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ILP 210
MODULE ASSIGNMENT COVERSHEET MODULE CODE
ILP210
PART 1
Student Name: TUTI LELAH
Student Number: 1420010-BBM
Module Tutor: Mr. Navaratnam s/o Vejaratnam
Module Title / Assignment Number: Take Home Exam
Date Due / Submission Date: 25 May 2015
No of words:
The submission of this assignment is a statement that it is compliant with the University’s assessment regulations, and that it does not infringe the University’s research ethics principles.
You are responsible for ensuring that the assignment is submitted in its entirety, and are advised to number pages in the format ‘Page x of y’ (e.g. Page 3 of 12).
PART 2
For completion by the Module Tutor:
Tutor’s signature………………………………………Date…………………………
Second Marker (if appropriate): …………………….Date…………………………
Provisional MarkSubject to approval by theBoard of Examiners
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ILP 210 Assignment Assessments
Student Name / Id:_________________________________
Fail / Refer
Marks range: 0-4
3
Marks range: 5-8
2.2
Marks range: 9-12
2.1
Marks range: 13-16
1
Marks range: 17-20
Weighting
No clear understanding of the issues demonstrated
Limited understanding demonstrated, too descriptive with some inaccuracies
Some understanding of the issues limited discussion of these, and or need to expand depth and breadth of argument.
A good understanding evident. Good breadth and depth to develop argument.
Issues discussed thoroughly and demonstrates the ability to be analytical in the treatment of the issues.
/20
No development of evaluation of issues supported by reference to the academic literature.
Little development of evaluation of the issues supported by reference to the academic literature.
Some development and/depth of evaluation demonstrated, and some support from the literature.
Good development of evaluation of the issues, well supported and referenced.
Excellent evaluation of the issues thoroughly supported and referenced.
/20
No clear argument. Too descriptive and disjointed.
Some argument but it is fragmented or illogical.
Some coherent argument.
Moves on from the descriptive to development of the issues.
Clear argument that integrates the material and leads to a conclusion.
Clear argument that is original, critical, integrates the material and leads to a clear conclusion.
/20
Bibliography not included or evidence of a 'ghost' bibliography. Little or no use of academic sources
Sparse or incorrectly structured bibliography.
Some evidence of accessing and reading of relevant material.
Included a bibliography predominantly in the Harvard format with some citations in the text. Good evidence of accessing and reading relevant material.
Included a good bibliography in the Harvard format, which is fully cited in the text. Evidence of thorough reading of relevant materials using a range of sources.
Included an excellent bibliography in the Harvard format, which is cited fully in the text. Evidence of accessing extensive reading of relevant materials using a range of sources.
/20
English weak. Minimum level acceptable for business.
Few imprecise statements.
Well written; English clear, correct and precise.
Original and innovative; takes critical position; synthesises ideas,
/20
MARK of 100%
Comments by Tutor:
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Table of ContentsINTRODUCTION...........................................................................................................................................4
Indonesia Background.............................................................................................................................5
Vision.......................................................................................................................................................6
Mission....................................................................................................................................................6
Development Programs..........................................................................................................................6
1st Priority: Programs of Action in the Education Sector.........................................................................6
2nd Priority: Programs of Action in the Health Sector.............................................................................7
3rd Priority: Programs of Action for Poverty Reduction..........................................................................8
4th Priority: Programs of Action in Employment Creation......................................................................8
5th Priority: Programs of Action on Basic Infrastructure Development..................................................9
6th Priority: Programs of Action in Food Security..................................................................................10
7th Priority: Enforcement Pillars of Democracy.....................................................................................11
8th Priority: Law Enforcement Corruption............................................................................................11
9th Priority: Inclusive and Equitable Development...............................................................................11
10th Priority: Field Environment Sector................................................................................................12
11th Priority: Cultural Development......................................................................................................12
THE IMPACT OF GLOBALIZATION IN INDONESIA.......................................................................................12
Globalization and the Financial Crisis....................................................................................................13
Globalization on Trade and Investment, Export and Innovation (Technology)......................................13
Globalization of Entrepreneurship in Policy Considerations for SME Development in Indonesia.........14
CULTURAL AND ETHICAL ENVIRONMENT......................................................Error! Bookmark not defined.
Power distance......................................................................................................................................16
Individualism.........................................................................................................................................16
Masculinity............................................................................................................................................17
Uncertainty avoidance...........................................................................................................................17
Long Term Orientation..........................................................................................................................17
The Pillar of Indonesia Economic Strength as Emerging Country in the Global Economy.........................19
Potential Sectors for Investment...........................................................................................................19
Infrastructure and Transportation Sector:.............................................................................................19
Oil and Gas Sector:................................................................................................................................21
Electricity Sector:...................................................................................................................................21
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Mining Sector:.......................................................................................................................................22
Technology and Telecommunications Sector:.......................................................................................22
Manufacturing and Agriculture Sector:.................................................................................................23
Tourism Sector.......................................................................................................................................24
Yogyakarta.............................................................................................................................................25
Papua.....................................................................................................................................................27
Potential Sectors for Trading.....................................................................................................................30
Fashion Sector:......................................................................................................................................30
Textile Sector:........................................................................................................................................31
REGIONAL AND ECONOMY INTEGRATION OF INDONESIA........................................................................32
Pattern of Indonesia’s Trade Policy.......................................................................................................32
INDONESIA INTERNATIONAL HUMAN RESOURCES MANAGEMENT..............Error! Bookmark not defined.
1. Recruitment.......................................................................................................................................35
2. Dismissal of Workers.........................................................................................................................35
3. Employment Conditions, Compensation and Benefits.......................................................................36
4. Hiring Expatriates..............................................................................................................................37
CONCLUSION.............................................................................................................................................38
REFERENCES..................................................................................................Error! Bookmark not defined.
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INTRODUCTION
Indonesia Background
In 1511, Indonesia's abundant spices had attracted Portuguese merchants to be the key
trading port of Malacca. The kind of spices that attracted Portuguese merchants consist of
cloves, nutmeg and especially mace which Portuguese merchants believed that mace could
remedy everything from the plague to venereal disease, other than that, mace were literally
worth their weight in gold. Besides Portuguese, Indonesia’s abundant spices had also
attracted the Dutch merchants which they had been starting wrested control of the spice trade
from Portuguese and their tenacious in established a spice monopoly had encouraged them to
build Dutch East India Company (known as VOC) which lasted well into the 18th century.
During the 19th century, the Dutch began cultivating sugar and coffee in Java, which was
soon providing three-fourths of the world supply of coffee.
By the turn of the 20th century, nationalist stirring began to challenge the Dutch
colonial in Indonesia. The independence of Indonesia had helped by the successful
diplomatic maneuverings abroad after World War II which nationalists also led a four-year
guerilla war to against the Dutch on Java. On August 17 th 1945, The Republic of Indonesia
officially proclaimed their sovereignty.
During the first two decades of independence, the republic was dominated by the
charismatic figure of Sukarno, one of the early nationalists who had been imprisoned by the
Dutch. General (ret.) Soeharto eased Sukarno from power in 1967. Indonesia's economy was
sustained throughout the 1970's, almost exclusively by oil export.
In mid-1997, The Asian financial crisis, Indonesian economy had lost 80% of its
rupiah value against the US dollar at the peak of the turmoil.
On May 21, 1998 after 32 years in power, Soeharto resigned and was replaced by B.J.
Habibie following bloody violence and riots. Indonesia held its first democratic election in
October 1999, which put Abdurrahman 'Gus Dur' Wahid in the role of president.
Based on Economic Watch of Indonesia Economy stated that The Republic of
Indonesia is inhabited by 6,000 people whereby has an archipelago of over 18,110 islands.
With 230 million people, Indonesia becomes the fourth most populated country in the world
after China, India and United Stated. Besides that, Indonesia is also having the largest
Muslim population in the world.
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Once Indonesia became independent (after World War II, following Dutch
colonialism for three and a half centuries), the economic change, corruption, natural disasters
and a democratization process have made Indonesia became a turbulent nation.
