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.