Pitcher Partners Property Breakfast Speech – South East Asia: South Australia’s Largest Export Market

The Asian Century is often discussed in terms of China and India, as is fair due to the large population size and market capacity. However, far too often our government and business leaders have failed to realise that there are in many cases strong, established and emerging business opportunities in South East Asia, in markets where we have traded successfully for more than a century. With the Asian Century upon us, it is time we returned South East Asia as a market of focus and started to realise the real and tangible opportunities that are rapidly emerging.

Former US Secretary of Defence – Donald Rumsfeld famously said about the search for weapon of mass destruction:

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

I will go so far as to suggest that many of you here this morning are in the latter category of knowledge about Asia, and indeed South East Asia – that is; there are things about South East Asia which you don’t know that you don’t know.

This is not surprising, for our local market has for many years been the primary focus of many businesses in Australia. However, with a modestly growing and tight economy in the non-mining sector, there are now plenty of reasons to broaden our knowledge of our closest Asian Neighbours – South East Asia.

South East Asia has a population of 600 million people, less than half the population of China or India, but more than 25 times larger than Australia. It comprises a dozen or so countries, and is united by ASEAN – The Association of South East Asian Nations. If ASEAN were a country it would be South Australia’s largest export market, with export trade for 2011/12 of $2.3Billion, surpassing export trade to China of $2.2Billion, and well in front of export trade to India of $759 million. This is an important distinction when our governments focus almost exclusively on China and India.

South East Asia is where four of Australia’s seven Free Trade Agreements have been ratified, including; Singapore, South Australia’s 4th largest trading partner; Malaysia, SA’s 3rd largest export destination; and Thailand, SA’s 10th largest export destination. In addition to these bilateral FTA’s, Australia has ratified an FTA with ASEAN, and is currently in formal negotiations with Indonesia to achieve a Comprehensive Economic Partnership Agreement. Should this agreement be achieved as hoped over the next 12 months, it will be Australia’s most outstanding agreement, effectively opening the floodgates to trade and investment between Indonesia and Australia. Indonesia, with a population of over 250 million, provides perhaps the most outstanding growth market for South Australia. It has been a member of the WTO since 1995, and has sustained positive GDP growth trending at greater than 5% over the past 10 years, with 6.3% GDP growth forecast for 2013. This growth figure compares favourably with forecasts for both China (8%) and India (6.2%), and is being sustained by strong domestic demand.

Indonesia is the forgotten market for Australia and South Australia. Export trade from South Australia is coming off a low base but has grown from $132 million export sales in 2009/10 to $603 million export sales in 2011/12. It is now SA’s 6th largest export market. That’s almost a five-fold increase in export sales. Indonesia is the powerhouse market of South East Asia, and with political and economic stability it is rapidly emerging as one of the most import economies in the world. Standard Chartered Bank has predicted the Indonesian economy will surpass the Australian economy in terms of size to become one of the top 10 global economies by 2020, and top 6 by 2030.

There is a rapidly emerging middle and upper class developing across South East Asia, from Indonesia to Vietnam. Jakarta is indicative of this emerging new wealth in South East Asia, characterised by an eclectic mix of street vendors and luxury malls, Maserati’s and Scooters, Mercedes Benz taxis, and motorised rickshaws. An diverse mix of rich and poor, with a rapidly emerging middle class. It’s home to ALL of the big luxury brands. There are 3 Luis Vuitton Stores in Jakarta alone, and they sit side by side with Prada, Mont Blanc, and Cartier. These high-end retail stores are filled with buyers, local Indonesian buyers, paying global prices for genuine luxury clothing and accessories. Indonesian shopping malls are filled with local Indonesian consumers paying global prices for genuine luxury goods. To walk through the shopping malls of Jakarta is to be fully aware of the emergence of the middle class consumer in Indonesia, if not South East Asia.

The Jakarta skyline is replete with high-rise office and residential apartments. The rapid and sustained economic growth in Indonesia has seen the population of Jakarta swell to upwards of 25 million people during the week, and the city sprawl out and absorb the surrounding manufacturing cities of Bogor and Cikarang.