Vision
The realization of an Indonesia that is prosperous, democratic, sovereign and independent.
Mission
To increase the development towards a prosperous Indonesia;
To strengthen the pillars of democracy in Indonesia;
To strengthen all fields’ justice dimension;
To strengthen national security in order to keep the sovereignty of the region,
advocate economic independence by securing maritime resources, and reflect the
personality of Indonesia as an archipelago;
To strengthen identity of Indonesia as a maritime nation;
To raise and improve quality of Indonesia human life become higher;
To increase the power of the nation-competitiveness;
Realizing Indonesia became an independent maritime state, advanced, powerful, and
based on national interests; and
To form a personality based on the cultural community.
Development Programs
In order to successfully achieve the vision and mission of the 2009-2014, government
are formulated and elaborated more operationally into a number of priority action programs
which is The Eleven Programs of Action to face the challenges in the future, as following:
1st Priority: Programs of Action in the Education Sector
1. To continue and make an effective school building rehabilitation programs that had been
initiated during the period of 2004-2009, as consequence adequate and qualified facilities
could be built by improving and augmenting physical infrastructure of schools, as well as
the use of informatics technology in the teaching process that will support learning and
teaching processes to be more effective and qualified.
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2. The utilization of the budget allocation of at least 20 percent of the state (governmental)
budget to ensure the consolidation of free and affordable education for the nine-year basic
education, and that will be gradually followed by a higher level of education at the high
school level.
3. The improvement in a fundamental manner of the curriculum quality and the provision of
good quality books to enhance the intelligence of the students and shape their character to
be faithful, knowledgeable, creative, innovative, honest, dedicated, responsible, and
hardworking.
4. To continue improving the quality of teachers, lecturers and researchers in order to
become the pillars of education who are able to sharpen the intelligence of the nation,
create an innovative environment, and transmit an intellectual mindset which qualified
and ever growing to their students.
5. To revise the remuneration of teachers and continue the efforts in improving the income
of teachers, lecturers and researchers.
6. To widen the areas of the application of the progress in Information and Communication
Technology (ICT) in order to support the performance in conducting the development of
education.
2nd Priority: Programs of Action in the Health Sector
1. To refine and strengthen the administering of the public health insurance programs in
terms of the quality of services, access to services, accountability of budgets, and
transparent and clean administrative arrangements.
2. To encourage efforts to manufacture affordable drugs and other pharmaceutical products
without sacrificing the quality and safety aspects of the drugs as it has been carried out
during the last three years.
3. To facilitate the construction of clinics or (and) hospitals of international quality either by
improving the professionalization of the management of public hospitals as well as by
encouraging the growth of private hospitals.
4. To improve the quality of services for mothers and children under the age of five years by
strengthening existing programs such as the Integrated Service Posts (Posyandu) that
enable the immunization and mass vaccination such as against Diphteria, Pertussis, and
Tetanus to be administered effectively.
5. To reduce maternal mortality rates, and prevent the spread of communicable diseases like
HIV / AIDS, malaria, and tuberculosis.
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6. The evacuation, treatment, and medication of the population at the natural disaster
affected areas.
3rd Priority: Programs of Action for Poverty Reduction
1. To continue, improve and perfect the implementation of the National Programs for
Community Empowerment (PNPM) Mandiri as the core of the poverty reduction
programs, which have been initiated since 2007, by expanding the number of districts
covered in the PNPM and by continuously increasing the funding allocation for each
district in accordance with its performance.
2. To continue the mainstreaming of all existing programs for poverty reduction in the
ministries and agencies as PNPM supporting programs.
3. The improvement of the Direct Cash Assistance Programs (BLT) by updating the target
household data. The target household data will be integrated into all the affirmation and
subsidy programs so that various duplications or leakages can be avoided.
4. The provision of cheap rice for poor families in order to ensure food security.
5. The development of multilayered programs for the poor people that are conducted
intensively, among others: the Public Health Insurance/Jamkesmas, School Operational
Support/BOS, Aspiring Family Program/PKH, Direct Cash Assistance/BLT, National
Program for Community Empowerment/PNPM, and Rice for Poor People/Raskin
programs.
6. Advocates to Small and Medium Enterprises and Cooperatives, among others, by
granting the People's Business Credit to provide capital access for low-income
communities.
4th Priority: Programs of Action in Employment Creation
1. The enhancement of the quality of workers either from the perspective of the received
wages, or the productivity and standard of qualification in order to be able to heighten the
increase of opportunities in the formal sector, and reduce the number of open youth
unemployment.
2. The increase of investment through improved investment climate both at the central and
regional levels, so that new employment opportunities can be created.
3. To conduct reforms at the micro-economic level, among others the improvement of the
business climate and the advocation to the improvement of business opportunities for the
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small and medium business sector as a pillar of Indonesian labor absorber, conducted
through sectoral policies and cooperation with local governments.
4. To build the physical infrastructure that can facilitate the traffic flow of goods and
informations, and to encourage industrialization programs that could attract spin-off
industries (Domestic Investment, FDI, and global companies) to invest in Indonesia.
5. To expand domestic demand outside the consumer goods, and also exploit the regional
market.
6. To expand and enhance the creative and tourism industries as very large potential sources
of Indonesia's economy.
7. The development of special economic zones such as in Batam, Bintan, Karimun,
Suramadu, Sabang and various other special zones.
5th Priority: Programs of Action on Basic Infrastructure Development
1. To continue the implementation of the dual track strategy in infrastructure development,
which is expanding the opportunity for the public (both national and foreign private
sectors) to participate in a transparent, fair, independent of group interests, clean, and
competitive manner in the construction and operation of infrastructure activities.
2. To ensure public access to services in infrastructure activities, the government shall
maintain a fair regulatory function for every actor and consumer.
3. In order to support the participation of the private sector and state-owned enterprises in
infrastructure development, the government can issue the risk guarantee policy on a
selective manner based on objective, sound, measured, transparent, fair and accountable
criteria.
4. The provision of services and access to clean water at affordable prices to all the society,
especially low-income people.
5. To unbundle infrastructure development in which the government shall bear the
construction of basic infrastructure, while business entities shall bear the construction of
commercial ones for various critical infrastructures in the regions.
6. To increase budget allocation for infrastructure development which usage will be
prioritized for the development of basic infrastructure that are non-commercial in nature.
7. To improve broadband telecommunications development in order to shorten the physical
distance mindful of Indonesia's condition as an archipelagic state.
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8. In order to overcome the natural disasters of floods in various areas, the management of
rivers and water catchment areas will continue to be carried out, inter alia through the
development of the Bengawan Solo River Basin, and the Jakarta Flood Canal.
6th Priority: Programs of Action in Food Security
1. To improve agricultural infrastructure by increasing the budget in the apportionment for
the construction and rehabilitation of irrigation, drainage, highways, railways, and ports
that connect food production areas to market destinations.
2. To improve the quality of inputs either with the support of research and development of
top-grade seeds, and counseling on the precise and accurate use of seeds with manageable
risks.
3. To improve the supply and fertilizer subsidy policies, in order to avoid shortages,
smuggling, and use of subsidized fertilizers by unintended parties.
4. Improvement of the distribution and logistics systems, including warehousing, in an
integrated manner, taking into account the supply chain in order to reduce price volatility
and seasonal supply of the main food commodities.
5. To strengthen and empower farmers, fishermen, fish pond farmers, and maintain the
purchasing power and exchange rates of farmers by maintaining the stability of
commodity prices that could provide benefits to the farmers but not burden low-income
consumers.
6. To improve the mastery of science and technology to enhance the bargaining power and
competitive advantage of the agricultural sector in regional and world markets, especially
in predominant and largest commodities in Asia and the world such as CPO, cinnamon,
and others.
7. Implement policies on the development of downstream agricultural industries through the
creation of a conducive investment climate and if necessary provide fiscal incentives for
their development.
