Indonesian Global Expansion: A Case Study Syed A Hayat Simon

International Journal of Global Business, 7 (2), 9-33, December 2014 9

Indonesian Global Expansion: A Case Study

Syed A Hayat

Simon School of Business - MBA Program

Maryville University, St. Louis, USA.

[email protected]

Abstract

This research is conducted as a business case for the management of a US firm that is the leader

in athletic footwear and wants to expand overseas thinking that the international segments would

love its products. Additionally, the objectives of the expansion also include lowering the

manufacturing costs currently being experienced in the United States. An argument for this move

is created based on a careful analysis of cultural implications and the implications of global

management.

Keywords: Indonesian global expansion, US international business with Indonesia, athletic

footwear, business culture Indonesia, global business country SWOT analysis

Introduction

Globalization of athletic footwear by multinational companies to utilize low labor costs is not a

new concept (Globalization and Athletic Footwear, 2002). Countries like China, Cambodia,

Vietnam and Bangladesh are known to have served as sweat shops for global sporting goods

companies like Nike. For the purpose of this study it is important to first understand the global

market size and industry classification of athletic footwear.


Global Footwear Industry Revenue (Source: Gale Business Insights)

The global sporting goods market consists of three major segments: apparel, footwear and

equipment. The footwear market is expected to represent one third of the global sales of sporting

goods (Random Analytics, 2009). Trade volume of the global footwear market is said to be around

$ 200 billion (Fry, 2010). The 2018 forecast apportions athletic footwear to comprise 42% of this

volume i.e. $ 84 billion with Asia Pacific, followed by Europe to be the biggest markets

(Transparency Market Research, 2012).

Industry is generally classified into three segments- men, women and kids. These can be further

divided (Phillips, 2000) into:

Active wear

o Walking, running, hiking, aerobics, etc.

Sports

o Basketball, tennis, baseball, football, golf, soccer etc.

The current demographics of the existing US market as suggested by the National Sporting Goods

Association (NSGA) show the male-female ratio of total sales to be 53%-47% with more than half

of all athletic sales arising from conventional retail outlets rather than online sales (Random

Analytics, 2009). Two age ranges that have consistently generated nearly half of all sales for the

past six years are children under the age of 14, and adults ranging from 45-64 years of age.

Lifestyle characteristics such as social factors (opportunity to practice hobbies/interests),

psychographics (personality and emotional characteristics), belief systems (religious, political

beliefs, cultural practice,) and life stage (pre-teen, teenagers or empty-nesters) are needed to be

studied in further detail when selecting the target country for global expansion. Some of these will

be reviewed later.


Global Competition

“The footwear market is largely consolidated with top five players including Nike, Adidas,

Reebok, Puma and New Balance holding around 70% market share.” (Transparency Market

Research, 2012).

Global companies like Nike have demonstrated use of technology and GIS systems (Esri, 2010),

use of athletes, club sponsorships and presence in major sporting events like Super Bowl (Sanders,

1997) as some of the marketing strategies that have helped in its global expansion. Nike

manufacturing was present in 652 factories (with 132 being in China) in over 47 countries as of

2007 (Haman, Chou, Chareunsouk, Shann, Villa, & Wu, 2011)

Global Competitors (Source: Gale Business Insights)

Having established the above global facts of industry and competition, the prospects of global

expansion into another country are strongly encouraging.

Choosing the Country: Indonesia

Asia saw a total of $481.6 billion Foreign Direct Investment (FDI) in 2012 with China and India

placed at the second and fifth spot respectively on the 2013 FDI Confidence Index Report

(Laudicina, Gott & Peterson, 2013). Keeping in view the primary objectives of the global

expansion: 1) Increased sales 2) Lower costs and having established that Asia-Pacific constitutes

the major portion of the global athletic footwear sales, hence a country in Asia will be suitable to

the objectives of this case study.

Indonesia, being a developing country can offer the same in tandem to low cost manufacturing.

Indonesian expansion will enable access to geo-demographic segmentation (Mullings, Walker,

n.d) in which emerging markets containing small segment of extremely wealthy people and rapidly

growing small middle class will be targeted. It is projected to dominate the future middle class

market along with India, China and Japan (FutureBrand Country Brand Index, 2013). As Indonesia

lies on an important world maritime trade route, its sea ports will offer a strategic advantage in


saving logistic costs when exporting production back to the home country as well (see figure below

for port map of Indonesia).

