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Doing business in Indonesia (part 2)

Society and Culture
Indonesia is the fourth largest country in the world with approximately 200 million people, most of whom live on Jave where the capital Jakarta (population 8 million) is located. Despite having a number of very large cities, most people still live in rural areas. In Irian Jaya (western end of Papua) and remote parts of Kalimantan (Borneo), the local tribespeople have barely moved into the twentieth century.

Indonesians are primarily Malay, except in Irian Jaya where they are mainly Papuan. The Chinese form about 3% of the population. Despite the Malay predominance, there are around 300 different ethnic groups with a wide variety of different subcultures,social structures and languages, because of the geographical spread of the populations across many islands. The national language," Bahasa Indonesia", a variant of Malay, is compulsory in primary school. Ethnic identity is usually as important as national identity and used as the primary basis for building and maintaining relationships. Geographic and economic distinctions among the rural, coastal, tribal, and urban Indonesians further the country's heterogeneity.

Indonesia is one of the most populous Islamic nations with around 90% being Sunni muslim. The rest are mainly Christian (6% mainly tribal Iban), and Buddhist (2%, mainly in Bali). Due to the Hindu influence, the Balinese have a very fatalistic attitude. Religious freedom is guaranteed and tolerance is highly valued by Indonesians. Nevertheless, as elsewhere in the Islamic world, there has been pressure to move toward Islamic fundamentalism, and there have been a few clashes between ethnic and religious groups as some people feel threatened and ambivalent about modernization. There is a requirement for all offices and building to have a prayer room. However, few Indonesians have embraced fundamentalism.  
Social behavior
Like Malaysia, Indonesia is a high power distance collectivist culture with a traditional hierarchical and honor oriented society. There is strong ingroup loyalty encompassing family, friends, and members of the same ethnic group. This provides a basis for the favoritism so rampant within the economic structure. Traditionally Indonesians have valued large families with extended families living together, supporting and helping one another. However, the increasing urbanization and the need to move to where jobs can be obtained is breaking up this interdependence and extended family living.

Harmony and respect prescribe the relations between people. Conflict is avoided while values and behavior in all aspects of life are directed towards smooth relations with others. Indonesia society is characterized by concepts such as consultation, agreement and solidarity, follow my leader or "Bapakism" (bapak = father) is a well known expression for this behavior, as people find it necessary to honor older people, and those of higher status have the role of fathers in an organization. Suharto has survived on the basis of this value. Bapakism is based on astrictive considerations such as age, seniority, wisdom and class. Within organization, loyalty is more important than wisdom and class. Within organization, loyalty is more important than efficiency. It is the role of the "bapak" manager to maintain harmony and they will use organizational assets to achieve this goal. Managerial authority and power do not stem from Western considerations of contract or appointment. Subordinates will therefore not make decisions, and there is a wait and see attitude for senior managers to reveal what the decision is.

Similarly, Chinese business organizations are mainly family concerns, with non family members only acting as assistants. The usual Confucian ethics apply in Indonesia to the Chinese who follow the principles of filial piety, obedience and loyalty. 

Thus, whatever the ethnic group or size of the organization, the basis of the enterprise is usually the family under the rule of the "bapak" (father/father figure). Most of the larger organizations do have professional managers, but they only provide advice, with the decisions still emanating from the top. These managers have to manage the company professionally, yet achieve the owner's objectives, which may be fashioned by factors other than those normally associated with sound business decisions.

Indonesians, like most modern societies, have become quite materialistic. A person's status is no longer solely judged on their family name or position, but increasingly on personal and family wealth and achieved status. Modern Indonesians have generally been motivated by status, which in turn is expected to lead to wealth. Jobs in the government service and military were highly prized by university graduates. These jobs brought benefits of status and respect, plus wealth in the form of gifts and bribes from people seeking favors. Now, business and other professions are sought by graduates as high rewards and status through material benefits accrue from those positions.

The literacy rate in Indonesia is about 62 %. Many children do not stay on at school, particularly in the rural areas and poorer parts of urban areas. About one quarter finish primary school, and around 16% complete high school, while 3 % finally graduate from college. The development of education, technical and skills training is one of the primary objectives at present to prevent Indonesia being left behind in the global economy. School drop out if often due to children having to help out with farming tasks, and the need for payments demanded as inducement for students to gain entry to higher institutions, receive school tuition and receive their final certificates. Even admittance to public universities can require an under the counter payment, even if the student has an excellent academic potential.

Although Indonesia is a Muslim country, there are numerous female professionals in Indonesian companies. Indonesian women are not discriminated against and enjoy the vote, can obtain divorce, drive a car, and inherit or acquire property. They are not required to wear veils and few do. One of the few concessions to the religion is the closure of business at the midday on Fridays in observance of Muslim worship.

Making contacts
You should try to gain an introduction to the party you wish to meet. This will speed up arrangement for a meeting and lead to speedier discussion. Cold calling, even if successfull, will lead to the first meeting only being spent on establishing credentials and developing trust. Always address your letter or fax requesting a meeting to the most senior person of the company. They will then assess who should see you, particularly in terms of the level you hold in your organization or the specialist knowledge involved.

Personal connections are often more important than economic criteria in making government and business decisions. Having the right connections is so important that it can be quite difficult in some areas to access senior person or gain a meeting without them. Connections usually start with a person's family and filter down to the Indonesian Chinese business person you really need to meet. The need to have these connections and the practice of paying people a fee to arrange them is so persuasive that even the World Bank has an informal taxation category in its cost estimates for Indonesian projects. There is also an overt favoritism with well connected firms being backed by state owned banks to finance pet projects. With credit in short supply and high interest rates, this favoritism creates difficulties for other companies. However the recent economic problems of Indonesia have resulted in shaky banks being closed and favored deals ceasing for the present. Now that Indonesian business is opened up to foreigners, corruption and efficiency is declining as reform and modernization is led by Western trained technocrats.

You will prosper better in your attempts to do business in Indonesia if you have been able to arrange through trade shows, or other professional contacts, some local partner, representative, or agent to serve as an intermediary. This partner can be an actual business partner or a consulting or trade firms that acts as a formal go between. If you are committed to do business in Indonesia, the presence of a well qualified Indonesian with good English skill operating your representative office is a valuable asset.

Your local partner, representative or consultant must have the correct political connections, which implies access to senior state and other officials. Connections with socially acceptable people will have an undue significant influence on business interactions. Unfortunately, family, friends and contacts may prove more important in a business relationship than the quality of the product or service being offered.

The Chinese business community control many of the country's businesses, and there is considerable animosity towards this small group who appear to have prospered at the expense of the Malay Indonesians. However, there is emerging an indigenous Malay business class termed pribumi, similar in character to the bumiputra business person and traders in Malaysia. This pribumi group is being encouraged to counteract the Chinese dominance. Hence they are another useful entree into a business venture in Indonesia.

It is important to remember that doing business in the private sector is vastly different from doing business with the government. The private sector works at a reasonable pace, but negotiations with government can be very slow. When doing business with the government it is important to start with the relevant department and work your way to the top, building relationships and strategic alliances all the way so that when you do eventually reach the top that person has already been given very positive noises about you and your proposals. Your lobbying has been done for you.

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