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1 Is there an Indonesian style of management? Week 8.

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Presentation on theme: "1 Is there an Indonesian style of management? Week 8."— Presentation transcript:

1 1 Is there an Indonesian style of management? Week 8

2 2 A bit of economic data 2000 2001 2002 2003 2000 2001 2002 2003 GDP per head ($ at PPP)3,0553,2003,3303,490 GDP per head ($ at PPP)3,0553,2003,3303,490 GDP (% real change pa)4.933.473.694.1 GDP (% real change pa)4.933.473.694.1 Labour costs per hour (USD)0.270.280.370.47 Labour costs per hour (USD)0.270.280.370.47 Recorded unemployment (%)6.088.18.38.7 Recorded unemployment (%)6.088.18.38.7

3 3 Geographic dispersion

4 4 Bit of background Indonesian archipelago Indonesian archipelago –13,000 islands –population around 200,000,000 –over 200 languages & dialects Historical development Historical development Pre-colonial – Chinese/Arab/Malay – cultural diversity Pre-colonial – Chinese/Arab/Malay – cultural diversity Dutch colonial – effect on small part of population Dutch colonial – effect on small part of population Japanese occupation (1942-45) – promotion if Indonesian language Japanese occupation (1942-45) – promotion if Indonesian language Independence – 1947 Independence – 1947 Erratic development path up to 1965 Erratic development path up to 1965 Post 1965 – 5 year plans (repelita) Post 1965 – 5 year plans (repelita) Aimed at stabilisation & industrialisation Aimed at stabilisation & industrialisation

5 5 Is there a Indonesian management style? Munandar (1990) Munandar (1990) Indonesian managers today & tomorrow – International Journal of Psychology Indonesian managers today & tomorrow – International Journal of Psychology International acculturation process International acculturation process Considers national-international level Considers national-international level Welfare state through industrialisation Welfare state through industrialisation Industrialisation process encouraging FDI Industrialisation process encouraging FDI

6 6 Middle management traits Indonesian managers (middle management) Indonesian managers (middle management) –Paternalistic –Little information sharing –Dont encourage subordinate participation –Subjective –Less analytic

7 7 A set of traits Applying Hofstedes analysis Applying Hofstedes analysis –Collectivist –Accepting of inequality –Tolerant and non- aggressive –Not particularly ambitious or competitive Danajaya (1985) reviews successful & unsuccessful managers Danajaya (1985) reviews successful & unsuccessful managers –Success = pragmatic primary value orientation –Less successful = operative values relating to (e.g.) prestige/dignity –Suggests successful managers = operative values equivalent to those values in successful managers elsewhere

8 8 Tomorrows manager today Munandar argues that the Indonesian manager of tomorrow needs to develop 4 strategies Munandar argues that the Indonesian manager of tomorrow needs to develop 4 strategies Attention to vision Attention to vision Meaning through communication Meaning through communication Trust through positioning Trust through positioning Deployment of self through positive self- regard Deployment of self through positive self- regard –Knowledge of ones strengths –Capacity to nurture & develop those strengths –Ability to discern the discrepancy between ones strengths & weaknesses & the organisations needs

9 9 This was 1990. Emerging managers now? Heuer et al (1999) studied convergence of Indonesian managers to US norms along the individualism/collectivism & Heuer et al (1999) studied convergence of Indonesian managers to US norms along the individualism/collectivism & The power distance parameters The power distance parameters Found no statistically significant difference between scores for Indonesian & US managers Found no statistically significant difference between scores for Indonesian & US managers But sample used MBAs But sample used MBAs Cannot extrapolate to all managers Cannot extrapolate to all managers Convergence because Convergence because –Indonesian business environment in state of flux –US business environment relatively stable Suggests impact of western FDI/management practice within business environment Suggests impact of western FDI/management practice within business environment

10 10 An Englishman abroad Berry et al. (1988) have suggested 3 different basic modes of adjustment Berry et al. (1988) have suggested 3 different basic modes of adjustment Reaction mode Reaction mode –expatriate tries to change the environment rather than his own behaviour Integration mode Integration mode –expatriate changes his behaviour in order to reduce the conflict with the environment –(problem-focused coping strategy) Withdrawal mode Withdrawal mode –expatriate tries to remove himself from the conflict situation

