Over diversification makes RI firms 'less competitive'

JAKARTA (JP): Indonesian and other Asian business conglomerates are mostly over diversified and this makes them less competitive, says a financial analyst.

Booz-Allen and Hamilton's president, Zafer G Achi, said here yesterday that Asian business groups generally had difficulties choosing their core businesses.

He said that in Indonesia's case, many companies tended to grab any available business opportunity without making a long term plan.

Companies that did this would not last long because most of their activities were based on short-term programs, he said at a seminar called creating value in the multi-business company.

He said the business environment has changed along with global business demand, and major diversification was no longer a trend.

He said that companies used to believe diversification was a good way to make big profits.

Now a small but healthy company was more profitable, he said.

"Being diversified and bigger does not necessarily make a good and profitable company in the future," he said.

In order to compete globally, Indonesian companies should avoid opening new businesses unless they were sure to make a significant profit contribution, he said.

Jakarta Consulting Group's managing director, AB Susanto, did not entirely agree because there is some evidence that some Indonesian companies have played an important economic role both at domestic and international level because of their widely diversified operations.

"People forget that managing a business in Indonesia should take cultural values into account," he said.

State firms

He said that Achi's analysis was based on Western business philosophy and way of thinking.

"Business diversification has made Indonesian conglomerates grow strong," he said.

The finance ministry's director general for supervision of state-owned companies, Bacelius Ruru, said state-run companies were less efficient than private corporations.

He said that inefficiency was caused by improper management and because executives of state-run companies were poorly paid.

"If these companies are not efficient, the country's economy is not efficient," he said on the sidelines of the seminar.

He said that while state companies had a social mission to be the agent of development, this should not stop them from being efficient.

"The social mission of state-run companies should not be an excuse for being inefficient," he said.

As agents of development, state-run companies, which have total assets of Rp 350 trillion (US$145.83 million), should help small companies and the poor.

To aid them in this, the government should create sound macro economic conditions for investment, form a transparent framework and promote long term capital business plans, he suggested.

He said state companies should also be privatized through a number of strategies including going public, the joint operation scheme (KSO), build-operate and transfer (BOT) or build-operate- and own (BOO) strategies.

"By floating shares to the public on the capital market, state companies come under public scrutiny," he said.

With a public float the state companies should improve their management and efficiency.

He said that state-own telecommunication firm PT Telkom had not performed well before going public.

"Look at the performance of PT Telkom five years ago and now," he said. (09)