Indonesian Global Expansion: A Case Study Syed A Hayat Simon ...
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International Journal of Global Business, 7 (2), 9-33, December 2014 9
Indonesian Global Expansion: A Case Study
Syed A Hayat
Simon School of Business - MBA Program
Maryville University, St. Louis, USA.
Abstract
This research is conducted as a business case for the management of a US firm that is the leader
in athletic footwear and wants to expand overseas thinking that the international segments would
love its products. Additionally, the objectives of the expansion also include lowering the
manufacturing costs currently being experienced in the United States. An argument for this move
is created based on a careful analysis of cultural implications and the implications of global
management.
Keywords: Indonesian global expansion, US international business with Indonesia, athletic
footwear, business culture Indonesia, global business country SWOT analysis
Introduction
Globalization of athletic footwear by multinational companies to utilize low labor costs is not a
new concept (Globalization and Athletic Footwear, 2002). Countries like China, Cambodia,
Vietnam and Bangladesh are known to have served as sweat shops for global sporting goods
companies like Nike. For the purpose of this study it is important to first understand the global
market size and industry classification of athletic footwear.
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Global Footwear Industry Revenue (Source: Gale Business Insights)
The global sporting goods market consists of three major segments: apparel, footwear and
equipment. The footwear market is expected to represent one third of the global sales of sporting
goods (Random Analytics, 2009). Trade volume of the global footwear market is said to be around
$ 200 billion (Fry, 2010). The 2018 forecast apportions athletic footwear to comprise 42% of this
volume i.e. $ 84 billion with Asia Pacific, followed by Europe to be the biggest markets
(Transparency Market Research, 2012).
Industry is generally classified into three segments- men, women and kids. These can be further
divided (Phillips, 2000) into:
Active wear
o Walking, running, hiking, aerobics, etc.
Sports
o Basketball, tennis, baseball, football, golf, soccer etc.
The current demographics of the existing US market as suggested by the National Sporting Goods
Association (NSGA) show the male-female ratio of total sales to be 53%-47% with more than half
of all athletic sales arising from conventional retail outlets rather than online sales (Random
Analytics, 2009). Two age ranges that have consistently generated nearly half of all sales for the
past six years are children under the age of 14, and adults ranging from 45-64 years of age.
Lifestyle characteristics such as social factors (opportunity to practice hobbies/interests),
psychographics (personality and emotional characteristics), belief systems (religious, political
beliefs, cultural practice,) and life stage (pre-teen, teenagers or empty-nesters) are needed to be
studied in further detail when selecting the target country for global expansion. Some of these will
be reviewed later.
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Global Competition
“The footwear market is largely consolidated with top five players including Nike, Adidas,
Reebok, Puma and New Balance holding around 70% market share.” (Transparency Market
Research, 2012).
Global companies like Nike have demonstrated use of technology and GIS systems (Esri, 2010),
use of athletes, club sponsorships and presence in major sporting events like Super Bowl (Sanders,
1997) as some of the marketing strategies that have helped in its global expansion. Nike
manufacturing was present in 652 factories (with 132 being in China) in over 47 countries as of
2007 (Haman, Chou, Chareunsouk, Shann, Villa, & Wu, 2011)
Global Competitors (Source: Gale Business Insights)
Having established the above global facts of industry and competition, the prospects of global
expansion into another country are strongly encouraging.
Choosing the Country: Indonesia
Asia saw a total of $481.6 billion Foreign Direct Investment (FDI) in 2012 with China and India
placed at the second and fifth spot respectively on the 2013 FDI Confidence Index Report
(Laudicina, Gott & Peterson, 2013). Keeping in view the primary objectives of the global
expansion: 1) Increased sales 2) Lower costs and having established that Asia-Pacific constitutes
the major portion of the global athletic footwear sales, hence a country in Asia will be suitable to
the objectives of this case study.
Indonesia, being a developing country can offer the same in tandem to low cost manufacturing.
Indonesian expansion will enable access to geo-demographic segmentation (Mullings, Walker,
n.d) in which emerging markets containing small segment of extremely wealthy people and rapidly
growing small middle class will be targeted. It is projected to dominate the future middle class
market along with India, China and Japan (FutureBrand Country Brand Index, 2013). As Indonesia
lies on an important world maritime trade route, its sea ports will offer a strategic advantage in
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saving logistic costs when exporting production back to the home country as well (see figure below
for port map of Indonesia).