11 11 A Finn abroad Suutari et al (2002) studied expatriate managers adaptations in Indonesia Suutari et al (2002) studied expatriate managers adaptations in Indonesia The results of the study indicate that all expatriate managers actively adjust their leadership style when they lead foreign subordinates The results of the study indicate that all expatriate managers actively adjust their leadership style when they lead foreign subordinates They use integration mode (in varying degrees) They use integration mode (in varying degrees) Side effect – expats views on Indonesian workers Side effect – expats views on Indonesian workers

12 12 The (sad) case of Bank Duta in 1989 Desire not to deliver bad news Desire not to deliver bad news Subordinates do not wish to inform seniors of bad news Subordinates do not wish to inform seniors of bad news Manager of dealing room found $US20 million loss in FX trading Manager of dealing room found $US20 million loss in FX trading Didnt say anything Didnt say anything Two days later $US70 million loss Two days later $US70 million loss President-director only told before scrutiny of year-end reports President-director only told before scrutiny of year-end reports He did not inform the board He did not inform the board Told dealing room manager to keep quiet Told dealing room manager to keep quiet Subsequent loss was $US419 million Subsequent loss was $US419 million

13 13 Cultural dilemmas Assertiveness Assertiveness –Conceal negative feelings –Play down positive feelings –Are typically non-assertive Yes means Yes (or No) Yes means Yes (or No) –Believe to say No invites conflict –Therefore Indonesians will say yes when they mean no. –How do you tell what they mean………. Understatement Understatement –Indonesians will not give their opinion unless invited to do so

14 14 Gorblimey! What does this all mean? Despite acculturation theory Despite acculturation theory Despite convergence theory Despite convergence theory Despite MBAs Despite MBAs Worker expectation of management is Worker expectation of management is –Variable and –Location/culture specific This must have an effect on This must have an effect on –How workers are managed –How expats are prepared –The validity of a universality concept of management There are certain required management traits There are certain required management traits Contingency management seems best paradigm Contingency management seems best paradigm

15 15 Vance & Paik (2002)

16 16 Role of the JV in understanding management Perks & Sanderson (2000) Perks & Sanderson (2000) Study of JV process between Lucas (UK) & 2 Indonesian partners Study of JV process between Lucas (UK) & 2 Indonesian partners Exploratory stage & Strategic intent Exploratory stage & Strategic intent –State – long term stability & sustainability (Repalita 6) –Indonesian SOE – long term technology transfer/skills, etc –Indonesian private company – market opportunity in aerospace –Lucas – low cost high precision manufacture

17 17 Cultural considerations Study puts emphasis on meetings and negotiations Study puts emphasis on meetings and negotiations –Consensus –Slowness –Attention to detail –Key components Each party had gains to make from JV Each party had gains to make from JV –Success (18 months start to finish) accomplished by UK negotiators being –Senior executives –Adapting to Indonesian negotiating style

18 18 Positive advantages at implementation Indonesian partners ensured collectivist decisions finalised Indonesian partners ensured collectivist decisions finalised So start-up operations could proceed smoothly without hold-ups & conflicts so often found in Western companies So start-up operations could proceed smoothly without hold-ups & conflicts so often found in Western companies All relevant stakeholders consulted early on so decisions seen as balanced and high quality All relevant stakeholders consulted early on so decisions seen as balanced and high quality

19 19 SOE sector Still many SOEs Still many SOEs Mostly former Dutch companies which were nationalised Mostly former Dutch companies which were nationalised Recent attempts at reform Recent attempts at reform Privatising non-profitable SOEs Privatising non-profitable SOEs Management is limited – restricted authority Management is limited – restricted authority Rise of conglomerates (konglomerat) Rise of conglomerates (konglomerat) Driving force behind Indonesian economic development Driving force behind Indonesian economic development Mainly Chinese owned Mainly Chinese owned Of top 25 only 5 owned by ethnic Indonesians Of top 25 only 5 owned by ethnic Indonesians Adopting new management techniques Adopting new management techniques Reliance on informal relationships between owners and associates Reliance on informal relationships between owners and associates

