Hay Group Winning In Indonesia May2013

What every multinational company must know about succeeding
in Indonesia.
Indonesia
Winning in
May 2013

Contents
Against all odds
Desperately seeking talent
2
4
8
12
Square pegs, square holes
Filling the leadership pipeline
14Fitting the jigsaw
17Winning in Indonesia: Do you have what it takes?
18About the survey

Winning In Indonesia
©2013 Hay Group. All rights reserved
2
However, Indonesia’s time has come to
shine on many corporate agendas. With its
low cost of living, Indonesia has a growing
middle class with a sizeable disposable
income that is driving a strong domestic
consumer market. On the flip side, Indonesia
has also gained a reputation for being a graft-
ridden bureaucracy, that has made doing
business just a little tricky.
Even as foreign direct investments continue
to pour into the country, little attention has
been paid to how foreign Multi-National
Corporations (MNCs) are coping in this
fluid and exciting market.
Against all odds
Indonesia has had a raw deal in the past 7 years or so. Until this
year, its growth potential has been eclipsed by being sandwiched
between the twin Asian powerhouses of China and India in terms of
economic importance.
To this end, Hay Group conducted an
executive survey to assess the performance
of established foreign companies – the
challenges that they face and how well they
are coping. A brief summary of the results is
presented in Table 1.
From our survey, it seems that MNCs in
Indonesia are coping well with external
challenges like dealing with government;
adjusting to local customer needs and even
corruption. However, companies continue
to struggle with internal issues that revolve
around talent, performance and reward.

3
Indonesia is a long-term commitment and
investment for Holcim.There is no denying that
it’s taken years of hard work and determination –
establishing relationships with government and
local communities based on mutual trust and co-
operation - but I don’t see any other way around it if
real success in Indonesia is what you want.
“
”
Coping well Still struggling
Dealing with corruption Shortage of skilled workers
Establishing relationships with
government & politicians
Shortage of local managers
Dealing with legal framework Lack of leadership skills among
managers
Having a clear strategy for Indonesia Aligning operating model to business
objectives
Adapting to local customer needs Clear link between compensation and
performance
Figure 1: Challenges of doing business in Indonesia
Source: Hay Group survey, 1Q2013
Eamon Ginley, CEO and
President Director of PT Holcim Indonesia Tbk

4
With the abundance of natural resources
underwriting Indonesia’s ambitious vision
for 2025, the economic potential is real
and attainable. However, it has become
apparent that the supply of a local skilled
workforce will not be able to keep up with
the increasing demand required to transform
Indonesia into the world’s sixth largest
economy.
Of the estimated six percent of the
population that receives a basic or primary
education, only 30 percent go on to obtain
university degrees. Projections from the
World Bank and Indonesia’s Central Bureau
of Statistics showed that Indonesia will be
short of some 10 million skilled workers by
2025.
Desperately seeking talent
Indonesia’s potential as an emerging economy is undeniable. It has
a grand vision – to be a Top 10 advanced economy by 2025, and
Top 6 by 2045. To achieve this lofty goal, Indonesia has to attain a
real economic growth above 7 percent every year for the next four
decades. Business, as President S.B. Yudhoyono puts it, cannot go on
as usual.

5
Figure 2: Attrition rates in Indonesia
2005 2006 2007 2008 2009 2010 2011 2012
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
Employeeturnoverrate(%)
8.0 7.9
7.3
7.2
12.6
11.4
10.9
10.6
Source: Hay Group PayNet Indonesia, 2012
Indeed the pain of the shortage is being felt
even now. Our survey found companies
are hit by a double whammy at one end,
the lack of skilled workers to perform more
value-added tasks on the shop floor and at
the other end, an acute shortage of good
Indonesian managers with the right technical
and management competencies. This is the
potential quicksand that will stymy MNCs’
growth ambitions and strategy for Indonesia.
Intense talent competition in recent years
has driven attrition rates above 10 percent
(Figure 2).

6

7
Moreover, with Indonesia’s legal age of
retirement currently set at 55 -- prime time
in many countries -- this will have severe
consequences on leadership succession in
an already-strapped talent market. With the
mean age of senior and middle managers
Figure 3: Average age of employees in 2012
Clerical/ Junior Middle Senior
Production management management management
60
50
40
30
20
10
0
AverageAge(%)
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
28
34
35
36
35
35
35
37
38
38
40
42
43
45
46
47
47
48
48
Source: Hay Group PayNet Indonesia, 2012
hovering above 42, more than half of the
leadership team will be retired by 2025
(Figure 3). The leadership vacuum will not
be easily filled, given the current shortage of
skilled managers and professionals.

