People Innovation Excellence

Globalization and Indonesian Business

The West is facing problems in difficulty of maintaining business ethics in general, while problems in developing countries are far more heightened. To expect a developing country to be able to apply a strong business ethics where the livelihood of the general population is poor, is quiet unrealistic. In Indonesia alone, middle classes have problems earning wages. Young graduates now have a profession with a starting salary of around $80-$100/month. Job vacancies often attract applicants from hundreds to thousands of well-trained Indonesians. Thus, of course, increases competition against individuals.

Salaries in general remain low, while living costs in Indonesia increases. Large sectors of the Indonesian economy continue to compete on high-volume, low-margin products. For instance, while the textile industry remains very vibrant internationally large sectors of the Indonesian industry continue to compete in relatively low-value segments of the market. Overall, Indonesian companies are producing goods with very low margins.

Another example of the Indonesian industry that had an impact of globalization where they had to lower their labor is costs, is Footwear. They were pressured for their labor costs, let alone generate funds to contribute into social and welfare fabric of the nation. Therefore, the competition caused by globalization that is now unleashed in the global economy is making the situations much worse. The Indonesian industry does not possess a comparative advantage in raw materials, and they are forced to try to keep labor costs at a minimum in order to compete globally. At the same time, the lowering of tariffs is unleashing competition on the domestic market. As a result, Indonesian industry is under intense competitive pressure.

To solve the problem above, there are some solutions that can be taken into thought:

The government of Indonesia may encourage the development of research and development or improved marketing skills in certain sectors – or encourage investment in value-added sectors.
Another solution is by encouraging investment in those sectors where Indonesia possesses a comparative advantage other than simply cheap labor costs.
Another example of the Indonesian industry that is pressured is the development of the nations’ fishery & agricultural resources, woodworking & furniture, and the paper & pulp industry.

Hence, these are some challenges that Indonesia will be facing ahead:

Environment. Indonesia is vulnerable to the effects of climate change, which include in rising sea levels and erosion of coastal areas, increased frequency and intensity of extreme weather events, species extinction, and the spread of diseases. Though Indonesia is encountering many difficulties to find a way to cope with this.
Restrain poverty and improve employment. Changes in technology have reduced elasticity in job creation per 1% of economic growth. Secondly, poverty in Indonesia is still high. Most families in Indonesia continue to live just above the poverty line. Indonesia also needs to restore the performance for tradable goods.

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