for focus issue -- business consultancy --- July 21

for focus issue -- business consultancy --- July 21

;JP;HEN;
ANPAc..r..
Consulting-crisis-orders

Crisis: Real boon for foreign consultants

Hendarsyah Tarmizi
The Jakarta Post
Jakarta

It has been more than four years since the financial crisis
started to hit the country in late 1997, but for many companies
the crisis is not yet over. They are still struggling to survive.

This, however, is not the case with consulting companies. For
the consultants, whether involved in providing financial,
management or legal consulting services, the prolonged crisis
means more fee income will pour in.

The crisis, which has caused many companies to suffer
financial difficulties, acute management problems or simply to go
bust, has been a real boon for consultants. Unfortunately, due to
lack of trust in local consulting companies, most of the business
opportunities have gone to their foreign rivals.

Local companies that have, for example, been under pressure to
repay their foreign debts have no choice but to seek assistance
from foreign consultants in the renegotiation of their foreign
debts or the restructuring of their business activities.

Foreign consultants are generally hired because of their
worldwide network or proven track record. But for many companies,
especially those that have high exposure to foreign funds, hiring
foreign consulting companies is a necessity to indicate to their
foreign donors, investors or partners alike that they have
followed all the required international procedures.

Although many foreign consulting companies employ local
experts, they are still preferred to the local ones, which offer
much lower fees.

Foreign brands seem to matter more in this business than the
hiring costs, which could cause ailing companies to plunge deeper
into financial difficulty.

Without using foreign names, troubled companies will face
difficulty in regaining the confidence of their foreign donors
and partners, who mostly still overlook the work of local
consulting firms.

The dollar-based fees charged by foreign consultants have not,
in fact, changed much during the past few years. But the collapse
of the rupiah against the dollar due to the crisis has caused
their fees to nearly triple in local currency terms. The payment
for a small consulting package could equal the annual turnover of
a small but healthy firm.

For the public companies that are mostly still controlled by
their founders, the use of highly paid foreign consultants does
not really cause controversy. The use of foreign names has often
passed unnoticed.

It is a different story, however, with government-related
agencies. The Indonesian Bank Restructuring Agency, for example,
has been under fire due to the large amount of state funds it has
spent on foreign consultants.

This has left the agency, which manages and operates hundreds
of companies formerly owned by troubled and closed banks, in a
difficult situation.

The agency has often been accused of collusion with world-
famous consulting companies. The allegation that officials in
charge have received a percentage of the fee payment could not be
avoided, given the fact that most foreign consulting firms were
hired without going through a competitive bidding process.

According to a media report, the agency paid a total of US$2
million, or equivalent to about Rp 17 billion (at the current
exchange rate) to an American consulting firm to produce a good
corporate governance concept for the agency. The payment is only
made for one of dozens of contracts awarded to consultants.
Imagine how much the agency has spent on its entire consulting
requirement.

The large amount of funds is not the only matter that has
caused many people to raise their eyebrows. Most of the
recommendations made by the consultants have not been followed.

As for the public company mentioned earlier, hiring foreign
consultants is a prerequisite for IBRA to gain foreign investor
confidence. Without that confidence, it would be difficult to
attract investors to its assets, which are worth over Rp 600
trillion (about $70.5 billion).

This might be the consequence of relying too much on foreign
funds in the first place. But whatever the reason, local players
should be able to win the game on home ground.