INDONESIAN PORTS

Source: www.worldportsource.com

First look into Indonesia

Differences of Indonesia from a US cultural perspective in Hofstede’s Bird Eye View is shown

below.

Source: www.geert-hofstede.com


The above chart provides a good brief overview of what to expect from Indonesian culture in

general. Differences in power distance, individualism and pragmatism are stark from a US cultural

point of view. Let’s briefly review their societal implications:

Power Distance: Easy acceptance of power and rank is adherent to Indonesian culture signifying

centralized power centers. Emphasis is laid on indirect communication and a ‘to be told’ work

style.

Individualism: Indonesia is a collective society (opposite of individualism) and high regard is

given to being in the ‘in-group’ (Dadhich & Bhal, 2008). High family loyalty and a ‘helping each

other out’ culture is very strong.

Pragmatism: Indonesians being pragmatic, accept situations on as is basis and have less desire to

ask questions and explanations. They will be more susceptible to change while demonstrating

characteristic of being thrifty. They prefer securing investment and saving.

Indulgence: Indonesia has a culture of restraint (opposite of indulgence) to the extent that people

try to control their desires. As a restraint society, Indonesians in general do not emphasis much on

vacations and leisure activities.

Culturegram

Indonesia is world’s largest producer of rattan wood, plywood, cloves, nutmeg and cocoa.

Electricity system based on 220 transmission voltage. Indonesia has three time zone varying from

GMT+7 to GMT+9 hours. Standard banking hours 8am to 3pm –Monday through Friday.

Businesses generally remain closed on Saturday and Sunday. Travel visa required for US citizens

with availability of visa-on-arrival facility. Below is a Culturegram of the country.


Republic of Indonesia.

History

Indonesia has a rich history influenced by traders and occupants from India, China, Arabia, Japan

and Europe over the last few centuries.

Indonesians remain an "island people" where traditional culture has survived and flourished.

Indonesians are very proud of their heritage and especially the progress they have made since

achieving independence, but the colonial experience has had a lasting impact. The Indonesian

history has shaped various characteristics amongst its people. These include the "1945 generation"

(those who fought for independence), the "Old Order generation" (Sukarno era), and the "New

Order generation" (Suharto era).

Ethical Profile

Javanese: 41.71%, Sundanese: 15.41%, Matay: 3.45%, Madurese: 3.37%, Batak: 3.02%,

Minankabau: 2.72%, Betawi: 2.51%, Bantenese: 2.05%, Banjarese: 1.74%, Balinese: 1.51%,

Makassarese: 0.99%, Crebonede: 0.94%

Age Structure

Majority of age structure is 42 percent are from 25-64 years and 26 percent from 0-14 years with

an average life expectancy of 72 years.

Climate

Moderate climate throughout the year. Being tropical, the country has two seasons- dry (April-

September) and rainy (October-March, peak rainy season in December)

•National Language

•Bhasa Indonesia

•300 local languages

•English can be understood by some

•Food

•Main staple food is rice and potatoe

•Fish, spices, coconut milk

•Currency

•(Indonesian Rupiah)

•1$ = 11520 rupiah

•US dollar acceptable currency

•Geography

•Area of 3200 miles strading the equator

•As wide as USA

•17500 Islands

•50% urban area Relgion

(Islam)Mulsims 87%,

Christian 7%, Hindu and Budhist minorities

Population (230 million)

(Worlds fourth most populace)

(Literacy rate: 92%)

Legal System

(Cvil based on Roman law)

Political System Presidential

(Worlds third largest Democracy)

Ethinicity

(over 200 groups)

Javanese 41%


Natural landscape and Tourism

Indonesia has a diverse range of beautiful beaches, coral reefs, tropical forests, volcanic and

waterfalls with lots to see including the cultural heritage with temples and architecture. A chaotic

political and cultural hub forms in the modern metropolitan capital of Jakarta which boasts

museums, arts, traditional food festivals showcasing a melting pot of different ethnic groups. “Its

fertile soil brought about by lava, and its minerals found on land and in the sea caused by volcanic

eruptions, have made this the ideal habitat for a large number of unique and endemic flora and

fauna. Indonesia has among the most diverse variety of species of animal life on land and in the

seas found anywhere in the world” (Discover Indonesia, 2014)

Cultural Facts

People in general from all beliefs are religious in nature. Those Islands which are

dominant of Hindu (e.g. Bali), Buddhist and Christian populations adhere to celebrating

traditional religious festivals as part of their culture.