INDONESIAN PORTS
Source: www.worldportsource.com
First look into Indonesia
Differences of Indonesia from a US cultural perspective in Hofstede’s Bird Eye View is shown
below.
Source: www.geert-hofstede.com
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The above chart provides a good brief overview of what to expect from Indonesian culture in
general. Differences in power distance, individualism and pragmatism are stark from a US cultural
point of view. Let’s briefly review their societal implications:
Power Distance: Easy acceptance of power and rank is adherent to Indonesian culture signifying
centralized power centers. Emphasis is laid on indirect communication and a ‘to be told’ work
style.
Individualism: Indonesia is a collective society (opposite of individualism) and high regard is
given to being in the ‘in-group’ (Dadhich & Bhal, 2008). High family loyalty and a ‘helping each
other out’ culture is very strong.
Pragmatism: Indonesians being pragmatic, accept situations on as is basis and have less desire to
ask questions and explanations. They will be more susceptible to change while demonstrating
characteristic of being thrifty. They prefer securing investment and saving.
Indulgence: Indonesia has a culture of restraint (opposite of indulgence) to the extent that people
try to control their desires. As a restraint society, Indonesians in general do not emphasis much on
vacations and leisure activities.
Culturegram
Indonesia is world’s largest producer of rattan wood, plywood, cloves, nutmeg and cocoa.
Electricity system based on 220 transmission voltage. Indonesia has three time zone varying from
GMT+7 to GMT+9 hours. Standard banking hours 8am to 3pm –Monday through Friday.
Businesses generally remain closed on Saturday and Sunday. Travel visa required for US citizens
with availability of visa-on-arrival facility. Below is a Culturegram of the country.
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Republic of Indonesia.
History
Indonesia has a rich history influenced by traders and occupants from India, China, Arabia, Japan
and Europe over the last few centuries.
Indonesians remain an "island people" where traditional culture has survived and flourished.
Indonesians are very proud of their heritage and especially the progress they have made since
achieving independence, but the colonial experience has had a lasting impact. The Indonesian
history has shaped various characteristics amongst its people. These include the "1945 generation"
(those who fought for independence), the "Old Order generation" (Sukarno era), and the "New
Order generation" (Suharto era).
Ethical Profile
Javanese: 41.71%, Sundanese: 15.41%, Matay: 3.45%, Madurese: 3.37%, Batak: 3.02%,
Minankabau: 2.72%, Betawi: 2.51%, Bantenese: 2.05%, Banjarese: 1.74%, Balinese: 1.51%,
Makassarese: 0.99%, Crebonede: 0.94%
Age Structure
Majority of age structure is 42 percent are from 25-64 years and 26 percent from 0-14 years with
an average life expectancy of 72 years.
Climate
Moderate climate throughout the year. Being tropical, the country has two seasons- dry (April-
September) and rainy (October-March, peak rainy season in December)
•National Language
•Bhasa Indonesia
•300 local languages
•English can be understood by some
•Food
•Main staple food is rice and potatoe
•Fish, spices, coconut milk
•Currency
•(Indonesian Rupiah)
•1$ = 11520 rupiah
•US dollar acceptable currency
•Geography
•Area of 3200 miles strading the equator
•As wide as USA
•17500 Islands
•50% urban area Relgion
(Islam)Mulsims 87%,
Christian 7%, Hindu and Budhist minorities
Population (230 million)
(Worlds fourth most populace)
(Literacy rate: 92%)
Legal System
(Cvil based on Roman law)
Political System Presidential
(Worlds third largest Democracy)
Ethinicity
(over 200 groups)
Javanese 41%
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Natural landscape and Tourism
Indonesia has a diverse range of beautiful beaches, coral reefs, tropical forests, volcanic and
waterfalls with lots to see including the cultural heritage with temples and architecture. A chaotic
political and cultural hub forms in the modern metropolitan capital of Jakarta which boasts
museums, arts, traditional food festivals showcasing a melting pot of different ethnic groups. “Its
fertile soil brought about by lava, and its minerals found on land and in the sea caused by volcanic
eruptions, have made this the ideal habitat for a large number of unique and endemic flora and
fauna. Indonesia has among the most diverse variety of species of animal life on land and in the
seas found anywhere in the world” (Discover Indonesia, 2014)
Cultural Facts
People in general from all beliefs are religious in nature. Those Islands which are
dominant of Hindu (e.g. Bali), Buddhist and Christian populations adhere to celebrating
traditional religious festivals as part of their culture.
