Culture as a Fundamental Factor for Doing Business in Indonesia: It is All about People Relationship.

Introduction Despite its strong economic performance, Indonesia faces challenges that not growing well of private-sector development. Skilled labor shortages, poor infrastructure and an onerous regulatory framework are three major bottlenecks to business expansion. 1) The World Banks Enterprise Surveys show that Indonesian rms identify an inadequately educated workforce and high rates of informality as two of the top 10 constraints to rm investment. 2) One of the key causes of this high rate of informality in Indonesia is the heavy regulatory burden borne by rms. In fact, nearly 30% of rms in Indonesia start operations without being formally registered. Improving economic competitiveness by creating a more salutary business climate is one of Indonesias national priorities for 2010 to 2014. 3) Making it easier to do business and invest also helps promote sustainable urbanization, another of Indonesias key national development objectives. Business reforms can facilitate business start-ups, encourage investments and boost employment in cities across the country. There is no single blueprint for how to grow and prosper, yet creating an investment climate conducive to starting and running a business, where complying with regulations brings more benets than costs, helps. This is especially important in a country as decentralized as Indonesia, where effective and harmonious policy design and implementation at the local level are crucial for Businesses understanding and capitalizing on cultural influences are more likely to succeed than those simply coping with them1. With the tremendous increase in global trade, learning more about doing international business has become especially significant. It is vital to learn about the different cultures around the world before doing business in other countries, in order to reduce the risk of failure. Becoming knowledgeable about different countries with different culture style such as how to

World Bank and International Finance Corporation: Doing Business in Indonesia 2012

communicate, body language, meeting and negotiation tactics, dress, greetings, and social events are all keys to having good business relationships with individuals in other countries2. Importance of Building Relationship Investing in relationships is critical to succeeding in Indonesia. Establishing a relationship requires time, preferably with face-to-face contact with a person of similar age and status. Demonstrating loyalty and trustworthiness is critical to maintaining a relationship. The longer term returns of investing in relationships can be significant and include: Expediting bureaucratic processes where the relationship is with a government official Accessing information and distribution networks Opening joint venture opportunities, especially in manufacturing. Relationships can determine many facets of commercial life, including granting credit, placing orders and awarding contracts. A longstanding obligation between two people can affect commercial outcomes. Showing patience and flexibility in commercial dealings builds trust and improves the chances of a successful outcome; contrasting expectations can have adverse consequences. Australian business people should not force a relationship, or overestimate its depth. Variables including age, gender, educational and marital status, also affect how easily personal and commercial relationships are formed. Western firms may find it more productive to send older, more mature executives rather than young personnel to negotiate or work in Indonesia. Men especially are not considered mature until they are 40 years old, and younger people can be excluded from decision making processes. In all spheres, younger people defer in language and attitude to older people, even if the age difference is negligible. Business as part of a Community The groups welfare predominates in Indonesian culture, so the local community is very important. Foreign businesses fulfilling their obligations to those living and working in their immediate neighbourhood stand to gain significant advantages. The local community centres around the neighbourhood council, comprising a group of five to 40 houses (a RT or Rukun Tetangga), that together form a larger unit (a RW or Rukun Warga). Informal meetings of RT

Bowie, A. (2008). The Effect of Culture on Business Relationship

and RW are held monthly, and businesses are expected to notify each of these bodies of their arrival in the local community. The neighbourhood council can assist local firms, including: Expediting bureaucratic processes, such as obtaining permits Resolving disputes through the musyawarah, an important process of conflict resolution involving all concerned parties. A policeman convenes the musyawarah, and the results are based on community consensus. Its concluding an outlines of the consensus decision. Its decisions have a very strong legitimacy in the community, as all parties have been consulted and involved in the process. An official materai (tax stamp) is often affixed, increasing this legitimacy Forming the first line of defense against acts of crime through surveillance and information sharing. Businesses in Indonesia are well advised to develop a genuine awareness of their surrounding community. Demonstrating a business contributes to community welfare helps ensure the community has an interest in protecting the business. Unless a venture seeks local community involvement, providing employment and investment will not ensure good relations or security. The concept of traditional land ownership remains strong across Indonesia, and irrespective of contractual rights the Government may award, local communities will act to protect their environment. Hence, mining companies adopting consensus based approaches to secure their rights are more likely to receive local community support than those relying on legal solutions3. Indonesia Business Approach Indonesia has often been described as a shining chain of emerald islands scattered across the equator from Asia to Australia. Few other countries in the world are comprised of more distinct cultures and languages than Indonesia. Its diversity of peoples and belief systems makes it certain that the foreign professional working in Indonesia encounters situations that are confusing and unexpected. Add to this mix a struggling economy, a nascent democracy with a co-opted bureaucracy, and the worlds largest Muslim population, and the result is a fascinating conglomerate culture in one of the largest and most important countries in the world. Business

