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In Indonesia, government reform programs have been incorporating measures that address corporate governance as well as the legal system so as to change the culture of doing business. The archipelago’s market has been rewarding the business community whenever they develop personal relationships and ties with the community members. This is because effective management of an enterprise calls for effective understanding of the society’s cultural influence on training, staff management, and hiring. Effective navigation of the nation’s regulatory and legal system necessitates consultation with a notary (D’Altorio 2011). For this reason, successful operation in Indonesia necessitates patience as well as understanding of all influences that affect the business culture, regulatory, as well as the legal environment. The Indonesian market environment is undergoing promising changes that are hoped to facilitate the emergence of the nation as an appealing investment environment. Several Australian companies regard Indonesia as a profitable market and one that guarantees expansion. There are several cultural influences that need to be identified to enable a business enterprise to have a commercial advantage. In this regard, this paper assesses the significant aspects that come with changing legal and regulatory environment in relevant to business undertakings (Nijkamp et al 2011, 36).
Enterprises that understand cultural influences before capitalizing on profitability have a higher probability of success than those that attempts to cope with these influences. There are several approaches that would help foreign firms in achieving their objectives in the Australian market. Investing in cultural relationships is vital in ensuring success while investing in Indonesia (D’Altorio 2011). However, fostering relationships needs time. In some instances, personal contact with people of similar status and age facilitates cooperation with the community. While fostering relationships, trustworthiness and loyalty are prerequisites. Some of the strategic advantages of investing in relationships includes: expediting bureaucracy while dealing with government officials, facilitating access to distribution networks as well as customer views, and opening opportunities in all sectors of the economy (Stimson et al 2006, 33). Relationships determine several aspects of commercial dealings, and these include placing orders, awarding contracts, as well as grating credit.
2.1 Cultural Structure
The Indonesian culture is dominated by group welfare. As such, involvement of the local community in any business dealing is very important as the cultural arrangement would influence purchasing behavior. Foreign enterprises that seek to fulfill meet their strategic goals have an obligation to involve the locals in the neighborhood where they operate. Such involvement helps them gain immerse advantages as the neighborhood councils facilitates assistance to the firms. Such assistances expedite bureaucracy, for instance, during the acquisition of permits. They also help resolve disputes through a process called musyawarah. Musyawarah is a process used by the locals in their conflict resolutions. The results of this process are centered on the community’s ability to build consensus. The decisions that are made through musyawarah are highly valued in the community because they are reached following the consultation of all stakeholders.
2.2 Generation of Leaders
An extended obligation between stakeholders affects outcomes, which in most cases is improved profitability. Flexibility and patience amongst stakeholders helps in facilitating success in business operations. Foreign investors are advised not to force relationships (Suryadinata 2008, 11). Several foreign firms prefer sending experienced executives to markets such as Indonesia as they are believed to have much patience in their dealings. This is in line with the culture of the locals where the young are excluded in most decision making processes. In Indonesia and other Asian countries, a person is regarded to be an adult on attaining the age of 40 years. As such, expansion into Indonesia should be spearheaded by the older generation, especially the baby boomers, as the X- and Y- generations differ with the rest of the society in both attitude and language (Phau & Teah 2009, 20).
3.Relative Investment Opportunity
Indonesia presents investment opportunities in line with those that India and China presented a couple of years ago. The archipelago’s market is unexploited, and this is because of the dominance that India and China have had in Central and South-East Asia over the last two decades. Indonesia, as a country, seems to favour investors who have long term operational goals in the market. The local market consists of over 240 million people, and the population size is significant to any type of investment. Indonesian economy is growing at a rate of seven percent per annum. Moreover, available statistics suggests that the country’s economy will be among the seven largest in the world in less than two decades. This means that, despite being half that of Australia, the Indonesian economy presents opportunities for an industry that has expansion as its strategic goal. Currently, Indonesia rivals Australia in the export of commodities, and due to the low cost of production, the industries in that country have become among the most lucrative in Asia. Currently, Indonesia is slowly returning to the competitive capitalism after the government overturned an earlier executive order to nationalize banks and other financial institutions. The government had opted for nationalization so as to counter the adverse effects of the East Asian financial crisis of the mid-90s., and this condition makes its market attractive.
