Tue, 01 Aug 2000

Indonesian manufacturers: Adjust or perish

By Lion A. Kraaybeek

JAKARTA (JP): The dawn of globalization has brought new challenges to manufacturing companies all over the world. Old concepts are being replaced by new ones, competition is becoming more fierce and everyone is forced to adjust.

The current financial-economic crisis in Indonesia has revealed that Indonesian manufacturers are not yet ready for the challenges of globalization. No matter the constraints, be they political or financial, it is of pivotal importance for companies to change their ways. If not, oblivion will be their ultimate fate.

Perhaps the best description of globalization was given by Thomas Friedman in his highly acclaimed book The Lexus and the Olive Tree. Globalization is described as the "inexorable integration of markets, nation states and technologies to a degree never witnessed before -- in a way that is enabling the world to reach into individuals, corporations and nation states farther, faster, deeper, cheaper than before".

Increased worldwide competition is but one of the effects of this development. Companies are forced to be more efficient and innovative, and need to cut costs in order to keep up with the marketplace, in which consumers are constantly demanding cheaper products that are tailored specifically for them.

In Indonesia, these necessary changes are coming about very slow. The current trend in international business, for example, is a focus on the customer. In fact, obsession with the customer is the single most vital factor in business success and the route to gaining the competitive edge.

However, with few exceptions, Indonesian manufacturers are product oriented, not customer oriented. It seems that they still follow Henry Ford's adage who, when talking about his T-Ford, said, "you can have any color as long as it's black".

Perhaps the best example is the Indonesian furniture business. The vast majority of manufacturers in this business are still making the same product as they were 15-20 years ago, totally ignoring the changes in taste and trends that have since occurred. No wonder, then, that Indonesia's furniture exports dropped by 50 percent when the rupiah was at its lowest ebb.

Ignorance also prevents companies from modernizing and jumping on the bandwagon of globalization. Indonesian manufacturers do not seem to have any idea about foreign markets. The best example is, again, the furniture sector.

Many manufacturers are not only ignorant of the current trends and tastes, but they send their products to moderate climates without first having the wood dried in a kiln. The product, thus, arrives at its destination cracked. The end result is, of course, a loss of business.

Until recently, most local manufacturers mainly used to make products only for the local market, which is large and generally less demanding than oversees markets. A change of focus only occurred with the advent of the economic crisis. By then, however, there was not enough financial room for most manufacturers to change course.

Indonesian manufacturers, therefore, seem to suffer from what Thomas Friedman calls the Microchip Immune Deficiency Syndrome. Symptoms of this disease appear when a company or a country exhibits a consistent inability to increase productivity, wages, living standards, knowledge use and competitiveness, and becomes too slow to respond to challenges of the fast world.

In correcting this situation, there is an important role for the Indonesian government. It has to educate the country's entrepreneurs about the new order of globalization, and create the circumstances that make it possible for them to prosper.

It has to continue privatizing state industries, deregulate capital markets, abolish quotas and domestic monopolies and implement other measures recommended by the International Monetary Fund.

The main inputs must, however, come from Indonesia's entrepreneurs. With the markets wide open, they cannot just rely on protectionist measures anymore. They must learn and innovate in order to be able to compete with companies outside Indonesia, who in the future will enter the country and market their products in direct competition with local manufacturers.

One solution for small- and medium-sized enterprises to remain competitive is to seek strategic alliances. Related and complementary companies must find ways to cooperate by using each other's strengths so as to become more competitive globally.

The formation of alliances is, however, not enough to survive the future onslaught of weak firms. The decision-making mechanisms within Indonesian companies need to change as well. They need to be democratized and become transparent.

Because being transparent is the only way to gain the trust of customers worldwide, companies must also learn to adjust to ever changing market conditions. So when breakthrough technologies come along, firms must destroy the old and build the new. They have to constantly reinvent themselves in order to remain relevant.

The train of globalization is moving faster and faster, so it is better to jump on right now, rather than later, because the train is not going to slow down. There really is no alternative for Indonesian companies but to follow the trend. They will have to adjust. If not, they will perish.

The writer is a marketing consultant at PT Aldevco in Jakarta, and previously worked in Malaysia and Singapore.