Case Study Assignment
Briefly summarise the political environment in Indonesia in over the five periods?
In consideration to the provided case scenario that depicted the business accomplishment of Astra International strong background information was also provided regarding the political scenario of Indonesia. Prior summarising the overall political environment of the country in over the five periods it is justified to highlight that Indonesia exemplified a nation that has witnessed an extensive level of fluctuation in the political domain that has subsequently affected the socio-economic and business operational situations of the country. To begin with the political situation of Indonesia during the period of 1945-1966 emphasized to maintain equilibrium within the powerful sections of the society namely army, religious and communists groups. It was during this period when Indonesia had its first president Mr. Soekarno and it was during his administration a guided democracy was evident and greater emphasis was given to develop policies that favoured national culture. It was during this political era the implementation of anti-foreign policy occurred and the country also witnessed economic crisis as industrial growth was lacking (Astra International Building Successful International Business around fluxing government policy, 2016).
Following the administrative role of the first president of the country the next political era for Indonesia started in 1966 and lasted till 1974. It was during that period when under the reign of Mr, Soeharto the anti-foreign policies were terminated and open door policy was introduced whereby greater focus was observed on implementation of sustainable developmental policies. Efforts to promote agro based industries along with promotion of international trade were observed when Mr. Soeharto was in the power. The import substitution policy was evident to be developed in order to deliver incentives for companies that are interested to convert their imported components into local content (Astra International Building Successful International Business around fluxing government policy, 2016).
However slight indications towards emergence of protest and riots with respect to the impact of political decisions on industrial growth were also evident. The tenure of 1974-1998 can be identified as the third phase with respect to the continuously facing face of politics in the country. During this period the administrative body of Indonesia emphasized to review the policies implemented during the previous years and clear indications were present to redesign along with introduction of equal developmental opportunities for the industries were evident. Hence the political stage of 1974-1998 witnessed the growth and development of small and medium sized enterprises or SME’s that further supported 87% of employment of the country. In contrast to the stable political situation of the previous years the period between the years 1998-2004 experienced significant financial crises and under the president ship of Dr. Habibie the centralised national government of Indonesia was transformed into a decentralised system. The administrative power was shifted under the governing role of the local and the state governments and the political scenario was observed to be highly uncertain (Astra International Building Successful International Business around fluxing government policy, 2016).
Therefore under the administration of Dr. Habibie the political situation of Indonesia was disturbed and witnessed the emergence of political conflicts between the parties involved. The period (2004-2013) can be identified as tenure that reflected a comparatively stable political situation. It was during this period the political condition of Indonesia attained a state of equilibrium after experiencing a huge amount of turmoil in the political domain. The growth of small and medium sized enterprise was also one of the positive developments during this period wherein formation of memorandum of understanding between the industries and the financial institutions of the country was also evident. On the concluding ground it is justified to comment that Indonesia experienced a significant amount of variations in terms of changing administrative powers that created a great impact in the overall growth and development of the country. It is through the political diversities witnessed down the timeline Indonesia has presently become a political stable nation within Asia (Astra International Building Successful International Business around fluxing government policy, 2016).
Why has Astra International been so successful while operating under high levels of political and economic uncertainty?
The provided case scenario reflected the business operational efficiency of Astra International which is an Indonesian conglomerate developed in the year 1957. An evident from the given details Astra International successfully survived passing through the political turmoil down the decades. In this context it is also important to highlight that Astra International strategically altered its business operational activities keeping in alignment with the changing political scenario of the country wherein presence of organizational flexibility was also observed (Chung, Tan and Koh, 2007). Although this business firm started to roll as a distributor of the Japanese automobiles by growing a sustainable business relation this fir m successfully became a business collaborator with the Japanese. Citing the political scenario of Indonesia it was observed that Astra International strategically adapted itself with the changing policies of the country. The incorporation of flexible and adaptability resulted Astra International to remain through the political fluctuations of the country and in this context the business decision of this firm to emphasis on joint international ventures can be cited (Feldman, 2009).
Furthermore during the political phase of 1975-1998 when the government of Indonesia emphasized on local business firms and export based industries the concerned organization also merged with similar business decision. The establishment of the Dharma Bhakti Astra Foundation by Astra International can be cited as one of the effective business decisions of this firm to align with the country’s political emphasis on the growth and development of SMEs (Astra International Building Successful International Business around fluxing government policy, 2016).
