The challenges and opportunities RIM faces in Southeast Asia

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Inside the Roxy Mas IT Mall. Roxy Mas is the largest cell phone shopping mall in Indonesia. Hundreds of shops sell second-hand phones. [Courtesy]

Indonesia comprises 17,508 islands in Southeast Asia and has an estimated population of around 237 million people, making it the fourth most populous country in the world.

Back in 2004, RIM began selling BlackBerry devices through the country’s main provider Indosat and growth has been tremendous. In 2008, BlackBerry sales rose 550% year-on-year. There are now more than 350,000 users across the region, a number that could reach 1 million by the end of this year, according to Marc Einstein, an industry manager at research and consulting firm Frost and Sullivan.

While 1 million may seem insignificant compared to the estimated 28 million BlackBerry users worldwide, the growth rate and potential are enough to make Indonesia a very lucrative market.

While we’re on the subject of smartphone growth, the iPhone has been fairing very poorly in Indonesia. In developing countries and countries with a smaller GDP, price point is key. The iPhone doesn’t have the price flexibility that the BlackBerry does and therefore has seen only around 15,000 users in Indonesia, a relatively insignificant number.

Owning a BlackBerry in Indonesia carries much of the same status as owning one in North America or Europe. Young, Indonesian businessmen love owning them because it carries an air of professionalism. The device is also prized because Indonesia is a country where many don’t have access to Internet. If you can get your hands on a BlackBerry, the device allows you to send text messages and go online, a luxury many can’t afford.

This incredible growth of BlackBerry in Indonesia isn’t without its frustrations. Once the Indonesian government caught on to RIM’s explosive growth, they clamped down on the company, requiring RIM to establish a service center in Indonesia. The government halted sales until this service center was established. In the end, RIM established a service center, but there are many dealers selling the device in the grey market, with no such support.

The Grey Market

As with any expensive product in the developing world, the black and grey markets take over to allow for cheaper products. In Indonesia, it is estimated that around 80% of BlackBerry devices sold, are sold on the grey market. These devices are generally smuggled in, sold to unauthorized dealers, and resold to the user. This means that the dealer can avoid import duties, and can therefore offer the device at a cheaper price.

Mas Wigrantoro, chairman of the Indonesian Telecommunications Society (Mastel), a non-profit association representing the information technology (IT) sector, believes that the grey market is a direct response to price and if RIM can’t reduce the price of their smartphones, sales will drop dramatically.

This is where the BlackBerry 8520 will come in. The 8520, as we all know, is the cheapest BlackBerry Curve to date and has been selling around the world due to the fact that it can be offered at such a low price. While this device will go a long way to reaching an effective price point, the grey market may dictate an even lower, almost unattainable price.

At Roxy Mas, a five-story mall in west Jakarta renowned for dealing in grey market IT products, there is an area on the fourth floor selling the latest BlackBerry devices. The saleswoman offers BlackBerry devices such as the Bold, Storm and Curve 8900. The cheapest BlackBerry this market has to offer is the Curve 8310, which sells for 2.4 million rupiahs (US$240); the same model sells through licensed operators, who include customs tax payments in their prices, for about 6 million rupiahs.

Many of these grey market devices start in Canada and sell to licensed dealers in Singapore or Hong Kong. The devices are then passed to tax-evading unlicensed vendors in Jakarta, according to Ashadi Cahyadi, research manager for Indonesian telecommunications at IDC.

The question is now, how to regulate the sale of BlackBerry smartphones, while keeping the price point at something that users in Southeast Asia can afford.

The Communications Ministry, meanwhile, is working with the ministries of Trade and Finance to wage a “war against illegal products.” The campaign involves spot inspections of businesses to check whether they are permitted to sell BlackBerry devices, which if they have any, is highly unlikely. In the entire country, there are only four operators that are legally licensed to sell BlackBerry devices in Indonesia.

This means that there are 50 additional traders who are importing the devices and must prove that they have supplied a service center to be in accordance with the telecom laws.

For more on this subject, see Sara Schonhardt’s article in Asia Times Online. Sara is a freelance writer based in Jakarta, Indonesia. She has lived and worked in Southeast Asia for six years and has a master’s in international affairs from Columbia University.

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