This growth has pushed up the price of quality office and residential accommodation in Jakarta. Colliers International has forecast office vacancy rates in Jakarta of less than 2% for 2013. While Jones Lang Lassalle have forecast residential rental occupancy rates at between 85-90%. This demand for high quality accommodation in Jakarta has seen residential rental agreements requiring between 2-5 years rent upfront to secure an apartment.

This picture of Jakarta, is replicated across South East Asia, in Singapore, where admittedly there is a lack of the ramshackle housing; Kuala Lumpur where the Petronas Towers take centre stage, through to Bangkok, Hanoi and Manila. The middle class is arriving fast across the region and has started to demand products and services, the very products and services that South Australia can supply. I paint this emerging picture of Indonesia and South East Asia to demonstrate that our closest Asian neighbours have developed the capacity to pay, and more and more people are joining the middle class.

The key drivers in the South East Asian economies are based broadly around four core factors:

1. Food Security,
2. Mining, Oil and Gas,
3. Capacity Building and
4. Tourism and Infrastructure

Food Security – There is increasing demand for food, agricultural products, and beverages. This demand has resulted in SA food companies finding new markets in South East Asia. Indonesia for example was South Australia’s largest wheat export market in 2011/12, surpassing even China.

Mining, Oil and Gas – South East Asia is a centre for mining, oil and gas exploration and drilling, benefiting from the same mining boom we have witnessed in Australia. The core minerals being exploited in Indonesia, East Timor, Malaysia and Myanmar include Thermal Coal, Oil, LNG, Coal Seem Gas, Copper, Gold and Silver. The growth in the mining sector in markets such as Indonesia, East Timor, Myanmar and Malaysia, have provided opportunities for Australian engineering, design, and construction companies to help develop the infrastructure needs of these markets. East Timor has for example upwards of $4 Billion in infrastructure projects in the pipeline related to the growth in the oil and gas industry.

Capacity Building – Constraints in terms of skills have seen all governments across the region talk about the need to up-skill their workforce. There is a need for higher educated workforce throughout the region, in both vocational and higher education. Middle class families are looking to education providers in Australia to provide this skilled advantage to their children. As a result, more students from South East Asia, including Indonesia, will be seeking to come to Australia to undertake vocational and higher education studies in the coming years. These students often come from wealthy middle class families and seek accommodation close to the universities in Australia.

Tourism Infrastructure – Tourism is one of the traditional economic opportunities for the region, with resorts from Bali in Indonesia, through to Phuket in Thailand. However, the climactic conditions of the region mean that tourist infrastructure requires constant redevelopment, including hotels, villas, roads, marinas and airports. There are also new tourism sites being developed across South East Asia, from East Timor to Vietnam. South Australian property developers and urban planners are already looking at how they can enter this market.

The key message I would like to impress upon South Australian business is not to ignore the huge market opportunities in South East Asia. Our business leaders should be embracing the many emerging opportunities. Indonesia and South East Asia, provide the greatest opportunity for South Australian businesses to take advantage of the rapidly growing demand for Australian commodities, products, and services. South Australian business should be establishing strategies to leverage these very opportunities.

Finding a Good Agent Is Critical To Navigating Your Way to Business Success in Indonesia

Use the "bridge" to move accross great divides at the negotiation table.

Indonesia is an emerging Asian market which is attracting increasing investment from Australian and other western companies.  Indonesia and its business environment can be confusing, daunting and challenging, but in many cases this is due to a lack of understanding of the Indonesian management behaviours that influence business relationships. If Australian companies want to succeed in this emerging Asian market, then they will need to develop knowledge and awareness of the Indonesian business culture, much the same way as Australian companies have succeeded in China now that there is a growing understanding of the Chinese business culture and etiquette. The latest research from UniSA has identified the use of third party agents as one of the important Indonesian management practices that influence business. These third party agents are referred to in Javanese (an Indonesian dialect commonly used amongst the business and government elite) as Parantara or ‘the bridge’, and acts as a conduit between the negotiating parties behind face to face negotiations, where issues of conflict can be raised without disrupting the harmony of the negotiation.  

