indonesia business system
DESCRIPTION
A brief overview of the Indonesian business system. Oh, Banak is Bapak! And we forgot to mention the dukun.TRANSCRIPT
Indonesia
Eemei Tang, Wolfgang Bardorf, Dewi Novianty, Deo Custodio, Jon
McCallum, Julian Petrescu
Contents
• Role of state and history
• Meaning (Rationale, identity, authority)
• Order (Capital, human capital, social capital)
• Coordination (Ownership, networks, management)
• Links
• Comparative Advantage
Key Historical Influences
• Pre-colonial
• Colonial Times (1511 – 1942)
• Independence (1945)
• Old Order (1945 – 1966)
• New Order (1967 – 1998)
• Financial and political Crisis (1998)
• Reformasi (1998 – 2004)
Role of the State
• Rentier, statist, patrimonial state
• Controller of licences for natural resources and 'strategic' projects
• Heavy subsidy of commodity-like products
• Strong government/business cooperation (nepotism)
Rationale
• Personal/Family/Friends’ wealth accumulation i.e. KKN (Corruption, Collusion, Nepotism)
• Protection of the elites
• Maintain stability and geographic cohesion, and prevent social unrest
Identity
• Collectivism• By Race: Pribumi vs. Chinese vs. ‘Bule’. Rule of
Thumb – The fairer the skin, the higher the status accorded.
• By Province/Dialect: Javanese, Sundanese, Balinese, Batak… etc.
• By Religion: Muslims/Christians/Hindus; schools are also divided amongst religious lines.
• For the Pribumi: Kampung & Family• For the Chinese: Business ventures and success
Authority
• Hierarchical (Islamic roots for the Pribumi and Confucian ways for the Chinese)
• Strong military influence primarily in politics, although it is slowly waning
• Wealth is a big enabler.
• Indonesians typically hold political power and Chinese hold the business influences.
Capital
• Bank lending accounts for the bulk of corporate debt
• Access to loans often tied to relationships
• FDI, foreign debt, developmental aid
• Government-guaranteed debt
• Capital from friends and family
Human Capital
• Universal education (primary only)
• Low quality
• Brain drain to US, Australia and other foreign countries
• Militant labor unions prone to violent strike and riots
• Highly mobile workforce, both domestically and overseas
Social Capital
• Low interpersonal trust– Due to ethnic and geographic fragmentation
• Low institutional trust
• Social adhesiveness provided by religious organizations
Ownership
• Strong family business groups• Cross-shareholdings (pyramidal ownership and
business group practices)• Controlling owners have the power (i.e. voting
rights) and incentives (i.e. cash flow rights) to secure investments and minimize risks
• Close monitoring through owner involvement in businesses (i.e. reducing information asymmetry)
• No market for corporate governance, expropriation of minority shareholders' rights
• Joint ventures: Foreign companies have to give up 5% ownership to locals
Networks
• Close family ties and business networks between family members prevalent in both Chinese and non-Chinese (pribumi) communities
• Network capitalism: cross-share holdings
• Outsiders distrusted
• Links not institutionalized
Management
• Two types of company– Indonesian
• Ties to military• Banakism• Sense of hierarchy
– Managers: look after employees, avoid them losing face– Employees: avoid criticism of manager– Peer level: consensual decision making
– Overseas Chinese
Links - Family
Family business
Wealth enables
Low interpersonaland institutional
trust
Family ties Family run
Friends and family
Family / business success
Family Wealth
Links – State / Military
Elite ownership
Strong military
Low institutionaltrust
Ties to military
Governmentguaranteed
debt
Wealthaccumulation and
geographic cohesion
Controller oflicenses and strong
business co-op.
Military leadershipand coups
Links – Human Capital
Wealth enables
Lots of unskilledlabor plus brain
drain
Low delegation
Wealth andbusiness success
Indonesia comparative advantage by industries, 2006(OECD STAN Bilateral Trade Database)
3.8%7.0%
2.4%1.8%1.8%
-8.8%0.7%
0.4%0.5%
-0.4%-1.2%
-4.2%-1.3%
1.0%-1.4%
-0.2%
-0.2%1.3%
1.5%-0.1%
-0.8%-8.7%
10.5%3.3%
-0.2%-4.4%
-0.7%0.0%
-0.8%-1.8%-1.7%
0.0%
-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Food products, Beverages and TobaccoTextiles, Textile Products, Leather and Footwear
Wood and Products of Wood and CorkPulp, Paper, Paper Products, Printing and
Manufacturing not elsewhere classified; Recycling
Coke, Refined Petroleum Products and Nuclear FuelRubber and Plastics Products
Other Non-Metallic Mineral ProductsBasic Metals
Fabricated Metal ProductsBuilding and Repairing of Ships and Boats
Chemicals excluding PharmaceuticalsMachinery and Equipment
Electrical Machinery and Apparatus, not elsewhereMotor Vehicles, Trailers and Semi-Trailers
Railroad and Transport Equipment, not elsewhere
PharmaceuticalsOffice, Accounting and Computing Machinery
Radio, Television and Communication EquipmentMedical, Precision and Optical Instruments
Aircraft and SpacecraftTransportation
TravelCommunications
ConstructionChemicals and Chemical Products
InsuranceFinancial services
Computer and information servicesRoyalties and licence fees
Other business servicesPersonal, cultural and recreational services