Muslim majority population of over 87% has been quite less tolerant on other minorities
in past, however national harmony has improved recently.
Inter-marriages among people of different ethnic groups have welded the population into
a more cohesive cultural unit.
Youth in large cities follow modern international trends. Music including Jazz, Pop and
Rock singers are also quite popular.
With 20 million internet (CIA World Factbook, 2009) and 282 million (CIA World
Factbook, 2012) cellular users, Indonesia is the next big thing in social media. It is the 2nd
largest country on Facebook users and 4th largest on Twitter users. Blackberry is the
most popular smart phone in Indonesia
Weddings are still traditional and offer a great introduction to Indonesia’s many diverse
customs and traditions
Deep cultural heritage boast performing arts and events including ‘Wavy Dagger’,
‘Shadow Puppets’, ‘Bamboo Musical Instruments’. Arts and crafts, hand woven sarongs,
sculptures and finely carved furniture.
Quality of Life
The Country Brand Index (FutureBrand, 2013) is a good tool to gauge the quality of life in a
country. Compared to US standards which ranks 8th, Indonesia has a low quality of life being
ranked at 78 but offers a competitive position when compared to other investment countries such
as China (66), Bangladesh (110), India (42), Cambodia (87) and Vietnam (69).
The Human Development Index (HDI) as a measure of overall quality of health in the country, the
chart below shows the comparative company position of Indonesia in the region.
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HDI – Bubble Chart (Country Comparison)
Source: United Nations Development Program – Human Development Reports
Indonesia is ranked 121 ‘Medium’ on the United Nations Human Development Index (HDI) and
21st on the Islamic-HDI index (Anto, 2009). Although the HDI score of 0.629 is less than that of
China, but still higher than Bangladesh and Vietnam. The HDI score however, has shown
significant improvement over the last twenty years (Malik, 2013).
Implications of culture The culture of business in Indonesia is much different than in the West. Strong relationships are
essential to successful business ventures in Indonesia. Business in Indonesia is more like a chess
game than a horse race. Hence it is best to locate a foreign partner that is accustomed to local
Indonesian customs. Time is considered limitless in Indonesia. Indonesians do not hurry, but rather
see hurrying as impolite.
Indonesian society is very stratified and hierarchical. Decisions are made at the top (but by
consensus) and are respected by those not in authority. “If your company visits the country, try to
send a senior employee, who is in a position to make on-the-spot decisions” - the Indonesian
Board. The person can be female as women in high positions are not a rarity in Indonesia. Gift
giving is common practice in Indonesia, and often essential to "grease the wheels" of commerce.
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Local Traditions: (Do’s and Don’ts)
Do’s Don’ts
Soft shake hands (sometimes both hands are used while shaking)
Many Muslim women introduce themselves by nodding their head, smiling or clasping their hands without shaking hands
Polite to make phone call before visiting someone
Shoes are taken of before entering houses and places of worship
Pointing with your index figure to places or people
Females should dress sufficiently Most Indonesian Muslims do not consume alcoholic drinks and pork.
Keep cash handy Concept of ‘To Toast in Honor’ is not generally known
Be humble in your negotiations and give your business partner the highest respect
Don't try to make too many meetings a day as meetings can take a long time and sometimes meetings do not start on time
Be calm and subtle and don't rebut something or someone
The word yes, may not necessarily mean "Yes, I agree", it can also mean "Yes, I heard what you said".
Do expect to be asked about your family and private life
The word no is regarded impolite, often people use the word "belum" which means "not yet".
