Transcript 13708912087509_Bus-303

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Presentation On
Case Study On
Indonesia—the Troubled Giant
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Submitted To:
Lecturer, Department of
Marketing,
Bangladesh University of
Business & Technology (BUBT)
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Believe Thyself
Name of students
ID no.
Intake
Section
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Case Summary
Question
1. What political factors explain Indonesia’s poor
performance? What economic factors? Are these two
related?
2. Why do you think foreign firms have been exiting
Indonesia in recent years? What are the implications for
the country? What is required to reverse this trend?
3. Why is corruption so endemic in Indonesia? What are its
consequences?
4. What are the risks facing foreign firms that do business in
Indonesia? What is required to reduce these risks?
Q-1. What political factors explain Indonesia’s poor
performance? What economic factors? Are these two related?
Indonesia’s poor performance is explained by political and
economic factors. Indonesia is the world’s most populous Muslim
nation and also one of the most culturally diverse. The wealth of
Indonesia is its diversity, but it is also a weakness. It can easily
trouble the nation with ethnic rivalries. The transition from
autocracy to democracy led to many economical uncertainties.
Although Indonesia is now under a democratic rule but many
problems accumulated after living for 30 years under the rule of a
autocrat_ Suharto. Although the economy is growing but there
are a lot of factors contributing for Indonesia poor performance.
 Unemployment is still high at around 10% of the working
population.
 Growth in labor productivity has been nonexistent for a decade.
 Foreign capital is fleeing the country,
 It takes approximately 151 days on average to complete the
paperwork necessary to start a business. It's the sort of environment
foreign investor’s withdraw from.
 High level of corruption from government bureaucrats
 What makes an international business even worst is the extremely
poor infrastructure.
Indonesia is an example of how political and economical factors are
closely related and how they impact the international business. The
challenge for the Indonesian government is to keep the economy
certain while attracting foreign investments.
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The excessive red tape has driven foreign firms away. It takes 151 days for the
paperwork to go through to open a business. The country will suffer because the
economy is not being motivated by would be businesses. The strict policies will have
to change in order for Indonesia to thrive.
After Suharto, Indonesia moved rapidly toward a strong democracy, culminating in
October 2004 with the appointment of Susilo Bambang Yudhoyono, the country’s
first directly elected president. The economic front has also seen progress. Public debt
as a percentage of GDP fell from close to 100 percent in 2000 to less than 60 percent
by 2004. Inflation declined from 12 percent annually in 2001 to 6 percent in 2004,
and the economy grew by around 4 percent per annum during 2001 to 2005.
In turn, the excessive red tape translates into long lines of government bureaucrats,
whose low salaries make it attractive for them to seek a bribe at every step of the
business transaction, further distracting and detracting the entrepreneur from lawful
business pursuits.
Transparency International, which studies corruption around the
world, ranks Indonesia among the most corrupt, listing it 137 out of the
158 countries it tracked in2005. Government bureaucrats, whose
salaries are very low, predictably demand bribes from any company
that crosses their path—and Indonesia’s weakness for bureaucratic red
tape means a long line of officials might require bribes. The police have
been known to throw the executives of foreign enterprises into jail on
the flimsiest of pretexts, although some well-placed bribes can secure
their release.
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One reason is that government bureaucrats’ income is extremely low.
They result to bribes to make more money. Also the police are throwing
foreign business owners in jail for the littlest things to make a profit off
of bribes. This is driving businesses away.
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Jail time, loss of income to bribes, and long waits to establish a business
are the risks that foreign firms are facing. A radical change is required to
reduce these risks. Indonesia has an anticorruption drive which may or
may not work
Indonesia, like many other developing countries, aside from presenting
attractive opportunities also presents a variety of potential risks to which
investors may be showing and exposed. These risks range from six
years of political and economic turmoil, a history of civil unrest,
religious conflict and the threat posed by Islamic extremist groups,
socio-economic issues and the resulting effect of increased
unemployment, which is estimated now to be as high as 40% of a
population of 220 million and as a result rising crime.
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The road system is a mess, half the country’s population has no
access to electricity, and 99 percent of the population lacks access to
modern sewerage facilities. The tsunami that ravaged the coast of
Sumatra in late 2004 only made matters worse This is in addition to
having to work within an environment which for the unprepared can
not only is costly, but also challenging in terms of:
A poor regulatory environment and lack of transparency;
An ineffective and corrupt legal system; and
An increasingly militant labor force, with manpower laws heavily in
favor of the workforce.
Indonesia remains an attractive country in which to do business in for
many. In order to reduce weakness to the numerous of risks it
presents; companies must take a pro-active approach to security and
risk management. Doing so naturally reduces the chances of a
company becoming a victim, but also minimizes the likely argue in
the event an incident was to occur.
3/28/2016
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