With an area of 2.2 million square-kilometers and a population of 175 million, Indonesia produces oil, timber, coal and a range of tropical products. For the investor this is an exciting land from any point of view.
Indonesia Investment Council statistics show that between 1967 and 1988 Taiwan investment in Indonesia totaled US$1.07 billion, ranking sixth among all foreign investors. In 1988 alone Taiwan investment amounted to US$910 million, second only to West Germany (see attached table). The Southeast Asian nations most preferred by Taiwan investors are Thailand, Malaysia, the Philippines and Indonesia.
Remarkably, while the number of investment cases in 1989 was up from the previous year, total investment was down. "There are plenty of investors, but they're going in in a small way," explains Jerry Chen of the Taipei Economic and Trade Office in Jakarta. The explosion of Taiwan investment in Indonesia in the past two years has been mainly on the part of labor-intensive medium and small industries.
These industries in Taiwan are actively looking for somewhere else to go. Fortunately for them the Indonesian government is desperate to attract foreign investment in order to create employment opportunities, promote circulation of goods and raise industrial productivity. This two-sided love affair has given rise to the current investment boom.
A report by the Chung Hua Institution for Economic Research describes Indonesia as having unstable government policies, lax law enforcement, tense race relations and a none too friendly attitude towards Chinese. Nationalistic economic policies mean that capital outflow is strictly regulated and there are limits on the employment of local personnel.
The prospect of Indonesia restoring relations with mainland China, together with strong anti-Chinese sentiment, have also affected investment willingness on the part of ROC businessmen.
"But from another angle, abundant labor is really Indonesia's most attractive resource," says Frank Yeh, senior vice president of Collins Co., Ltd. of Jakarta. Indonesia's Labor Bureau stipulates a minimum daily wage of 1,600 rupiahs (about US$1), only one 15th of Taiwan's. "But Taiwan employers offer better than average wages to avoid excessive turnover of the work force."
At Lee Yao-wu's factory, for example, local workers are paid 1,800 rupiahs a day, plus 500 rupiahs for meals and 750 rupiahs for travelling expenses. Each month they get another 500 rupiahs each as attendance bonus and to cover medical expenses. "There's no overtime, because Indonesians won't 'do themselves in' just to earn more money."
"Raw materials are far cheaper than in Taiwan, so labor-intensive industries using local materials, such as makers of shoes, ceramics, wood carvings, toys, umbrellas, bicycles and furniture, are best suited to start up in Indonesia," says Jack Wu. He buys timber from Indonesian sawmills, saving 40% on costs over Taiwan. His products require a lot of manpower and local timber but need very few parts.
This is because the shortage of parts-producing satellite industries in Indonesia means most manufacturers must make the parts they require themselves.
"Local parts aren't always suitable," says C. J. Wang, who suggests using parts from Taiwan for the first few months, then gradually finding suitable local alternatives. "After nearly a year, we still rely on Taiwan suppliers for one-third of our parts."
The lack of satellite industries does create difficulties but these can usually be resolved one way or another. Unless there is a communications breakdown, that is.
Without telecommunications links commercial opportunities can easily be let slip. "It's best for the decision-maker to come to Indonesia in person," says Jack Wu. "Quick decisions can't be made without someone on the spot, but he also needs financial backing to see things through successfully."
Ma Kuo-wei, head of the Indonesian Lippo group's Taipei office, confirms that investing in Indonesia is a more time-consuming business than in Taiwan. "Manufacturers moving abroad must start completely from scratch. And if initial production and sales don't go well you can't expect to get a bank loan to bail you out."
"Once your personnel and finances are in place, the next step is to look for a 'local' partner!" Jack Wu points out.
By law foreigners cannot be sole investors in Indonesia, so you must find an Indonesian individual or company to form a joint venture. Regulations state that foreign investors can hold 80% of the shares to begin with, but from the 15th year this must drop back to under 49%.
Investors resort to all manner of ruses to avoid letting their business change hands. "Some Taiwanese businessmen have their own relatives take Indonesian citizenship and set up companies in their name," says Jerry Chen. Taiwan recognizes dual citizenship, so this can always be done as a last resort.
