11

Is there an Is there an “Indonesian” style of “Indonesian” style of

management?management?

Week 8Week 8

22

A bit of economic dataA bit of economic data      2000 2000  2001 2001  2002 2002 

2003 2003  GDP per head ($ at PPP)GDP per head ($ at PPP) 3,0553,055 3,2003,200 3,3303,330

3,4903,490 GDP (% real change pa)GDP (% real change pa) 4.934.93 3.473.47 3.693.69

4.14.1 Labour costs per hour (USD)Labour costs per hour (USD) 0.270.27 0.280.28 0.370.37

0.470.47 Recorded unemployment (%)Recorded unemployment (%) 6.086.08 8.18.1 8.38.3

8.78.7

33

Geographic dispersionGeographic dispersion

44

Bit of backgroundBit of background Indonesian archipelagoIndonesian archipelago

– 13,000 islands13,000 islands– population around 200,000,000population around 200,000,000– over 200 languages & dialectsover 200 languages & dialects

Historical developmentHistorical development Pre-colonial – Chinese/Arab/Malay – cultural Pre-colonial – Chinese/Arab/Malay – cultural

diversitydiversity Dutch colonial – effect on small part of Dutch colonial – effect on small part of

populationpopulation Japanese occupation (1942-45) – promotion if Japanese occupation (1942-45) – promotion if

Indonesian languageIndonesian language Independence – 1947Independence – 1947 Erratic development path up to 1965Erratic development path up to 1965 Post 1965 – 5 year plans (repelita)Post 1965 – 5 year plans (repelita) Aimed at stabilisation & industrialisationAimed at stabilisation & industrialisation

55

Is there a Indonesian Is there a Indonesian management style?management style?

Munandar (1990)Munandar (1990) ““Indonesian managers today & Indonesian managers today &

tomorrow” – International Journal of tomorrow” – International Journal of PsychologyPsychology

International acculturation processInternational acculturation process Considers national-international levelConsiders national-international level Welfare state through industrialisationWelfare state through industrialisation Industrialisation process encouraging Industrialisation process encouraging

FDIFDI

66

Middle management traitsMiddle management traits

Indonesian managers (middle Indonesian managers (middle management)management)– PaternalisticPaternalistic– Little information sharingLittle information sharing– Don’t encourage subordinate Don’t encourage subordinate

participationparticipation– SubjectiveSubjective– Less analyticLess analytic

77

A set of traitsA set of traits Applying Hofstede’s analysisApplying Hofstede’s analysis

– CollectivistCollectivist– Accepting of inequalityAccepting of inequality– Tolerant and non- aggressive Tolerant and non- aggressive – Not particularly ambitious or competitiveNot particularly ambitious or competitive

Danajaya (1985) reviews successful & Danajaya (1985) reviews successful & unsuccessful managersunsuccessful managers– Success = pragmatic primary value orientationSuccess = pragmatic primary value orientation– Less successful = operative values relating to Less successful = operative values relating to

(e.g.) prestige/dignity(e.g.) prestige/dignity– Suggests successful managers = operative values Suggests successful managers = operative values

equivalent to those values in successful managers equivalent to those values in successful managers elsewhereelsewhere

88

Tomorrow’s manager todayTomorrow’s manager today Munandar argues that the Indonesian Munandar argues that the Indonesian

manager of tomorrow needs to develop 4 manager of tomorrow needs to develop 4 strategiesstrategies

Attention to visionAttention to vision Meaning through communicationMeaning through communication Trust through positioningTrust through positioning Deployment of self through positive self-Deployment of self through positive self-

regardregard– Knowledge of one’s strengthsKnowledge of one’s strengths– Capacity to nurture & develop those strengthsCapacity to nurture & develop those strengths– Ability to discern the discrepancy between one’s Ability to discern the discrepancy between one’s

strengths & weaknesses & the organisation’s strengths & weaknesses & the organisation’s needsneeds

99

This was 1990.This was 1990.Emerging managers now?Emerging managers now?

Heuer et al (1999) studied convergence of Heuer et al (1999) studied convergence of Indonesian managers to US norms along the Indonesian managers to US norms along the individualism/collectivism &individualism/collectivism &

The power distance parametersThe power distance parameters Found no statistically significant difference Found no statistically significant difference

between scores for Indonesian & US managersbetween scores for Indonesian & US managers But But sample used MBAssample used MBAs Cannot extrapolate to all managersCannot extrapolate to all managers Convergence because Convergence because

– Indonesian business environment in state of fluxIndonesian business environment in state of flux– US business environment relatively stableUS business environment relatively stable

Suggests impact of western FDI/management Suggests impact of western FDI/management practice within business environmentpractice within business environment

1010

An Englishman abroadAn Englishman abroad Berry et al. (1988) have suggested 3 Berry et al. (1988) have suggested 3

different basic modes of adjustmentdifferent basic modes of adjustment Reaction modeReaction mode

– expatriate tries to change the environment expatriate tries to change the environment rather than his own behaviourrather than his own behaviour

Integration modeIntegration mode– expatriate changes his behaviour in order expatriate changes his behaviour in order

to reduce the conflict with the to reduce the conflict with the environmentenvironment

