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.