8. Provision of transparent information about market prices of crops that accurate and up to
date for farmers and fishermen, the price and availability of fertilizer, weather and the
outbreak early warning so that farmers can be more intelligent in determining actions.
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7th Priority: Enforcement Pillars of Democracy
1. Reorganize the executive and legislative relations so that they can perform the function of
legislation, oversight and budgetary functions of an effective and balanced and formed a
system which can be launched in a dignified purpose of the state.
2. Improving regulations and Up Election and Election, in order to achieve an honest
election, fair, and can prevent citizens who lost the right to participate in elections.
3. Improve the administration, budgeting, transparency and accountability in the
implementation of elections in order to create certainty and efficiency of institutions
administering the election without sacrificing the quality of elections.
4. Developing the substance of democracy, namely the essential values such as freedom, law
enforcement, justice and sense of responsibility.
8th Priority: Law Enforcement Corruption
1. Improving law enforcement.
2. Strengthen the performance and supervision of police and prosecutors through the police
and judiciary reform, improved police performance and prosecutors in the region, both
through the program a quick win or a thorough and comprehensive structural repairs to
the police and judiciary.
3. Review and improve regulations concerning law enforcement, including
4. Setting police’s rights, reporting regulations, and rules of law enforcement services.
5. Support the improvement of administration and budget in the Supreme Court and courts
below.
6. Prevention and repression of corruption must be consistently and without selective
logging.
9th Priority: Inclusive and Equitable Development
1. Strengthening the micro, small and medium enterprises to expand credit access for SMEs,
including and especially through the People's Business Credit (KUR), the creation and
education for entrepreneurs (entrepreneurs) in the rate of new small and medium
enterprises in rural areas, supporting innovation and creativity of the community and
employers in creating a product, package, market and maintain continuity in healthy
competition.
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2. Reduce regional disparities by conducting continuous improvement of the regions of the
budget transfer policy through the General Allocation Fund (DAU), Profit Sharing Fund
(DBH), the Special Allocation Fund (DAK), and the Special Autonomy Fund (autonomy).
3. Accelerating the development of lagging regions and the outer border and remote areas
with adequate budgetary provision for infrastructure development and the outermost
checkpoint.
4. Reducing the gender gap by improving the policy bias to women and gender
mainstreaming in development strategies (instead of that maybe you can use this:
eliminating gender inequality in development strategies).
10th Priority: Field Environment Sector
1. Fix the damaged environment and prevent natural disasters by conducting afforestation,
reforestation, and watershed improvement.
2. Develop eco-friendly and sustainable development strategies in order to reduce the threat
and impact of global climate change.
3. Invites the entire community, households and businesses to actively protecting the
environment to ensure sustainable economic growth.
11th Priority: Cultural Development
1. Maintaining an atmosphere of creative freedom in the arts and sciences.
2. Providing infrastructure to support non-commercial cultural and scientific activities.
3. Provide incentives to the arts and sciences to develop the quality of art and culture and
preserving the local culture and national heritage, modern and traditional.
In conclusion, by targeting to establish its vision and mission, Indonesia has been
starting to be improved and developed The Eleven Programs of Priority Action, the
purpose is to ensure the investors or entrepreneurs that Indonesia started becoming one
of the most potential countries in investment, trade and business, other than that,
Indonesia also will be more safety in doing International Business (Investment and
Trade) and more predictable.
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THE IMPACT OF GLOBALIZATION IN INDONESIA
Globalization and the Financial Crisis
Globalization issues had attracted attention where some might argue that Indonesia
had not gone in liberalizing its economy and it had retained several basic elements of control
such as limits on capital account transactions and different outcome of the crisis.
According to Kelly and Olds (l999), argued that globalization had fostered by Asian
Financial Crisis which globalization implied the loss of the ability to effectively regulate
national economies and the declined influence of societies over their own destinies. They
stated that the roots of the crisis could be viewed not as a reflection of domestic regulatory
imperfections, but it is viewed as a consequence of the level of globalization. While,
according to Bello (1997), argued that the revelation of Asian economies to global capital
flows would left them susceptible to the intricacies of the international financial system.
On the other hand, others argued that Indonesia and those other successful East
Asian economies had not deregulated and liberalized, they would not have established
such a phenomenal progress both in economic as well social terms in the decade before the
crisis. Changes in technological had spurred by information technology which it had been
one benefits of globalization. For example, it had been found in India where much ‘back
office’ work (such as data processing) is implemented on the Internet for large Western
firms, thus through globalization, it had brought higher value jobs to the economy.
Globalization on Innovation (Technology) in encouraged Trade and Investment
According to Bloom (2002) defined globalization as a process of countries to become
more integrated through the movements of goods, capital, labor and ideas. Globalization is
usually focused on trading and investment liberalization. A decrease in trade barriers will
allow exchange of goods and services between two or more countries to increase. The
advance in technology and information has facilitated the exchange processes between
countries. The process of globalization has influence the least and developing country not to
neglect the development of innovation systems, the reason is because an innovation system
reflects creators, adaptors and disseminators of knowledge that can be used as a crucial tool
for developing countries to gain benefit from globalization. Therefore, in order to respond a
rapid changing business environment in the globalization, firms or corporations now have to
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compete domestically and internationally to adjust with changing market demand
immediately, thus, for this reason they need to innovate.
Globalization also can be translated as changes from a relatively highly regulated
and protected economy to more open and deregulated. An economic reform in trade and
investment liberalization will suit into this definition.
An implication which is export activities, the presence of Foreign Direct Investment
(FDI) or licensing can be used to demonstrate the extent of globalization at the firm, industry
and national levels. For example is to use the ratio of exported output at a firm level while the
presence of Foreign Direct Investment (FDI) is often used to capture the impact of
globalization on firms (Kuncoro, 2007). Therefore, in establishing global market,
globalization is treated as an exogenous factor which the possibility that firms learn through
Research and Development (R&D) become more productive.
Globalization has been treated as exogenous factor where firms or corporations can
learns through Research and Development (R&D) to become more productive, thus they will
be able to enter the global export market. By lowering protection or trade barriers and
maintaining openness will have positive impact on Research and Development (R&D).
However, although in fact that trade barriers are trending downward but many hurdles remain
continue to inhibit the flows of trade and investment. Moreover, the corruption and
inefficiency of national customs and ports are the most significant problems in Indonesia. In
the other hand, nowadays by implementing the “national single window policy” and the
establishment of Corruption Eradication Committee (KPK) has been reducing corruption
issues and bureaucratic inefficiency. But in order to improve the efficiency of ports would
require substantial investment which it cannot be done only by the private sector alone.
Globalization of Entrepreneurship in Policy Considerations for SME Development in Indonesia
Small and Medium Enterprises (SMEs) are tremendous crucial to the young and
growing economies of most Southeast Asian nations, including Indonesia. Indonesia has
recently experienced basic changes in political governance, regional empowerment, and
economic structures as a result of the Asian Financial Crisis, coupled with widespread
social unrest which resulted in the ouster of the authoritarian regime of President Suharto.
In order to succeed in promoting SMEs development to advance the welfare of the
economically weak groups, the newly launched programs need to be fine-tuned to allow for
the achievement of favorable and non discriminative investment climate. There is much that
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Indonesia can learn from the experience of India and Singapore in implementing meaningful
policy that can effectively promote SMEs development, especially in the production,
distribution and service sectors in a global context. Policies have to be market-oriented,
demand driven and not dominated by government agencies which, in the past, have failed to
provide services relevant to the actual needs of SMEs.
Indonesia suffered immensely with the contraction of the economy by 14% and the
severe devaluation of its currency, the Rupiah. There was substantial capital flight to
Singapore and elsewhere, especially by ethnic Chinese business people. With the introduction
of democracy and regional empowerment through the amended constitution, a new day had
dawned for SMEs in Indonesia. SMEs development was being accorded much greater
attention by the successive new governments of the post-1998 era. Global markets were open
to those enterprises that were efficient, creative and competitive.