Muslim majority population of over 87% has been quite less tolerant on other minorities

in past, however national harmony has improved recently.

Inter-marriages among people of different ethnic groups have welded the population into

a more cohesive cultural unit.

Youth in large cities follow modern international trends. Music including Jazz, Pop and

Rock singers are also quite popular.

With 20 million internet (CIA World Factbook, 2009) and 282 million (CIA World

Factbook, 2012) cellular users, Indonesia is the next big thing in social media. It is the 2nd

largest country on Facebook users and 4th largest on Twitter users. Blackberry is the

most popular smart phone in Indonesia

Weddings are still traditional and offer a great introduction to Indonesia’s many diverse

customs and traditions

Deep cultural heritage boast performing arts and events including ‘Wavy Dagger’,

‘Shadow Puppets’, ‘Bamboo Musical Instruments’. Arts and crafts, hand woven sarongs,

sculptures and finely carved furniture.

Quality of Life

The Country Brand Index (FutureBrand, 2013) is a good tool to gauge the quality of life in a

country. Compared to US standards which ranks 8th, Indonesia has a low quality of life being

ranked at 78 but offers a competitive position when compared to other investment countries such

as China (66), Bangladesh (110), India (42), Cambodia (87) and Vietnam (69).

The Human Development Index (HDI) as a measure of overall quality of health in the country, the

chart below shows the comparative company position of Indonesia in the region.


HDI – Bubble Chart (Country Comparison)

Source: United Nations Development Program – Human Development Reports

Indonesia is ranked 121 ‘Medium’ on the United Nations Human Development Index (HDI) and

21st on the Islamic-HDI index (Anto, 2009). Although the HDI score of 0.629 is less than that of

China, but still higher than Bangladesh and Vietnam. The HDI score however, has shown

significant improvement over the last twenty years (Malik, 2013).

Implications of culture The culture of business in Indonesia is much different than in the West. Strong relationships are

essential to successful business ventures in Indonesia. Business in Indonesia is more like a chess

game than a horse race. Hence it is best to locate a foreign partner that is accustomed to local

Indonesian customs. Time is considered limitless in Indonesia. Indonesians do not hurry, but rather

see hurrying as impolite.

Indonesian society is very stratified and hierarchical. Decisions are made at the top (but by

consensus) and are respected by those not in authority. “If your company visits the country, try to

send a senior employee, who is in a position to make on-the-spot decisions” - the Indonesian

Board. The person can be female as women in high positions are not a rarity in Indonesia. Gift

giving is common practice in Indonesia, and often essential to "grease the wheels" of commerce.


Local Traditions: (Do’s and Don’ts)

Do’s Don’ts

Soft shake hands (sometimes both hands are used while shaking)

Many Muslim women introduce themselves by nodding their head, smiling or clasping their hands without shaking hands

Polite to make phone call before visiting someone

Shoes are taken of before entering houses and places of worship

Pointing with your index figure to places or people

Females should dress sufficiently Most Indonesian Muslims do not consume alcoholic drinks and pork.

Keep cash handy Concept of ‘To Toast in Honor’ is not generally known

Be humble in your negotiations and give your business partner the highest respect

Don't try to make too many meetings a day as meetings can take a long time and sometimes meetings do not start on time

Be calm and subtle and don't rebut something or someone

The word yes, may not necessarily mean "Yes, I agree", it can also mean "Yes, I heard what you said".

Do expect to be asked about your family and private life

The word no is regarded impolite, often people use the word "belum" which means "not yet".