Be careful when using humor or making a joke, as it may be misunderstood
Anger should not be shown as one can lose face
Short term visitors to be updated on Hepatitis and Typhoid vaccinations
Eating from food stalls
Do accept tea and other drinks Drinking tap water
When invited to dinner, it is expected that your host will pay
When eating or drinking, don't start until invited to do so
Keep both feet on floor while sitting, avoiding crossed legs
Don’t show your shoe sole while seated
“Family life is of utmost importance and respect for elders and political or social superiors
transcends into all areas of life. Beyond family, the power of community is essential to the
Indonesian psyche. It underlies the diverse cultures of the sukus (ethnic groups) of Indonesia.
Social obligation is very important in the community” (SOLT I - Indonesian Module on Personal
Characteristics, n.d)
Implications of global management
Indonesia’s economy grew by 5.7% in 2013, making “The World’s Most Stable Economy in the
Last Five Years” as per BKPM. The World Economic Outlook Database of 2012 projects
Indonesia to have the 3rd fastest economic growths in the G20 countries.
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Indonesia’s debt to GDP ratio has steadily declined from 83% in 2001 to be less than 26% by the
end of 2013 (IMF-Global Financial Stability Report, 2014). This is the lowest among ASEAN
countries, aside from Singapore.
The above facts our complemented by the country statistics on the Organization for Economic
Cooperation and Development (OECD) that show prospects of a good economy with increasing
GDP, FDI, energy supply and decreasing unemployment.
Key Investment Sectors: Infrastructure, Mining, Energy, Oil and Gas, Tourism, Food and
Agriculture
Key Trade Sectors: Textiles, Agricultural Products, Electronics
Indonesian Economic Snapshot
Measure as of 2013 Value Country Comparison Rank
Gross Domestic Product (GDP) as PPP
$1.285 trillion 16
GDP per capita (PPP) / Growth Rate
$5,200 / 5.3%
158 / 48
Gross National Savings GNS (GDP – Gross Expense):
31.5% of GDP
22
Income Level (2012) GNI Per Capita
Lower Middle Income $3,420
Public Debt 24.2 % of GDP 129
Budget Rev: $137.5 billion Exp: $166 billion
-
Central Bank Discount Rate/Commercial Lending Rate
6.4% / 12.1%
193 / 57
Inflation Rate
7.7%
Foreign Exchange and Gold Reserves: $83.45 billion 27
External Debt $223.8 billion 33
Current Account Balance
Negative $-28.7 billion
184
Imports $178.6 billion 28
Exports $178.9 billion 29
Stock of FDI for the year $207.2 billion 27 (Sources: Data.worldbank.org and CIA World Fact Book)
As per the MIT Observatory of Economic Complexity, for Indonesia, USA is among the top
three trading partners by volume, contributing around 10%, for its total imports and exports.
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Source: BKPM Website
As per the press releases of the Indonesian Investment Coordinating Board, the biggest investment
in ending quarters of 2012 and 2013 in the top sectors of the country quoted USA to be among the
top five investors of FDI into the country. This was confirmed from the US Bureau of Economic
Analysis website showing FDI outflows from USA, shown in table below (see ‘Other
Manufacturing’ section which includes Apparel and footwear).
Large US Operations in Indonesia include General Electric, Du Pont, Dow Chemicals, Coca Cola,
Chrysler, General Motors, Gatorade, IBM, Johnson & Johnson, Nike, Monsanto, Walmart, Mobil,
Merril Lynch, Phillip Morris, Procter & Gamble and Bank of America.
As per American Indonesian Chamber of Commerce Industry, US-Indonesia Trade volume was
around $26 billion in 2012 with US being a net importer. (Imports: $18billion, Exports: $8 billion).
Even the footwear industry in general routes a considerable trading volume through Indonesia (see
chart below). Hence, any manufacturing being imported back into the US is encouraged, looking
at the existing trade figures with Indonesia.
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Source: http://worldtradedaily.com/2013/01/03/wit-report-for-hs-code-640399-leather-shoes/
Investment Basics in Indonesia
‘Principal license’ from the Central Government and a ‘Business License’ from the Provincial
Government both are required for investors. Although the Indonesia Government wants to reduce
red tape it can take long time to set up a business. Electronic and One Stop Services are available
at federal and regional levels to facilitate investors.