Conclusion
Globalization should be welcomed by emerging or developing market countries. The
reason is because it offers an opportunity to break down the climacteric advantages that
enjoyed by the developed countries. For example, the abolishment of capital controls in the
developed countries means that citizens and corporations of the developed countries can now
invest in developing markets’ economies. Moreover, trade liberalization reflects emerging
market countries’ advantages in the factors of production (such as abundant land and labor)
can be exploited. Thus, emerging markets will be much gain benefits from globalization if it
is managed appropriately in order to respond a rapid changing business environment in the
globalization, so that firms or corporations now have to compete domestically and
internationally to adjust with changing market demand immediately, thus, for this reason they
need to be innovate.
In addition, to succeed in promoting SMEs development, Indonesia has recently
experienced basic changes in political governance, regional empowerment, and economic
structures and had advanced the welfare of weak economic group, and the newly launched
programs to allow for the achievement of favorable and non discriminative investment
climate, then also promote the production, distribution and service sectors in a global context.
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CULTURAL AND ETHICAL ENVIRONMENT
Table.1Hofstede’s Culture Dimensions of Indonesia
78%
14%
46% 48%62%
Indonesia
Indonesia
Per
cen
tage
High
Low
Low LowHigh
Source: The Hofstede Centre
Power distance
Based on Table.1 of Power Distance, Indonesia has a higher power distance
dimension (78%) which it means that Indonesian characteristics style as following: Being
dependent on hierarchy, unequal rights between power holders and non power holders,
superiors in-accessible, leaders are directive, management controls and delegates. In
conclusion, high power distance reflects that Indonesian co-workers would expect to be
clearly directed by the boss or manager which it is the classic Guru-Student kind of
dynamic that applies to Indonesia. Westerners may be considerably surprised with the
visible, socially acceptable, wide and unequal disparity between the rich and poor.
Individualism
Indonesia has a lower Individualism dimension (14%), it means that Indonesia tends
to a Collectivist society. It is defined a social framework in which individuals are expected to
conform to the ideals of the society and the in-groups to which they belong. In conclusion,
Indonesian individuals would have expected to conform to the ideals of the society and
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the in-groups to which they belong such as an aspect of the Family in the role of
relationship.
Masculinity
The fundamental issue here is what motivates people, wanting to be the best
(masculine) or liking what you do (feminine).
Based on Table.1 above shows that Indonesia has less Masculine (46%) so that although
Indonesia status and visible symbols of success are important but it is not always material to
motivate people. In conclusion, in feminine countries like Indonesia, the society is
focused on “working in order to live”, managers attempt for consensus, people value
equality, solidarity and quality in their working lives.
Uncertainty avoidance
Indonesia has a low preference for avoiding uncertainty (48%), it means that there is
a strong preference to take a risk in Indonesia toward the Javanese culture of separation of
internal self from external self. For example, when a person is feeling upset, it is habitual for
the Indonesian not to show negative emotion or anger externally. They will keep smiling and
be polite, no matter how angry they are inside. The purpose is to maintain work place and
relationship harmony which is very important in Indonesia. In conclusion, Indonesia’s
uncertainty avoidance is to maintain the appearance of harmony in the workplace; an
intermediary removes the uncertainty associated with a confrontation.
Long Term Orientation
This dimension refers to how every society has to maintain several links with its own
past while dealing with the challenges of the present and future, and societies priorities these
two existential goals differently. Indonesia has a higher Long Term Orientation (62%)
indicates that it has a pragmatic culture whereby people believe that truth depends very much
on situation, context and time. In conclusion, the societies show an ability to adapt
traditions easily to changed conditions, a strong propensity to save and invests,
thriftiness, and perseverance in achieving results.
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Conclusion
Due to Indonesian’s Power Distance is higher whereby the control is directed by the
managers or boss, it will drive employees to work together as a team, help each other and
share ideas to others in order to achieve company’s goals so that Indonesia has also a higher
Collectivism.
Other than that, to maintain their working/job (work place) in order to live and
maintain relationship harmony with boss and colleagues, Indonesian will tend to work hard
and risk-taker, so that Indonesia will deal with challenges in the present and future to achieve
their goals. This example reflects low Masculinity and low Uncertainty Avoidance but
High Term Orientation.
Therefore, these characteristics can drive entrepreneurs or investors to understand
Indonesian culture and ethics so that they are able to adapt with local culture.
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THE PILLAR OF INDONESIA ECONOMIC STRENGTH AS EMERGING COUNTRY IN THE GLOBAL ECONOMY
The pillar of Indonesia economic strength is given by its wealth of natural resources
and one of the major driving forces behind the country’s economic growth is its domestic
consumption. In the other hand, nowadays Indonesia’s economy is facing a biggest challenge
which is poverty rate whereby around 53% of the inhabitants earn less than US$2 a day. In
addition, Indonesia has lack of infrastructure development, except in Jakarta and Bali.
However, during the global financial crisis (2007-2008) which compared to the other G20
members such as India and China, Indonesia had recorded higher economic growth.
In order to attract investor or entrepreneur to invest in Indonesia, the government of
Indonesia has committed to improve the investment climate by providing legal certainty and
guarantee incentives to foreign investors to invest in Indonesia which has been getting a very
positive response. Based on Law No. 25 of 2007 on Investment, the government committed
to providing legal certainty to investors and to guarantee equal treatment in foreign
investment companies operating in Indonesia.
However, the government as a regulator provides certain limitations to foreign
investors (negative list) as a form of protection to the economic potential of Indonesia. The
law of Indonesia required foreign investors to use the experience of local entrepreneurs
(domestic partner) as a shareholder or partner established a joint venture with the local
entrepreneurs (Joint Venture Company).
Potential Sectors for Investment
The Government of Indonesia has set its investment priority sectors plan to be
improved and developed, therefore it will give many opportunities to investors or
entrepreneurs to invest or establish partnership joint venture in Indonesia. The priority sectors
are included:
Infrastructure and Transportation Sector
Due to the limited of Indonesia's infrastructure where roads are congested and ports
are bottlenecked, Indonesia has been planning to improve its infrastructure and
transportation. In the previous, Indonesia only spent 1% of its GDP on infrastructure in
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2009, compared with China (8%), South Korea (2.5%) and between 3- 6% for countries
such as Singapore and Malaysia (CLSA Asia-Pacific Markets).
In 2010, the Government of Indonesia had stated that $137- $156 billion would need
to be invested over the next five years on infrastructure, including in new roads, railways,
ports, bridges and airports. The Indonesian government is hoping foreign investors will
contribute about two-thirds of that total, including through Public Private
Partnership (PPP) schemes. Financing is also being provided by the World Bank and
Asian Development Bank. In 2009, the Indonesian government also established PT.
Sarana Multi Infrastuktur to promote private public partnerships and accelerate
development.
Foreign investors are finally starting interested with major projects recently
announced by Chinese and Indian companies to develop coal mine railroads and new
airports. In 2010, the Indonesian government announced its intention to offer a
number of key projects to investors through a private public partnership scheme.
The government is starting with the following five:
1. A railway connecting Soekarno-Hatta International Airport to Manggarai in South
Jakarta (C$718 million);
2. Tanah Ampo Cruise Terminal in Bali (C$29 million);
3. Medan-Kualanamu toll road in North Sumatra (C$464 million);
4. Umbulan water plant in Pasuruan, East Java, (C$195 million); and
5. 3,000 megawatt coal-fired power plant in Central Java (C$2.9 billion).
As part of its Private Public Partnership (PPP) infrastructure program, the
government has been also planning six special economic corridors such in Sumatra, Java,
Kalimantan, Sulawesi, Bali and Papua-Maluku. A master plan for these programs are still
being developed, but the corridors are each expected to focus on a particular industry,
include infrastructure development to support those industry clusters, and eventually may
offer tax and other financial incentives similar to those found in bonded zones. Japanese,
Indian and South Korean investors had by spring 2011 expressed interest in funding these
initiatives.