3.1 Investment challenges
Just like other third world countries, the Indonesian archipelago is faced with huge challenges, especially in terms of logistics and proficient human resource. Nevertheless, the nation has attained political stability. In fact, the nation enjoys a conducive selection of stocks and other resources in the money market. According to Rob Nunley, the portfolio manager at Five Oceans Asset Management, President Susilo Yudhoyono has boosted the investment landscape since his 2004 election victory. Nunley argues that President Yudhoyono has brought the positives seen in China and India, which include income growth among the citizens in the middle-class, urbanization, and positive demographics. Indonesian local market is experiencing growth in purchasing capability. It is expected that in the next decade, millions of poor Indonesians will join the middle income category. This will place the country in the third position in the list of nations that have witnessed huge growths in their consumer market. Just like in India and Vietnam, its young population promises sustainability of business engagements as well as their purchasing powers.
3.2 Market Appeal
According to Kerry Series of Eight Investment Partners, Indonesia’s long term investment prospects are anticipated to improve in a few years. As such, several companies are considering the expansion of their activities in the country. For instance, Ace Hardware has taken advantage of the prevailing situation by investing in Jakarta. The company has been successful, and it is currently listed among the best performers in the nation. The company sells a variety of products, including power tools and outdoor furniture. Series argues that when a company invests in Indonesia, its return on equity is, in most instances, more than twenty percent. Such profitability has not been realized in any other country in Asia for the last ten years. This, coupled with the current political stability makes the country attract more investors, especially those in search of superior stock markets, than before. The manger of Schroder Asia Pacific Fund in Hong Kong, Robin Parbrook, argues that he would prefer Indonesia to India and China, at least as par the prevailing circumstances.
3.3 Comparison with China
According to Parbrook, the most successful companies in China are majorly owned by the government, and as such, many investors are interested in Chinese bonds and stocks. As with India, investors worry that Indian shares are highly valued, and due to this, a lot of cash has been flowing into India; a situation which has resulted into rising inflation. According to Parbrook, shares in Indonesia are cheap. He adds that shares in Indonesia are not as expensive as they are regarded. The shares have always been hugely discounted despite the problems that the Asian financial challenges presented. A senior portfolio manager at an Asian equity firm, Ragu Sivanesarajah, believes that the potential presented by Indonesia is hard to get in many other places in Asia. Sivanesarajah insists that the economic outlook in Indonesia will persist for a long duration of time. Although analysts argue that the market is ahead of itself as of now, the huge population acts as an assurance to success in the future.
The government and society as well do respond to fiscal crises in a manner that proves that Indonesians are proactive in transparency. The current laws and reforms help govern corporations effectively in a changing business environment. For instance, there is a new set of laws that facilitates stakeholders’ accountability, especially when an investment is a joint venture between the locals and foreigners (Capello & Nijkamp 2009, 40). Moreover, the government has enacted new capital market and bankruptcy laws that conform to the internationally recognized practices. These laws have helped in clarifying an enterprise’s obligations to its shareholders and creditors as well. The newly introduced statutes cover anti-competitive tendencies with a view of seeking to protect starters, whether local or foreign, from the predatory attitude of the existing players.
There has been a gradual but constant change in enterprising culture since the financial crisis. This change have generated uncertainties as well as opportunities for foreign investment and labor force through adapting basic features that the society is likely to be inclined to. Additionally, there are various organizations that focus on training languages in a manner that is of mutual benefit to both the trainees and foreign organizations that seek to invest in the country. Firms aiming to venture in the Indonesian market should interface with local ideas so as to accommodate hierarchy as well as encourage social interactions in the workplace (Prendergast at al 2010, 415). Although such a view may appear insignificant with most Australian investors, it suits the Indonesian environment in a manner that necessitates recruitment at every level of an enterprise’s management.
