Author: Fred Hoyt

Denpasar

I’m sitting in the Denpasar airport in Bali, awaiting the start of my 30-hour flight to the U.S., while pondering what has been one of the great mysteries of travel to me: time zones. How can we have moved closer to the United States from Surabaya, and yet the time gap has grown? It’s now 14 hours difference. Oh well, in 30 hours I’m not sure I’ll know where I am or what time it is anyway.

For the past 30 hours, however, what we’ve done has been perfectly understandable—history and culture. In Surabaya, we took the heritage tour, and believe me, there’s not much left from the Dutch days (that was 60-plus years ago!) We drove past the old police station, the Catholic cathedral, the first mosque, the first mall—and stopped in a few buildings. The city hall dates from the early ’20s, and has some nice art deco touches; the old Dutch club, which had a bowling alley, is now a tourist center. Ironically, it was the inner sanctum in the Dutch days, where the Dutch could retreat from the locals, who were denied entry (along with dogs).

Perhaps the best preserved building was what had once been a Dutch orphanage; bought in the early 1930s by a Chinese immigrant  who had started a cigarette business when he arrived in Indonesia twenty years earlier, the factory complex became the home of the kretek cigarette company, Sampoerna—a clove-flavored cigarette that caught on in Southeast Asia. A few years ago, the Sampoerna family (members changed their name from Liem to the Indonesian equivalent) sold the business to Philip Morris. The Sampoerna brand is still made in the factory complex, rolled by hand; the quickest worker (paid piecemeal) can roll 1,000 kreteks an hour! The family built houses and a theater, which were also part of the museum, which gave us a nice look at the lifestyles of the rich and famous.

Two hours of flight (because we crossed a time zone) brought us to the next island over, Bali, and we went (figuratively anyway) from a Muslim-dominant culture to a Hindu-dominated one; Bali’s 3.5 million inhabitants are over 85% Hindu. One of the participants noted it’s like being in 11^th century India, since the Hindus are descendants of the Chola kingdom, who were gradually pushed out of Java and Sumatra by the Muslims. We got in late last night, and a few of us went to a nearby mall, which could have been set in Miami, so familiar were the brands (but the food was better; the Hindus do eat pork, so I had Nasi Goreng (fried rice) with pork—not widely available on Java.

I scheduled my trip back today (though the conference goes through tomorrow afternoon) partly because my connections today will get me home in 32 hours; if I left tomorrow, I would have had to spend 52 hours in the air or in the airports. Easy choice, though it left me wondering whether I’d have any time to sample Bali, other than the mall in Miami—er, Denpasar.

Fortunately, we had a full-day tour of the Hindu cities outside of Denpasar and Kuta (which do have world-class beaches for swimming or surfing!), and our local host arranged to have me picked up and whisked to the airport when the group broke for lunch.

Hence, I was able to see the countryside, particularly the villages with the house, klan, and village temples (easy to love the Ganesha, the elephant-headed god), especially prominent today because there is a celebration of education, and many people were in traditional clothes; the terraced rice fields, reminiscent of China (three crops here, and the verdant agriculture exists because of a lot of rain); the caldera of an active volcano, which took us to almost 5,000 feet and tolerable humidity; and a break at an agricultural station for taste testing (and the factory outlet store) of local teas and coffees.

One deserves special mention. We’d heard about Lowkat coffee before, but we got to see and taste it. It’s “filtered” through some kind of cat (not a meow one, but one that looks more like a leming), who eats it, and excretes the bean. The bean is then washed and ground (becoming a has bean), then made into a smooth, if expensive, coffee.

A pundit in our group said something you might have expected from me: “the guy who discovered this was a real entrepre manure!”

That’s enough puns before a long flight, and a return to the U.S. To all my new best friends from this FDIB trip, I wish you a pleasant journey, and hope we can travel together again. Namaste!

 

Surabaya

It isn’t every day you wake up and find your picture in the newspaper, with the caption, Professor Bisnis AS Kagumi Indonesia,” but that was how we started the day. If you don’t believe me (although you should!) check out the Jawa Pos and read about how and why the 15 members of the FDIB trip came to Indonesia. Considering that one of our faculty pointed out that New Orleans Times Picayune publishes only 3 days a week anymore, we were flattered to have our moment of fame in a paper whose circulation is growing!