Be careful when using humor or making a joke, as it may be misunderstood

Anger should not be shown as one can lose face

Short term visitors to be updated on Hepatitis and Typhoid vaccinations

Eating from food stalls

Do accept tea and other drinks Drinking tap water

When invited to dinner, it is expected that your host will pay

When eating or drinking, don't start until invited to do so

Keep both feet on floor while sitting, avoiding crossed legs

Don’t show your shoe sole while seated

“Family life is of utmost importance and respect for elders and political or social superiors

transcends into all areas of life. Beyond family, the power of community is essential to the

Indonesian psyche. It underlies the diverse cultures of the sukus (ethnic groups) of Indonesia.

Social obligation is very important in the community” (SOLT I - Indonesian Module on Personal

Characteristics, n.d)

Implications of global management

Indonesia’s economy grew by 5.7% in 2013, making “The World’s Most Stable Economy in the

Last Five Years” as per BKPM. The World Economic Outlook Database of 2012 projects

Indonesia to have the 3rd fastest economic growths in the G20 countries.


Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to be less than 26% by the

end of 2013 (IMF-Global Financial Stability Report, 2014). This is the lowest among ASEAN

countries, aside from Singapore.

The above facts our complemented by the country statistics on the Organization for Economic

Cooperation and Development (OECD) that show prospects of a good economy with increasing

GDP, FDI, energy supply and decreasing unemployment.

Key Investment Sectors: Infrastructure, Mining, Energy, Oil and Gas, Tourism, Food and

Agriculture

Key Trade Sectors: Textiles, Agricultural Products, Electronics

Indonesian Economic Snapshot

Measure as of 2013 Value Country Comparison Rank

Gross Domestic Product (GDP) as PPP

$1.285 trillion 16

GDP per capita (PPP) / Growth Rate

$5,200 / 5.3%

158 / 48

Gross National Savings GNS (GDP – Gross Expense):

31.5% of GDP

22

Income Level (2012) GNI Per Capita

Lower Middle Income $3,420

Public Debt 24.2 % of GDP 129

Budget Rev: $137.5 billion Exp: $166 billion

-

Central Bank Discount Rate/Commercial Lending Rate

6.4% / 12.1%

193 / 57

Inflation Rate

7.7%

Foreign Exchange and Gold Reserves: $83.45 billion 27

External Debt $223.8 billion 33

Current Account Balance

Negative $-28.7 billion

184

Imports $178.6 billion 28

Exports $178.9 billion 29

Stock of FDI for the year $207.2 billion 27 (Sources: Data.worldbank.org and CIA World Fact Book)

As per the MIT Observatory of Economic Complexity, for Indonesia, USA is among the top

three trading partners by volume, contributing around 10%, for its total imports and exports.


Source: BKPM Website

As per the press releases of the Indonesian Investment Coordinating Board, the biggest investment

in ending quarters of 2012 and 2013 in the top sectors of the country quoted USA to be among the

top five investors of FDI into the country. This was confirmed from the US Bureau of Economic

Analysis website showing FDI outflows from USA, shown in table below (see ‘Other

Manufacturing’ section which includes Apparel and footwear).

Large US Operations in Indonesia include General Electric, Du Pont, Dow Chemicals, Coca Cola,

Chrysler, General Motors, Gatorade, IBM, Johnson & Johnson, Nike, Monsanto, Walmart, Mobil,

Merril Lynch, Phillip Morris, Procter & Gamble and Bank of America.

As per American Indonesian Chamber of Commerce Industry, US-Indonesia Trade volume was

around $26 billion in 2012 with US being a net importer. (Imports: $18billion, Exports: $8 billion).

Even the footwear industry in general routes a considerable trading volume through Indonesia (see

chart below). Hence, any manufacturing being imported back into the US is encouraged, looking

at the existing trade figures with Indonesia.


Source: http://worldtradedaily.com/2013/01/03/wit-report-for-hs-code-640399-leather-shoes/

Investment Basics in Indonesia

‘Principal license’ from the Central Government and a ‘Business License’ from the Provincial

Government both are required for investors. Although the Indonesia Government wants to reduce

red tape it can take long time to set up a business. Electronic and One Stop Services are available

at federal and regional levels to facilitate investors.