Government provides investment incentives in the form of duty and tax reductions on materials
and goods under different schemes. There are several industrial zones classified under different
regional investment zones. The Government maintains a Negative Investment list. Certain sectors
are closed to private investment.
Import duty for International footwear HS Code: 6401 to 6406. From WTO tariff profile (see
Annexure), it is gathered that average import duty is 39% but for Most Favored Nations (MFN’s
that are member of WTO) the same decreases to an average of 8.6%. Hence, Indonesian import
tariffs (ad valorem per cent) effective range can be said to vary from 5-25% (Office of Textiles
and Apparel (OTEXA), US International Trade Administration). Import Facilities for Export
Purpose (KITE) exist through which exemptions can be sought from duty and taxes. Similar
schemes of duty drawbacks and rebates are also available for exporters.
Exports are all subject to a 0% VAT (local standard VAT is 10% and income tax 2.5%). An export
may be subject to an export duty which depends on the HS code. Currently the HS Code 64 does
not have any export regulation. For consideration of outsourcing manufacturing to Indonesia, when
the footwear is exported back into US, a duty of 8.5% is generally applicable in the US on shoes
and footwear. This will form part of outsourcing costs other than shipping, freight and insurance
overheads.
100% foreign ownership is provided by the government to promote foreign investment as well.
Government is currently promoting Public Private Partnerships (PPP) in the form of infrastructural
International Journal of Global Business, 7 (2), 9-33, December 2014 21
developments. There are a number of Export Processing Zones (EPZs) in Indonesia, the most well
known being Batam Island, located 20 kilometers south of Singapore
Small- and medium-sized U.S. firms entering the Indonesian market can increase their likelihood
of success by partnering with a strong local agents or distributor. Foreign companies wishing to
sell their products in Indonesia are required to appoint an Indonesian agent or distributor pursuant
to Ministry of Trade (MOT) Regulations.
Cost of Doing Business: Electricity costs, salaries of different designations, office lease cost, fuel
costs and water tariffs are all available in detail to estimate cost of doing business on the Indonesian
Investment Coordinating Board (BKBM) website. Standards applicable in the country are enforced
by the National Standardization Agency - Badan Standardisasi Nasional (BSN). The country
currently is following the Long Term Development Plan (RPJPN) for 2005-2025 (Ministry of
foreign affairs of Indonesia).
Seven Common Global Business Factors
The World Bank Country Report of 2012 reported a 58% positive, 39% not sure and 3% negative
response when asked the public – Are we headed in the right direction? This denotes the sentiment
of the people in having confidence over the strategic direction of the country.
Political risk
S&P rates Indonesia at BB+ with a stable outlook. For concerned investors, The Overseas Private
Investment Corporation (OPIC) a U.S government organization can provide insurance against
foreign nationalization insurance.
Although political environment is stable but it comes with a stark twist -corruption. Suharto, the
recent political leader of the country skimmed $30 billion dollars; making him the most corrupt in
world history (Suharto tops corruption rankings, 2004). It has been an accepted norm to give ’10
percent’ to the Suhartos as a transactional cost of doing business in Indoenisa (Boyes, 2012).
Regulatory
US-Indonesian trade is covered under the U.S.-ASEAN Trade and Investment Framework
Arrangement (TIFA) of 1996 which makes the 10 member ASEAN countries of Brunei, Burma,
Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam to be fifth
largest trading partner for the US and the fourth largest export market (See annexure for a detailed
list of FTA agreements).
Although Indonesia is a member of World Intellectual Property Rights Organiztion (WIPO) but
there are serious concerns over intellectual property rights protection, lacking adequate patent
protection in many areas.
Cultural and Religious Uncertainly
Governing such an immense archipelago (island chain) with such a diverse ethnic profile has
certainly been an uphill task which has not been helped by political corruption in the country.
Politics in the country has succumbed to pressure of the people in the past when the government
was toppled in 1998; hence a low likely but high impact political turnover can be a concern.
Demise of the ‘New Order Government’ in 1990 has reduced the role army in the society but some
International Journal of Global Business, 7 (2), 9-33, December 2014 22
flare ups among the religious groups have been seen along with occasional radical events including
bomb blasts.