Sumatra corridor- focused on production and processing of agricultural
commodities, such as crude palm oil, and energy
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Java corridor - focused on industry and service sectors
Kalimantan corridor - focused on mineral production and processing Sulawesi
corridor- to focus on production and processing for fisheries, plantation and
agricultural products
Bali corridor – focused on serving as a tourism gate
Papua-Maluku corridor - natural resource processing
Oil and Gas Sector
Indonesia is the largest oil and gas reserves in Asia. In 2008, as we known that
Indonesia's proven oil reserves totaled 3.7 billion barrels and potential reserves reached 4.5
billion barrels, or a total of 8 .22 billion barrels. Meanwhile, Indonesia's gas reserves totaled
170.07 tscf including 112.47 tscf in proven reserves and 57.60 tscf in potential reserves.
Most of the known oil and gas reserves are in the western part of the country, especially
Java, Sumatra and Kalimantan, although major gas reserves have been found in Papua and
off Massela in southern Maluku.
There are two state agencies regulate the oil and gas industry. The Executive Body
for Upstream Oil and Gas Activities (BP Migas) overseas oil and gas exploration and
exploitation in Indonesia. BPH Migas regulates downstream oil and gas activities
(processing, transport, storage and commercial activities). Meanwhile, the government is
trying to raise incentives in the industry to attract investment.
Electricity Sector
Due to Indonesia is facing shortages in its electricity supply, while demand has
averaged 6 percent to 8 percent growth per annum over the last 10 years and it will be
forecast to continue to grow at a similar pace until 2020. Currently installed generation
capacity is 30,940 MW, of which 5.496.4 MW is from renewable energy sources. The state-
owned electricity company (PT PLN) generates 25,751 MW, independent power producers
4,269 MW and captive power 920 MW.
The Indonesian government has launched two accelerated programs to expand
electric generation and distribution. The two five-year programs purpose is to raises
generation by 20,000 MW. The second phase from 2010-2014 would have given priority to
renewable energy, such as geothermal and hydro (only 26% from coal-fired plants), areas
where Canadian companies have strong capabilities. Indonesia has a geothermal potential
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of 27,000 MW the largest in the world. Currently Indonesia has only geothermal
power plants with a total capacity of 1,000 MW. The country also has potential hydro
electric energy of 64,000 MW, with only 5,000 MW currently utilized. PT PLN no
longer holding a monopoly on generation, thus, the power sector is gaining interest
among foreign investors, particularly Chinese companies.
The government has resolved one of the major issues that had discouraged foreign
investors in power or electricity sector. In the previous, Indonesia had rejected to provide
guarantees for power generation projects built by the private sector, but because of pressure
to meet the strong demand for power supply, the government had agreed to provide
guarantees through PT. Penjaminan lnfrastruktur Indonesia (Indonesia Infrastructure
Guarantee Fund) for land acquisition, construction, operation, fuel supply and sale of the
output to PT PLN, for projects under the accelerated program in 2011.
Mining Sector
Indonesia is the largest exporter of thermal coal and is rich with mineral
deposits including coal, gold, tin, nickel, copper, and bauxite in the world. Other than
that, Indonesia is ranked as the top 10 (ten) globally for its minable reserves of gold,
copper, tin and nickel ore, and in the top 20 (twenty) for coal reserves.
The investors who remain active in Indonesia mining sector are Vale Inca, Freeport
Me Moran Copper & Gold Inc, Newmont Gold Company, and Australia's Rio Tinto.
Besides that, investors from China and India are also increasingly investing Indonesia's coal
and thermal coal assets. The Indonesian government had been forecasting investment in the
mining sector to hit US$7.4 billion in 2010-2014.
Technology and Telecommunications Sector
Indonesia's information and communication technology industry has expanded very
fast in since the mobile communication sector was opened to the private sector in 1995.
The number of cell phone subscribers had growth 8.9% year-on-year to 178.4 million in
the first half of 2010 (Indonesians often have more than one cellular phone), putting the
country behind only Japan, China and South Korea in Asia in terms of subscriber growth.
Internet usage is also expanding rapidly and had experienced reaching 30
million in 2009 (a 50 percent increase from 2007), with most Indonesians accessing
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the internet from their mobile phones. Indonesia has become one of the biggest
markets in the world for social media, with the second largest population in the
world on Facebook and more Blackberry users than any other country in Asia. Fixed
line growth has been leapfrogged by fixed wireless and mobile technologies.
The rapid growth has attracted a number of foreign investors to the country,
including Singapore Telecommunication Ltd (Sing Tel) and Singapore Technology
Telemedia (STT) from Singapore, Telekom Malaysia and Maxis Communication Bhd
from Malaysia, Qtel from Qatar, and Hutchison CP Telecommunication, a Thai-Hong
Kong joint venture.
In conclusion, though the Indonesian government acknowledges, Indonesia needs
foreign investment in this sector, the growth of foreign ownership in telecoms has caused
concern as the industry is viewed as being of strategic interest to the Indonesian people.
Manufacturing and Agriculture Sector
The Indonesian government is also trying to attract more investors to its
manufacturing and agriculture sectors.
Manufacturing has become of the one country's biggest contributors to the
nation's GDP in sectors ranging from textiles to automotive parts. Many
multinational enterprises have set up operations in Indonesia, including giants such
as automaker Toyota and pharmaceutical manufacturer Sanofi Aventis. Citing the
country's relatively low labor costs compared with the rest of Southeast Asia and the
large domestic market, the government has been attracting investors in sectors such
as electronics manufacturing.
The Investment Coordinating Board (BKPM) has also been promoting
Indonesia’s palm oil and rubber industries. Indonesia is the world's second largest
producer of rubber and largest exporter of crude palm oil. With strong international
and domestic demand for both commodities, the government is seeking investors to
expand production. While low labor costs, rising demand and investment incentives make
it more attractive sector for foreign investment.
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Tourism Sector :
Denpasar (Bali)
Bali is magical which it is the most
famous island in Indonesia. Bali
interfuses spectacular mountain
scenery and extraordinary beaches
with warm and friendly people, a
vibrant culture and out of this
world resorts.
According to Travel & Leisure Magazine (2009), Bali had been awarded as the
World’s Best Island, while the Lonely Planet’s Best of Travel 2010 ranked Bali as the 2nd
(second) place among the world’s Top Regions.
Through its sheer natural beauty of looming volcanoes and lush terraced rice fields
that exude peace and serenity, Bali is known as the Land of the Gods. Bali bewitches with its
dramatic dances and colorful ceremonies, its arts and crafts, to its luxurious beach resorts and
exciting night life.
The Balinese, who embraces the Hindu religion which are a most God-fearing or
devout people where a large part of their lives is dedicated to rites and ceremonies aimed in
maintaining harmony in this world.
There are varieties of visitors from around the globe to visit Bali for instance from
those who come to surf the waves of Kuta, Uluwatu and Dreamland; from those who love the
panoramic beauty of mountains and lakes at Batur, Kintamani, or Lake Beratan at Bedugul;
and to those who merely love shopping or spend endless days on the beach.
Picture 2 Picture 3
Terraced Rice Fields Ramayana Dance
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(Picture 1 Pura Ulun Danu Bratan Temple)
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Yogyakarta
Yogyakarta (or Jogjakarta) is one of
Indonesia’s 34 provinces who has the foremost
cultural centers which is known as “Never ending
Asia” for its endless attractions and appeal. In the 18th
and 19th centuries, Yogyakarta was the seat of the re-
emerged Mataram Kingdom and nowadays
Yogyakarta has generated a lot of philosophers,
master painters, thinkers and master craftsmen.