The rest of the day filled in more parts of the Indonesian puzzle for us; after all, the purpose of our study trip is to learn more about Indonesia so we can take it back and share the information with other Americans, for whom, as I’ve said (as have others), Indonesia is the biggest country no one in America knows much about. The first visit took us to the port of Gresik, and through the countryside, which included some salt flats, to Maspion Industrial Estates, a joint venture with a Thai company that is the fifth feather in the Maspion group. The group, which touts itself as the “Pride of Indonesia” is representative of the kind of conglomerate we’ve seen before—a Chinese-Indonesian family (in this case two) that started in manufacturing—aluminum kitchenware—and selling it door to door; it now owns 34 companies and 14 Joint ventures, with businesses ranging from shopping malls to the Singapore National Academy, an international school in Surabaya, to Bank Maspion, to electrical appliances—and so forth. The Industrial Estate, started as a joint venture with the Germans, struggled to transfer technology; the current joint venture, with the Thais, seems to be working much better. An industrial estate is like a business park: it houses a number of businesses, many of them involving liquids—gas, oil, palm oil, etc., taking advantage of its being a port. The visit, which included a tour of the estate, revealed a number of businesses building factories, using the several jetties that allow docking and pumping of the liquid ashore. The biggest challenge, it seemed to me, highlights the challenge in general of doing business in Indonesia—that is, the lack of infrastructure. In the case of this industrial park, the question was partly whether the government or the industrial estate should build the jetties, or the roads, or even dredge the channel to the Java Sea. As it stands, the channel is not deep enough for the super tankers. As I saw in India, from the government standpoint, the question is where to start, and what to make a priority. The interisland roads seem to be the top of the list—understandable given the traffic jam that we encountered getting back to the city. Jam, I should point out, is the Bahasa word for hour—and we took two jams getting to our next appointment.

We sandwiched two visits to the UPH-Surabaya, which has been our host in Indonesia. The first was a luncheon with the head of the Lippo Foundation which has spearheaded the development of these overtly Christian institutions; he flew in from Jakarta for a few hours to welcome us, and to urge further cooperation between our schools—faculty and student exchanges, for example. The second visit was a talk from the Rector of the University, a Professor Mooy, whose credentials included a stint at the World Bank and as Ambassador to the European Union. It turned out that he was a University of Wisconsin graduate, too, and recalled watching Ron Vanderkellen almost pull out the Rose Bowl game in January 1963. The UW people beamed.

Mooy discussed two issues. One was the recent downturn in the economies of the United States and of Europe. The U.S. crisis he thought was more important because of the U.S. economic impact on the global economy. U.S. government, he pointed out, bailed out the private sector; in Europe, the crisis was in the public sector, and the resolution remains. He also shared some of his experiences in reforming the bank system in Indonesia. He did note that Indonesia was one of three countries that had a positive GNP growth in 2009, largely because of the non-reliance on the export sector. In giving him a gift from the group, I pointed out that infrastructure is important, but especially in service businesses, human capital is vital. A university is simply buildings without faculty and students, and he reminded me how important great teachers are.

Our other visit was to a nearby headquarters of the largest industrial gas company in Indonesia, Aneka Gas. I had an inkling of its pedigree when I spotted a huge statue of the Guan Gong (the Chinese god of war and god of wealth) in one of the hallways. The company dates originally to a Dutch firm in 1916, and at various times was owned by the Japanese government, the Indonesian government, and a German company. None were able to make a go of it, but the Harsono family (Chinese Indonesian) bought it in 2004 and has become the largest of the five players in the industry—and the only Indonesia one. Its biggest customer is the medical industry, but it supplies oxygen, nitrogen, and argon—which it extracts from air—to 29% of the customers for those products. The competitive advantage, one of the directors told us, is local knowledge, which means knowing how and when to get payment. For its largest customers, it gets a 5-15 year contract, and will build a plant nearby. The director, a young woman with a degree from the University of Singapore, a management masters from UPH, also has a law degree from the University of Edinburgh, and dissected the company as though she were Michael Porter, the guru of business strategy. I should point out as well that she is the daughter of the owner!!

The day was capped with a visit to a batik store (which sold souvenirs, as well—remind me to tell some of you about jamu, and cat coffee), and a return to the hotel to prepare for the laborious packing for departure tomorrow to the famous island of Bali.

Salamat malaam.

 

 

Surubaya

A full day of business activities that ended with a visit to what might well be (with apologies to the Chicago Tribune) the World’s Greatest Newspaper, and certainly one of the best businesses to work for, started with a visit to a bicycle maker whose tag line was, “From Indonesia to the World.”

The l atter, part of the Insera Sana group, maker of the Polygon bicycle, exemplifies a not uncommon Southeast Asian entrepreneurial story—the rise of an émigré Chinese family through hard work, determination, thrift—Horatio Alger traits if you will. The owner, who it turned out unbeknown to us was a 1986 graduate of the University of Wisconsin (to the delight of the tour leaders, who developed this trip on behalf of the University of Wisconsin’s Center for International Business, aided by the University of Hawaii), whose family had fled south China—most Chinese émigrés in the region are from Fujian or Guangdong—for more opportunity elsewhere. When he returned from Wisconsin, he worked with his family for a few years, I think importing bicycles, then, encouraged by his mother, and funded with contributions from the family, he started assembling bicycles. 23 years later, he has made inroads toward his ultimate goal—building a global brand.

Polygon makes over 550,000 bicycles a year, some for other brands (which it is trying to reduce), build its own brand, mostly for the Indonesian market. Walking through the factory, I was struck by how labor intensive it seems, compared to the Mitsubishi assembly line in Normal (though part of the difference might be that Mitsubishi uses sub-assemblers), yet how similar the process of building a bike was to building a car. Aluminum tubing comes and is reshaped and welded into frames, perhaps from China (a lot of the materials were made in China or Taiwan); brake and gear cables and parts come from Taiwan (Shimano); wheels and tires from another country, and the finishED product goes out in a box (even the contract ones), bearing the “Made in Indonesia” stamp. We saw the quality control room, too, and if you want a mountain bike, look for a Polygon bike; if it can stand the rocky roads of Indonesia, it can probably tackle the Rockies. The company has bought an American brand, and as one of our participants noted, that proves two things: one, that the company had the cash, and two, that the plans to go global have already been launched.

