1 is there an indonesian style of management? week 8
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Is there an Is there an “Indonesian” style of “Indonesian” style of
management?management?
Week 8Week 8
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A bit of economic dataA bit of economic data 2000 2000 2001 2001 2002 2002
2003 2003 GDP per head ($ at PPP)GDP per head ($ at PPP) 3,0553,055 3,2003,200 3,3303,330
3,4903,490 GDP (% real change pa)GDP (% real change pa) 4.934.93 3.473.47 3.693.69
4.14.1 Labour costs per hour (USD)Labour costs per hour (USD) 0.270.27 0.280.28 0.370.37
0.470.47 Recorded unemployment (%)Recorded unemployment (%) 6.086.08 8.18.1 8.38.3
8.78.7
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Geographic dispersionGeographic dispersion
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Bit of backgroundBit of background Indonesian archipelagoIndonesian archipelago
– 13,000 islands13,000 islands– population around 200,000,000population around 200,000,000– over 200 languages & dialectsover 200 languages & dialects
Historical developmentHistorical development Pre-colonial – Chinese/Arab/Malay – cultural Pre-colonial – Chinese/Arab/Malay – cultural
diversitydiversity Dutch colonial – effect on small part of Dutch colonial – effect on small part of
populationpopulation Japanese occupation (1942-45) – promotion if Japanese occupation (1942-45) – promotion if
Indonesian languageIndonesian language Independence – 1947Independence – 1947 Erratic development path up to 1965Erratic development path up to 1965 Post 1965 – 5 year plans (repelita)Post 1965 – 5 year plans (repelita) Aimed at stabilisation & industrialisationAimed at stabilisation & industrialisation
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Is there a Indonesian Is there a Indonesian management style?management style?
Munandar (1990)Munandar (1990) ““Indonesian managers today & Indonesian managers today &
tomorrow” – International Journal of tomorrow” – International Journal of PsychologyPsychology
International acculturation processInternational acculturation process Considers national-international levelConsiders national-international level Welfare state through industrialisationWelfare state through industrialisation Industrialisation process encouraging Industrialisation process encouraging
FDIFDI
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Middle management traitsMiddle management traits
Indonesian managers (middle Indonesian managers (middle management)management)– PaternalisticPaternalistic– Little information sharingLittle information sharing– Don’t encourage subordinate Don’t encourage subordinate
participationparticipation– SubjectiveSubjective– Less analyticLess analytic
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A set of traitsA set of traits Applying Hofstede’s analysisApplying Hofstede’s analysis
– CollectivistCollectivist– Accepting of inequalityAccepting of inequality– Tolerant and non- aggressive Tolerant and non- aggressive – Not particularly ambitious or competitiveNot particularly ambitious or competitive
Danajaya (1985) reviews successful & Danajaya (1985) reviews successful & unsuccessful managersunsuccessful managers– Success = pragmatic primary value orientationSuccess = pragmatic primary value orientation– Less successful = operative values relating to Less successful = operative values relating to
(e.g.) prestige/dignity(e.g.) prestige/dignity– Suggests successful managers = operative values Suggests successful managers = operative values
equivalent to those values in successful managers equivalent to those values in successful managers elsewhereelsewhere
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Tomorrow’s manager todayTomorrow’s manager today Munandar argues that the Indonesian Munandar argues that the Indonesian
manager of tomorrow needs to develop 4 manager of tomorrow needs to develop 4 strategiesstrategies
Attention to visionAttention to vision Meaning through communicationMeaning through communication Trust through positioningTrust through positioning Deployment of self through positive self-Deployment of self through positive self-
regardregard– Knowledge of one’s strengthsKnowledge of one’s strengths– Capacity to nurture & develop those strengthsCapacity to nurture & develop those strengths– Ability to discern the discrepancy between one’s Ability to discern the discrepancy between one’s
strengths & weaknesses & the organisation’s strengths & weaknesses & the organisation’s needsneeds
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This was 1990.This was 1990.Emerging managers now?Emerging managers now?