Economic Competition
The popularity of local manufacturers and growing piracy in developing countries remains the
major challenge for global footwear manufacturers.” (Transparency Market Research, 2012).
As per shoeinfonet.com and the Virtual Exhibition display on the Indonesian Ministry of Trades
website over 30 local manufacturing facilities employed in athletic footwear manufacturing were
found. These included international names like Bata and some local industries that have been
around for more than 20-30 years. State-Owned Enterprises can pose significant competition as
well. It is concluded, competition in the local market will not be easy as existing manufacturers
are already producing for many international brands and are well versed with dealing with
international business and competition.
Infrastructure
Indonesia is an emerging global powerhouse in Asia and has the largest economy in South East
Asia that is aiming to reach the US $ 1 trillion mark. In line with its strategy to make Indonesia
one of the world’s ten biggest economies by 2025, the country continues to invest in infrastructural
improvements and regained its investment grade from Moody’s for the first time since the Asian
Financial Crisis of 1990 (FutureBrand Country Brand Index, 2013). Although extensive rail
network exists but is not suitable for business travel and for commercial purposes. Travelling by
car requires caution as traffic jams can occur and crowded conditions can be dangerous in busy
city areas.
Business Risks
Flooding risk has been a concern in Indonesia in the past which includes the Tsunami damage of
2004. Forest fires, severe droughts and volcanic eruptions are other natural hazards to be aware of.
A lowering unemployment rate in the country and a healthy and growing economy has put pressure
on increasing labor wages which have resulted in a bit of unrest. Labor strikes in the first quarter
of 2012 which took place at industrial areas in the Greater Jakarta area such as Tangerang and
Bekasi as well as in Riau and Papua raised alarm among investors (Global Business Guide, n.d.).
Indonesian labor is relatively cheap by world standards, but the country's under-funded education
system and overly rigid labor laws combine to make Indonesia's competitiveness lag behind other
Asian competitors (See Annexure for detail and statistics on labor employed and labor rates
provided by UNIDO).
“While Corporate Social Responsibility (CSR) 'codes of conduct' are easy to draft, supplier
compliance has been elusive. Even third-party monitoring has proven an incomplete solution”
(Lim & Phillips, 2008). Meeting child labor and other international human rights and labor
standards remain a challenge in general for the developing countries.
International Journal of Global Business, 7 (2), 9-33, December 2014 23
Socio Cultural Challenges
Some Indonesians are traditional in culture; others may be considerably "Westernized." Because
Indonesians do business with "friends," people who they know, developing a rapport is crucial.
(Doing Business in Indonesia: 2010 Guide for US Companies, 2011)
Indonesia ranked 120 in the Doing Business 2013 World Rankings and U.S. businesses routinely
cite transparency problems and red tape as factors hindering operations. Although improving, Rule
of law issues persist. Regulations are often vague and require substantial interpretation by
implementing offices, leading to business uncertainty and rent seeking opportunities. (Doing
Business in Indonesia: 2010 Guide for US Companies, 2011)
“While the Indonesian government and the Corruption Eradication Commission continue to
investigate and prosecute high - profile corruption cases, many investors consider corruption a
significant barrier to pursuing business in Indonesia. Other barriers to trade and investment
include poor government coordination, the slow rate of land acquisition for infrastructure
development projects, poor enforcement of contracts, an uncertain regulatory and legal
framework, and lack of transparency in the development of laws and regulations. U.S. companies
seeking legal relief in contract disputes have reported that they are often forced to litigate spurious
counterclaims”. (USTR Report on Barriers to Trade-Indonesia, 2013)
Country SWOT Analysis
Indonesia
For the period 2010-2012: GDP-Growth Rate: 7% (Asia Pacific: 5%, World: 2.6%)
Manufacturing Value Add (MVA) Real Growth Rate: 6% (Asia Pacific: 3.8%, World: 2.26%)
