Indonesian manufacturers: Adjust or perish

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.