Government provides investment incentives in the form of duty and tax reductions on materials

and goods under different schemes. There are several industrial zones classified under different

regional investment zones. The Government maintains a Negative Investment list. Certain sectors

are closed to private investment.

Import duty for International footwear HS Code: 6401 to 6406. From WTO tariff profile (see

Annexure), it is gathered that average import duty is 39% but for Most Favored Nations (MFN’s

that are member of WTO) the same decreases to an average of 8.6%. Hence, Indonesian import

tariffs (ad valorem per cent) effective range can be said to vary from 5-25% (Office of Textiles

and Apparel (OTEXA), US International Trade Administration). Import Facilities for Export

Purpose (KITE) exist through which exemptions can be sought from duty and taxes. Similar

schemes of duty drawbacks and rebates are also available for exporters.

Exports are all subject to a 0% VAT (local standard VAT is 10% and income tax 2.5%). An export

may be subject to an export duty which depends on the HS code. Currently the HS Code 64 does

not have any export regulation. For consideration of outsourcing manufacturing to Indonesia, when

the footwear is exported back into US, a duty of 8.5% is generally applicable in the US on shoes

and footwear. This will form part of outsourcing costs other than shipping, freight and insurance

overheads.

100% foreign ownership is provided by the government to promote foreign investment as well.

Government is currently promoting Public Private Partnerships (PPP) in the form of infrastructural


developments. There are a number of Export Processing Zones (EPZs) in Indonesia, the most well

known being Batam Island, located 20 kilometers south of Singapore

Small- and medium-sized U.S. firms entering the Indonesian market can increase their likelihood

of success by partnering with a strong local agents or distributor. Foreign companies wishing to

sell their products in Indonesia are required to appoint an Indonesian agent or distributor pursuant

to Ministry of Trade (MOT) Regulations.

Cost of Doing Business: Electricity costs, salaries of different designations, office lease cost, fuel

costs and water tariffs are all available in detail to estimate cost of doing business on the Indonesian

Investment Coordinating Board (BKBM) website. Standards applicable in the country are enforced

by the National Standardization Agency - Badan Standardisasi Nasional (BSN). The country

currently is following the Long Term Development Plan (RPJPN) for 2005-2025 (Ministry of

foreign affairs of Indonesia).

Seven Common Global Business Factors

The World Bank Country Report of 2012 reported a 58% positive, 39% not sure and 3% negative

response when asked the public – Are we headed in the right direction? This denotes the sentiment

of the people in having confidence over the strategic direction of the country.

Political risk

S&P rates Indonesia at BB+ with a stable outlook. For concerned investors, The Overseas Private

Investment Corporation (OPIC) a U.S government organization can provide insurance against

foreign nationalization insurance.

Although political environment is stable but it comes with a stark twist -corruption. Suharto, the

recent political leader of the country skimmed $30 billion dollars; making him the most corrupt in

world history (Suharto tops corruption rankings, 2004). It has been an accepted norm to give ’10

percent’ to the Suhartos as a transactional cost of doing business in Indoenisa (Boyes, 2012).

Regulatory

US-Indonesian trade is covered under the U.S.-ASEAN Trade and Investment Framework

Arrangement (TIFA) of 1996 which makes the 10 member ASEAN countries of Brunei, Burma,

Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam to be fifth

largest trading partner for the US and the fourth largest export market (See annexure for a detailed

list of FTA agreements).

Although Indonesia is a member of World Intellectual Property Rights Organiztion (WIPO) but

there are serious concerns over intellectual property rights protection, lacking adequate patent

protection in many areas.

Cultural and Religious Uncertainly

Governing such an immense archipelago (island chain) with such a diverse ethnic profile has

certainly been an uphill task which has not been helped by political corruption in the country.

Politics in the country has succumbed to pressure of the people in the past when the government

was toppled in 1998; hence a low likely but high impact political turnover can be a concern.

Demise of the ‘New Order Government’ in 1990 has reduced the role army in the society but some

http://www4.bkpm.go.id/contents/general/117123/cost-of-doing-business#.U1bwHlfjGM1


flare ups among the religious groups have been seen along with occasional radical events including

bomb blasts.

Economic Competition

The popularity of local manufacturers and growing piracy in developing countries remains the

major challenge for global footwear manufacturers.” (Transparency Market Research, 2012).