8
Square pegs, square holes
Given the situation, what can companies do?
Numbers and skills aside, companies with
visions of expansion and growth in Indonesia
must appreciate certain nuances. Indonesian
employees are typically title-conscious and
often associate remuneration and status with
a position.
In addition, performance measurements
are not something the older generation
of workers are familiar with, having been
rewarded for long service and loyalty.
What is required, therefore, is a mindset
shift – both on the parts of the employer and
employee. For example, employees must be
willing to change their attitude to working
beyond 55 years old and employers must
view them as experienced assets, rather than
walking liabilities with more health issues
and less energy.
Companies must face the hard truth: the
talent shortage is not going to get better
anytime soon. If anything, it will get worse
as MNCs diversify away from China and
India and into Indonesia.
Hence, managers take this reality into
account by actively designing jobs and
operating model to suit available talent pool.
Here is where we can learn from our peers
in emerging markets like China, India and
Brazil.

9
Indonesian graduates prefer to work overseas – in
Singapore, Australia, USA.This means that those who
remain in the countary are very much in demand.
Their high demand and short supply result in quick
staff turnover in companies, with them securing a
corresponding 25 to 30 percent salary increment with
each move. But paying more has not alleviated the
shortage over the years. In fact, the opposite seems to
be true: talent now expects bigger salary increases as
a matter of course.
”
“
Rully Safari, Director of HR – PT Holcim
Indonesia Tbk

10
Take the case of an engineering client in
China. After a fruitless two-year search for
a HR Director locally, they split the job
and redesigned it for two managerial-level
positions. These positions, requiring less
experience, were easier to fill in talent-scarce
China. It is their hope that, out of the two
managers, one will eventually emerge to be
Director-level material.
For those of us working in more mature
markets, hiring two people to do the job
of one may seem unproductive and even
wasteful. However, as pointed out by our
client, “in China, if you don’t over-staff
today, you will be short of staff tomorrow.”
So while the challenge in mature markets is
to design jobs so that it can be done by fewer
people, the opposite is true in emerging
markets like Indonesia.
This begs the question: how can you
efficiently design jobs so that it can be done
by more people to mitigate the risks that
arise from high attrition?
A good place to start is for companies to
know what jobs need to be done (that is,
work measurement) and match them with
the talent available within (that is, role-fit).
At a glance, managers will intuitively be able
to see the gaps in tasks versus competencies.
In other words, which square pegs are in
round holes, which holes are empty etc?
So far, we have considered the work to be
done and the person doing it. In the next
section, we will consider the trickier question
of how does all the work align with the
business objectives, which is the next bug-
bear of MNCs in Indonesia.

12
This is borne out by our 2011 Best
Companies for leadership survey (Figure
4), which found that Indonesian companies
have leadership training programmes and do
set stretch targets for employees. However,
very few involve direct coaching and
grooming by senior leaders.
In the era of rapid growth phase of the
past few years, CEOs in Indonesia have
been focusing so much on managing
external issues such as capitalizing on
market opportunities, expansion into
new businesses, and securing the very
necessary financial capital, that they have
overlooked the importance of building
internal organizational strengths for future
sustainability and continued success. All this
is akin to growing a bigger body without
building the corresponding muscle strength.
Hence in order to sustain the growth, leaders
here have to develop “dual” vision – keeping
one eye on the external market and the other
on their organization’s institutional strength
and intangible capital.
Filling the leadership pipeline
Business leaders in our survey cited the lack of leadership skills
among Indonesian managers as one of their challenges. Part of the
problem may lie in the fact that, like many of their peers in India and
China, senior executives here tend to focus so much on managing
external issues that they often overlooked the importance of
building internal organizational strengths for future sustainability
and success. These include formal processes for leadership
succession, mentoring and talent development.

13
Global top 20 Top 10 Asia indonesia
100% 97%
79%
95%
87%
51%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Employees are given
assignments or projects
that stretch their capabilities
Senior Leaders personally
spend time actively
developing others
Leadership development
programs better enable
employees to deliver on
goals/strategies
95%
77%
71%
Figure 3: Grooming the next generation
Source: Hay Group’s Best Companies for Leadership 2011

14
Fitting the jigsaw
One of the challenges highlighted by senior management in our
survey was the dire need to improve business processes, including
the use of technology and automation. Many MNCs in Indonesia
have grown exponentially especially in the past three years and
some have come to a point where their operating model no longer
fit.
To deal with this, let us start with the
company’s strategy and long-term objectives
for Indonesia. Key strategy questions
include:
• Where is our point of entry into
Indonesia? The Greater Jakarta area or
some other expanded area of development
that the Indonesian government is trying
to push?
• What are the immediate and long-term
challenges that we will face and how will
we tackle them?
• What are the consumer behaviors that
apply to our business? Do we have an
Indonesia-specific approach?
• How much money are we willing to invest
in Indonesia and how does this fit in with
our projected time horizon?

