Tag Archives: Indonesia
As already noted on this blog, in these times of economic contraction in Western Europe, the United States and Japan, it is essential for entrepreneurs to look beyond what have conventionally been regarded as traditional markets and survey the world anew; on doing so, it would be a brave person to discount the potential of doing business in or with Indonesia – and not for the reasons that one might initially think of. While the nation composed of 17,508 islands is notable for its preponderance of export processing zones (‘EPZs’) – areas of lax taxation, loose regulation and eye-watering exploitation – Indonesia is also a burgeoning economy which is rapidly developing middle-class consumer tastes, clearly seen in its population’s remarkably rapid and enthusiastic adoption of smartphones, utilised in a manner more associated with South Korea than a country with a relatively modest GDP per capita (an estimated US$4,657.128 in 2011 PPP terms, IMF).
IKEA – originally a Swedish entity, but now a rather more complex corporate animal with roots straddling Holland, Liechtenstein and the Netherlands Antilles – is the planet’s largest furniture retailer, and their relationship with ASEAN’s largest member is telling. On the one hand, Indonesia is still a low-cost manufacturing hub for them, a fact exemplified by their SPARKA football. The ball of choice for Mediolana’s Creative Director and Chief Strategic Officer (‘CSO’) to bounce around his office, copy of the Financial Times in hand, as he dreams up yet another advertising campaign, the SPARKA, a soft, eminently kickable sphere with polyester, polyester and yet more polyester as its constituent elements, presently retails in the United Kingdom for the princely sum of £2.99; when one factors in the shipping costs from South-East Asia alone, it is difficult not to revere the ball as a miracle of modern globalisation.
Conversely, as the IKEA Expansion to Indonesia – Strategic Marketing Plan 2009 report - a document of significance authored by Herdianti Wisesaputri, an alumnus of the Royal Melbourne Institute of Technology‘s MBA programme – richly illustrates, Indonesia is likely to be a market of growing significance for the company that is already synonymous with home for many citizens in developed countries. Wisesaputri points to the potential for IKEA to capture the imagination of upper-middle class Indonesians, who should be the initial target market in any forthcoming retail venture in the territory; she also notes the phenomenally low capital barriers to entry for IKEA in Indonesia, with an initial five-year investment surge costing an estimated US$31m – peanuts in the context of penetrating a country of nearly 240 million people with probable GDP growth of over 6% in 2011.
In these days of high-frequency trading and gargantuan financial sector bailouts, it is more than feasible to suggest the old adage that life imitates art should be substituted by a saying to the effect that life imitates Goldman Sachs. Yet even the global investment banking behemoth may be surprised that an analytical acronym formed by one of their own – Jim O’Neill, presently the Chairman of Asset Management at Goldmans – has transmogrified into a real-life economic grouping: the BRIC countries of Brazil, Russia, India and China, four of the most lucrative and well-endowed emerging markets on the planet. These states held the first BRIC summit at Yekaterinburg in Asian Russia on 16th June 2009, and the second in much-overlooked Brasilia on 16th April 2010.
However, it is the third such meeting – a 14th April 2011 rendezvous in the Chinese tropical resort of Sanya, previously more famous for its connections with Miss World than economic beauty pageants – which may be the most memorable BRIC summit thus far, and for highly questionable reasons: the BRICs abolished themselves, instituting the BRICS in their stead; the Republic of South Africa lays claim to the ‘S’ in the new abbreviation.
While we at Mediolana have nothing against South Africa per se – a banal 2010 FIFA World Cup aside – it is difficult to see what the Rainbow Nation will bring to the BRICS party. While the other four members possess both an incredible abundance of natural resources and consumer markets of enormous absolute size and potential, with a population of around 50 million South Africa is nothing more than a local power in a region ravaged by poverty and AIDS; in a country containing pockets of unfathomable wealth, nearly 43% of South Africans are attempting to get by on a daily income of less than US$2, a reality which severely undermines the country’s credibility on the world stage.
The admission of South Africa into one of the most exclusive economic groupings in the world is a mystery; Mexico, Turkey or Indonesia to name but three countries would have been much more coherent selections. But as well as being a strange choice, it is also potentially a dangerous one: by giving membership to a state which does not ostensibly measure up to any relevant criteria, the BRIC countries risk profoundly damaging the credibility of their own entity. Jim O’Neill’s latest categorisation – the so-called ‘growth markets‘ – does not include South Africa; whether BRICS will revert to its singular form in the future is anyone’s guess.