Heuer et al (1999) studied convergence of Heuer et al (1999) studied convergence of Indonesian managers to US norms along the Indonesian managers to US norms along the individualism/collectivism &individualism/collectivism &
The power distance parametersThe power distance parameters Found no statistically significant difference Found no statistically significant difference
between scores for Indonesian & US managersbetween scores for Indonesian & US managers But But sample used MBAssample used MBAs Cannot extrapolate to all managersCannot extrapolate to all managers Convergence because Convergence because
– Indonesian business environment in state of fluxIndonesian business environment in state of flux– US business environment relatively stableUS business environment relatively stable
Suggests impact of western FDI/management Suggests impact of western FDI/management practice within business environmentpractice within business environment
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An Englishman abroadAn Englishman abroad Berry et al. (1988) have suggested 3 Berry et al. (1988) have suggested 3
different basic modes of adjustmentdifferent basic modes of adjustment Reaction modeReaction mode
– expatriate tries to change the environment expatriate tries to change the environment rather than his own behaviourrather than his own behaviour
Integration modeIntegration mode– expatriate changes his behaviour in order expatriate changes his behaviour in order
to reduce the conflict with the to reduce the conflict with the environmentenvironment
– (problem-focused coping strategy)(problem-focused coping strategy) Withdrawal modeWithdrawal mode
– expatriate tries to remove himself from expatriate tries to remove himself from the conflict situationthe conflict situation
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A Finn abroadA Finn abroad
Suutari et al (2002) studied Suutari et al (2002) studied expatriate managers’ adaptations in expatriate managers’ adaptations in IndonesiaIndonesia
The results of the study indicate that The results of the study indicate that all expatriate managers actively all expatriate managers actively adjust their leadership style when adjust their leadership style when they lead foreign subordinatesthey lead foreign subordinates
They use integration mode (in varying They use integration mode (in varying degrees)degrees)
Side effect – expats’ views on Side effect – expats’ views on Indonesian workersIndonesian workers
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The (sad) case of Bank Duta in The (sad) case of Bank Duta in 19891989
Desire not to deliver bad newsDesire not to deliver bad news Subordinates do not wish to inform seniors Subordinates do not wish to inform seniors
of bad newsof bad news Manager of dealing room found $US20 Manager of dealing room found $US20
million loss in FX tradingmillion loss in FX trading Didn’t say anythingDidn’t say anything Two days later $US70 million lossTwo days later $US70 million loss President-director only told before scrutiny President-director only told before scrutiny
of year-end reportsof year-end reports He did not inform the boardHe did not inform the board Told dealing room manager to keep quietTold dealing room manager to keep quiet Subsequent loss was $US419 millionSubsequent loss was $US419 million
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Cultural dilemmasCultural dilemmas AssertivenessAssertiveness
– Conceal negative feelingsConceal negative feelings– Play down positive feelingsPlay down positive feelings– Are typically non-assertiveAre typically non-assertive
Yes means Yes (or No)Yes means Yes (or No)– Believe to say No invites conflictBelieve to say No invites conflict– Therefore Indonesians will say yes when they Therefore Indonesians will say yes when they
mean no.mean no.– How do you tell what they mean……….How do you tell what they mean……….
UnderstatementUnderstatement– Indonesians will not give their opinion unless Indonesians will not give their opinion unless
invited to do soinvited to do so
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Gorblimey! What does this all Gorblimey! What does this all mean?mean?
Despite acculturation theoryDespite acculturation theory Despite convergence theoryDespite convergence theory Despite MBAsDespite MBAs Worker Worker expectationexpectation of management is of management is
– Variable andVariable and– Location/culture specificLocation/culture specific
This must have an effect onThis must have an effect on– How workers are managedHow workers are managed– How expats are preparedHow expats are prepared– The validity of a universality concept of managementThe validity of a universality concept of management
There are certain required management traitsThere are certain required management traits Contingency management seems best paradigmContingency management seems best paradigm
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Vance & Paik (2002)Vance & Paik (2002)
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Role of the JV in understanding Role of the JV in understanding managementmanagement
Perks & Sanderson (2000)Perks & Sanderson (2000) Study of JV process between Lucas Study of JV process between Lucas
(UK) & 2 Indonesian partners(UK) & 2 Indonesian partners Exploratory stage & Strategic intentExploratory stage & Strategic intent
– State – long term stability & sustainability State – long term stability & sustainability (Repalita 6)(Repalita 6)
– Indonesian SOE – long term technology Indonesian SOE – long term technology transfer/skills, etctransfer/skills, etc
– Indonesian private company – market Indonesian private company – market opportunity in aerospaceopportunity in aerospace
– Lucas – low cost high precision Lucas – low cost high precision manufacturemanufacture
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Cultural considerationsCultural considerations
Study puts emphasis on meetings and Study puts emphasis on meetings and negotiationsnegotiations– ConsensusConsensus– SlownessSlowness– Attention to detailAttention to detail– Key componentsKey components
Each party had gains to make from JVEach party had gains to make from JV– Success (18 months start to finish) Success (18 months start to finish)
accomplished by UK negotiators beingaccomplished by UK negotiators being– Senior executivesSenior executives– Adapting to Indonesian negotiating styleAdapting to Indonesian negotiating style
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Positive advantages at Positive advantages at implementationimplementation
Indonesian partners ensured Indonesian partners ensured collectivist decisions finalisedcollectivist decisions finalised
So start-up operations could proceed So start-up operations could proceed smoothly without hold-ups & conflicts smoothly without hold-ups & conflicts so often found in Western companiesso often found in Western companies
All relevant stakeholders consulted All relevant stakeholders consulted early on so decisions seen as early on so decisions seen as balanced and high qualitybalanced and high quality
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SOE sectorSOE sector
