BSI - Business Strategies International


Subtle Giant

By David James and Rajeev Merchant

The New AsiaGeographically, Indonesia is vast.  It stretches over 3,200 miles east to west and over 1,100 miles north to south, similar to that of Australia or the continental United States.  It is the largest of the Southeast Asia countries, rich in natural resources, and is the largest country in the world composed wholly of islands, consisting of 17,508 islands, about 6,000 of them inhabited.  Each one of its principal islands – Java, Sumatra, Sulawesi, Borneo (Kalimantan is the portion belonging to Indonesia), and New Guinea (Irian Jaya is the Indonesian portion) – is in itself the size of a small country.  Of its smaller islands perhaps the best known is Bali.

Indonesia is also huge in terms of population and diverse in terms of culture and ethnicity.  Its population of 248 million makes it the fourth most populous country in the world, after China, India, and the United States, and the world’s third-largest democracy.  Its people are predominantly Malay, but there are more than 300 separate ethnic groups in Indonesia.  Chinese constitute a small but economically important minority.  More than 365 different languages and dialects are spoken, with Bahasa Indonesia being the official language and understood by most Indonesians.  Approximately two-thirds of the population lives on the island of Java where the country’s capital and largest city, Jakarta, is located.  More than half of all Indonesians live in rural areas, and one out of three works in the agricultural sector.  The vast majority of the population, about 86%, follows the Islamic religion, and government policies often reflect religious conservatism.

Indonesia’s size, abundant natural resources, and proximity to Asia’s primary sea lanes have had much to do with its growth throughout its history.  During its early history, Indonesia became populated by people migrating to the region primarily from the Asiatic mainland.  For centuries, Indian and Asian kingdoms colonized portions of the region from time to time.  Dutch, Portuguese, Indian, and Persian traders later plied its waters for lucrative trade in nutmeg, cloves and other valuable spices.  Gradually, the Dutch brought the area under their control, authorizing the Dutch East India Company in 1602 to colonize the country.  In 1800, the Dutch East India Company was dissolved, and the Dutch established Indonesia as a nationalized colony called the Dutch East Indies.  Dutch rule of Indonesia covered a period of over three hundred years, until the Japanese occupied the country during World War II.

Two days after the Japanese surrendered to the Allies in August 1945, Sukarno, the nationalist Indonesian leader, declared independence for the country and was appointed president.  The Dutch attempted to resume control of Indonesia, but a bitter military and diplomatic struggle ensued, resulting in the ouster of the Dutch in 1949.

One of President Sukarno’s greatest contributions to the country was establishing what became the official philosophical foundation of Indonesia.  In 1945, wanting to help unify this vast and diverse country following the disruptive war years, Sukarno promulgated five fundamental social principles known as the Pancasila:  Belief in One God, Nationalism, Humanitarianism, Representative Government, and Social Justice.  The Pancasila, incorporated in the new Indonesian constitution adopted later that year, have been used by the Indonesian government at times to suppress divisive factions, but there is no doubt that they give the diverse Indonesians a common philosophical touchstone.

President Sukarno’s government nonetheless was marked by political instability and a stumbling economy.  A violent and unsuccessful coup attempt in 1965, during which over half a million people were killed, led to a transfer of leadership in 1968 to General Soeharto, one of the leaders of the government’s resistance to the coup attempt.

As Indonesia’s new president, Soeharto characterized his administration as the “New Order,” seeking primarily to unify the vast country, regain political order, and promote economic growth.  Western nations especially were encouraged to invest in the country’s petroleum, mining and construction industries.  As a result of Soeharto’s reforms and pro-Western economic policies, Indonesia’s economy experienced tremendous growth in the period between the mid-1960s and 1990, rising threefold.  However, during the 1990s, Soeharto and his administration became increasingly authoritarian and corrupt, and in 1998 – after almost 32 years of rule – he was finally forced from office.

Indonesia’s economic progress continued after the ouster of Soeharto despite ongoing political upheaval, but it was halted by the Asian financial crisis of 1997-1998.  The crisis began in Thailand with the financial collapse of the Thai baht, caused by Thailand’s overextended debt, and soon spread to other Southeast Asian countries and South Korea.  Indonesia was especially hard hit, and it was forced to adopt a number of reform measures in exchange for financial assistance by the International Monetary Fund.  Another economic blow was sustained in December 2004 when a massive earthquake and tsunami devastated parts of northern Sumatra.  Susilo Bambang Yudhoyono had just been elected president after a hard-fought political campaign.  The economic challenges for Indonesia continued.  Yet owing to economic reforms and fiscally conservative policies introduced by the Yudhoyono administration, Indonesia weathered the 2008-2009 global recession reasonably well, and its GDP is expected to grow by at least six percent during the period 2013-2017.

Indonesia today is an important cog in the economies of Asia.  However, for international businesspeople and other outsiders who have dealings with Indonesians, the cultural challenges can be imposing.  In Indonesia there is much that goes on – or fails to go on – of which an outsider is unaware, even an alert outsider who understands the culture.  For Indonesians, there is more to be gained by subtlety and indirection than by clear communications.  A corollary is that there is often no “sticker price” on products and services in Indonesia.  The price or value of most things is arrived at by negotiation.  Business negotiations can seem interminable and agreement elusive.  Even if business deals or prices are agreed, they can often later be negotiated downward if assumptions do not prove out.  As Indonesians like to say, “Anything is possible” – for a price or other consideration, that is.

Serious corruption continues to impede Indonesia’s economy and business done there, but many business practices in the country, which Westerners and others might consider to be bribery or otherwise improper – and which limit productivity – need to be viewed in a cultural context.  In Indonesia and many other Asian countries, there is a cultural tradition of honoring important personal relationships, spreading the wealth, and paying deference to one’s hierarchical superiors (even lowly bureaucrats are considered superiors since they represent the government).

On a small scale in Indonesia, the value of action or inaction is found in favors and small payments made to officials at lower levels of government to carry out, or to refrain from carrying out, their responsibilities.  For example, imported goods are often not cleared by customs until a customs official receives something of value from an importer, and a licensing infraction sometimes becomes a legal prosecution unless a court official is paid to overlook it.  On a larger scale, various permits and contracts seem never to materialize unless payments are made to a person of influence.  Low salaries also play a part in the case of payments to bureaucrats.  It is an accepted premise that civil servants derive a portion of their compensation from such payments, not unlike the premise that waiters and taxi drivers derive a portion of their compensation from tips.

For an island nation that is so fragmented in its geography and diverse in its population, Indonesia has made enormous economic and political progress and can be expected to play a key role in The New Asia.

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