PUTTING SOME GREEN BACK INTO INDONESIA
Over the past few weeks, Indonesia's pocket sized Vice President; Mr Jusuf Kalla has been in the good ol' US of A, doing the rounds of 5 minute meetings + photo with important people; trying to russle up some interest in investing in Indonesia, which he promises is becoming an "anchor of stabiliy" in the region. Sure, Indonesia is a country of opportunities and vast natural resources etc etc, but the trouble is, unless you're one of those insatiable, resource driven leviathans like the Newmont mining corporation or Freeport; who will do and spend almost anything to secure a lucrative contract, you're sometimes going to have a tough time doing business in Indonesia, especially if you're a small to mid sized production factory or something. So here are a few things that Bapak Vice President should add to his to do list or at least think about if his government seriously wants foreign companies to put their money, long term, into Indonesia:
Red tape and dragging bureaucracies are a problem everywhere (Tony Blair's Britain for example) and dealing with corrupt government officials and their never ending rubber stamp collections in Indonesia has been well documented and complained about for years and is now, sadly, accepted as part of the culture as it is in many other countries but you'd think that there might be some gratitude and support for providing long term job opportunities in Indonesia where unemployment is currently around 11%. Not always so. Many foreign owned factories and businesses who set up shop and hire people from local communities are often faced with the entire workforce demanding to be fired, shortly after being hired because the redundancy payment is more preferable and instant than the (often paltry, admittedly) monthly salaries and since we're talking about a large collective sum here, unscrupulous lawyers and judges will almost certainly side with and even encourage the local staff to demand redundancy on mass, in order to get a cut of the pay out, unless of course, the employer can or is willing to make it worth their while not to do so.
Once in operation, businesses and factories are often plagued by premen (hired thugs) and rapacious officials demanding various kinds of protection money on a regular business, to ensure that the company can keep running smoothly. In the old days you could pay off the representatives of the above with an agreed amount and that would be the end of it, but in the free for all that is today's democratic Indonesia, you pay one of these fellows his financial demands and then another one arrives and then another one and on and on.
Contracts and courts of law often mean nothing here and as a foreigner you're almost certainly going to come off worse if you need or become embroiled in the legal system because most investors do not come from countries where you need to start shamelessly passing around the brick sized, stuffed envelopes right from the word go, if you want to stand any chance of coming out on top in a legal dispute. Probably the one incident that put most foreign investors and businesses off ever doing business in Indonesia was when an Indonesian commercial court in 2004, declared PT Prudential Life Assurance Indonesia, which is almost completely owned by the British parent company, bankrupt for refusing to pay a Malaysian agent $150,000, allegedly owed in bonuses. Beyond belief, but we can almost certainly believe that the "agent" promised the crooked judges a slice of his claim, if they came out in his favour, and obviously Prudential refused to cough up, so the judges decided to punish the insurance giant. But declaring one of the world's largest insurance companies (with over $183 million dollars worth of assets and $109 million dollars of premiums in that year) bankrupt, is not just vindictive, it's...well...hilariously stupid. Of course Indonesians might not expect any less from their greedy and selfish public servants but don't expect foreign companies and investment to come pounding at Indonesia's door when this can be allowed to happen and the government seems to do little to prevent its jungle judiciary from behaving this way.
Things are improving, slowly and from urgent necessity rather than a change of attitude but while you shake hands and flash yer gnashers for the camera with the US power brokers; Pak Jusuf, don't expect all those foreign entrepreneurs who'd previously spent years doing business in Indonesia and then buggered of to China, over the last five years, to come back too soon.
posted by THE PENTONARC | 1:15 pm
4 Comments:
one of my wife's family members who works at a large Indo company is currently handing out the Ramadan bonuses to these sorts of people at the moment. He brought the sack of cash to my house, before doing the rounds and distributing it. In business, you have to do the math with this factor calculated in, as if it were an additional tax. But even then business is still worthwhile. Try and pay a worker in the UK $100 a month and see what he says! Cheers.
You're absolutely right about the salaries of course, and that is, sadly some would say, why people want to set up businesses here in the first place, but it's not the small timers doing the rounds before Hari Raya that are the main problem. As you say; you can factor those costs in, it's the legal and security situation which is alowed to completely run amok, purely for individual gains that can jepodise an entire investment and we're not talking about putting a few fifties in an enevlope at this level, we're talking about a major stake in the business; profitable yet or not...sure, you can learn to play the game, and when in Rome...and all that, but the picture is not very attractive for outsiders; concerned about the security of their large and perhaps make or break investment.
"Try and pay a worker in the UK $100 a month and see what he says!"
An valid point in isolation. However, (and this should not be taken as slash at the worker but rather the absmal education system and government indifference).
A company in Indonesia will need anything between a ratio of up to 10-1 (usually about 5-1)to achieve the same production. This rapidly puts the wages into some sort of persepective.
The bloated workforce need to achieve even modest business aims is yet another aspect of doing business here.
The bloated workforce is directly dueto a lack of education, a bloated administration system needed to
cope with the red tape and work ethic that at times defies description (oh for a an all female workplace).
Wages represent perhaps the only offsetting advantage (rapidly declining advantage as well) of doing business in Indonesia. Again I do not write this as an attack on the workers rather the sheer indifference of successive governments to invest in their people.
I would also agrue the unemployment rate of 11% could be tripled and still be accurate.
oigal,
You seem to have had some experience in these matters.
The "bloated workforce" that you're talking about often consists of family members and "friends" hired, regardless of their experience and qualifications.
Once their incompetence is revealed, trying to get rid of them often involves large payouts and unpleasant dealings with manpower officials.
As you point out; the individual salaries are a disgrace, but collectively the overburdened workforce and unnecessary payroll contributes to an ineffecient organization, of the kind that is most Indonesian government institutions.
I guess; as you again say, that it all comes down to the urgent need for proper eductation and skills, but also the elimination of the dependence on nepotism in the workplace...
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