A recent piece composed by Andrew Hill, an Associate Editor and management doyen at London’s Financial Times, makes for thought-provoking reading. Society and the right kind of capitalism examines the apparently interchangeable notions of ‘shared value’ or ‘constructive capitalism’. Shared value was the subject of a prominent article by Michael Porter and Mark Kramer in the January/February 2011 Harvard Business Review; constructive capitalism is a concept which has been strongly associated with Umair Haque, author of the freshly published The New Capitalist Manifesto: Building a Disruptively Better Business.
Hill summarises that both of these ideas point to the possibility of ‘a higher form of capitalism’ that generate profits whose benefits are accrue (and citing the words of Haque) ‘sustainably, authentically and meaningfully to people, communities, society, the natural world and future generations’. However, he asserts that ultimately, capitalists – whether constructive or otherwise – are still capitalists: when confronted with diminishing returns in even the most ethical of markets, most investors will chase the higher returns available elsewhere, regardless of the negative externalities generated.
However, while possessing a certain logic, this analysis is not without its flaws:
1. It cannot explain phenomena such as the fair trade movement, a campaign which as recently as twenty years ago was a marginal entity barely known outside of some student dormitories and churches but which has now blossomed into a multi-billion euro segment of the mainstream economy. ‘Rational’ capitalists of the kind that Hill describes would never give companies that pay significantly higher wages than their competitors – purely for ethical reasons – a second glance, yet the inexorable growth in popularity of fairly traded goods such as coffee and chocolate tells us otherwise.
2. More broadly, it fails to recognise that the separation between ethics and profits – the economic equivalent of Cartesian dualism – is making a mockery of markets and killing capitalism. The relentless quest for growth at any cost is destroying the very nature – forests, oceans and particularly agricultural land – on which humanity depends. A one metre rise in sea levels as a result of global warming would endanger over 30% of the world’s croplands; low-lying areas of cultivation, such as those in Egypt, China, Indonesia, Holland, Bangladesh and Florida, might find it impossible to sustain agriculture at all. To suggest that rational capitalists – with perfect market information! – can ignore the impact of their own actions in this context does not bear scrutiny.
In their slow-burning 2004 classic Karaoke Capitalism: Management for Mankind, Jonas Ridderstrale and Kjell Nordstrom warn that we have a simple choice in front of us: capitalism with a cause or capitalism with a curse. Aiming for the former surely precludes assuming that the limits of economic rationality stretch no further than a purported maximisation of short-run utility which may not even exist.
The recent release of the Q4 growth figures for the United Kingdom, which revealed that an economic contraction took place in what is traditionally by far the most lucrative quarter for a great many UK businesses, should make it fairly clear that any recovery from a recession which many have compared to the Great Depression is not going to be straightforward, with even the tactic of adding a few extra digits to the money supply not proving enough to dispel the clouds of economic gloom. And while the figures for the United Kingdom are particularly sobering, from the United States to Spain large parts of the developed world are facing structural macroeconomic problems that signal the long-awaited return to growth may not occur any time soon.
In times like these, entrepreneurs – particularly those with knowledge and skills in the digital economy – would be well-advised to pore through the illuminating Boston Consulting Group (‘BCG’) report, The Internet’s New Billion: Digital Consumers in Brazil, Russia, India, China and Indonesia. This 2009 publication provides a wealth of information on online activity in a group of countries – termed the ‘BRICIs’ by BCG – that represent scarcely conceivable opportunities for enterprises based in a largely stagnant (post-)industrial world.
The following information is of particular salience:
1. In 2009, the BRICIs represented about 45% of the world’s population and around 15% of the planet’s GDP. 610 million Internet users lived in these territories;
2. By 2015, these countries will possess more than 1.2 billion people utilising the Internet;
3. The number of PCs in the BRICIs is set to more than double in the six years from 2009 to over 880 million;
4. As of 2009, the BRICI countries had about 1.8 billion mobile telephone subscriptions, compared with a combined total of 394 million in Japan and the US;
5. 60% of BRICI digital consumers are under 35 years old and are very quick to adapt to new ways of using technology. Education is especially prized in the BRICI nations, and has helped spur the growth of the Internet in these economies; young people are especially keen on using instant messaging services to discuss homework.
Developed world entrepreneurs take note: the digital markets of tomorrow are here already. And a First World recession is all the more reason to explore them.