As per shoeinfonet.com and the Virtual Exhibition display on the Indonesian Ministry of Trades

website over 30 local manufacturing facilities employed in athletic footwear manufacturing were

found. These included international names like Bata and some local industries that have been

around for more than 20-30 years. State-Owned Enterprises can pose significant competition as

well. It is concluded, competition in the local market will not be easy as existing manufacturers

are already producing for many international brands and are well versed with dealing with

international business and competition.

Infrastructure

Indonesia is an emerging global powerhouse in Asia and has the largest economy in South East

Asia that is aiming to reach the US $ 1 trillion mark. In line with its strategy to make Indonesia

one of the world’s ten biggest economies by 2025, the country continues to invest in infrastructural

improvements and regained its investment grade from Moody’s for the first time since the Asian

Financial Crisis of 1990 (FutureBrand Country Brand Index, 2013). Although extensive rail

network exists but is not suitable for business travel and for commercial purposes. Travelling by

car requires caution as traffic jams can occur and crowded conditions can be dangerous in busy

city areas.

Business Risks

Flooding risk has been a concern in Indonesia in the past which includes the Tsunami damage of

2004. Forest fires, severe droughts and volcanic eruptions are other natural hazards to be aware of.

A lowering unemployment rate in the country and a healthy and growing economy has put pressure

on increasing labor wages which have resulted in a bit of unrest. Labor strikes in the first quarter

of 2012 which took place at industrial areas in the Greater Jakarta area such as Tangerang and

Bekasi as well as in Riau and Papua raised alarm among investors (Global Business Guide, n.d.).

Indonesian labor is relatively cheap by world standards, but the country's under-funded education

system and overly rigid labor laws combine to make Indonesia's competitiveness lag behind other

Asian competitors (See Annexure for detail and statistics on labor employed and labor rates

provided by UNIDO).

“While Corporate Social Responsibility (CSR) 'codes of conduct' are easy to draft, supplier

compliance has been elusive. Even third-party monitoring has proven an incomplete solution”

(Lim & Phillips, 2008). Meeting child labor and other international human rights and labor

standards remain a challenge in general for the developing countries.


Socio Cultural Challenges

Some Indonesians are traditional in culture; others may be considerably "Westernized." Because

Indonesians do business with "friends," people who they know, developing a rapport is crucial.

(Doing Business in Indonesia: 2010 Guide for US Companies, 2011)

Indonesia ranked 120 in the Doing Business 2013 World Rankings and U.S. businesses routinely

cite transparency problems and red tape as factors hindering operations. Although improving, Rule

of law issues persist. Regulations are often vague and require substantial interpretation by

implementing offices, leading to business uncertainty and rent seeking opportunities. (Doing

Business in Indonesia: 2010 Guide for US Companies, 2011)

“While the Indonesian government and the Corruption Eradication Commission continue to

investigate and prosecute high - profile corruption cases, many investors consider corruption a

significant barrier to pursuing business in Indonesia. Other barriers to trade and investment

include poor government coordination, the slow rate of land acquisition for infrastructure

development projects, poor enforcement of contracts, an uncertain regulatory and legal

framework, and lack of transparency in the development of laws and regulations. U.S. companies

seeking legal relief in contract disputes have reported that they are often forced to litigate spurious

counterclaims”. (USTR Report on Barriers to Trade-Indonesia, 2013)

Country SWOT Analysis

Indonesia

For the period 2010-2012: GDP-Growth Rate: 7% (Asia Pacific: 5%, World: 2.6%)

Manufacturing Value Add (MVA) Real Growth Rate: 6% (Asia Pacific: 3.8%, World: 2.26%)

MVA per capita (USD $): 444 (Asia Pacific: 912, World: 1277, US: 5400)

Country SWOT

USA is listed for comparison of ‘cultural shock’ perspective China Indonesia Bangladesh Vietnam USA

Trade Attractiveness

Textile & Clothing Exports 2012 ($ billions) WTO

255.1 12 21.5 18.2 --

International Capital Inflow (FDI inflows 2007-2011)

http://hdr.undp.org/en/data

3.1 2.1 0.7 7.5

Merchandise exports as percentage of GDP 2010 ($ billions)