 Maintenance of harmonious relationships between negotiation parties is critical to successful business engagements in Indonesia, and is grounded in the Javanese court traditions established prior to Dutch colonial rule. In Indonesia today, there is a renewed focus upon an independent, national identity, free from the western influence of Dutch colonialism. This nationalistic identification has seen many of the Javanese cultural behaviours re-emerge in the postcolonial period in Indonesia, and this has been driven by the political, governmental, and business elites which in many cases identify themselves with the Javanese culture. 

The Parantara is characteristic of a postcolonial Indonesia that has re-discovered the cultural norms of the pre-colonial Javanese court structure that favoured relationships, networks, and a system of favours and rewards. Utilising agents to further business relationships and aid negotiations is not a uniquely Indonesian experience, as it is common experience in other parts of Asia, in particular China with the use of the Zhongjian Ren or the Intermediary.  However, there are distinctive differences between the Zhongjian Ren and the Parantara in their level of involvement in the negotiated deal. The Zhongjian Ren will often be a part of the deal, as a partner, stakeholder or direct benefactor of any business agreement. Whereas the Parantara is bounded by the cultural traditions of the Javanese court system that places importance upon the network. As a consequence the Parantara is more of a broker, who operates in the background, for the betterment of both parties and who is rewarded for success.

Understanding Indonesian management behaviours is vital if Australian companies are to develop successful Indonesian investments in the coming years.  So if your company is looking to invest in the Indonesian market, then you would be best advised to find a good agent who can help navigate a harmonious relationship and build a strong deal. Fore without a good agent, you may find yourself in a sea of conflict, and on the path to investment failure.

The QANTAS Industrial Dispute: A Case of Lose – Lose Bargaining

The QANTAS lockdown has grounded 108 planes and cancelled thousands of flights

The recent case of QANTAS suspending all flight operations over the weekend, and issuing a lockout order against staff engaged in a long running industrial dispute is an example of poor leadership and crisis management.  If we remove the political rhetoric that will inevitably flow through this debate and look at the impact of the union led industrial actions of the past few months, and the management response that resulted in the lockout over the weekend, we can see quite clearly the failure of leadership to navigate a clear path through the bargaining process.  There are a couple of issues that I would like to tease out of this industrial dispute, and I am going to attempt to do so without taking a strong perspective on either side of who is right or wrong. I will look at the consequences of the approach to this dispute and perhaps look at what can be learned for the future.

An industrial dispute is in essence a negotiation, and in any negotiation there are always and inevitably issues of conflict that need to be resolved using the issues of cooperation.  Politically this can be framed as a battle between the workers and management, but another way to view this industrial dispute is instead to look at all the actors involved as stakeholders. Everyone involved in this dispute is a stakeholder with a vested interest in the successful resolution of this dispute. The key stakeholders as I see it are; the Management (lead by Alan Joyce), the Board (lead by Leigh Clifford), the shareholders, the workers (represented by a variety of unions), and the flying public, who just want to use their consumer rights to get the service for which they have paid. All of these stakeholders have an interest in this dispute, and yet there really have been only three parties engaged in the discourse of negotiation and bargaining, while the remainder have been collateral damage. The shareholders and the public have been penalised by this event and I will demonstrate how.

Industrial disputes involve a variety of negotiation tactics aimed at achieving a softening of a position to reach a compromise. Traditionally, this has been through claim and counter claim, then strike and sometimes lockout. Most industrial bargaining avoids the highly antagonistic stage of strike and lockout, but it can reach this point, and has done in the case of QANTAS. In today’s society, there is an added challenge of managing the news feed through traditional and instant (Twitter, facebook etc) media, to effect public opinion and community support for either the workers or management. Invariably as in all disputes such as these there will be those in favour of management and those in favour of workers.  The problem for QANTAS in this case is that the public is also the consumer.

Is QANTAS about to fly into the Storm?

