Korean businesses: Late start, fast growth

Leony Aurora, The Jakarta Post, Jakarta

Many people here are not as familiar with Korean culture as they are with the values and lifestyles of other Asian communities in the country.

Chinese merchants arrived here very early. Their descendants were born and grew up here, adopted local names and citizenship and indeed, have become a part of Indonesia and claimed strong economic power.

Japan stormed in, taking over Indonesia from the Dutch in 1942 only to retrace its steps three years later. It then returned with electronic goods -- there was nothing cooler in the early 1980s than strutting down the street with a Sony walkman -- and cars designed for the Asian market.

Korea may not have such a high-profile in the eyes of ordinary Indonesians, but its people have been around since the 1970s, with about 1,000 people at that time. Since then, the Korean community has expanded rapidly.

The Korean community has more than doubled in the last six years from about 13,000 in 1999 to 30,000 at present, thanks to the blossoming businesses of Koreans living here.

"In the beginning, most of the Koreans were engaged in a variety of wood-related businesses," said Kim Jae Min, secretary general of the Korea Association.

At that time, the plywood industry was rapidly expanding in Korea. However, as the country was poor in natural resources, players like Kodeco and Korindo were compelled to move closer to the dense tropical forests of Indonesia to secure a stable supply.

The first giant wave of Korean businesses came in the 1980s, as companies sought cheaper labor.

Global attention was on South Korea's capital Seoul during the Olympic Games in 1988. After the event, demands for democracy sparked in the country, which at that time saw a boom in labor- intensive industries like shoes and garment, said Hwang Yoon Hong, senior marketing advisor for Bank Internasional Indonesia (BII), which handles Japanese and Korean accounts here.

"Labor forces demanded wage increases," he told The Jakarta Post. "And so the industries moved their factories to China and Indonesia with relatively cheap labor," he said.

Indonesia, under Soeharto, welcomed the investments with open arms. Huge factories, each employing up to 40,000 workers to make thousands of shoes, clothes, bags, and dolls every day, were constructed in Tangerang, west of Jakarta, and Cikarang, east of Jakarta.

In the mid-1990s, calls for democracy and freedom from Soeharto's iron grip spread across the archipelago. His fall in mid-1998 was followed by massive riots, including Jakarta and its surrounding areas, where most Korean factories are located.

The rupiah fell to an all-time low; at one point it was traded at Rp 13,000 a U.S. dollar, more than five times higher than Rp 2,500 a dollar before the crisis. Prices of all daily necessities skyrocketed and labor unions, which by that time had sprouted in many factories, demanded higher salaries and better work conditions.

With workers' strikes making regular news and the government upping the minimum wage, the Korean garment and shoes industries packed up their bags and moved their factories to countries offering lower wages, such as Vietnam and Myanmar. "There are now only about 30 percent of such businesses left here," said Hwang.

However, at that time, the third wave of Korean investment was already in motion, which this time came from the electronics industry.

"Samsung and LG saw Indonesia's potential as domestic market potential and an export base," said Lee Kang Hyun, a director of PT Samsung Electronics Indonesia.

Eyeing the country's huge population -- which at present is recorded at some 220 million -- LG Electronics entered Indonesia with a joint venture with PT Astra International to produce televisions in 1990.

Two years later, LG Electronics Indonesia built a production line for refrigerators in Tangerang, which has since developed and also become its center of television production with 2,000 employees currently hired.

Also in 1992, Samsung followed suit and entered Indonesia.

"In 1992, (all of) the electronic goods produced here were exported. We started selling them to the domestic market in 1995," said Lee in fluent Indonesian, a sign of his 13 years in the country.

Although the electronics industry was also hit by the severe monetary crisis with low sales on the domestic market, producers managed to hold on. "Raw material makes up for between 85 percent and 90 percent of our costs. (The proportion of) overhead costs, including salaries, is low," said Lee.

As the two giant firms continue to take over the electronics industry in the country from the Japanese, dozens of other Korean companies are following suit, to invest in Indonesia as a component and raw materials supplier. According to Lee, in the last 10 years, more than 100 Korean suppliers have established branches and small factories here.

"Service companies, like Korean restaurants, bars, and supermarkets, to cater for the needs of the growing community, have also come in," said Lee.

Korea also went into the banking industry through the Sorak consortium, comprising Kookmin Korea and Singapore's Temasek Holdings, which acquired a 51 percent stake in BII in October 2003.

According to the South Korean Embassy's data, Indonesia is currently the third-largest destination for Korea's overseas investment with a total of 570 companies. As of the end of last year, the accumulative amount of its investment in the country reached US$10.2 billion.

"We have no intention of leaving. We even want to invest more; the market potential here is still very vast," said Lee.