20 20 SME sector modification ILO figures suggest 1997 crisis caused displacement of 5.4m non-financial sector workers ILO figures suggest 1997 crisis caused displacement of 5.4m non-financial sector workers Many re-absorbed in informal sector Many re-absorbed in informal sector Fundamental re-profiling of sector Fundamental re-profiling of sector Throws light on government policy failure Throws light on government policy failure Provides analysis of SME sector requirements to provide economic growth potential Provides analysis of SME sector requirements to provide economic growth potential

21 21 Reactions by small business sector to crisis - 1 Micro-Enterprises Level Micro-Enterprises Level –Stop the business –Change the occupation (for example, become a trader) –Reduce the quality of the product by changing/reducing use of expensive raw materials –Change the product

22 22 Reactions by small business sector to crisis - 2 Larger Small Industries Larger Small Industries –Reduce the scale of production or working hours –Keep the price of output as before while decreasing the size of goods produced –Increase the price of output by 20-25 percent –Diversify the product –Shift the imported raw materials towards local ones –Maintain production using old stock of raw materials –Change the market orientation from domestic to export –Pay back bank loan and try to substitute it with funds from other sources

23 23 Import reliance Export oriented SMEs more able to resist crisis Export oriented SMEs more able to resist crisis Spotlight of 97 crisis suggests Spotlight of 97 crisis suggests Many SMEs in Indonesia are very dependent on imports for their raw materials and other inputs Many SMEs in Indonesia are very dependent on imports for their raw materials and other inputs Even in traditional manufacturing sub- sectors such as: Even in traditional manufacturing sub- sectors such as: textiles textiles garments garments footwear footwear

24 24 Policy failure Tambunan (2000) argues Tambunan (2000) argues Failure of Replita to address midstream industries Failure of Replita to address midstream industries The effect of skewed micro economic development is that The effect of skewed micro economic development is that Downstream industries must rely heavily on imports of capital and intermediate goods, processed raw materials, and other input. Downstream industries must rely heavily on imports of capital and intermediate goods, processed raw materials, and other input. This leaves SMEs (& larger downstream industries) very vulnerable to disruptions to import supply This leaves SMEs (& larger downstream industries) very vulnerable to disruptions to import supply

25 25 Policy review Tambunan (again!) (2005) reviews the state policy of developing & encouraging Tambunan (again!) (2005) reviews the state policy of developing & encouraging SME clustering: SME clustering: Identifies 3 types of cluster classification. Identifies 3 types of cluster classification. Artisinal clusters Artisinal clusters dominant clusters in Indonesia - indicating that the process of clustering in the country is still at an infant stage dominant clusters in Indonesia - indicating that the process of clustering in the country is still at an infant stage This type of cluster displays many characteristics of the informal sector This type of cluster displays many characteristics of the informal sector Level of productivity and wages being much lower than those of clusters dominated by SMEs. Level of productivity and wages being much lower than those of clusters dominated by SMEs.

26 26 Cluster classification Active clusters Active clusters developed rapidly in terms of skills improvement developed rapidly in terms of skills improvement technological upgrading and technological upgrading and successful penetration of domestic and export markets successful penetration of domestic and export markets Advanced clusters Advanced clusters many active clusters are more developed and become more complex in structure many active clusters are more developed and become more complex in structure

27 27 Internal/external clustering networks

28 28 Public policy Important for public policy perspective. Important for public policy perspective. Strategy makes it more effective and more efficient for government to provide technical assistance and general facilities to a group of firms in one place than to individual firms in dispersed locations Strategy makes it more effective and more efficient for government to provide technical assistance and general facilities to a group of firms in one place than to individual firms in dispersed locations But But Cluster development policies in Indonesia have not been successful Cluster development policies in Indonesia have not been successful Most failures can be attributed to: Most failures can be attributed to: –neglecting cluster linkage to markets –neglecting or even eroding SMEs self-organization potential –limited support from local government and private organizations


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