East Asia Analytical Unit: Australia Department of Foreign Affairs and Trade - Indonesia Facing the Challenge

must be approached differently in Indonesia than in most Western countries. Cultural background, education, and upbringing make a difference on how managers approach work. Culture affects people and, therefore, business in five primary areas. To assess these differences, we ask the following questions: 1) What is the cultures belief in human nature? Does the culture believe that people are basically good, basically evil, or a combination of both? 2) What is the relationship between humans and nature? Are humans subjugated to nature? Does nature control your life? Do people live in harmony with nature, or does the culture believe that humans should have mastery over nature? 3) What is the cultures sense of time? Is the culture past oriented where people look to the past as a guide for today? Does the culture live for the present? Is it perhaps situational? Or does the culture look towards the future with a belief that planning, deadlines, and goal setting make it possible for people to succeed? 4) What is the proper aspect of human activity? Is it enough just to Be, meaning that it is not necessary to accomplish great things in your life to feel that it has been worthwhile. Does the culture believe in being in becoming, where people are on the earth for their own inner development? Does the culture believe in Taking Action? This means that it is action-oriented with the belief that if people work hard, they will be rewarded. 5) What is the nature of social relationships in the culture? Is the culture authoritarian with clearly defined relationships like natural-born leaders and natural-born followers? Does the culture believe in the collective meaning that people are defined as part of a group? Does the culture believe in individualism and equal rights? This would mean that all people are equal and have control over their own destiny. The differences between Western cultural styles and Indonesian cultural norms become very apparent in the business environment. Most Western cultures believe that humanity is basically good. Most Western cultures believe that the human-nature relationship is one of Mastery over Nature meaning that if nature gets in the way you change it. Most Western cultures have a very strong future-time sense with the belief that planning and scheduling today make it possible to succeed tomorrow. Finally, most Western cultures have a strong belief in individualism and equal rights meaning that if you work hard, you will be rewarded.
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Indonesian standard business culture is quite different. First of all, it should be understood that there is no single Indonesian culture. Indonesia with its 17,000 islands and hundreds of different ethnic groups is a vast collection of different peoples and cultures. Thus, you must always know who you are dealing with. However, Javanese culture has long dominated the archipelago and is the standard for Indonesian business culture today. Indonesians generally believe that people are a mixture of good and evil. People are usually good especially when constrained by responsibilities to the group. However, there is the potential for evil in all people. Normally constrained individuals can perform irrational acts believed to be outside that persons control. There is a strong belief in subjugation to nature, meaning that nature controls your life and there is little you can do as an individual to move yourself ahead. One should accept ones position in life. Most Indonesians tend to look toward the past as an example for today. There is a strong belief in tradition but also in rules and regulations that need to be followed regardless of practicality. In Indonesia the proper aspect of humanity is to be expressive and emotional although that expressiveness and emotionalism lives just under the surface. This means that it can be difficult to determine the emotional state of most Indonesian coworkers, but that strong emotions can surface in ways that may be confusing to a Western supervisor. Social relationships tend to be twofold in Indonesian culture. First there is a strong authoritarian framework with natural born leaders and natural born followers. These relationships are clearly defined. However, within each particular group there is a strong belief that the community makes decisions in order to avoid individual responsibility. A change in management becomes a particularly difficult situation in Indonesia. Often the corporate home office will not accept common practices and procedures found in Indonesia as a best practice and require Indonesian managers and staff to adapt to the international corporate culture. A deep understanding of the cultural traits found in Indonesian business is required before an action plan can be completed to implement change. The home corporate office usually has little understanding of the profound cultural complexity of implementing change in Indonesian offices, factories, and businesses. For these reasons and many others, it becomes critical that foreign professionals working in Indonesia look past the elaborate
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subterfuge found in Indonesian business and incorporate the correct cultural traits to manage Indonesian personnel. Simultaneously, Indonesian managers must be instructed in the expectations of their foreign superiors and coworkers. Without an understanding of the cultural expectations of the other group, frustration and confusion are the norm4. Business Implication: The Opportunities and Threats Today, globalization is the norm, and it is important that people go to different countries prepared to do business and behave in a socially acceptable manner. This includes having a sense of cultural relationship and learning how social events are conducted. It is best to be sensitive to other cultures and always treat people with respect. There is nothing more frightful than ignorance in action. Culture is applies to international business and business people should be aware that informed actions will be appreciated by all. There are the opportunities and threats that occur by the pattern of culture in Indonesia that related to interrelation of people. Opportunities 1) Demonstrating a business contributes to community welfare helps ensure the community has an interest in protecting the business. 2) Indonesia business climate demonstrating loyalty and trustworthiness is critical to maintaining a good relationship. 3) The proper aspect of humanity is to be expressive and emotional although that expressiveness and emotionalism lives just under the surface. Threats 1) A change in management becomes a particularly difficult situation in Indonesia. 2) Business is very sensitive aspect of human interaction in Indonesia; harm a person means the business harm more than 240 million of Indonesian people. 3) The terms of relationship in government or parliament are commonly being bribery as the way to surpass the layers of bureaucracy in order to run business in certain area.

Indonesia Investments Indonesia Culture of Business

Bibliography

Australia Department of Foreign Affairs and Trade East Asia Analytical Unit. (2000). Indonesia Facing the Challenge. Autralia: Commonwealth of Australia.

Bowie, A. (2008). The Effect of Culture on Business Relationship. The Neumann Business Review: The Journal of the Division of Business & Information Management , Vol.3.

Investments, I. (n.d.). Indonesia Culture of Business . Bowie, A. (2008). The Effect of Culture on Business Relationship. The Neumann Business Review: The Journal of the Division of Business & Information Management , Vol.3.

World Bank and International Finance Corporation. (2012). Doing Business in Indonesia. Annual Report of Doing Business Subnational , pp. 1-98.