Motivation factors

Company D is claiming to establish their operations in Indonesia due to access to (cheap) skilled labour. The strategic document is developed prior to an establishment in order to convince the company board that going to Indonesia was a strategically wise move. This document underscores the claim that multinational companies are searching the world for lower cost, more efficient production sites and for new markets (Lall and Narula 2004).

The strategy paper of Company D gives a rare insight in a company’s considerations before entering a new market. According to this document, the company’s unit cost will be “well below US$ 50 per hour; which is currently 60-70 % below our Norwegian cost, the level of competence is very high and we can improve the visual impression of our (…) products significantly” (Company D, Strategy Paper, 2008).

Findings show that the motivations behind entering the Indonesian market mainly are access to a profitable regulatory framework, access to cheap skilled and semi-skilled labour and access to the large Indonesian consumer market.

Figure 6: Motivation for entering the Indonesian Market

5.1.2.1 Cheap labour

Indonesia is a tempting business destination due to its very low minimum wages. This could be said to be in line with Aihwa Ong’s claim that neoliberal capitalism is dependent on a place bound, ethnified (sic) and gendered human capital that make up cheap labour, together with the zoning economies of developing countries (Ong, 2006: 97-138). Indonesia is

encouraging international investments, and offers the cheapest labour costs in all of South East Asia, a wide range of tax holidays for foreign capital within its zoning economies, together with an enormous internal consumer market and natural resources in abundance.

Company A established in two of the Indonesian Export Processing Zones (EPZ) in order to get access to both cheap land properties and cheap skilled and unskilled labour.

“We hire them (workers) and train them ourselves” (Company A, interview 20.12.11).

5.1.2.2 Favourable Regulatory Framework

Given that Indonesia ranks both relatively and absolutely poor on business facilitation (number 128 out of 185 nations, 3.rd last among APEC economies, but in line with Brazil) (World Bank/IFC 2013), one might assume that the claimed profitable regulatory frameworks are related to the absence of strict regulations more than to the smoothness and functionality of the existing ramifications, although this is presumptuous. This would however coincide with Doreen Massey’s focus on the weak state and the strong corporate finance sector,

Motivation  for  entering  the  Indonesian   market  

Access  to  (cheap)  semi   skilled  /  skilled  labour   Access  to  cheap  unskilled   labour  

Access  to  Indonesian  /  South   East  Asian  consumer  market   Access  to  natural  resources  

Projitable  regulatory   framework  

especially in poor and emerging economies (Massey 1995). Some of my findings underscore this presumption.

Company H came to Indonesia due to a profitable regulatory framework (less strict compared to international industrial standards) for vessels in seaborne trade. The company was set up in Indonesia in order to facilitate a haven for older boats in the fleet of the mother company.

Their main customers, oil and gas companies, operate with an age limit of 15 years on the vessels that serve their activities. Many of the ships owned by the mother company are above this age limit. But the vessels are still profitable and safe, according to the company, and it will be a financial loss to sell them. By registering their older vessels under its Indonesian subsidiary, the mother company becomes more competitive as the average age of its fleet meets the standards of their clients.

As they now are present in Indonesia, the company is strongly focusing on the Indonesian market and how to make the most profitable use of their vessels in Indonesia. The company also benefits on the somewhat underdeveloped shipping environment in Indonesia in other ways:

“The other market for us is in ship management. Due to the very strict safety culture within the international oil companies, many (Indonesian) clients are afraid of failure. They therefore outsource their ship management to companies like ours. We have a lot to offer regarding safety culture and management” (Company H, interview 18.11.11).

In this way, Company H both benefits from the less strict safety and quality regulations of seaborne vessels in Indonesia by registering the ageing part of their fleet in the country, and on the other hand offer advanced competence within safety culture and ship management on the other in order to develop a competitive edge in the Indonesian market. This latter aspect shows in an intriguing way in which flexible capital meets more localised, fixed regulatory frameworks (Massey 1995, Ong 2006).

5.1.2.3 Natural Resources

Another obvious reason for Norwegian companies to establish in Indonesia is the vast access to natural resources, and related to Norwegian key competence - mainly oil and gas. Indonesia

is by comparison an old oil and gas nation, starting its extractive oil industry as far back as the 1880’s. Today, the production is stagnating, and more and more of the valuable gas and oil fields are found at sea, in deep waters, where the resources are more difficult to exploit. Here, Norwegian competence is put to work, and as we shall see, the stakeholder make-up of the extractive industries are somewhat different from other sectors, giving Norwegian companies some leverage compared to others, but also some challenges.