Besides that, Yogya has been a center of Javanese arts
from the refined court dances to modern arts in
painting and performing art. After Bali, Yogyakarta has also contributed competitive
advantage in tourism sector consist of:
1. The magnificent Borobudur temple. Borobudur Temple is a majestic masterpiece. It
has recognized by UNESCO as a World Heritage site, Borobodur is the largest Buddhist
monument in the world whereby it was constructed from 2 (two) million intricately
carved volcanic rocks and assembled using a complex interlocking technique without the
use of cement or mortar. Borobodur has a high artistic value and it is a structure rich in
history, culture and also religion. A special visitor who has ever been in Borobudur for
the first time was the Founder and CEO of Facebook “Mark Zuckerberg”. According to
Urip Nugroho (Head of the Manohara Unit of Borobudur, Prambanan, and Ratu Boko
Temples Park) said that the aim of Mark Zuckerberg visited the Borobudur Temple is
significantly to promote Borobudur Temple. ”His trip to Borobudur has boosted
promotion of the Temple, especially since the posted picture received thousands of
positive comments from all over the globe” said Urip Nugroho as quoted
by antaranews.com.
“I just arrived in Indonesia and hiked up Borobudur to watch the sunrise. Tomorrow for
Internet.org I'm looking forward to meeting with developers, operator partners and
government leaders in Jakarta”, it is wrote by Zuckerberg in his Facebook account along
with a picture of himself sitting among the stupas of Borobudur to watching beautiful
sunrise.
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Picture 4 Borobudur
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2. Prambanan temple. Many people supposed the one which has Hindu cultural is only in
Bali, but in fact there is the most spectacular of cultural performances in Yogyakarta, it is
the Ramayana ballet. Ramayana ballet refers to dozens of dancers and musician that
elaborated costumes and explosive pyrotechnics as reflecting the story of the Ramayana
whereby it is an ancient Hindu epic poem. Prambanan (known locally as Roro Jonggrang)
is the largest Hindu temple in South East Asia, it has a beautiful and graceful temple that
has made it as a magnificent spectacle and an icon of Indonesia’s cultural heritage.
Prambanan temple located nearby the Buddhist Borobudur temple and both of the temples
(Buddhism and Hinduism) lived peacefully next to one another. The Prambanan temples
were built in the 9th century which for the biggest temple is dedicated to Shiva (the
destroyer), and another two smaller ones which sit on its right and left are dedicated to
Brahma (the creator) and Wisnhu (the sustainer). Because of the grandeur, complexity,
and integrated architectural concept, those make Prambanan become a truly amazing
structure and as a unique cultural and architectural marvel, Prambanan was declared a
World Heritage site in 1991 by UNESCO.
In addition, there are about 70,000
handicraft industries based in Yogya and
other facilities like various accommodations
and transportations, numerous food
services, travel agents, and proper tourism
support, and also tour a security team
support called the Tourism Police (known
as Bhayangkara Wisata). The people of
Yogyakarta are known for their hospitality
and good manners. If visitors show proper
respect, the visitors will be welcome in any
part of the city.
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Picture 5Prambanan
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Papua (Jayapura)
Papua is a land of contrasts with some of the
most impassable jungles in the world and
snowcapped mountain peaks towering over glacial
lakes. Papua is the largest and eastern most
provinces in Indonesia and covers the western half
of the world’s 2nd (second) largest island.
Papua has a land of exceptional natural
grandeur with gorgeous beaches, huge stretches of
marshlands, cool grassy meadows and powerful
rivers carving gorges through dense forests. The
provincial capital of Jayapura is situated on hills
which overlook the sea, and is accessible by boat and plane. Sea food being one of the
specialties makes it as a heaven for visitors who love fish and sea food dishes. Freshly baked
or grilled fish taste wonderful especially when consumed while watching the sunset. People
allergic to sea food need not worry because visitors can also consume traditional food like
papeda or ayam lalapan (fried chicken with chili).
1. Cenderawasih Bay National Park known as Teluk Cenderawasih (Playground of the
Spotted Whale Shark). The large Cendrawasih Bay National Park in the north of the
island of Papua, includes Indonesia’s largest marine national park, and is one of the best
dive-sites in the archipelago. Teluk Cenderawasih is the playground of one of the world’s
largest animals: the spotted whaleshark or rhincodon typus.
Scientist Dr. Gerald Allen calls the Cendrawasih Bay: “The Galapagos of Indonesia’s
Reefs”.
The local government trains 20 students to become dive guides and to develop
facilities in Kwatisore to serve more tourists. Comprising land and coastal areas, islands,
coral reefs and pristine seas, the Cendrawasih Park covers a total area of 1,453,500
hectares. The Cendrawasih Bay Park combines coral reef ecosystems with mangrove,
islands and terrestrial tropical forest ecosystems. Here are colonies of black coral, blue
coral and soft coral. The Park is famous for the 209 fish species that make this Park their
habitat, among which are the butterfly fish, the damselfish and parrotfish, and, of course
the Whale Shark, while mollusks found here include the trumpet triton, the great clam and
the cone shell.
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Picture 6 Cenderawasih Bay National
Park
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2. The Wamena Highlands (The
other Ultimate Trekkers’
Rendezvous). Wamena is known
as the starting point to a
remarkable journey, prior to
visiting the villages beyond the
mists. At 1,600 meters above sea
level, Wamena is the highest
ground in Papua where furnished
tourism facilities can still be
found. Beyond this point, one has
to expect less, and get more of the unexpected. Reality can be more compelling than
even the best information on the internet. Visitors will able to stand on a peak
surrounded by a lush green valley, screened from the world by fuzzy peaks, while
down below in the canyon flows an ever rushing river.
The beautiful Baliem valley was discovered by coincidence in an expedition spearheaded by
Richard Archbold in 1938. The town of Wamena is surrounded by agricultural tribes, as
recorded in travelers’ journals as early as the 19th and early 20th century. The presence of a
mummy, sitting in a folding position found in a nearby village, is evidence of the longtime
agricultural practices in the Baliem valley.
3. Raja Ampat. Raja Ampat is an archipelago which consisting 1600 island—mostly every
holiday Raja Ampat is for goers dream, especially for divers and snorkelers. These
uninhabited islands hiding exceptional underwater biodiversity and scenery whereby the
scenery is simply superb, white sandy beaches, hidden lagoon, and lush jungle ready to be
explored. Raja Ampat can be translated as “Four Kings”, it derived from local legend and
the facts it has four biggest islands, namely Misool, Waiego, Salawati, and Batanta. By
plane from Jakarta it will take about 6 hours of flight.
In Tomolol, visitors are able to find amazing cave paintings and mementos from
Papua ancestors. If visitors are searching for more modern mementos, can go to Waigeo,
Dutch and Japanesse are building bunkers as protection and defense during World War II.
Raja Ampat is the famous island for its underwater experience, the sea is habited by
1.320 reef fish species and have more than 75% known coral in the world. When visitors
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Picture 7 The Wamena Highlands
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are diving, manta rays, tuna, sea dugong, and turtle will accompany them exploring
colorful reef. It is a remarkable diving experience you won’t find in other world.
Picture 8
Raja Ampat
Picture 9 Picture 10
Raja Ampat Underwater-Reef Raja Ampat
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Potential Sectors for TradingThe euphoria of globalization has disentangled the international economic
competition, moreover for developed countries and developing countries that are expanding
their competitive business access. Underlain by different resource potentials, each country
often utilizes its comparative advantage or competitive advantage in performing its business
activities.
Fashion Sector:
The creative industry, as an economic activity that truly reflects the potential and
productivity of local resources, plays an important role in creating added values through the
existence of creative products or services. There is no doubt that the creative industry
potential is currently highly promising, with its foreign exchange contribution to the national
economy. Indonesia's creative industry has become one of the most successful and promising
industries since 2002, (the Ministry of Commerce of the Republic of Indonesia started to
recognize the existence of this industry, resulting in the mapping of its contribution to the
economy since 2002). According to Ministry of Commerce, 2005), during the period 2009 -
2015, the annual contribution of the creative industry to export was predicted to reach 12
percent and provide jobs for 7% of the workforce.
