RI's business structure changes

RI's business structure changes

By Christianto Wibisono

JAKARTA (JP): There have been tremendous changes in the
Indonesian economic and business topography this decade.

The role and position of the government and state-owned
enterprises have gradually been reduced. The government has
evolved into a regulating and facilitating agency instead of
operator and executor. It has ceased to be a direct provider of
goods and services and hence no longer holds a monopoly over
certain public utilities or strategic commodities.

It is ironic that state-owned banks which thus far have been
the "godfather" of private conglomerates are now struggling to
maintain their dominant position vis-a-vis private banks.

In 1994, the sales of the top 300 conglomerates at Rp 169
trillion (US$71.2 billion) almost doubled those of state-owned
enterprises of Rp 85 trillion. In terms of assets, state-owned
firms controlled Rp 285.9 trillion compared to conglomerates' Rp
271 trillion.

During the later half of the 1980s, deregulation in banking
and the stock market catapulted the private sector into its
present growth.

These deregulations have been exploited to the optimum by the
private sector to restructure companies' financial positions to
improve their debt to equity ratio and to diversify their
businesses. Seven years after the stock market liberalization,
the number of listed firms has increased tenfold from a mere 24
to 238 companies.

Most business empires are still managed by their founders.
Some, however, have relegated authority to the "crown princes"
with the founders still having the final say in strategic
decisions.

Indonesian business empires date back to the New Order
government. Only a handful of them are third generation
businesses. The most prominent is Sampoerna. Two medium-sized
empires are the herbal medicine (jamu) factories Jago and Nyonya
Meneer. The latter is beleaguered by a family feud between its
second generation and third generation owners.

The adages that most family fortunes and business entities can
not survive beyond third generation did not originate in China.
It has been a fact ever since the Jews dominated European
businesses and Wall Street and their Western entrepreneurs
duplicated their Jewish mentors. It is a universal character.

Now Indonesian Chinese tycoons have learned the futility of
nepotism. Too much power given to the sons and daughters of a
taipan will have serious consequences as Summa and Astra have
shown.

They now send their children to study in the best schools in
the United States or Europe. They hire managers from India, the
Philippines, Singapore and the West.

The present trend of Indonesian tycoons is to aggressively
penetrate the global market. Their companies have made
acquisitions and floated their financial debt instruments in
Luxembourg, Hong Kong, Tokyo, Singapore and on Wall Street.

They are aggressive in the corporate game in Singapore. This
applies to both indigenous tycoons such as Sudwikatmono, Bambang
Trihatmodjo and Endang Utari Mokodompit (daughter of Ibnu Sutowo)
and tycoons of Chinese descent like Henry Pribadi, Johannes Kotjo
and Sukamto Sia.

The Indonesians play their game in the same manner as Carl
Icahn and KKR made their raids on Wall Street in the late 1980s.

After the financial restructuring and utilization of low
interest offshore loans, as well as professionalization and
internationalization of their management conglomerates, their
real power and growth was demonstrated through the Jakarta Stock
Exchange.

The Charoen Pokphand group led the ranking of the fastest
growing firm in 1995 with its tenfold growth of sales. It was
followed by Lippoland despite rumors of a troubled Lippo Bank and
a property recession. Altogether there are a dozen companies with
a growth rate of more than 100 percent. The retail giant Matahari
almost doubled its sales from Rp 800 billion to Rp 1.4 trillion.

The World Economic Forum ranked Indonesia 33rd among 48
countries surveyed in the Word Competitiveness Report 1995. It is
not bad considering the country was judged the most corrupt
country by the Transparency International or number three by
PERC.

The World Economic Forum survey, made in collaboration with
IMD management institute, is a more mature assessment.

However, we should look into the allegation of a high cost
economy which pushes up inflation and interest rates in
Indonesia.

Indonesian producers and exporters will never emerge winners
in export competition with the high cost price per unit of
manufacturing products. The resource-based industries can only
compete in the global market while labor intensive industries are
challenged by countries with lower paid workers.

Right from the start the private sector understood the
challenges facing the Indonesian economy, the cost of funds, and
utilized various methods to restructure their financial
dependence on local loans.

Next on the agenda will be their consolidation into core
businesses and improvement their efficiency in facing the
challenge of market liberalization. With the coming of the ASEAN
Free Trade Area in 2003, Indonesia will have to open its market
to ASEAN competitors.

Whether we will be ready for liberal competition will not only
depend on bureaucratic protection, but also on the efficiency of
the business entities themselves.

The writer is director of the Indonesian Business Data Center,
Jakarta.