6.Relationship with Employees
Indonesian law requires the management of a firm to issue three warnings, separated with three month intervals, before effecting a dismissal. In Indonesia, culture requires the manner of dismissal to include negotiation that in most cases leads to payment of lump sum. As a precaution, a firm should engage its workers on one-to-three monthly contracts with remuneration packages that include several components. Such components may include basic wages, allowances for meals, transport, productivity, and attendance. In some instances, married people with children are provided with additional sums as well as annual bonuses that equal to a monthly wage. Such an allowance is, in most instances, paid just before the Islamic celebration of Lebaran which takes place on an annual basis. The perception of the local Indonesians is that foreign based firms pay higher wages, and as such, K & K Ltd should brace itself with such facts. Although cheap labor force attracts relocation to Indonesia, most workers requires training so as to optimize their productivity (Marshall 2011). Effective training must be sensitive to culture and demonstrate a willingness to adapt to changes in the market.
Foreign investors go for the brightest graduates. They teach them the basic skills of operation that includes report writing and computing so as to enhance their productivity. Indonesians have been studying English language for quite sometimes now. Whenever they feel appreciated, they become loyal and productive. The level of productivity is enhanced when the appropriate environment is provided at the workplace. This reduces the issues such as absenteeism because social and business activities are, at times, inseparable. Developing proper relationships with the authorities is useful as it help streamline application processes, including obtaining of permits, information, and licenses. Initiatives by the government have brought significant advancement in business dealings. Nevertheless, the levels of payment have remained low, despite the improvement in the level of transparency. Various government initiatives have been streamlining the regulatory environment that governs foreign investment.
7.The Strength of the Market
Some fund handlers believes that Indonesia has not overcome its most pressing challenges. They cite corruption and inefficiency as some of the factors that hinder faster growth of markets. However, those companies that are based in stable economies like Australia stands a chance of surviving any economic adversities (Ryan 2008, 10). Another challenge with working in Indonesia comes as a result of inadequacy in infrastructural development. Improvements of ports, rail, and roads need to be done in order to facilitate the handling of enormous merchandise being traded in the nation’s markets. This is especially so as Indonesia is an archipelago of numerous islands, 6,000 of which are already inhabited (Leslie 2011, 15).
Investing in the developing world is associated with a relatively higher level of risk than doing business in a stable environment. Recognizing this worry, Indonesia has been facilitating the restructuring of banks’ balance sheets for effective operations. For instance, the stakeholders of Bank Mandiri have been attesting that the institution have remarkably improved overtime (Delfeld 2007, 33). Nevertheless, the Indonesian archipelago has been afflicted by other challenges, both natural and artificial. For instance, in addition to poor infrastructure and corruption, the nation suffers from widespread social inequality. This means that the gains of the recent years have not been equitably shared by all the members of the society, a situation which widens the gap between the rich and the poor. Moreover, the government has not arrested the sky rocketing inflation so as to guarantee political and economic certainty (Collett 2011). This scenario requires the government to strategize on how its large consumer based would be utilized for the good of the society as a whole.
