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Indonesia Eager for Foreign Investment : Asia: Critics say U.S. firms' lack of patience and flexibility is causing them to lose out to competitors from other countries.

December 11, 1995|From Reuters

JAKARTA, Indonesia — Indonesia has long shed its image of 30 years ago when it would seize foreign firms, or even 10 years ago when it would frighten off ventures by trying to force them to support an obsolete work force.

Now a vibrant Indonesia is welcoming all comers, and governments such as the United States are prodding their companies to join the rush.

U.S. Transportation Secretary Federico Pena spent two days last month in Indonesia promoting U.S. businesses.

"Working these big emerging markets of Asia takes time and patience and a lot of flexibility. But we are in for the long haul," Pena said in Washington earlier in November ahead of his trip. "So we'll continue our efforts to open markets and to search out new business opportunities, because when there is a global level playing field, U.S. companies do well."

And therein lies the rub.

Business people, analysts, diplomats and academics said in interviews that despite significant investments--some of them dating to the 1960s--some U.S. companies still lack the patience or the flexibility to be successful in Indonesia.

"In general, American companies tend to be more legalistic and try to work everything out on paper, while for Indonesians it's more important to agree verbally in principle and work out the details later," said Rod Ragan, vice president of Fluor Daniel Eastern Inc., who also acts as a vice president of the local U.S. Chamber of Commerce. "I think a lot of companies that have been here a long time know that and appreciate that."

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Many companies such as Fluor Corp., which celebrated 25 years of operating in Indonesia recently, do appreciate it. But many do not, and lose business to their European and Japanese counterparts, according to diplomats and other sources.

The United States is Indonesia's seventh-largest foreign investor to date, with about $4.6 billion in officially sanctioned investment. It lags Japan, Hong Kong, Taiwan, Singapore, South Korea and Britain.

However, the Indonesian government figures exclude oil and gas, traditionally a major focus of American investment.

With major initiatives in telecommunications, transportation, power and other sectors on the horizon, there could be plenty up for grabs. Nearly $60 billion is likely to be invested here in transportation alone in the next 10 years.

If companies "don't become more flexible or learn to work around it, they are going to lose a lot of business, because it is a booming economy with high demand for investment in the next 10 years or so," Indonesian economist Marie Pangestu said.

Many have gotten the message. The U.S. Chamber of Commerce reports growing interest by prospective American investors, saying it now gives five briefings a week, up from barely one a week two years ago.

It's not that American companies are doing badly or are showing no interest, but with all the opportunities of a booming economy, they could be doing a lot better, business sources say.

Some blame the U.S. government.

In spite of its rhetoric--and a cluster of trade visits such as Pena's--critics say, it's doing little of substance to remove key obstacles to U.S. competitiveness in Indonesia.

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Economic aid has been declining, to an estimated $87 million this year, a little less than half of what it was in 1992. The U.S. Consulate in the bustling Sumatran town of Medan has closed. Bilateral tax agreements are less palatable than those of their European and Japanese counterparts, business people say.

They say the Clinton administration has further restricted freedom of movement for U.S. firms and officials overseas.

Conversely, Indonesia, facing growing competition for investment from China, Vietnam and India, has bent over backward to please foreign business.

A deregulation package in June 1994 relaxed divestment requirements for foreign investors, allowing them to own 95% of a joint venture or form a wholly owned subsidiary and undertake some divestment within 15 years.

Earlier rules required most joint ventures to be reduced to 49% foreign ownership within 20 years.

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