28.9 25.3 .. 71.1

Trade Ranking 2012 Bloom Consulting

3 37 85 38 1

Gross Domestic Product ($ billions)

http://www.transparency.org

5,093 706 100 106 14,600

Inward FDI Potential Index http://globaledge.msu.edu

0.30 0.14 0.11 0.17

FDI Confidence Index Ranking 2013 2 24 -- Below 25

1

http://www.wto.org/english/res_e/statis_e/its2013_e/its13_highlights2_e.pdf



http://bloom-consulting.com/

http://www.transparency.org/

http://globaledge.msu.edu/


Global Services Location Index (measures the viability of countries as a potential offshore destination for services) http://globaledge.msu.edu

6.6 5.9 -- 5.7 5.4

Ease of Doing Business Rank IMF http://www.doingbusiness.org/data/exploreeconomies

96 120 130 99 4

Economic Freedom Index http://globaledge.msu.edu

52.5 58.5 54.1 50.8 75.5

E&Y Globalization Index (based on five categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration) http://globaledge.msu.edu

3.53 2.98 -- 3.83 4.33

International Logistics Performance Index (LPI) http://globaledge.msu.edu

3.5 2.9 -- 3 3.9

Global Manufacturing Competitiveness Index (GMCI) (manufacturing competitiveness of a country based on factors such as labor, materials, energy, and access to talented workers) http://globaledge.msu.edu

10 5.8 -- 5.7 7.8

Global Competitiveness Report (Economic competitiveness of a country based on enabling high productivity levels)

4.8 4.5 3.7 4.2 5.5

Euromoney Country Risk Rating (Tier 1 to 5) Tier 3 Tier 3 Tier 5 Tier 4 Tier 2

Quality of Life

Country Brand Index Rank (2013 quality of life and attractiveness of country) Futurebrand

66 78 110 69 8

HDI http://hdr.undp.org/en/data

.69 .63 .51 .62 0.93

Crime Index http://www.numbeo.com

30.1 46.7 62.2 53 50

Corruption Index http://www.transparency.org

40 32 27 31 73

Life Expectancy (years) http://www.transparency.org

73 68 68 74 78

Population (millions) http://www.transparency.org

1,300 239 148 87 300

Literacy Rate (%) CIA World Factbook

95% 92% 57% 93% 99%

Big Mac Price (Index) http://globaledge.msu.edu

2.74 2.3 -- 2.84 4.62


http://www.doingbusiness.org/data/exploreeconomies

http://www.doingbusiness.org/data/exploreeconomies





http://www.futurebrand.com/images/uploads/studies/cbi/CBI_2012-Final.pdf


http://www.numbeo.com/




https://www.cia.gov/library/publications/the-world-factbook/fields/2103.html

http://www.cia.gov/


A country Strength-Weakness-Opportunity (SWOT) Analysis has been conducted with regional

competitors using global indexes to measure investment attractiveness of proposed countries as

compared to other global competitors. A detailed analysis concludes that Indonesia is very

competitive and offers a good choice for investors.

Conclusion

Indonesia’s strategic placement on the world map and access to maritime global trade routes is

paralleled by only a few other countries. Half of the world’s shipping passes through Indonesian

waters, and labor costs are fair, comparably lower than China and India.

The Indonesian Statistic Institute (BPS) state 25% of the population more than 10 years old do

sports. Footwear (shoes) are the top 10 most popular imports to Indonesia. Target market

demographics are very similar to the existing US operations that will reduce the learning curve to

develop effective strategies to market to this country. The age range comprising fifty percent of

overall sales is the same for both Indonesia and USA i.e. children under the age of 14, and adults

ranging from 45-64 years of age. Hence the Indonesian expansion case would be in tandem to

increased company’s sales and revenues.

The influx of heavy FDI into Indonesia in recent years along with the presence of US Companies

in Indonesia provides for a good business climate for US investors. Indonesia as the target

destination, offers to be a great potential market along with offering geo-demographic segments

to boost sales. This can be achieved along with outsourcing manufacturing to lower product costs

as well.

The country SWOT analysis also shows that Indonesia is an investment choice that is hard to beat.