Additionally the business flexibility of this firm was evident when during the period of financial crisis and introduction of a decentralised system in the country Astra International remained viable through its business operations of Dharma Bhakti Astra Foundation wherein keeping its presence in the educational sectors during the period if political turmoil (1998-2004) exemplified the strategic survivability quality of the firm. The establishment of supplier relation by Astra International with Pertamina which is an Indonesian based stated owned mining organization during the period of political stability also depicted the business strategic efficiency of the concerned firm. On the concluding ground it can be inferred that Astra International wisely considered to mould itself with the changing political scenario of the country and performed its business activities accordingly. However the presence of farsightedness of Astra International also contributed to the sustainability quotients of Astra International (Shim, 2009).
What are the risks of doing business in emerging markets such as Indonesia and how can they be reduced?
Referring to the business environment of Indonesia although the country has all the major potential of developing economies and has immense opportunities for the international firms to penetrate the business market of this country but there are also presence of certain risk factors in this respect. According to the report entitled ‘Ease of Doing Business 2015’ developed under the initiative of the World Bank it is evident that Indonesia has secured 114th position among the 189 nations in this context and it was further highlighted that the foreign business firms particularly the business firms of the United States has experienced bureaucratic and legislative complication during its attempt to penetrate the business market of this Asian country. in context of understanding the challenging factors associated with the emerging markets of Indonesia it is essential to consider the weakened aspect s of infrastructure and service network that are not in proper condition to run parallel with the increasing consumer led economy (Export.gov – Helping U.S. Companies Export, 2016).
Additionally the elevated transaction costs along with operational inefficiencies contribute to form a challenging business market for the exporters and investors. In context of legal aspects it is evident that Indonesia has secured 107th place on Transparency International’s Corruption Perceptions Index 2014 wherein the issues related with handling the corruptions cases is still on a way to improve further (Export.gov – Helping U.S. Companies Export, 2016).
Furthermore to produce an elaborate note highlighting the key challenges in business environment with respect to the emerging markets of Indonesia it is essential to mention the presence of a volatile political system. It is the continuously changing face of the political domain that contributes to the ‘expropriation risk’ wherein a strong possibility of the country’s government to seize the foreign owned assets remain vulnerable in this respect. The presence of ‘policy risk’ can also be included as the key challenges of emerging markets of Indonesia wherein with the implementation of discriminatory alterations in the legal structure is found to contribute in lowering the investor’s financial returns (Harvard Business Review, 2010).
In addition to the above mentioned cause the risk of doing business in the emerging market of Indonesia can also be linked with the presence of structural, cultural and supply chain risk that add to the formation of a challenging business environment of Indonesia. Hence in cases whereby the business firms wish to initiate business in the remote locations of this country are found to encounter three or four levels of administrations along with complications to obtain approval letters and business license. However in context of cultural cause it is evident that in Indonesia there is a frequent practice of giving gifts as a note of appreciation and it is important to understand that the local officials are generally involved with issuing of business licenses and permits to the foreign investors and business firms (Gov.uk, 2016).
Moreover it is further observed that in Indonesia the organization generally appoint a third party agent as a consultant to aid in securing the tenders issued by the Indonesian government, facilitation of customs process and in acquiring the required business license or work permits. In this context it is essential to highlight that appointment of third party for this above mentioned task found to deliver a risk if proper surveillance in not implemented (LIM, 2010).
Therefore in order to reduce the challenging business environment for doing business in the emerging markets of Indonesia implementation of an efficient surveillance along with a strengthened legislative framework has been considered to be effective. Further it is essential to incorporate precautionary measures while into business in the emerging markets of Indonesia wherein it is important for the concerned organization to understand the ethical constrain of the business environment of the country. In parallel to this it is also important for the organizations to include diligence and thoroughly evaluate the future business prospects along with evaluation of the organizational risks before venturing into new business initiatives (LIM, 2010).
What did Astra International do to limit the impact of multinational firms operating in Indonesia?
It was during the period after the riot of 1974 when the government of Indonesia emphasized to develop the growth of industries in the country wherein an inclination towards the development of domestic business firms particularly the small and medium sized enterprises were evident. Significant contribution of Astra International was also noticed in this context whereby the firm developed a foundation named the Dharma Bhakti Astra Foundation. This particular foundation was developed by Astra International in the year 1980 with an objective to limit the impact of multinational firms that were operational in Indonesia. The rationale behind development of this particular foundation by Astra International was to support the development of the small and medium sized enterprises by providing them with an educational support and also to promote and empower the non related small and mediums sized enterprises that were located in the near vicinity of the concerned business firm (Astra International Building Successful International Business around fluxing government policy, 2016). Therefore the establishment of Dharma Bhakti Astra Foundation under the initiatives of Astra International not only contribute in restricting the impact of multinational business firms in Indonesia but also reflected the corporate social responsibility of the concerned firm.