– (problem-focused coping strategy)(problem-focused coping strategy) Withdrawal modeWithdrawal mode

– expatriate tries to remove himself from expatriate tries to remove himself from the conflict situationthe conflict situation

1111

A Finn abroadA Finn abroad

Suutari et al (2002) studied Suutari et al (2002) studied expatriate managers’ adaptations in expatriate managers’ adaptations in IndonesiaIndonesia

The results of the study indicate that The results of the study indicate that all expatriate managers actively all expatriate managers actively adjust their leadership style when adjust their leadership style when they lead foreign subordinatesthey lead foreign subordinates

They use integration mode (in varying They use integration mode (in varying degrees)degrees)

Side effect – expats’ views on Side effect – expats’ views on Indonesian workersIndonesian workers

1212

The (sad) case of Bank Duta in The (sad) case of Bank Duta in 19891989

Desire not to deliver bad newsDesire not to deliver bad news Subordinates do not wish to inform seniors Subordinates do not wish to inform seniors

of bad newsof bad news Manager of dealing room found $US20 Manager of dealing room found $US20

million loss in FX tradingmillion loss in FX trading Didn’t say anythingDidn’t say anything Two days later $US70 million lossTwo days later $US70 million loss President-director only told before scrutiny President-director only told before scrutiny

of year-end reportsof year-end reports He did not inform the boardHe did not inform the board Told dealing room manager to keep quietTold dealing room manager to keep quiet Subsequent loss was $US419 millionSubsequent loss was $US419 million

1313

Cultural dilemmasCultural dilemmas AssertivenessAssertiveness

– Conceal negative feelingsConceal negative feelings– Play down positive feelingsPlay down positive feelings– Are typically non-assertiveAre typically non-assertive

Yes means Yes (or No)Yes means Yes (or No)– Believe to say No invites conflictBelieve to say No invites conflict– Therefore Indonesians will say yes when they Therefore Indonesians will say yes when they

mean no.mean no.– How do you tell what they mean……….How do you tell what they mean……….

UnderstatementUnderstatement– Indonesians will not give their opinion unless Indonesians will not give their opinion unless

invited to do soinvited to do so

1414

Gorblimey! What does this all Gorblimey! What does this all mean?mean?

Despite acculturation theoryDespite acculturation theory Despite convergence theoryDespite convergence theory Despite MBAsDespite MBAs Worker Worker expectationexpectation of management is of management is

– Variable andVariable and– Location/culture specificLocation/culture specific

This must have an effect onThis must have an effect on– How workers are managedHow workers are managed– How expats are preparedHow expats are prepared– The validity of a universality concept of managementThe validity of a universality concept of management

There are certain required management traitsThere are certain required management traits Contingency management seems best paradigmContingency management seems best paradigm

1515

Vance & Paik (2002)Vance & Paik (2002)

1616

Role of the JV in understanding Role of the JV in understanding managementmanagement

Perks & Sanderson (2000)Perks & Sanderson (2000) Study of JV process between Lucas Study of JV process between Lucas

(UK) & 2 Indonesian partners(UK) & 2 Indonesian partners Exploratory stage & Strategic intentExploratory stage & Strategic intent

– State – long term stability & sustainability State – long term stability & sustainability (Repalita 6)(Repalita 6)

– Indonesian SOE – long term technology Indonesian SOE – long term technology transfer/skills, etctransfer/skills, etc

– Indonesian private company – market Indonesian private company – market opportunity in aerospaceopportunity in aerospace

– Lucas – low cost high precision Lucas – low cost high precision manufacturemanufacture

1717

Cultural considerationsCultural considerations

Study puts emphasis on meetings and Study puts emphasis on meetings and negotiationsnegotiations– ConsensusConsensus– SlownessSlowness– Attention to detailAttention to detail– Key componentsKey components

Each party had gains to make from JVEach party had gains to make from JV– Success (18 months start to finish) Success (18 months start to finish)

accomplished by UK negotiators beingaccomplished by UK negotiators being– Senior executivesSenior executives– Adapting to Indonesian negotiating styleAdapting to Indonesian negotiating style

1818

Positive advantages at Positive advantages at implementationimplementation

Indonesian partners ensured Indonesian partners ensured collectivist decisions finalisedcollectivist decisions finalised

So start-up operations could proceed So start-up operations could proceed smoothly without hold-ups & conflicts smoothly without hold-ups & conflicts so often found in Western companiesso often found in Western companies

All relevant stakeholders consulted All relevant stakeholders consulted early on so decisions seen as early on so decisions seen as balanced and high qualitybalanced and high quality

1919

SOE sectorSOE sector

Still many SOEsStill many SOEs Mostly former Dutch companies which were Mostly former Dutch companies which were

nationalisednationalised Recent attempts at reformRecent attempts at reform Privatising non-profitable SOEsPrivatising non-profitable SOEs Management is limited – restricted authorityManagement is limited – restricted authority