MVA per capita (USD $): 444 (Asia Pacific: 912, World: 1277, US: 5400)
Country SWOT
USA is listed for comparison of ‘cultural shock’ perspective China Indonesia Bangladesh Vietnam USA
Trade Attractiveness
Textile & Clothing Exports 2012 ($ billions) WTO
255.1 12 21.5 18.2 --
International Capital Inflow (FDI inflows 2007-2011)
http://hdr.undp.org/en/data
3.1 2.1 0.7 7.5
Merchandise exports as percentage of GDP 2010 ($ billions)
http://hdr.undp.org/en/data
28.9 25.3 .. 71.1
Trade Ranking 2012 Bloom Consulting
3 37 85 38 1
Gross Domestic Product ($ billions)
http://www.transparency.org
5,093 706 100 106 14,600
Inward FDI Potential Index http://globaledge.msu.edu
0.30 0.14 0.11 0.17
FDI Confidence Index Ranking 2013 2 24 -- Below 25
1
International Journal of Global Business, 7 (2), 9-33, December 2014 24
Global Services Location Index (measures the viability of countries as a potential offshore destination for services) http://globaledge.msu.edu
6.6 5.9 -- 5.7 5.4
Ease of Doing Business Rank IMF http://www.doingbusiness.org/data/exploreeconomies
96 120 130 99 4
Economic Freedom Index http://globaledge.msu.edu
52.5 58.5 54.1 50.8 75.5
E&Y Globalization Index (based on five categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration) http://globaledge.msu.edu
3.53 2.98 -- 3.83 4.33
International Logistics Performance Index (LPI) http://globaledge.msu.edu
3.5 2.9 -- 3 3.9
Global Manufacturing Competitiveness Index (GMCI) (manufacturing competitiveness of a country based on factors such as labor, materials, energy, and access to talented workers) http://globaledge.msu.edu
10 5.8 -- 5.7 7.8
Global Competitiveness Report (Economic competitiveness of a country based on enabling high productivity levels)
4.8 4.5 3.7 4.2 5.5
Euromoney Country Risk Rating (Tier 1 to 5) Tier 3 Tier 3 Tier 5 Tier 4 Tier 2
Quality of Life
Country Brand Index Rank (2013 quality of life and attractiveness of country) Futurebrand
66 78 110 69 8
HDI http://hdr.undp.org/en/data
.69 .63 .51 .62 0.93
Crime Index http://www.numbeo.com
30.1 46.7 62.2 53 50
Corruption Index http://www.transparency.org
40 32 27 31 73
Life Expectancy (years) http://www.transparency.org
73 68 68 74 78
Population (millions) http://www.transparency.org
1,300 239 148 87 300
Literacy Rate (%) CIA World Factbook
95% 92% 57% 93% 99%
Big Mac Price (Index) http://globaledge.msu.edu
2.74 2.3 -- 2.84 4.62
International Journal of Global Business, 7 (2), 9-33, December 2014 25
A country Strength-Weakness-Opportunity (SWOT) Analysis has been conducted with regional
competitors using global indexes to measure investment attractiveness of proposed countries as
compared to other global competitors. A detailed analysis concludes that Indonesia is very
competitive and offers a good choice for investors.
Conclusion
Indonesia’s strategic placement on the world map and access to maritime global trade routes is
paralleled by only a few other countries. Half of the world’s shipping passes through Indonesian
waters, and labor costs are fair, comparably lower than China and India.
The Indonesian Statistic Institute (BPS) state 25% of the population more than 10 years old do
sports. Footwear (shoes) are the top 10 most popular imports to Indonesia. Target market
demographics are very similar to the existing US operations that will reduce the learning curve to
develop effective strategies to market to this country. The age range comprising fifty percent of
overall sales is the same for both Indonesia and USA i.e. children under the age of 14, and adults
ranging from 45-64 years of age. Hence the Indonesian expansion case would be in tandem to
increased company’s sales and revenues.
The influx of heavy FDI into Indonesia in recent years along with the presence of US Companies
in Indonesia provides for a good business climate for US investors. Indonesia as the target
destination, offers to be a great potential market along with offering geo-demographic segments
to boost sales. This can be achieved along with outsourcing manufacturing to lower product costs
as well.
The country SWOT analysis also shows that Indonesia is an investment choice that is hard to beat.
Indonesia is vast in size, population and resources. With over 50% of the population being under
the age of 30, living in urban areas, and is increasingly technologically aware and educated, this is
a potential sales market that cannot be missed.