In the recent past, since the demise of Ansett, QANTAS has held in most cases around 60-70% of the air traffic in Australia, with Virgin, and the otherfeed in international airlines taking the rest. Most polls demonstrate public opinion of this strike and counter action by QANTAS show that the public is split fairly evenly around 50-50, give or take a few percentage points. Joe Public is angry and many have emphasised their loss of trust in the QANTAS brand, management, and strategy. If these people take up their threat to not use QANTAS again, then QANTAS will see a direct impact of their lockout in perhaps a 10-20% drop in market share.  This is directly due to damage of the brand……this is not however only attributed to the management lockout. It is also attributable to the union strike action.

This industrial dispute is being conducted along the lines normally seen in non-mass consumer industries such as the Patrick Waterfront dispute, heavy industry or mining. In these disputes, the public is not the direct consumer, and so the total damage to the brand is minimal as it relates to the bottom line over time. The difference for QANTAS is that IT IS A MASS CONSUMER BRAND, and so its actions directly affect all of its consumers. Consequently this is a lose-lose bargaining approach from both management and unions which will ultimately result in lower market share, increased competition, lower revenue, increased costs and less jobs. Lose- lose…..and of course lower share price.

QANTAS CEO Alan Joyce

The other key stakeholders that have been abandoned in this argument are the shareholders, due to the cynical actions of the board and management. At the end of last week, the board and management went to the AGM asking for a large pay increase for the CEO; Alan Joyce, and set out the perspective of management on the dispute. I have not read all the transcripts, nor was I present at the meeting, but I have not seen anything to suggest that the Board detailed the likelihood of a lockout.  In terms of corporate governance, I believe this to be appalling. If shareholders had known this action was going to take place, which went from $15million loss a week to $20 million loss a day, would they have granted a pay increase to Joyce? Would they have re-indorsed the board?

Ultimately, this case is an example of poor leadership and management, which may cripple the brand in both the short term and the long term…..the risk now for QANTAS management, is that the arbitration at Fair Work Australia could award greater rights to the workers than QANTAS management would have accepted had they pursued a more conciliatory approach to bargaining. If that occurs, then QANTAS, will have increased their cost burden, and successfully lowered their revenue, and brand value. Whatever the result, QANTAS has seemingly lost the spirit of Australia, and may have lost the consumers of Australia.

Opportunities for Australian Business in the Indonesian Market

This speech was presented to the “Australia Indonesia Business Council: Creating Opportunities for The Future” Business Forum by Mr Nathan H. Gray – Chairman of the AIBC – SA, in Adelaide on Friday 8th April 2011

INTRODUCTION

Today I would like to talk about the outlook for Indonesia, in the context of the broader Asian market, and the implications for South Australian business and how we can deepen the economic partnership between South Australia and Indonesia. Many of you in the room today have extensive experience in the Indonesian market, and I am conscious that many others here today are only at the early stages of considering Indonesia as a potential market opportunity. Today I would like to help bridge this gap in experience and tell the positive story of Indonesia today in the twenty first century. Firstly, let me tell you some of the key facts about Indonesia and why Australian business should be taking a closer look at the opportunities that are emerging in our closest international neighbour. The 21st century is very likely to be orientated around Asia, away from the traditional markets in North America and Europe. If you are not part of the Asian story then your future business outlook could well be limited. But it is important to be reminded that Asia does not just comprise China and India. There are other markets in Asia that offer many of the same opportunities. With a population of approximately 240 million people, Indonesia has a strong and vibrant internal market. Indeed recent estimates put the middle class population in Indonesia at between 30-50 million people……that is potentially more than double Australia’s population. Coupled with increasingly effective economic management, Indonesia has largely avoided the economic downturns recently experienced by other countries. Indonesia is one of the few countries in the past two years that has produced greater than 5% economic growth. However, despite the attractiveness of Indonesia as a target for both trade and investment, it still only ranks as Australia’s 13th Largest Trading partner. And yet as neighbours with complementary skills, resources and markets, why is this? And what can we do about it? How can we deepen the economic partnership between Australia and Indonesia? Indeed South Australia and Indonesia? In this presentation, I would like to give an update on the current outlook for Indonesia and the opportunities and challenges for Australian business. I will also propose some ideas on how we can deepen the business to business relationship.