Indonesia is vast in size, population and resources. With over 50% of the population being under

the age of 30, living in urban areas, and is increasingly technologically aware and educated, this is

a potential sales market that cannot be missed.

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Other Information Sources:

http://www.beacukai.go.id (Customs Website of Indonesia)

http://www.dutycalculator.com (global duty calculator)

http://www.aiccusa.org/culturaltips.html (Cultural tips)

http://worldpopulationreview.com (for detailed ethnic profile)

Appendices

Country Groupings for Indonesia Source: http://www.census.gov/foreign-

trade/guide/sec5.html3

Pacific Rim Countries

APEC (Asia-Pacific Economic Cooperation)

ASEAN (Association of Southeast Asian Nations)

Free Trade Agreements (FTA’s) for Indonesia

ASEAN Trade in Goods Agreement (ATIGA)

ASEAN–China FTA (ACFTA)

ASEAN-Korea FTA (AKFTA)

ASEAN-India FTA (AIFTA)

ASEAN- Australian and New Zealand FTA (AANZFTA

Indonesia–Japan Economic Partnership Agreement (IJEPA)

Indonesia also provides preferential market access to Australia, China, Japan, Korea, India,

Pakistan, and New Zealand under regional ASEAN agreements and to Japan under a bilateral

agreement.

Sources of Information and guidance for Investors

http://www.ustr.gov/about-us/press-office/reports-and-publications/2013/NTE-FTB

http://www.beacukai.go.id/

http://www.aiccusa.org/culturaltips.html

http://worldpopulationreview.com/


Government organizations facilitating trade

o Indonesian Trade Promotion Center Los Angeles (ITPCLA) is setup specifically

for facilitating US investors interested in doing business in Indonesia

o American Indonesian Chamber of Commerce and Industry

o Directorate General for National Export Development (DGNED)

o Indonesia Investment Coordinating Board (IICB) with an office in New York

o Indonesia Chamber of Commerce and Industry (ICCI)

o National Agency for Export Development, Virtual Exhibition (Ministry of Trade)

o Indonesian Statistic Institute (Badan Pusat Statistik - BPS)

o Ministry of Foreign Affairs - Republic Of Indonesia

o Biggest Trade Show: Annual Trade Expo Indonesia

o Indonesian Export Financing Agency (LPEI)

International Sources of Facilitation for US investors

o Overseas Private Investment Corporation (OPIC)

o US Export-Import Bank

o Asian Development Bank

o International Finance Corporation (IFC) an affiliate of World Bank

o EximBank (US Export Import Bank)

INDONESIA TRADE STATISTICS – Footwear Data by Country - Indonesia

Footwear US Imports

Footwear US Exports


Source: OTEXA - http://otexa.ita.doc.gov/flt/exports/v5600.htm


Source: Global Financial Stability Report April 2014 - IMF

Source: www.IMF.org

Understanding Duty Structure on WTO website

Source: http://www.wto.org/english/res_e/statis_e/popup_indicator_help_e.htm#hs6


Indonesia Footwear Industry Profile and Trade Statistics – (United Nations Industrial Development

Organization)

Source: UNIDO.org

US to World: Apparel Industry Exports

Source: http://tse.export.gov/TSE/MapDisplay.aspx


US Industry NAICS Codes Used for Research

NAICS Codes Name Classification Level

31-33 Manufacturing Sector

316 Leather and Allied Product

Manufacturing Subsector

3162 Footwear Manufacturing Industry Group

31621 Footwear Manufacturing Industry

316211 Rubber and Plastics Footwear

Manufacturing U.S. Detail Industry

World Bank Country Survey 2012

General Public Sentiment when asked: Headed in the Right Direction?

Source: www.worldbank.org


Doing Business.org Economic Snapshot

Source: www.doingbusiness.org

Credit Rating

http://www.standardandpoors.com/ratings/sovereigns/ratings-list

Acknowledgements

With the grace of God, the author would like to thank his father and mother and beloved family

for their continuous support and motivation.

Syed A Hayat

Simon School of Business,

Maryville University, USA

Documents

Indonesian Global Expansion: A Case Study Syed A Hayat Simon