References
Anto, H. (2009). Introducing an Islamic Human Development Index (I-HDI) to Measure
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Other Information Sources:
http://www.beacukai.go.id (Customs Website of Indonesia)
http://www.dutycalculator.com (global duty calculator)
http://www.aiccusa.org/culturaltips.html (Cultural tips)
http://worldpopulationreview.com (for detailed ethnic profile)
Appendices
Country Groupings for Indonesia Source: http://www.census.gov/foreign-
trade/guide/sec5.html3
Pacific Rim Countries
APEC (Asia-Pacific Economic Cooperation)
ASEAN (Association of Southeast Asian Nations)
Free Trade Agreements (FTA’s) for Indonesia
ASEAN Trade in Goods Agreement (ATIGA)
ASEAN–China FTA (ACFTA)
ASEAN-Korea FTA (AKFTA)
ASEAN-India FTA (AIFTA)
ASEAN- Australian and New Zealand FTA (AANZFTA
Indonesia–Japan Economic Partnership Agreement (IJEPA)
Indonesia also provides preferential market access to Australia, China, Japan, Korea, India,
Pakistan, and New Zealand under regional ASEAN agreements and to Japan under a bilateral
agreement.
Sources of Information and guidance for Investors
International Journal of Global Business, 7 (2), 9-33, December 2014 28
Government organizations facilitating trade
o Indonesian Trade Promotion Center Los Angeles (ITPCLA) is setup specifically
for facilitating US investors interested in doing business in Indonesia
o American Indonesian Chamber of Commerce and Industry
o Directorate General for National Export Development (DGNED)
o Indonesia Investment Coordinating Board (IICB) with an office in New York
o Indonesia Chamber of Commerce and Industry (ICCI)
o National Agency for Export Development, Virtual Exhibition (Ministry of Trade)
o Indonesian Statistic Institute (Badan Pusat Statistik - BPS)
o Ministry of Foreign Affairs - Republic Of Indonesia
o Biggest Trade Show: Annual Trade Expo Indonesia
o Indonesian Export Financing Agency (LPEI)
International Sources of Facilitation for US investors
o Overseas Private Investment Corporation (OPIC)
o US Export-Import Bank
o Asian Development Bank
o International Finance Corporation (IFC) an affiliate of World Bank
o EximBank (US Export Import Bank)
INDONESIA TRADE STATISTICS – Footwear Data by Country - Indonesia
Footwear US Imports
Footwear US Exports
International Journal of Global Business, 7 (2), 9-33, December 2014 29
Source: OTEXA - http://otexa.ita.doc.gov/flt/exports/v5600.htm
International Journal of Global Business, 7 (2), 9-33, December 2014 30
Source: Global Financial Stability Report April 2014 - IMF
Source: www.IMF.org
Understanding Duty Structure on WTO website
Source: http://www.wto.org/english/res_e/statis_e/popup_indicator_help_e.htm#hs6
International Journal of Global Business, 7 (2), 9-33, December 2014 31
Indonesia Footwear Industry Profile and Trade Statistics – (United Nations Industrial Development
Organization)
Source: UNIDO.org
US to World: Apparel Industry Exports
Source: http://tse.export.gov/TSE/MapDisplay.aspx
International Journal of Global Business, 7 (2), 9-33, December 2014 32
US Industry NAICS Codes Used for Research
NAICS Codes Name Classification Level
31-33 Manufacturing Sector
316 Leather and Allied Product
Manufacturing Subsector
3162 Footwear Manufacturing Industry Group
31621 Footwear Manufacturing Industry
316211 Rubber and Plastics Footwear
Manufacturing U.S. Detail Industry
World Bank Country Survey 2012
General Public Sentiment when asked: Headed in the Right Direction?
Source: www.worldbank.org
International Journal of Global Business, 7 (2), 9-33, December 2014 33
Doing Business.org Economic Snapshot
Source: www.doingbusiness.org
Credit Rating
http://www.standardandpoors.com/ratings/sovereigns/ratings-list
Acknowledgements
With the grace of God, the author would like to thank his father and mother and beloved family
for their continuous support and motivation.
Syed A Hayat
Simon School of Business,
Maryville University, USA