With the assumed growth rate of 5%, then the global market value for fashion was
predicted to be around 16.8% in 2006. According to the Minister of Commerce, Mari Elka
Pangestu, the growth of Indonesia's creative economy reached 7.3% in 2006, higher
than the growth of national economy of 5.6%. The amount of contribution to GDP
reached IDR46 trillion (constant price), with the average percentage of creative
industry contribution exceeding 44%. The seven largest contributors are fashion, with its
contribution reaching 29.85%; handicrafts, with its contribution reaching 18.38%;
advertising, with contribution reaching 18.38%; TV and Radio; Architecture; Music; and
Publishing and Printing (Togar M. Simatupang).
Based on the potential of domestic fashion industry above, we may definitely make
use of the available global market opportunity, of the whole portion of fashion market value,
it just contributes 16.8% of the entire sector, then the opportunity for Indonesia’s fashion
industry to penetrate the global market remains wide open. If we compare the existing
contribution value of the fashion industry to GDP, i.e. 13.7 trillion (29.85%), then if
utilized and undertaken optimally, domestic fashion industry may be able to dominate
more than 80% of the global market. Indonesia's fashion industry is one of the appealing
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industries. In addition, the booming factory outlets in Indonesia also indicate a subsector that
has a strong foundation in Indonesia. They have quite surprising revenues, some even capable
of gaining US$75-100 thousand/month.
Textile Sector:
Yogyakarta is the famous as a centre of traditional textile production, particularly
batik. The distinctive batik of Yogya uses the basic colors of brown, indigo and white with in
geometric designs. Many young artists of Yogya have also embraced the modern art of batik-
painting.
The most famous of handicrafts in Yogya is its Javanese batik. Many factories
produce traditional hand-drawn batik “tulis” as well as the cheaper stamped batik cap.
Visitors can buy material and organise a tailor to create a custom made batik design but there
is also no shortage of ready to wear batik clothing on sale. In many factories visitors are
welcome to view batik being made in the back of showrooms. Everything from batik shirts,
accessories, tablecloths, pillowcases and sarongs are on sale. One of the best known regions
for finding batik is at Tirtodipuran Street in the South.
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REGIONAL AND ECONOMY INTEGRATION OF INDONESIA
Pattern of Indonesia’s Trade Policy
On January 13, 2007, Association of Southeast Asian Nations (ASEAN) had
completed its summit meeting in Cebu City, Philippines. The scheduling of formation of
ASEAN Economic Community is one of significant agreement signed in the meeting
whereby such as Philippines, Indonesia, Malaysia, and Thailand, the Community has been
effective in 2015. Meanwhile, for Vietnam, Khmer, Laos, and Myanmar will join the
Community in 2020, then Singapore and Brunei Darussalam had joined initialize it in 2010. It
is planned that the Community will be similar to the European Economic Community that has
become the European Union. Beside the ASEAN Economic Community, Indonesia also faces
the current and the potential international relationship such as Asia-Pacific Economic
Cooperation (APEC), World Trade Organization (WTO), ASEAN-China Free Trade
Agreement (ACFTA), ASEAN+3 Free Trade Agreement (FTA), and some bilateral free trade
agreements. Those agreements have impacts on Indonesian economy.
Indonesian trade and investment policy have transformed substantially from a
closed and protected regime to a more open one. Government has changed the strategy
from an inward-looking substitution strategy to a more export-oriented economy.
Recently, Indonesia is one of East Asian most liberal regimes but the road to this status has
been long and winding. Under the Soekarno administration, Indonesian economy had been
much closed and protected. Then, it changed significantly when Soeharto came to power. The
new government liberalized trade along with investment, dismantled import licensing,
introduced new “export bonus” and simplified export-import procedure under a major trade
policy package. The government also eliminated capital controls that become an important
moment in Indonesia’s capital account policy (Aswicahyono and Feridhanusetyawan, 2003).
In the mid 1980s, Indonesia made the first major trade reforms. The government
lowered tariff ceiling to 60% (percent), reduced the number of tariff level from 25 to 11 and
converted several import licenses into tariff equivalents (DFAT, 2000). The simple average
tariff was reduced from 27% (percent) in 1986 to 20% (percent) in 1991. The other reforms
abolished import monopolies, simplified customs and outsourced substantial customs
responsibilities. Next, the simple average tariff rate remained steady and trade liberalization
slowed in the early 1990s.
The government applied the national car scheme and increased tariffs on 3 (three)
some chemical products. Then, during the crisis 1997, the simple average tariff rate on
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agricultural and industrial goods was stable at around 13% (percent). Indonesian government
decided not to close their selves off to the rest of the world and even accelerated trade
liberalization under the International Monetary Fund (IMF) programs. The government also
committed to removing all import licenses, eliminated non-tariff measures and introduced
competition on agricultural products. However, Kim (2004) reveals that protections were
increased in the some areas. The coverage of import prohibitions was increased from 7 to 27
tariff lines, while the coverage of import licensing was increased from 27 to 1,027 lines
between 2001 and 2003. Trade liberalization improved substantially in 1990s as a result of
international commitments under Australian Federation of Travel Agents (AFTA), APEC and
WTO. According to the Bogor Goals which is the result of APEC meeting in Bogor,
developed countries would have applied free and open trade and investment by 2010.
Meanwhile developing countries have to apply the same scheme by 2020. In 1995,
Indonesian government itself committed to a schedule of tariff reductions that anticipated a
maximum tariff rate of 10% (percent) by 2003. Currently, Indonesia adopts three
strategies of international trade, for instance supporting WTO agenda, promoting
efforts on regional economic integration, and enhancing bilateral trade and economic
cooperation.
Actually, the main problems in international trade occurred behind the border trade
rather than at the border trade, i.e. services sector deregulation, intellectual property right, etc.
There are four regional and multilateral agreements that are faced by Indonesia
nowadays, namely AFTA, APEC, WTO and ASEAN-CHINA FTA. First, ASEAN
countries agreed to form a free trade area among its members which is known as AFTA
in 1992. Previously AFTA only consists of tariff reduction on some commodities including
agricultural product which is politically sensitive. ASEAN members who have 4 (four) tariff
above 20% have to reduce it up to 20% and reduce it again up to 0-5% by the next ten years.
Meanwhile, for ASEAN members who have a tariff below 20% have to reduce it up to 0-7%
by the next 7 years.
After that, agricultural products became the most complicated product to be
negotiated because it really affects Indonesian economy and Philippines economy. Next, all
members agreed that liberalization of agricultural product started on 2003 and finished by
2010. Even though, there were many significant improvements in AFTA implementation,
some ASEAN members still have no motivation to fully open their market. Second, APEC
was established in 1989 with the objective to tighten economic cooperation between west part
pacific countries and east part pacific countries. In the long term, APEC has an agenda to
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establish free and open trade and investment in Asia-Pacific. There are three pillars that
support APEC, i.e. liberalization of trade and investment; facilitate trade and
investment; and cooperation in economy and technology. APEC encourages its
members to establish unilateral cooperation to the non-APEC countries member rather
than to establish regional cooperation among its members. Third, WTO is a multilateral
institution that was established on 1 January 1995 as a result of Uruguay Round. The
main characteristic of Uruguay Round is its capability to encourage liberalization of
agricultural product which is very sensitive among developing countries. Generally,
Indonesian commitment in WTO can be grouped into 6 main topics. One of the main topics is
the commitment on agriculture. Indonesia has agreed to reduce tariff as much as 10% for
each commodity or about 24% for overall commodities which was started since 1994 and
effective for ten years period. The regional free trade area that was signed by Indonesia
was ASEAN-China Free Trade Agreement (ACFTA). ACFTA was established on 4
November 2002 and would have been effective in the next ten years period. Tariff
reduction had started on 1 January 2005 until 2010 for ASEAN 6 (Brunei, Indonesia,
Malaysia, Philippine, Singapore, Thailand) and China. Meanwhile, for the new
members of ASEAN (Cambodia, Laos, Myanmar, and Vietnam), tariff reductions have
been starting on 1 January 2005 until 2015.