8.Driven from within
Indonesia’s huge population of potential consumers has facilitated the focus on domestic consumption rather than on exports. In its attempt to uplift the livelihood of its citizens, the nation has initiated microfinance services that lead to customers. Such activities encourage economic growth to a level that enables the country to be resilient despite the world’s economic meltdown. Investing in Indonesia, especially by a clothing enterprise, presents other advantages. These include gaining access to china, availability of stocks, adequate natural resources, and optimistic labor force (Richins & Dawson 2007, 310). Nevertheless, there are obstacles to investment. Some of these obstacles include the huge amount of money that investors are charged for the acquisition of shares as well as the prevailing economic conditions. Although the policy on economic management have, so far, been effective; the twin challenge of speculative inflow of capital as well as inflation still poses significant challenges. The country’s central bank is in a dilemma. Attempting to raise interest rates with a view of lowering inflation would stir speculation in other sectors of the economy. The alternative would be to avoid interference, which would, in effect, raise the inflation level much higher (Hill & Knowlton 2010, 50). Despite the worries, it is evident that investors need to be certain that the fiscal policies can help manage inflation. Moreover, the policies should facilitate realistic valuations in the stock market. These worries have led some investors into believing that the Indonesian market needs to be closely watched.
9.Impact of the World Economic Downturn
Indonesia has avoided the adverse effects of the global economic meltdown in better that several Asian nations. The country’s GDP growth is predicted to remain higher than those of other ASEAN nations. According to a recent survey on insurance and banking industry, the Indonesian archipelago is ranked third after India and China with regard to consumer confidence (Snyder 2008, 20). Indonesian roads are congested due to the strains that the massive population puts on the available infrastructure. In an endeavor to reduce congestion in cities, various local governments have banned automobiles with less than three passengers from driving into the cities during peak hours of the morning and afternoon. Indonesia, unlike other powers in Asia, focuses on its domestic consumption in order to sustain growth. The nations that suffered most include those that rely on exports to Europe and America, and they include Japan, Taiwan, and South Korea (Stimson & Stough 2011, 23). Moreover, in as a strategic cushion, the archipelago’s parliament approved stimulus packages that totaled $7.3 billion. However, there are some business stakeholders who argue that some sectors of the economy have been forgotten.
Despite the gains of the last few years, some foreign investors worry that the Indonesian legal system is not up to the desired standards. They argue that despite being enacted, laws and regulations regarding investment have not been fully implemented. There is no transparency in the regulation of investments. Investors proposes that the judicial system need to be more transparent while dealing with investment, especially those that involve natural resources such as oil and mineral wealth (Simonson & Nowls 2010, 60). Many investors have complained of difficulties while trying to invest in those fields.
In 2009, the Indonesian archipelago recorded a stock market rise of 86%, an increase that brought it to the second position in the world. This had been a great improvement from the lows of 2008 when the Jakarta Composite Index had to be closed for three days. Such troubles have been dealt with, and the situations in the archipelago have improved. The market offers huge returns to investors (Ruvio et al 2008, 50). For instance, the country has instituted well grounded economic statutes, and as such, it has been able to achieve a constant economic growth rate of about 6%. Due to low interest rates and substantial foreign currency reserve, the country has attracted a huge direct investment from abroad. Several nations as well as international organizations have noticed the remarkable improvement that Indonesia has had in the last few years. For instance, the Japanese Credit Rating Agency regards the Indonesian public debt as one that has attained the investment grade (Karlsson et al 2009, 25). The rating by Japan, Indonesia’s biggest investor, is reliable and has influenced other nations in recognizing the growth of Indonesia.
Although Indonesia has for long being considered to be a commodity-based economy, private consumption is increasing. In fact, due to the increase in the number of middle class citizens, the country is about to become among the best consumer markets in the world. According to Euromonitor, a market research firm, the number of citizens with disposal income of $10,000 increased by 36% in 2010 (Phau & Leng 2008, 80). Additionally, statistics released by the Asian Development Bank has indicated that economic of Indonesia has shifted for the cities in Java to the rest of the country. The bank has noted that rural areas are achieving poverty reduction at a much faster rate than the urban centers. The vehicle manufacturer, Astra, indicates that the nation is on course to become the regional hub for automobiles and motorcycles, among other products (Yadav 2006, 30). Despite its expansion, Astra argues that the pace of growth in demand has reached a level that is difficult to sustain. As such, banks, insurers, chain retailers and various producers have been tapping into the market.