Others must manage with genuine local partners. Things can go swimmingly with a reliable partner, but if you get mixed up with someone who doesn't play by the rules things may end badly and your seed capital might even be written off.
"It's best to find a local partner backed by strong finances. But Taiwanese businessmen usually like to be the boss and find their own solutions, so there's more risk of losing out," Ma Kuo-wei warns.
Once a partner is found, you can submit your investment application and look for a factory site. "Before renting a site, you should check it isn't designated as farmland or a natural resources protection zone," suggests Simon Wu of Lippobank. Examine title deeds carefully, as forgeries are rampant.
"It's much simpler to rent a factory in a government industrial zone." Jack Wu rents five factories in an industrial zone near Jakarta and pays only NT$700,000 a month for 4,500 pings of floor space. His contract runs for 25 years, rent-free for the first year. "Of the 50 factories in the zone, probably 70% are let to Taiwanese."
Lee Yao-wu, who rents a neighboring factory in the zone, points out that guards ensure complete security. "When I had a factory outside, we used to get bothered by rifle-toting gangsters demanding protection money." When labor is short the zone management office will recruit workers, who must abide by rules out-lawing strikes or drug abuse. In cases of infringement the office will sort things out with the Labor Bureau.
Handling local workers is a tricky business for overseas investors. Lee Yao-wu says he couldn't communicate when he first went out to Indonesia and had to rely on local overseas Chinese. After finding that Indonesians don't know any Chinese he had to pick up a smattering of Indonesian and train local foremen.
Indonesia bans the import of all Chinese books and newspapers, so there's virtually no chance to read anything in Chinese there. "When I first arrived in Indonesia I often dreamt of buying books in Chungking South Road," says Simon Wu.
Living so far from home, long-distance phone calls are an expensive necessity. "One call every two or three days works out at NT$30,000 a month," Jack Wu points out. Why not bring the family over too? "The children must study, and there are no Chinese schools here." One reason for the reluctance of many Taiwanese workers to go to Indonesia is worries about their children's education.
Simon Wu's daughter attends Jakarta International School. "When she comes home my wife and I teach her Chinese." They hope she won't forget all her Chinese, but they just couldn't bear to split up their family.
On a visit to Taipei last year, Indonesian industry junior minister Ariwibowo confirmed that the Indonesian government has decided in principle to lift its ban on Chinese publications and to allow Chinese schools to be set up. But no further developments have taken place as yet.
"Unless this problem is solved, even guaranteed rights for Taiwan investors will not be enough to keep them here long-term," Jack Wu says with a heavy heart.
[Picture]
ROC Investment in Indonesia
Source: Indonesian Investment Commission(BAPM)
[Picture Caption]
Abundant labor is one of Indonesia's major assets.
Rattan furniture made in Indonesia by Taiwan firms is headed for Europe and the U.S.
Rich natural resources are a key element in attracting foreign investors to Indonesia. (photo from Sinorama files)
A factory of this size can be rented for only NT$500 per ping a month.
Indonesian wages are low, and the local work-force is diligent and reliable.
A dazzling array of goods vie for customers' attention.
The labor-intensive furniture industry with its heavy demand for timber is ripe for development in Indonesia.
Some Indonesian firms have set up service departments specially designed to cater to the needs of Taiwan businessmen.
Indonesians have got used to clocking in and out of work too!
Rattan furniture made in Indonesia by Taiwan firms is headed for Europe and the U.S.
Rich natural resources are a key element in attracting foreign investors to Indonesia. （photo from Sinorama files）
Indonesian wages are low, and the local work-force is diligent and reliable.
A factory of this size can be rented for only NT$500 per ping a month.
Some Indonesian firms have set up service departments specially designed to cater to the needs of Taiwan businessmen.
A dazzling array of goods vie for customers' attention.
The labor-intensive furniture industry with its heavy demand for timber is ripe for development in Indonesia.
Indonesians have got used to clocking in and out of work too!
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