In conclusion, Indonesian trade and investment policy have transformed substantially
from a closed and protected regime to a more open one. Government has changed the strategy
from an inward-looking substitution strategy to a more export-oriented economy. Indonesia
adopts three strategies of international trade, for instance supporting WTO agenda, promoting
efforts on regional economic integration, and enhancing bilateral trade and economic
cooperation. There are three pillars that support APEC, i.e. liberalization of trade and
investment; facilitate trade and investment; and cooperation in economy and technology.
APEC encourages its members to establish unilateral cooperation to the non-APEC countries
member rather than to establish regional cooperation among its members. Third, WTO is a
multilateral institution that was established on 1 January 1995 as a result of Uruguay Round.
According to the sectoral impact of economic integration on Indonesia, agriculture and labor
intensive industry such as textile and leather gain the most benefit relative to other sectors.
These sectors are potential to gain more significant positive impact if the sectors have better
performance. Therefore, government has to improve the competitiveness of these sectors by
issuing policies that will attract investment and increase the quality of its human resources.
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INDONESIA HUMAN RESOURCES MANAGEMENT
Currently, Indonesia has the lowest wages among ASEAN member countries and a
literacy rate of about 90%. However, the country's scarcity of skilled labor- particularly in
sectors experiencing strong growth, such as mining and oil and gas exploration and
country's rigid labor laws, particularly regarding hiring of expatriate employees and the high
costs of dismissal, present challenges for investors. Industrial relations have however,
improved in recent years.
1. Recruitment
Companies usually recruit lower-level employees up to the managerial level directly
or through consultants. Large companies often advertise vacancies in the mass media, such
as Kompas, Nedia Indonesia, the Jakarta Post and Bisnis Indonesia newspapers, and some
recruit on the campuses of Indonesia's major universities (Universitas Indonesia, Jakarta,
lnstitut Teknologi Bandung, Bandung, Univesitas Gajah Nada, Yogyakarta and lnstitut
Teknologi Sepuluh November, Surabaya).
2. Dismissal of Workers
A company intending to lay off more than 10 employees must first obtain approval
from the Committee for Labor Dispute Settlement at the Department of Manpower.
Employees who are laid off are entitled to:
Severance pay equivalent to the number of years in service plus one multiplied by their
monthly salary;
Merit pay equivalent to two months salary for those with three to six years service;
Three months salary for those with six to nine years service, etc.;
Compensation for annual leave not yet taken;
Compensation for the cost to relocate to the location where the employee and his/her
family lived before employee accepted the job of transporting the worker and his/her
family to the place where they resided before the worker was recruited and accepted the
job;
Compensation for any housing allowance, medical and health care benefits, at a rate of
15% of the severance pay and merit pay, for those who are eligible for such
compensation; and
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Other compensation outlined in the employment contract or by collective agreement.
Some companies, particularly since the economic crisis of 2008, have chosen
instead to hire employees on six-month to one-year contracts to avoid these liabilities.
Contract workers are not eligible for health insurance, bonuses or other benefits normally
granted to permanent employees.
3. Employment Conditions, Compensation and Benefits
Labor costs in Indonesia vary. The highest rates are in Papua and Nanggroe Aceh
Darusalam where the minimum wage is IDR 1.1 million (C$121) and IDR 1.3 million
(C$144) per month. In Java, the minimum monthly rate is lower, at around 70 0,000 (C$77)
with the exception of Jakarta and Banten, where minimum wage was IDR 1.1 million
(C$121) in 2010. On average, the minimum pay in Indonesia is still below the levels in
many other ASEAN countries. The minimum age for employment in Indonesia is 15 years.
The maximum work period is 40 hours a week (8 hours a day for a 5-day work week or 7
hours per day for a 6-day work week. Workers are entitled to a number of other
benefits, including:
Maternity leave (three months at full salary)
Paid annual leave, sick leave, leave for family occasions such as birth of a child or death
in the family and holidays (there are generally 13 paid public holidays each year)
Other facilities including housing cost and loans
Medical expenses
Insurance
Annual bonus of one month's pay, usually paid at Lebaran (the annual Moslem festival)
Companies with more than 10 workers or a payroll of IDR 1 million (C$110) are
required to contribute to Indonesia's social insurance program, called Jamsostek (Jaminan
Sosial Tenaga Kerja), which is managed by PT. Jamsostek, a state insurance company.
Jamsostek pays disability, health and death insurance and a provident fund type Old Age
Benefit at age 55. Premiums are set at 5.7% of the employee's salary. 3.7 percentage points
are paid by the company/employer and the rest by the worker.
Indonesian employees are also entitled to a lump sum pension after working for at
least 30 years or upon reaching retirement age (ranging from 55 to 60 years). The pension
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benefit is equivalent to twice the amount that would be paid as severance, plus merit pay
and compensation for other benefits. If the employee participated in a pension program for
which the fee was paid fully by the employer, and the pension benefit received is larger than
twice the amount of severance pay, the worker is entitled only to compensation for benefits
and merit pay from the employer. If the pension is less, or the employee contributed to the
program, the employer must pay the difference.
4. Hiring Expatriates
A company may only hire foreigners for positions that the Government of Indonesia
has deemed open to non-lndonesians. Human resource supervisory or blue collar jobs in
most manufacturing operations are closed, for example. The company must show that no
appropriate local employee can be found, and even then, it is expected that the foreign
investor will train and develop the skills of an Indonesian employee to eventually replace
that foreign worker.
Employing an expatriate staff member can be a time consuming process. The
investor must submit a manpower plan to the Investment Coordinating Board, identifying
the employee's location and period of employment, the appointment of an Indonesian
employee who will shadow the expatriate staff member and a training plan for that local
employee. The company must also show that the skills being provided by the foreign
worker cannot be found locally. Once the employment plan is approved, the expatriate
employee can apply for his temporary stay permit card (KIT AS- valid for one year and
renewable) then the company must apply for its foreign worker employment permit (I MT
A -valid for one year and renewable), from the Ministry of Labour. The Ministry of
Manpower requires expatriates with work and residence permits to pay C$1200 a year to a
manpower training fund that is used to train Indonesian workers.
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CONCLUSION
As positive impact from globalizationon innovation, technology to lead investment
and trade, might nowadays lots of investors and entrepreneurs are coming up to invest and
build business in Indonesia. Investors and entrepreneurs are also supported by Indonesian’s
high Power Distance and high Collectivism, it will drive employees to work together as a
team, help each other and share ideas to others in order to achieve company’s goals. To
maintain Indonesian working/job (work place) in order to live and maintain relationship
harmony with boss and colleagues, they will tend to work hard and risk-taker, so that
Indonesia will deal with challenges in the present and future to achieve their goals. This
example reflects low Masculinity and low Uncertainty Avoidance but High Term Orientation.
These characteristics can drive entrepreneurs or investors to understand Indonesian culture
and ethics so that they are able to adapt with local culture.
Indonesia is the richest natural resources in the world, it has many potential for
economic development. to succeed in promoting SMEs development, Indonesia had
advanced the welfare of weak economic group, and the newly launched programs to allow for
the achievement of favorable and non discriminative investment climate, then also promote
the production, distribution and service sectors in a global context. Indonesia provides
potential in several sectors for investors, including Infrastructure and Transportation, Oil, and
Gas, Electricity, Mining, Technology and Telecommunications, Manufacturing and
Agriculture (automotive product; palm oil and rubber plantations) and Tourism sector. Other
than that, Indonesia has potential in Fashion and Textile sector and in fact Indonesia has also
potential in Coffee sector such as Luwak Coffee and Aceh Coffee.
Beside the ASEAN Economic Community, Indonesia also faces the current and the
potential international relationship such as Asia-Pacific Economic Cooperation (APEC),
World Trade Organization (WTO), ASEAN-China Free Trade Agreement (ACFTA),
ASEAN+3 Free Trade Agreement (FTA), and some bilateral free trade agreements.
By knowing Indonesia potential sectors, Indonesia government is expecting to foreign
investors and young entrepreneurs to invest in Indonesia, or even by partnership joint
venture. The purpose in improving economic development through investment and trade is to
improve living standard in Indonesia to have better quality of life and to become developed
country.
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