The significant involvement of Astra in providing training in various automotive skills in collaboration with the other technical school and institutions of the country can also be highlighted in this context. The Astra Manufacturing Polytechnics in the year 1990 by Astra International can be cited in this respect. Apart from this Astra International also participated aligning with the approved government policies in order to lower the economic and social distance between the bigger business firms and the smaller business entities. In order to accomplish this particular task Astra International was evident to deliver vertical integration within the system that subsequently aided in strengthening of the organizational value chain process. The introduction of Astra quality management systems, microfinance options in order to expand the domestic industrial development under the sincere initiatives of Dharma Bhakti Astra Foundation can also be placed as an example that reflect the extensive participation of this business firm to restrict the operational implementations of multinationals in the country (Astra International Building Successful International Business around fluxing government policy, 2016).
If you were a foreign firm, would you consider doing business in Indonesia? Include your reasons.
In compliance to the above mentioned questions placed an affirmative response can be given considering to venture into the business markets of Indonesia assuming the role of a foreign business firm. In supporting to the above mentioned statement the factors namely patience, persistence and presence can be identified as the key drivers in this respect. Considering the business market of Indonesia it is evident that this particular country has huge business opportunities for international firm. Although the political situation of this country is not at a satisfactory level but the fact that Indonesia offers huge business opportunities cannot be completely ignored. Also as the concept of globalization in business has affected the country to the lesser extent on comparison to the over developed nations of the globe the market competition are also less (Scase, 2007).
Hence the presence of lesser market competition can be identified as one of the key drivers for an international firm to venture the business markets of Indonesia. Also the presence of less business competition can be applied as a competitive advantage for an international firm in this respect. Furthermore plan to venture into the markets of Indonesia by an international firm can also be supported as a positive indicator to supporting employment opportunities to the native population (Sanchez and Heene, 2010). It would be beneficial considering doing business as an international firm in Indonesia because this country own a significant amount of economic potential and has been enlisted as an appropriate country to be included to the BRIC nations. Hence Indonesia reflecting the potentials of emerging economies has been listed under with other nations under the acronym of CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and south Africa) based on the contribution of their gross domestic product on supporting global economy. Hence this country has the promising market opportunities along with diverse economies, stable financial system and a rapidly growing population (Investments, 2016).
Moreover on an illustrative note it is evident that Indonesia has a GDP per capita of approximately $3,540 and contributed to about half of the ASEAN economic output. Also this country has reflected a thriving democracy with a prominent regional autonomy and has also is preferred in terms of its geographic location as this country has exemplified major international trade routes. Apart from this with respect to international business opportunities in Indonesia the fact that it is expected that a population of more than 60 million low income group shall be elevated to the level of middle economic class that shall subsequently support the formation of a huge consumer base in the country (Export.gov: Helping U.S. Companies Export, 2016).
Finally it can be inferred that due to the presence of abundant and diverse natural resources, young population, presence of a relatively stable political situation of the country along with presence of a prudent fiscal management with favourable and strategic location and also low labour cost it is a positive decision to venture into the business markets of Indonesia as a foreign business form. Therefore it is due to the presence of above mentioned positive aspects in the business market of Indonesia an attempt of doing business in the market of Indonesia can be considered as an international business firm (Export.gov: Helping U.S. Companies Export, 2016).
Astra International Building Successful International Business around fluxing government policy. (2016).
Chung, W., Tan, K. and Koh, S. (2007). Modelling strategic business decisions.
Export.gov – Helping U.S. Companies Export. (2016). Doing Business in Indonesia ?.
Feldman, D. (2009). Critical thinking. [Rochester, N.Y.]: Axzo Press.
Investments, I. (2016). Economy of Indonesia – Asia’s Emerging Market – Indonesian Economics | Indonesia Investments.
LIM, J. (2010). MITIGATING THE RISKS OF DOING BUSINESS IN INDONESIA.
Gov.uk. (2016). Overseas Business Risk – Indonesia – GOV.UK.
Sanchez, R. and Heene, A. (2010). Enhancing competences for competitive advantage.
Shim, J. (2009). Strategic business forecasting. Hawkhurst, Kent: Global Professional Pub.
Harvard Business Review. (2010). The Hidden Risks in Emerging Markets.
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