American multinational technology company Apple Inc soon has to realize 40 percent of its total USD $44 million worth of investment plans in Indonesia if it wants to keep distributing its iPhone 7 on the Indonesian market. Late last year Apple committed itself to invest a total of USD $44 million in the establishment of innovation centers in Indonesia over the next three years. However, 40 percent of the total is required to be invested in the first year (which is 2017).
Based on Communication and Information Ministry Regulation No. 27/2015 on the Technical Requirements for Long Term Evolution Technology Standard Based Telecommunication Tools and Equipment, smartphone manufacturers in Indonesia - in case they sell their output domestically - need to comply with the higher minimum local content requirement. Starting per 1 January 2017 products within the 4G LTE spectrum, which includes smartphones, that are sold on the Indonesian market need to have (at least) 30 percent local content - both in terms of hardware and software.
However, this does not mean that foreign smartphone producers now need to establish (part of their) manufacturing facilities in Indonesia. The Indonesian government gave two other options to comply with new regulations. The option that was selected by Apple was to invest an amount of money that represents the 30 percent local content rule (the Indonesian government counts software or monetary investment as local sourcing). The money can be invested in non-manufacturing facilities in Indonesia. Based on government calculations a company needs to invest between IDR 550 billion (approx. USD $41 million) and IDR 700 billion (approx. USD $53 million) to "achieve" the 30 percent local content rule.
Apple decided to invest USD $44 million in three research and development centers in Java. The center in BSD Green City Office Park, in Banten (on the western part of Java), will be the largest center (this area is set to become Indonesia's digital hub similar to Silicon Valley in California). Operations at this center in Banten are expected to start in the second quarter of 2017. Apple's investment in Banten will include educational programs for up to 400 students. The US multinational technology company will also mentor new app makers.
As Indonesia forms an attractive market for smartphone producers, Apple decided to invest in research and development facilities in Indonesia, which is set to become the company's second-largest center outside the USA (after its facility in Brazil), in order to comply with the new regulation and not miss out on opportunities in Southeast Asia's largest economy. On Friday (31/03) Apple's iPhone 7 was launched in Indonesia. Prior to its USD $44 million commitment (that was unveiled late last year), Apple was restricted from selling certain iPhone 6 series products in Indonesia.
Smartphone penetration is rising rapidly in Indonesia. Based on data from research institute eMarketer there were 69.4 million smartphone users in Indonesia at the end of 2016. This figure is expected to grow to 103 million users by 2018, which would make Indonesia the fourth-largest smartphone market worldwide after China, India and the United States.
Meanwhile, Internet penetration is also rising in Indonesia. According to the Indonesian Internet Service Providers Association (in Indonesian: Asosiasi Penyelenggara Jasa Internet Indonesia, abbreviated APJII) there are currently 132.7 million Internet users in Indonesia. With the government's Palapa Ring project this figure is set to rise steeply in the years ahead.