BUSINESS OUTLOOK

Indonesia posted 4.5% GDP growth for 2009 and achieved a +6% GDP increase in 2010. As we have just heard from His Excellency the Ambassador, the future growth outlook for Indonesia is robust…… and importantly sustainable. Analysts are now talking about “ChinIndonesia”. or as the second “I” in “BRIIC”. Indeed, Indonesia’s stock market has been one of the best performing in the past few years. In a strong signal of foreign investor confidence, Orica recently announced an US$550million investment in the construction of an industrial grade ammonium nitrate plant in Indonesia (East Kalimantan) with PT Kaltim Nitrate Indonesia. The NewYork Times Recently had a headline:

“After Years of Inefficency, Indonesia Emerges as an Economic Model”.

In glowing praise it stated:

“After years of being known for inefficency, corruption and instability, Indonesia is emerging from the global financial crisis with a surprising new reputation – economic golden child”

Fauzi Ichsan, Senior Economist at Standard Chartered in Indonesia is quoted in the article saying:

“In Asia there is a feeling that after you invest in China and after you invest in India, where are you going to invest? It’ll have to be Indonesia. It’s a natural destination.”

But whilst some share Fauzi’s enthusiasm and I am one to share this enthusiasm,  many people have a different perspective. There is a view amongst some Australian companies that the reticence to invest in Indonesia is due to the difficulties posed through the bureaucracy and regulation. International investors have chosen in many cases to try other markets. This is born out in the investment figures. Indonesia is not getting the level of foreign direct investment (FDI) commensurate with an economy of its size (US$8.3bn last year). And according to the World Bank Ease of Doing Business Report, Indonesia ranks 122 out of 181 countries (up from 129 in 2009). We need to acknowledge the challenges and opportunities to entering the Indonesian market.

On the negative side Indonesia has to deal with:

• Poor infrastructure (social and physical)

• Poor Utilities (electricity, water, sewerage telephony)

• Legal Enforcement • Regulation/decentralisation (which can lead to contradictory regulation)

• Security issues • and of course Corruption (however I would point out that the incidence of corruption although still bad, it is on the improve according to Transparency International who measure corruption perception around the world)

On the Positive Side Indonesia provides opportunities through:

• Good economic leadership

• political stability

• Large internal market

• Large Labour Market (Quality and Quantity)

• High performing service culture

• Strategic position in the Asian Shipping Routes (remember Singapore is really part of the Indonesian archipelago)

• Abundance of natural resources

There are about 450 Australian companies with investments in Indonesia – including CBA, ANZ, Coca Cola Amatil, Ramsey Health, Theiss and Santos. There are also many SME’s that have invested in the Indonesian Market. There are 46 companies represented in this room today, and I know that not all of you are invested in the Indonesian market. Your presence here today is a reflection of the emerging opportunities presented in Indonesia. Government/Business Relationship The re-election of President SBY has been very positively received by the business community.

A good showing by President Yudhoyono (SBY)’s party and a clear result (60.8%) in the first round of voting in the presidential elections sent a clear signal about the political stability in Indonesia to foreign investors. SBY visited Australia in early 2010 and addressed the Australian parliament and business groups such as the AIBC. The president made the simple observation that Australia has more “Indonesianists” and Indonesian language students than anywhere else in the world. And yet our business to business relationships significantly lag the outstanding government to government relationships. The President also made the point that we are not just neighbours but friends and strategic partners, but more importantly SBY delivered a clear and unequivocal message to the Australian Business community that the Indonesian government was serious about encouraging greater foreign investment.

In October last year I had the good fortune of being part of the Australia business delegation that travelled to the Indonesian International Trade Expo in Jakarta where I met and discussed with the Indonesian Trade Minister Dr Marie Pengestu, about not just the importance of the Australian trade relationship, but indeed about the importance of the relationship between South Australia and Indonesia. Trade corridors such as the Adelaide to Darwin railway now provide an opportunity for South Australian products to be transported to Jakarta in just over a week. But how many South Australian companies take advantage of this trade corridor? So when is the Australian business community going to take advantage of the opportunities in Indonesia? And when are South Australian companies going to take advantage of the freight corridor that links Adelaide with Jakarta and beyond?

