RI's bureaucracy the worst in ASEAN: Survey

JAKARTA (JP): Bureaucracy remains the top headache for Japanese manufacturers operating in Indonesia, while other ASEAN countries have apparently managed to reduce red tape, according to a survey.

The survey conducted by the Overseas Research Department of Japan External Trade Organization between December 1995 and January 1996 found that more than 50 percent of the surveyed Japanese manufacturers operating in Indonesia cited complexity of administrative procedures as the worst problem, while others cited, in order, exchange rate fluctuations, tariffs and custom procedures, taxes and increases in salaries.

The organization's Jakarta president, Masanori Osumi, told reporters here yesterday that the most common business-related problem for Japanese firms operating within the Association of Southeast Asian Nations (ASEAN) countries is labor-related cases (64.1 percent), followed by salary increases (62.9 percent) and unstable exchange rates (48.4 percent).

Complexity of administrative procedures did not appear on the list of the top five problems faced by Japanese firms operating in other ASEAN countries, he said.

According to Osumi, questionnaires were sent to 2,262 medium to large-scale manufacturing companies, either wholly or partly owned by Japanese investors operating in five ASEAN countries -- Indonesia, Malaysia, the Philippines, Singapore and Thailand. Out of the surveyed companies, 373 were based in Indonesia. Only 977 companies responded, including 203 based in Indonesia.

The Indonesia-based Japanese companies that responded were engaged in sectors like textiles and textile products (19.7 percent), chemical and pharmaceutical products (14.8 percent), metal products (8.9 percent), electronic and electrical equipment (14.8 percent), transportation equipment (7.9 percent) and others (38.4 percent).

Of the companies, 40 percent were engaged in final assembly, 35.1 percent in parts or component manufacturing and 36.8 percent in material processing.

The survey also found that Indonesia leads in the number of companies commencing operation after 1990 in the five ASEAN countries, with 31.7 percent of the total companies.

Approximately 70 percent of Japanese manufacturers in the five ASEAN countries have enjoyed profitable operations.

Besides the five countries, ASEAN also includes Brunei and Vietnam.

The report said that 66.8 percent of the surveyed companies operating in Indonesian made profits, as compared to 79.2 percent of those operating in Singapore and 48 percent of those in the Philippines. Japanese firms operating in Malaysia and Thailand made slightly better profits than those in Indonesia.

The most common reasons for the companies' relocation to Indonesia was low-cost labor (61.4 percent), followed by local market potential (60.4 percent).

The companies citing potential on the local market as their main reason for setting up operation in Indonesia mostly started operation in the 1970s and the first half of the 1980s, while the companies citing low-cost labor as the reason largely commenced operation after 1990.

Only a small percentage of the companies which started operation in the first half of the 1980s pointed to political and social stability as a reason for selecting Indonesia, whereas nearly half of the companies which started after 1985 mentioned it as a reason.

The survey also revealed that 54.3 percent of the companies in Indonesia plan to restructure their production systems, by relocating their present production bases to a third country (21.4 percent), transferring their production base from Japan or a third country to Indonesia (23.5 percent), diversifying product lines of a present production base (71.4 percent), and strengthening resource and development of the present production base (10.2 percent).

Singapore leads the proportion of companies planning to move to a third country with 52.7 percent, compared to Malaysia's 37.3 percent, Thailand's 21.3 percent and the Philippines' 28.9 percent.

Regarding the plan of transferring their production bases from Japan or a third country to Indonesia, the companies cited the favorable investment condition as their main reason (61.1 percent). (jsk)