Potential exportiers ripped off

By Inghie Kwik

JAKARTA (JP): The business environment in Indonesia can be described as a giant jelly that traps wealthy businesspeople but sucks out any business ethics, integrity, honesty and morality that they possess.

Once they get in the jelly, life becomes very convenient. But the problem is, the longer they stay in, the more contaminated they become. It does not matter whether they are local or foreign businesspeople, the jelly will overwhelm their senses.

Even blue chip U.S. companies that are supposedly regulated by the strict code of the Foreign Corrupt Practices Act cannot overpower the force of the jelly.

"Just list what you consider respectable U.S. firms and look at their partners," said a friend. "In a place where even the World Bank is supposedly corrupt, how can you expect anyone else to be honest."

Of course, the severe economic crisis has crippled many of the larger business bandits in Indonesia, but it has not stopped the more deceptive kinds. A real life example is the case of PT Mediatama Binakreasi, which late last year, in one shot, cheated 12 small and medium-scale furniture manufacturers to such extend that it left all the manufacturers with significant losses. Some may have even gone bankrupt by now.

Mediatama, an event organizing firm, invited the manufacturers to participate in a major furniture exhibition in High Point, the United States.

At the outset, this offer was extremely attractive. Not only did Mediatama manage to book exhibition space in High Point -- which is normally very difficult -- but it also managed to obtain government subsidies from the Ministry of Industry and Trade to pay half of the rental fees. At the time, most domestically oriented furniture companies were facing severe difficulties due to the crisis, and were looking for ways out through exports.

As such, despite the rupiah trading at about 14,000 to the U.S. dollar then, the 12 manufacturers decided to bite the bullet and participate by prepaying the US$150 per-square-meter rental fees to secure their booths, with the government subsidizing half of the bill. All the manufacturers were participating for the first time and were naive about the logistical needs and costs of such an exhibition.

When they first arrived in High Point, the participants had difficulties finding their designated exhibition hall. They looked for a building in the center of town, where all the exhibitions were taking place. To their surprise, they discovered that all the Indonesian participants were placed on the third floor of a building located one kilometer away from the center. This floor belonged to Plywood Tropics USA, a company controlled by tycoon Mohammad "Bob" Hasan.

Plywood Tropics acted as an agent for Kiani Rattan and had a permanent exhibition of rattan furniture there. However, last year they decided to sell the property as indicated by "for sale" signs placed on all the windows of the floor.

Upon entering the building, a polite but naive representative from the Ministry of Industry and Trade's National Agency for Export Development was there to greet the participants. He immediately apologized because it turned out that the space allocation was much smaller, by about 30 percent, than what was paid for. He promised that he would help the participants obtain reimbursement from Mediatama.

In fact, not only were the booth spaces too small, but all the participants were placed at the back of the room, behind dense displays of rattan furniture belonging to Plywood Tropics. It was obvious that Plywood Tropics was in the processes of selling inventory in preparation for selling the property. As the company had freed up some of its space, it decided to rent it out. But this was done by allocating space in the back, the last to be visited by customers.

Many of the participating companies were rattan manufacturers. Placing them in the front would have been a competitive threat to Kiani.

The participants complained that the space was too small, too far from the center of town and about the "for sale" signs, which were obviously a deterrent for potential walk-in customers.

When they asked for a representative from Mediatama, they were shocked to find out that no one from this company had come on the trip to manage the event.

The participants also discovered that their display furniture arrived just one day before the show and many of the pieces had been damaged. They all, therefore, had to help each other through the night to put up their displays. But they were forced to cut back on their products for display.

The next morning, traffic jams and full parking lots gave them a good feeling, with high hopes for writing out export orders. Smartly dressed buyers were seen entering exhibition buildings in hordes. Employees of Plywood Tropics assured the Indonesian participants that High Point visitors normally had a routine route, which included a visit to their floor.

However, by closing time on the first day of the exhibition, it became clear to all the participants that they had been duped by Mediatama. Apart from a visit by the Indonesian commercial attache, not a single customer visited any of the 12 Indonesian manufacturers. The following day saw around 10 visitors, but no buyers. For the entire 10-day exhibition, the Indonesian exhibition (including those of Plywood Tropics) received less than 200 visitors. Every customer that walked into the building was immediately approached by marketing representatives of Plywood Tropics and offered the rattan of Kiani. Very few bothered to look in the back, where the 12 small manufacturers were anxiously waiting for customers.

There was practically no promotion to draw the attention of customers. Some participants took the initiative to place signs at the entrance and to remove the "for sale" signs from the windows of the building. But these efforts were blocked by the building management. Out of desperation, many of the participants embarrassingly stood on street corners and in bus terminals to distribute brochures of their products. But their efforts were to no avail. The building was simply too obscure and unattractive for visitors.

To add insult to injury, midway through the exhibition the participants also discovered that their rental fees had been significantly marked up from the market rate. Mediatama charged $150 per square meter (half of which was paid for by the government), while market rates for the building were in the range of $50. With $150 per square meter, one could get space in the center of town for two shows in 1998.

Apparently, participants who used the travel agency designated by Mediatama faced even more rip-offs. Hotel rooms were marked up by more than 100 percent above market rates. Some participants even had to share a room with two others, despite the verbal promise that they had reservations for deluxe rooms. Instead, what they got was extra beds.

In the end, none of the manufacturers managed to close any meaningful deals. Even worse was that they never had a chance to see if their goods were competitive on international markets. Mediatama acted as a space brokerage company in cooperation with Plywood Tropics (Kiani) and made a profit of over 90 percent on the back of financially deprived small and medium Indonesian companies. All the participants asked Mediatama for the reimbursement of their losses. In reply, they obtained a four- page letter of justification that six companies were promised reimbursement of rental fees averaging $570. In the letter, Mediatama acknowledged that "we too are very disappointed ... we didn't know that the building was for sale."

One must wonder how many of these shenanigans take place in the life of commerce in Indonesia on a daily basis, and how many helpless businesspeople get ripped off by cunning organizations with powerful backing. Newspapers have reported large cases of corruption and their linkages with powerful bureaucrats.

It is clear that even against the most blatant and egregious cases of corruption, victims have no legal recourse, let alone against the more cunning and sophisticated ones. No wonder Indonesia has been rated as one of the most corrupt countries for at least five years in a row by several corruption-fighting agencies.

The "jelly phenomenon" is valid even today. It is simply not possible to prosper in business without compromising moral ethics and business integrity. In the above example, it is clear that it would be much more profitable to be in the business of duping others, rather than trying to develop business in international competitive markets. It will take several generations to correct this, and a clean government must guide it.

The writer, a furniture businessman, prepared this article on behalf of 12 furniture manufacturers: PT Anak Menawan Indonesia, CV Roda Jati, PT Super Poly, PT Indo Jago, PT Andara, PT Erfian Boga Pratama, PT Tunggullaras, PT Bauma, PT Epconindo Citra Decora, PT AFC and PT Usada Baebunta Sembada.