THE AIBC

The Australia Indonesia Business Council is the key business networking and advocacy organisation that promotes trade and investment between Australia and Indonesia. And We can view the success and profile of the AIBC as a “barometer” of the level of business activity between Australia and Indonesia. An active and vibrant AIBC reflects a growing economic partnership. However, in recent years, the AIBC has been relatively low profile. But in the past two years, the AIBC has become more active, and undergone resurgence. I believe this is because of the vibrancy of the Indonesian economy, which like Australia survived the Global Financial Crisis and has become an increasingly attractive market in which to do business. A good indicator of the interest in Indonesia through the AIBC was at our recent national conference held in Sydney, where we had over 200 of Australia’s business leaders attend, and we heard speeches from senior Australian and Indonesian government, and business leaders about the importance of the trade relationship. The attendance at today’s event is an equal indication of the interest in the Indonesian market.

In the coming year the AIBC will be leading the way in both South Australia and more broadly across Australia to help showcase the business opportunities that are emerging in Indonesia, and so if you continue to see us out here running successful functions such as this, and our recently held national conference, then you can be sure Indonesia is well and truly back upon the Australian business radar. The AIBC is also involved in advocacy work, and part of this advocacy is around ensuring that Australian and Indonesian companies can maximise these trade opportunities. As I have already raised, one of the challenges to business in Indonesia is the regulatory and bureaucratic hurdles that must be overcome. And this is why we have been advocating for an Economic Partnership Agreement between Australia and Indonesia, a partnership that can help eliminate some or all of these non-tariff barriers to trade and investment.

DEEPENING THE BUSINESS RELATIONSHIP

We should see Australian and Indonesian companies not as competitors, but instead as partners in the global supply chain, and this is indeed a role, I hope we can promote and develop in the relationship between South Australia and Indonesia. What is wrong with Surf Wear being designed on the Gold Coast, manufactured in Bundung and then sold in department stores around the world? What’s wrong with South Australian high technology companies designing products in Adelaide, manufacturing the bulk components in Indonesia and then assembling the high technology components in Adelaide for export the global market? Rather than just looking at the barriers let’s start looking at the opportunities. Indonesia is not only Australia’s closest neighbour, but it is one of the most attractive business destinations in the global economy at the moment.

Whilst several Australian companies have successfully invested in the Indonesian market, the trade and investment statistics show that our current economic relationship is “underweight”. There is a critical need for a different approach to trade investment promotion and facilitation. Despite the recent favourable media coverage, Indonesia is still not on the radar for many Australian businesses…and if it is the perception does not match the reality. We should encourage greater resourcing by both Governments so as to engage in more sophisticated market development and promotion. This should start by identifying the key opportunities in the global supply chain and identifying where the specific Australian and Indonesian industry sectors and companies can partner to capitalise on these opportunities.

If we consider the large middle class population in Indonesia, then we can be reminded of the potential market opportunities that exist. In Jakarta there are seven Luis Vutton stores, and when you go out to buy your Mercedes Benz, you won’t find it on the side of the road in car yards….you will need to visit the state of the art shopping malls, where you can shop for your Mercedes, next to your Jag, Bentley, BMW, Ferrari and Lamborghini. You only need to choose between Black and Silver for the colour in many cases, and your purchase decision is made on the comfort of the back seats…. When you travel the streets of the Jakarta CBD you are confronted by state of the art architecture and design. Indonesia is not a backwater…it is a market of opportunity.

Finally, one of the fundamental ingredients to deepening the business relationship is education of our business leaders. As I have already discussed the AIBC has hosted a number of business forums and corporate events for Australian and Indonesian managers over the past two years. We want to tell the “good story” and provide opportunities for Australian companies considering investment in Indonesia to meet and get mentoring advice from Australian companies who have succeeded in their Indonesian Investments. These events such as today are about promoting Indonesia as a Business destination, encouraging Australian Investment and most importantly, educating senior Australian business leaders about the market sitting right on their doorstop.