Still many SOEsStill many SOEs Mostly former Dutch companies which were Mostly former Dutch companies which were
nationalisednationalised Recent attempts at reformRecent attempts at reform Privatising non-profitable SOEsPrivatising non-profitable SOEs Management is limited – restricted authorityManagement is limited – restricted authority
Rise of conglomerates (konglomerat)Rise of conglomerates (konglomerat) Driving force behind Indonesian economic Driving force behind Indonesian economic
developmentdevelopment Mainly Chinese ownedMainly Chinese owned Of top 25 only 5 owned by ethnic IndonesiansOf top 25 only 5 owned by ethnic Indonesians Adopting new management techniquesAdopting new management techniques Reliance on informal relationships between Reliance on informal relationships between
owners and associatesowners and associates
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SME sector modificationSME sector modification
ILO figures suggest 1997 crisis caused ILO figures suggest 1997 crisis caused displacement of 5.4m non-financial displacement of 5.4m non-financial sector workerssector workers
Many re-absorbed in informal sectorMany re-absorbed in informal sector Fundamental re-profiling of sectorFundamental re-profiling of sector Throws light on government policy Throws light on government policy
failurefailure Provides analysis of SME sector Provides analysis of SME sector
requirements to provide economic requirements to provide economic growth potentialgrowth potential
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Reactions by small business Reactions by small business sector to crisis - 1sector to crisis - 1
Micro-Enterprises Level Micro-Enterprises Level – Stop the business Stop the business – Change the occupation (for Change the occupation (for
example, become a trader) example, become a trader) – Reduce the quality of the product Reduce the quality of the product
by changing/reducing use of by changing/reducing use of expensive raw materials expensive raw materials
– Change the product Change the product
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Reactions by small business Reactions by small business sector to crisis - 2sector to crisis - 2
Larger Small Industries Larger Small Industries – Reduce the scale of production or working Reduce the scale of production or working
hourshours– Keep the price of output as before while Keep the price of output as before while
decreasing the size of goods produceddecreasing the size of goods produced– Increase the price of output by 20-25 percentIncrease the price of output by 20-25 percent– Diversify the product Diversify the product – Shift the imported raw materials towards local Shift the imported raw materials towards local
onesones– Maintain production using old stock of raw Maintain production using old stock of raw
materialsmaterials– Change the market orientation from domestic Change the market orientation from domestic
to exportto export– Pay back bank loan and try to substitute it Pay back bank loan and try to substitute it
with funds from other sources with funds from other sources
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Import relianceImport reliance Export oriented SMEs more able to Export oriented SMEs more able to
resist crisisresist crisis Spotlight of 97 crisis suggestsSpotlight of 97 crisis suggests Many SMEs in Indonesia are very Many SMEs in Indonesia are very
dependent on dependent on importsimports for their raw for their raw materials and other inputsmaterials and other inputs
Even in traditional manufacturing Even in traditional manufacturing sub-sectors such as:sub-sectors such as:
textiles textiles garmentsgarments footwearfootwear
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Policy failurePolicy failure Tambunan (2000) arguesTambunan (2000) argues Failure of Replita to address Failure of Replita to address
“midstream” industries“midstream” industries The effect of skewed micro economic The effect of skewed micro economic
development is thatdevelopment is that Downstream industries must rely Downstream industries must rely
heavily on imports of capital and heavily on imports of capital and intermediate goods, processed raw intermediate goods, processed raw materials, and other input.materials, and other input.
This leaves SMEs (& larger downstream This leaves SMEs (& larger downstream industries) very vulnerable to industries) very vulnerable to disruptions to import supplydisruptions to import supply
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Policy reviewPolicy review Tambunan (again!) (2005) reviews the state Tambunan (again!) (2005) reviews the state
policy of developing & encouragingpolicy of developing & encouraging SME clustering:SME clustering: Identifies 3 types of cluster classification.Identifies 3 types of cluster classification. Artisinal clustersArtisinal clusters dominant clusters in Indonesiadominant clusters in Indonesia - - indicating indicating
that the process of clustering in the country that the process of clustering in the country is still at an infant stageis still at an infant stage
This type of cluster displays many This type of cluster displays many characteristics of the informal sectorcharacteristics of the informal sector
Level of productivity and wages being much Level of productivity and wages being much lower than those of clusters dominated by lower than those of clusters dominated by SMEs.SMEs.
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Cluster classificationCluster classification
Active clustersActive clusters developed rapidly in terms of skills developed rapidly in terms of skills
improvementimprovement technological upgrading and technological upgrading and successful penetration of domestic and successful penetration of domestic and
export marketsexport markets Advanced clustersAdvanced clusters many active clusters are more many active clusters are more
developed and become more complex developed and become more complex in structurein structure
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Internal/external clustering Internal/external clustering networksnetworks
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Public policyPublic policy Important for public policy perspective.Important for public policy perspective. Strategy makes it more effective and more Strategy makes it more effective and more
efficient for government to provide technical efficient for government to provide technical assistance and general facilities to a group of assistance and general facilities to a group of firms in one place than to individual firms in firms in one place than to individual firms in dispersed locationsdispersed locations
ButBut Cluster development policies in Indonesia Cluster development policies in Indonesia
have not been successfulhave not been successful Most failures can be attributed to:Most failures can be attributed to:
– neglecting cluster linkage to marketsneglecting cluster linkage to markets– neglecting or even eroding SMEs’ self-organization neglecting or even eroding SMEs’ self-organization
potentialpotential– limited support from local government and private limited support from local government and private
organizationsorganizations