Korean businesses: Start late, grow fastest

Korean businesses: Start late, grow fastest

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.