CONCLUSION

To summarise, the business outlook for Indonesia is very positive. Indonesia has weathered the GFC well and the growth prospects are good, with more work needed to be done on infrastructure and skills development to capitalise on the current momentum. But the current economic relationship between Indonesia and Australia as measured in the trade and investment statistics is “underdone”. Recent interest in Indonesia by Australian corporations does augur well, but there is more that can we can do to encourage greater business engagement. I am very optimistic about the prospects for both Indonesian and Australia business, but most importantly I am optimistic about developing a deeper partnership. Because we should not be under the illusion that the economic and trade opportunities that are in Indonesia today will last forever. If Australian Companies don’t take advantage of these opportunities then someone else will: American, British, Dutch, German, Russian….and Chinese. I would again like to thank you all for spending the time to come to this event this evening and listening to the opportunities for the future that are emerging in Indonesia.

For further information on Joining the Australia Indonesia Business Council please have a look at www.aibc.com.au

Parantara vs Zhongjian Ren: Use the bridge to successfully negotiate in Indonesia

China and Indonesia both share some similar elements of culture, but dont assume they are the same

 

Indonesia has a long history of interaction with China and although the Ethnic Chinese have been trading in Indonesia for more than 1000 years, most of the present day Chinese Indonesian population started to arrive in Indonesia during the Dutch colonial period during  the 19th Century. Chinese Diaspora communities have brought with them cultures and traditions from China, and as a consequence the styles of behaviour common in China will be transferable to other countries and cultures within the broader Asian region. This assumption is not so straightforward in the Indonesian context due to the recent and historical conflict, criticism and victimisation of the ethnic Chinese-Indonesians by the ethic Indonesians.  Entrenched victimisation and discrimination has even been initiated and conducted by various Indonesian governments over the past 60 years since achieving Independence from Dutch colonial rule. Chinese identity in Indonesia has been eroded over time to the point where it was regulated by law that family names be “Indonesianised” and so it is now not possible to identify a person of Chinese heritage by their name. There has consequently been part assimilation in recent generations of ethnic Chinese Indonesian with the local ethnic Indonesian, and so it is not uncommon to find a person with a Chinese father and an ethnic Indonesian mother, or vice versa. 

The importance of Guanxi or ‘Social Capital’ has long been acknowledged in China, and similar issues of trust and social capital are equally important in other parts of Asia (see my article on Guanxi: http://wp.me/pS6DN-37). This principle is not solely related to managing your professional network, but additionally maintaining a strong and solid reputation within the network. As I wrote in a previous article (Zhongjian Ren: http://wp.me/pS6DN-3e) the importance of Zhongjian Ren or ‘The Intermediary’ in the Chinese business context, is a tried and tested method of transferring Guanxi and social capital from one person to another through introduction to members of a network. In practical sense using Zhongjian Ren is the principle of guaranteeing the quality of business partner, and putting one’s own Guanxi up as a guarantee of their good standing. The Zhongjian Ren in many cases will continue to play a part in the deal as a formal partner, until a sufficient level of Guanxi has been established. 

International business negotiations are a daily occurance in Indonesia today, don't be unprepared

 

Negotiators in Indonesian adopt a similar version of the Zhongjian Ren principle, however in Indonesia it is referred to as the Parantara or ‘The Bridge’. It is very important to utilise Parantara if a business negotiation is to be successful in Indonesia, and has been described as fundamental to conducting business the Indonesian way. The role of the Parantara changes during the many phases of the negotiation process. During the Pre-negotiation phase, the Parantara is used to sound out potential partners and make appropriate approaches and subsequent introductions on behalf one side. The Parantara is unseen during face to face negotiation, and in the early stage builds the bridge (metaphorically speaking of course) over which the negotiating parties can meet. An important distinction between the Chinese Zhongjian Ren, and Indonesian Parantara is that in the Indonesian business context the Parantara acts on behalf of both parties to assist in creating a successful and lasting outcome for both the negotiating parties. 

