Socio Cultural risks in Indonesian supply chains

Socio Cultural risksin Indonesia supply chains

** Names and locations withheld to protect confidentiality

About the speaker 38 years old, with 17 years of experience in India, China and IndonesiaBorn in Kuwait, university in India Worked with Maersk for ten years, then assignments with Accenture, private investors Cross culture shocks corporate western, consultancy, own ventures, private Asian family business seen wide spectrum / styles to do businessThis is my tenth year in IndonesiaMy lovely Indonesian wife is expecting our first child!We have 5 wonderful dogs Avid reader I love my adopted country, this is home. Everything I say next, is with this basic premise.

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The Indonesian experienceCultureField operationsRich and diverse culture, still followed in daily livesWarm and friendly Deep respect for family and societyOpen to newcomersRespect for history and achievers

Local operators, fragmented and many brokers Protect local turfsLack of clarity and knowledgeOver promise and shirk commitments Bully outsiders

The corporate world and Indonesian supply chain decisions The Ivory tower ? Indonesia is just part of corporate management focus, presently a small part (yet growing) Corporate HQ pressure vs ground conditions Non urban operating areas Gap in capabilities Subcontracting dilemma

Typical challenges Administrative and legal ambiguity Investment selection Local / social issues Vendor selection Bullying / harassmentInternal collusionProcurement errorsAsset losses

If it seems to good to be true, it probably isnt true

Mines that go nowhere? A large group invested USD 70+ million in a coal mine in Sumatera, that had huge reserves and a decent calorific value. The money was paid out in full. This was 5+ years ago, what has happened since ? Transport bottlenecks and cost sky rocketing Two foreign buyers, two papers, one documentOverlap forests, agro, pipelines

Trading blanks ?Ships waiting for cargoAdvance payments License problems One cargo, two buyers Fabricated survey reportsLosses range from USD 100K to upwards of USD 5 million

Vendor commitments (?) Incompetent vendorsAdvance payments Breach of contracts Asset thefts Misinformation Losses ranging from USD 10K to USD 500K

Local relations blunders Insulting village elders Local partner blundersEmployment decisionsLocal rivalries Ignoring CSR Losses upto USD 1 million (+ idle assets)

Collusion and fraud The technical team of a large mineral exporter, worked with the local owner and broker to secure a new mine of Fe 60+ and reserves of 4 million tons. USD 9 million and 15 months later, the actual Fe was proven to be 48, which has less than half the market value. Further, the deposits were just 300K tons

Critical points to remember Overwhelmed legal systemMoney recovery challengesAbundant brokers and rent seekers Fake documents Posturing and egos Threats Advance payment dilemma Changing goalposts

Future positive New government mandate The foreign investment boardMaritime nation vision Wired gen nextGrowing talent poolLocal corporate confidence

Take away points Engage third party due diligence Overt / Cover auditsCSR Local engagementsOwn set ups Adapt localTraining HSSE No short cuts

East Indonesia the future growth areasPoor infrastructureLimited vendors Talent dilemmaFirst mover opportunities

Indonesia land of opportunity and talent potentialvalkyn@jaldhi.com Twitter @DmelloValkyn If it seems to good to be true, it probably isnt true

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