Indonesia
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Table of Contents
Selection and Objectives
Basic Information
Government Environment
Cultural Environment
Management Issues
Marketing Issues
Risk Assessment/Conclusion
Works Cited
1. Selection and Objectives.
The country of Indonesia was selected for research, because it manufactures many products that are sold here in America that we encounter on a daily basis. Things such as audio equipment, cell phones, household appliances, and clothing apparel are manufactured in this country. Many American factories relocated in the country of Indonesia to exploit the low cost of labor. Nike is a perfect example of this move. Over a third of Nike products are manufactured in this country. Our intentions for selecting Indonesia as a country of interest is to educate us more about the basic knowledge, government and culture environment, management issues, and the possible risk for business operations in this country.
2. Basic Information.
The official name of Indonesia is the Republic of Indonesia. The geography of Indonesia is approximately 2 million square miles, which is roughly 3 times the size of Texas. Indonesia consists of more than 17,000 islands, 6,000 of which are inhabited, and 1,000 islands are permanently settled. Jakarta is the capital of Indonesia.
According to the CIA World Factbook, the population was estimated at 242 million persons. Currently, “Indonesia is the worlds fourth most populated nation” (Bureau of East Asian and Pacific Affairs). The annual population growth rate was 1.45% in 2005. Based on this current growth rate, the estimated population in 2006 would be approximately 245.5 million and in 2010 would be approximately 260 million persons.
The official language of Indonesia is Indonesian. There are other local languages but Javanese is the most common local language.
The currency of Indonesia is the Indonesian rupiah (IDR). Per the chart below (data provided by the CIA-The World Factbook – Indonesia), the rupiah has been very unstable with the US Dollar.
3. Government Environment
Indonesia claimed its independence on August 17, 1945, making Indonesia an independent republic. In 1945, a Constitution was adopted which “embodies five principles of the state philosophy, called Pancasila, namely monotheism, humanitarianism, national unity, representative democracy by consensus, and social justice” (Bureau of East Asian and Pacific Affairs). Indonesia also has 3 branches of government including the Executive, Legislative, and Judicial.
In 2005, the Gross Domestic Product (GDP) was estimated at $899 billion. The inflation in 2005 was estimates at 9.3%. The natural resources available to Indonesia are oil and gas, bauxite, silver, tin, copper, gold, and coal. These resources make up about 13.6% of the GDP. Agricultural products of Indonesia include rice, cassava (tapioca), peanuts, rubber, cocoa, coffee, palm oil, copra, poultry, beef, pork, and eggs. Some of the industries include petroleum and natural gas, textiles, apparel, footwear, mining, cement, chemical fertilizers, plywood, rubber, food, and tourism. Industrial production has seen a growth rate of 2.1% in 2005.
In 2004, exports totaled $69.4 billion including oil, natural gas, appliances, and textiles. Many of these products are exported to Japan, China, U.S., Singapore, and the EU. Exports have seen an 11.49% increase since 2003.
In 2004, imports totaled $44.8 billion including food, chemicals, capital goods, and consumer goods. Many of these products are imported from Japan, Singapore, U.S., China, and the EU.
“Indonesia has struggled to overcome the Asian financial crisis, and still grapples with high unemployment, a fragile banking sector, endemic corruption, inadequate infrastructure, a poor investment climate, and unequal resource distribution among regions” (CIA World Factbook). In October 2004, President Yudhoyono implemented “a pro-growth, pro-poor, pro-employment economic program” (Bureau of East Asian and Pacific Affairs). This plan focused on four objectives: “creating a safe and peaceful Indonesia, creating a just and democratic Indonesia, creating a prosperous Indonesia, and establishing a stable macroeconomic framework for development” (Bureau of East Asian and Pacific Affairs). This plan has shown that Indonesias overall microeconomic picture is stable and improving; however, GDP growth rates have not returned to pre-crisis levels.
“Indonesia has a market-based economy in which the government plays a significant role. It owns 158 state-owned enterprises and administers prices on several goods, including fuel, rice, and electricity” (Bureau of East Asian and Pacific Affairs). The government raised fuel prices by an average of 29% in March 2005 to help reduce the fuel subsidy burden.
In the late 1980s, the Indonesian government began long-term trade reform to lessen its dependence on oil and gas. This reform was also implemented to increase industrial competitiveness in Indonesia. By the early 1990s, a series of annual deregulation packages gradually lowered applied tariff rates, convert non-tariff barriers into tariffs, and remove restrictions on foreign investment. By January 2001, many tariff lines had been cut by 5% points, reducing some to 10% or lower. In January 2002, “Indonesia, along with the other 5 original ASEAN members, implemented the final phase of the ASEAN Free Trade Agreement (AFTA)” (Doing Business in (Indonesia)).
Indonesia has reduced tariffs for all products included in its original commitment to 5% or less for products of at least 65% ASEAN origin. “In accordance with the WTO Agreement on Agriculture, Indonesia agreed to eliminate non-tariff barriers on agricultural products, and replace them with tariffs” (Doing Business in (Indonesia). “Domestic interests often take advantage of the non-transparency of the legal and judicial systems to undermine the regulations or law enforcement to the detriment of foreign parties. New laws on regional autonomy and fiscal