Rise of conglomerates (konglomerat)Rise of conglomerates (konglomerat) Driving force behind Indonesian economic Driving force behind Indonesian economic

developmentdevelopment Mainly Chinese ownedMainly Chinese owned Of top 25 only 5 owned by ethnic IndonesiansOf top 25 only 5 owned by ethnic Indonesians Adopting new management techniquesAdopting new management techniques Reliance on informal relationships between Reliance on informal relationships between

owners and associatesowners and associates

2020

SME sector modificationSME sector modification

ILO figures suggest 1997 crisis caused ILO figures suggest 1997 crisis caused displacement of 5.4m non-financial displacement of 5.4m non-financial sector workerssector workers

Many re-absorbed in informal sectorMany re-absorbed in informal sector Fundamental re-profiling of sectorFundamental re-profiling of sector Throws light on government policy Throws light on government policy

failurefailure Provides analysis of SME sector Provides analysis of SME sector

requirements to provide economic requirements to provide economic growth potentialgrowth potential

2121

Reactions by small business Reactions by small business sector to crisis - 1sector to crisis - 1

Micro-Enterprises Level Micro-Enterprises Level – Stop the business Stop the business – Change the occupation (for Change the occupation (for

example, become a trader) example, become a trader) – Reduce the quality of the product Reduce the quality of the product

by changing/reducing use of by changing/reducing use of expensive raw materials expensive raw materials

– Change the product Change the product

2222

Reactions by small business Reactions by small business sector to crisis - 2sector to crisis - 2

Larger Small Industries Larger Small Industries – Reduce the scale of production or working Reduce the scale of production or working

hourshours– Keep the price of output as before while Keep the price of output as before while

decreasing the size of goods produceddecreasing the size of goods produced– Increase the price of output by 20-25 percentIncrease the price of output by 20-25 percent– Diversify the product Diversify the product – Shift the imported raw materials towards local Shift the imported raw materials towards local

onesones– Maintain production using old stock of raw Maintain production using old stock of raw

materialsmaterials– Change the market orientation from domestic Change the market orientation from domestic

to exportto export– Pay back bank loan and try to substitute it Pay back bank loan and try to substitute it

with funds from other sources with funds from other sources

2323

Import relianceImport reliance Export oriented SMEs more able to Export oriented SMEs more able to

resist crisisresist crisis Spotlight of 97 crisis suggestsSpotlight of 97 crisis suggests Many SMEs in Indonesia are very Many SMEs in Indonesia are very

dependent on dependent on importsimports for their raw for their raw materials and other inputsmaterials and other inputs

Even in traditional manufacturing Even in traditional manufacturing sub-sectors such as:sub-sectors such as:

textiles textiles garmentsgarments footwearfootwear

2424

Policy failurePolicy failure Tambunan (2000) arguesTambunan (2000) argues Failure of Replita to address Failure of Replita to address

“midstream” industries“midstream” industries The effect of skewed micro economic The effect of skewed micro economic

development is thatdevelopment is that Downstream industries must rely Downstream industries must rely

heavily on imports of capital and heavily on imports of capital and intermediate goods, processed raw intermediate goods, processed raw materials, and other input.materials, and other input.

This leaves SMEs (& larger downstream This leaves SMEs (& larger downstream industries) very vulnerable to industries) very vulnerable to disruptions to import supplydisruptions to import supply

2525

Policy reviewPolicy review Tambunan (again!) (2005) reviews the state Tambunan (again!) (2005) reviews the state

policy of developing & encouragingpolicy of developing & encouraging SME clustering:SME clustering: Identifies 3 types of cluster classification.Identifies 3 types of cluster classification. Artisinal clustersArtisinal clusters dominant clusters in Indonesiadominant clusters in Indonesia - - indicating indicating

that the process of clustering in the country that the process of clustering in the country is still at an infant stageis still at an infant stage

This type of cluster displays many This type of cluster displays many characteristics of the informal sectorcharacteristics of the informal sector

Level of productivity and wages being much Level of productivity and wages being much lower than those of clusters dominated by lower than those of clusters dominated by SMEs.SMEs.

2626

Cluster classificationCluster classification

Active clustersActive clusters developed rapidly in terms of skills developed rapidly in terms of skills

improvementimprovement technological upgrading and technological upgrading and successful penetration of domestic and successful penetration of domestic and

export marketsexport markets Advanced clustersAdvanced clusters many active clusters are more many active clusters are more

developed and become more complex developed and become more complex in structurein structure

2727

Internal/external clustering Internal/external clustering networksnetworks

2828

Public policyPublic policy Important for public policy perspective.Important for public policy perspective. Strategy makes it more effective and more Strategy makes it more effective and more

efficient for government to provide technical efficient for government to provide technical assistance and general facilities to a group of assistance and general facilities to a group of firms in one place than to individual firms in firms in one place than to individual firms in dispersed locationsdispersed locations

ButBut Cluster development policies in Indonesia Cluster development policies in Indonesia

have not been successfulhave not been successful Most failures can be attributed to:Most failures can be attributed to:

– neglecting cluster linkage to marketsneglecting cluster linkage to markets– neglecting or even eroding SMEs’ self-organization neglecting or even eroding SMEs’ self-organization

potentialpotential– limited support from local government and private limited support from local government and private

organizationsorganizations