryption codes for reasons of morality and security has underscored Indonesia's notoriously arbitrary and unpredictable regulatory environment. Analysts say that by allowing authorities access to its encryption codes to censor information, RIM risks losing customers who favored the anonymity BlackBerry previously guaranteed.

In the end, RIM's decision to build its new plant outside of Indonesia likely boiled down to Malaysia's more favorable business climate, even if Indonesia's market potential is higher than any other Southeast Asian country. Average household incomes in Malaysia are three times higher than in Indonesia, but the sheer size of Indonesia's 245 million population, the world's fourth largest, represents a vast untapped potential.

Indonesia's mobile penetration rate is nearly 60% and is growing fast enough that market analysts project it will soon become Asia's third-largest mobile phone market, trailing only China and India. That rising demand represents a huge profit potential for RIM if it is able to maintain its current dominance over the fast-growing smartphone segment.

Indonesia's surging economy and rising spending power appeals to many equity investors who see the country as part of the next generation of ascendant emerging market economies. But ill-conceived policies, including a long list of industries legally off-limits to foreign investors, and often overcharged political rhetoric directed at foreigners is holding back the country's potential, even among multinational companies that have targeted Indonesia's consumers for their future growth and profits.

Jacob Zenn is a graduate of Georgetown Law's Global Law Scholars program and was a State Department Critical Language Scholar in Indonesia in 2011. He writes about security issues and regional affairs in Southeast Asia and works as an international affairs consultant for companies based in Washington DC.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing)

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