15
Armed with these long-term objectives and
a business plan, an operating model can be
built to support the execution. And this is
where most companies run into quicksand
especially in a fluid and dynamic market like
Indonesia. Veteran managers will admit that
the most frustrating item on their corporate
agenda is fitting the operating structure
to the company strategy. The process can
be time-consuming, confusing and often
perplexing.
And yet it need not be insurmountable if
we start with the premise that jobs are the
building blocks of organizations. Take the
complicated business of post-acquisition
integration, something which we will see
a lot more of in Indonesia as the market
consolidates. On behalf of a food and
beverage client in Indonesia, we recently
analyzed a target for acquisition purposes.
An interesting finding was that the target’s
R&D department was not a truly research
and innovation centre, unlike our client’s.
The target’s R&D was focused on tweaking
products and packaging to suit local tastes
and helping out with market development.
Our client commented that this was useful
information to have at the pre-merger stage.
If they had taken the target’s organization
structure at face value and combined both
R&D departments, the result would have
been “an unmitigated disaster”.

16
Cementing Its place in Indonesia
Holcim Indonesia might have come to be only in 2006, but its origins stretch as far back as 1971 to its roots as
PT Semen Cibinong through the acquisition route. Semen Cibinong was the first company to be listed on the
Indonesia Stock Exchange in 1977.
To date, Holcim Indonesia operates two plants; at Narogong, West Java, and Cilacap, Central Java, and a cement
grinding station at Ciwandan, Banten. A third cement plant in Tuban, East Java, is scheduled to begin operations
this year. Annual cement production is currently 9.3 million tons, with projections that the Tuban plant in East Java
will increase this to 12.7 million tons.
Holcim’s products are sold in more than 15,000 outlets across Indonesia and the company employs approximately
2,800 people.
“When we first started business in Indonesia, our focus was very much on Java. It was and still is where everyone
wants to be. But this is a massive market and there is so much untapped potential, in other islands as well, ”Eamon
Ginley, CEO and President-Director of PT Holcim Indonesia Tbk said.
The untapped potential proved so real to Holcim that, in spite of diminishing performance in other global markets,
the Swiss company made the decision to increase capacity in Indonesia with the new Tuban plant, a move that
supports its overall growth plan for the Asia Pacific region.
Eamon added,“It will take a few more years for our expansion plans to mature, but we’ve already made strong
inroads.”
Holcim has made strong inroads to the bigger Indonesia market largely because of its Indonesia-specific approach
to doing business, and seeking ways to add real value to local consumers through innovation.
It started a unique franchise program called Solusi Rumah, which leverages the services and expertise of local
smaller enterprises as vendors, offering a one stop shop for people aspiring to own a home. In 2011, Solusi Rumah
vendors/partners numbered 399 retail and manufacturing outlets.
“Solusi Rumah has achieved its objectives of being a value-added service to customers while supporting the local
economy at the same time,”Eamon explained.
The Holcim success story can be attributed to the company’s strategy of“getting under the skin”of Indonesia. There
is strong widespread engagement with employees and partners alike, and commitment to social responsibility.
Its Geocycle team provides a total-solutions waste disposal model for industry, municipalities and agriculture for
the safe collection, storage and disposal of both hazardous and non-hazardous waste. Over the years, Holcim has
become a solutions provider to a wide range of industrial and municipal users who number among the largest
companies in Indonesia.
In 2011, its Cilacap Cement Plant was one of only a few businesses in Indonesia to receive a“Gold”PROPER rating
from the Ministry of Environment, the highest award in Indonesia for environmental and waste management and
the second for the plant. Its Narogong Plant holds a Green PROPER Rating.
Eamon said,“Indonesia is a long-term commitment and investment for Holcim. There is no denying that it’s taken
years of hard work and determination – establishing relationships with government and local communities based
on mutual trust and co-operation - but I don’t see any other way around it if real success in Indonesia is what you
want.”

17
Winning in Indonesia: Do you have what it
takes?
Indonesia’s future is bright and exciting. But the mood is tempered
on the ground. Our survey has shown that companies are dealing
well with the external challenges of winning in such a dynamic
market. In fact, many like Unilever, Nestle, Mercedes Benz and
Holcim have thrived and become stalwarts in Indonesia.
However, our research has shown that many
MNCs in Indonesia continue to struggle
with people and management issues. In
fact, managers and leaders who are new to
the Indonesian market often wonder why
the simplest of day-to-day tasks seem to
take a disproportionate amount of effort
in Indonesia. Whether it is obtaining an
employment visa for a foreign employee,
filling sales pipeline or hiring a local business
developer, success in Indonesia requires
patience, a long-term game plan and a good
corporate citizenship programme.
However, these obstacles are not
insurmountable, if business leaders pay close
attention to building institutional strength.
In fact, the management of a company’s pool
of talent is too important to be left to the
HR department alone and has become the
responsibility of the CEO. Nowhere is this
more true than in Indonesia.

18
About the survey
Contact the author
Nidthia Chelvam
Managing Consultant
Hay Group Indonesia
E| Nidthia.Chelvam@haygroup.com
The focus of our Winning in Indonesia survey
was to take a broad look at how effective are
foreign companies. Over 82 large-cap and
global companies were invited to take part in
our survey in 1st quarter of 2013. After the
initial data analysis, face-to-face interviews
were conducted for qualitative responses.
We would like to thank all the CEOs and
Directors who took the time to participate
in the survey and interviews.

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