Top of My Agenda

Indonesia is going strong. In recent years, its growth rate has held steady at 6‒7 percent.

Katja Alaja, 04.07.2013

The McKinsey Global Institute estimates that Indonesia could have the world’s 7th largest economy by 2030, overtaking Germany and the United Kingdom. Indonesia is booming thanks largely to a combination of domestic consumption and productivity growth. Taking advantage of this development and supporting companies in seizing the business opportunities is what keeps the Finnish Ambassador to Indonesia, Kai Sauer, on his toes.

Indonesia’s economy has recovered well from the financial crisis in Asia. What are the opportunities for foreign investors?

In 2010–2012, foreign investments in Indonesia rose from 14.8 billion to 22.2 billion USD. There is a large pool of cheap labor and a huge domestic market. McKinsey estimates that by 2030 the middle class will grow from 50 to 130 million people. The government is encouraging investment through the Indonesian Investment Coordination Board, BKPM, with Special Economic Zones giving tax breaks and other incentives for greenfield investors. There are still problems, though, particularly regulatory and legal hurdles. Recognizing the country’s progress, Moody’s and Fitch in 2011 raised Indonesia’s credit rating to investment grade status.

What are some of the leadership challenges a Western company can expect if it sets up shop in Indonesia today?

The economic boom has created a more mobile work force with well-educated and skilled workers changing jobs for even small salary increases. That means the best incentives for motivating employees are financial benefits and career prospects. Other challenges are cultural – the emphasis on consensus building and a hierarchical work structure can present their own difficulties. For example, employees are hesitant to report anything unpleasant to the boss and often expect the boss to micromanage the problems. Now that Indonesia is opening up to the outside world, multinational corporations are arriving, and with the increase in executive education and other training, the management culture is likely to change.

What is the role of Corporate Social Responsibility (CSR)?

Charity and alms are a vital part of Islam and local Christian tradition. Companies have a role to play here because the social security network is weak. The media, which are perhaps surprisingly free and critical, raise sensitive issues, for example, environmental matters related to problems in the palm oil and other industries that exploit the rain forests. In some cases the resulting publicity has resulted – at least indirectly – in CSR strategies.

PROFILE MAGAZINE 2/2013, page 5

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