As the negotiation process progresses from pre-negotiation to face-to-face negotiation there are often issues that need to be resolved in order for the negotiation to continue. During the negotiation process in Indonesia it is imperative to maintain harmony, which often means that issues of conflict are not raised face to face in the formal negotiation. To raise issues that may cause conflict will affect the harmony of the relationship and would not be good for the long-term success of the negotiation or the future partnership. It is therefore necessary to utilise the Parantara to conduct informal negotiations to overcome the problem. The Parantara rarely forms part of the deal or partnership itself, and because of this separation from the negotiated deal the Parantara is able to maintain neutrality between the negotiating parties. Maintaining this neutrality is the key to the success of Parantara in forging successful business negotiations in Indonesia. 

So when you conduct business in Indonesia manage your professional networks by finding yourself a trusted Parantara who can help maintain the harmony in the relationship while you conduct your negotiations.

Building the Relationship is the Key to Business Success in Indonesia

Building a relationship in Indonesia takes time and is built on solid foundations

Those experienced in conducting business in North Asia will tell you that relationship building is paramount to a successful business outcome. Relationship building in Asia is often in direct contrast to standard business practices expected in Anglo-Western cultures such as North America, Australia and the UK.  These business practices will affect the way negotiations are conducted, and so when you are negotiating in Asia it is important to consider the differences from your standard negotiation protocols. The Anglo-Western negotiation protocol is generally more direct and task focussed, ensuring that negotiation discussions are conducted primarily in a formal context, building relationship is not really required outside of the functionality of the deal.  In North Asia, such as China, Japan and South Korea this direct task orientated approach is at odds with the accepted relationship building process which helps to build trust or Guanxi (see my recent post on Guanxi: http://wp.me/pS6DN-37). Without trust, there is no relationship, and consequently no successful negotiation outcome. 

 In Indonesia, you would think that because it is part of “Asia” that it is safe to assume that relationship building would also be of great importance to the successful negotiation outcome.  However past research has found that Indonesia exhibits strong performance focus, suggesting that negotiations are more task orientated and potentially less focussed upon relationship building. Recent research investigating Indonesian negotiation behaviour has however, identified elements of both relationship building and also task orientation which would suggest that both assumptions were correct in an Indonesian context, and that relationship building during the negotiation process in Indonesia is unique in Asia. 

This research describes the negotiation process as starting with a task orientation and moving towards a relationship building orientation, but what does that mean?  Initial negotiation meetings are often conducted with technocrats and lower level managers who discuss the specific technical requirements of the International negotiating partner, so discuss the task at hand ie. Task Orientation. This task orientated negotiation component is similar to the negotiation protocols expected in Anglo-Western cultures, and is equally compatible with the performance orientated findings of past studies. However, this task orientated component of the negotiation does not seem to be vitally important from an Indonesian perspective, and appears to be conducted purely to appease “western” expectations. This may be due to many senior Indonesian managers being university educated in western countries such as US, UK and Australia, and so learning Anglo-Western negotiation norms and expectations. Indonesian negotiators use this initial task orientated discussion as a way to maintain harmony in the negotiations, by giving western negotiators what they want….ie. Functionality and task orientated discussion.  The Indonesian negotiators allow the negotiations to run to this familiar western format, before the negotiations return to familiar and more comfortable ground for the Indonesian negotiator. How is this done? 

Once the initial meetings have been conducted with the technocrats, the senior Indonesian executives and decision makers will then enter the negotiation, and this is when the negotiation atmospherics will ultimately change to reflect more relationship building. The negotiation team on the Indonesian side will then often change its composition and this is when the executives enter the negotiations, with the technocrats either reducing in number or no longer attending the meetings. In addition to the change in the negotiation team composition, there is also often a change in the meeting environment, as the face to face negotiations move to more informal environments such as restaurants and hotel lobbies. If the negotiation is moving towards a successful outcome then it is more likely that the meeting environment will change to further informal environments and possibly result in a meeting with the family. Once you meet the family you are a long way towards reaching your desired goal of achieving a successful business deal. 

So when you do business in Indonesia, remember that you must be concerned with building the relationship, regardless of how technical the meetings originally appear. Ultimately the stronger the inter-personal relationship the stronger your business deal will become.