The second visit was to a Sheet Metal Fabrication shop, a job shop, which takes sheet metal and makes things out of it according to customer specifications. It’s the sort of process that used to be exclusive to the developed world, especially Germany. Ironically (and this is happening as the developing countries move up the value chain), the company started as a joint venture with Germany, bought German machinery, and has taught Indonesians how to use lasers, punch machines, etc. Jobs for customers, which include Caterpillar and Hitachi, take 2-5 days, with painted metal taking close to two weeks. 40% of the customers are in the tobacco industry. The young man who demonstrated the work for us is an artist/architect/engineer, whose designs for partitions were quite stunning, and the company’s work has included monuments. Small wonder that a) the company is considering expanding; and b) the German firms (and U.S. firms) are losing prominence in the industry.

There is a consul general in Surabaya, which covers the eastern half of Indonesia (Papua, on the far east, is run from Jakarta, partly because Papua is one of three provinces of Indonesia that requires a special government visa—administered from Jakarta). The woman who spoke with us went through a kind of ROTC equivalent; she’d gone to graduate school on the State Department’s dime, then had to give three years to the State Department. It’s called the Wrangle (?) program. She gave us a briefing on her consular area, and the growth that is occurring here. She did point to the fact that the government is trying to spread business around the country, which is one reason we did not see many multinationals in Surabaya; many new businesses are being routed to the regional cities around here instead.

The highlight of the day might well have come at the end, when we visited a site you’re not likely to see in the United States—a thriving newspaper (hard copy, at your home before 6 a.m.). Part of the fun visiting the Jawa Pos (it’s in Bahasa) was the newsroom, which reflects the youthful culture of the staff. We were in a huge room with four or five compartments (for the different bureaus), with a round table in the center that we sat around. The president is 35ish, and he is one of the older people we met (his father, now a government minister, rescued the paper in the 1990s. A graduate of Cal State Sacramento, one of his goals is to see a Nascar race. In the meantime, he heads a paper with a 93% market share, a growing circulation nationally (the POS has 17 different editions, which helps solve the distribution problem—it’s printed in 17 cities) and the group owns approximately 200 other newspapers, TV stations, paper mills, and power plants. Not to mention that his building includes the national (of Indonesia) basketball arena and he is commissioner of the league! He thought one reason his paper is successful is that it has special sections every day for youth (remember that Indonesia majority are under 30; his editor there is 22 and he says he just tells the youth staff to edit and print). Other sections are for new families, and thankfully there is a section for the over 50. It’s an interesting culture, as I said (workout room, music room, etc.); one of the faculty compared it favorably to Google. Interestingly, when the lead story is about the censorship of the Chinese press, Indonesia has no censorship, he said; that was “the old days, and we don’t remember the old days.”

Tonight helped raise the question of whether we ate in the right restaurant. Here’s the clues:

a)   Local recommended it;

b)   We survived crossing the street to get to it (no mean feat; traffic is vicious and there were no traffic lights;

c)   Only motorcycles were in front of it;

d)   The sign was hand lettered;

e)   The menu was in bahasa;

f)   People were smoking;

g)   4 hours later, no after effects.

Still waiting on g, and that may be the most important clue of all!! Still the black soup with lemongrass was certainly worth the b!

 

Surabaya

If yesterday’s business visit took its theme from “With a chicken, we build a nation”, the motto of the group we visited, today’s two visits share a common theme in one of Indonesia’s natural resources—the forests and forest products, which have helped Indonesia flourish (partly because of the sale of commodities to China and other Asian economies—and gotten Indonesia in trouble with the green groups because of the non-sustainability issues that can accompany wanton use of forests.

The first company was a paper producer, in a small town outside of Surabaya whose claim to fame is that it was the site of the famous Java man (one of the predecessors of homo sapiens). Having just gone through central Wisconsin, where you can see the paper mills in Wausau from ten miles away (and I remember the days when I lived in Madison and the pollutants from the paper mills led to warnings about eating fish from the Wisconsin River), I was pleasantly surprised when we arrived at the Tjiwi Kimia plant, the largest single stationery manufacturing location in the world—without any advanced warning from the plant. The company, part of another one of these major conglomerates (I think it is Sinar Mas) gets its short-fiber wood for pulp from 750 plantations on Sumatra, but imports most of the long-fiber wood from the United States. The company has a plant in the United States, and owns forestland in Canada, but not in the U.S.—“America has too many rules,” said our host. The plant has 12,000 employees, about ¾ women, with the company having built a hospital and a training center. TK cannot sell directly in Indonesia (as in many countries, the laws favor the creation of jobs), but does sell to consumers globally. 75% of its products are sold globally, which can be explained partially by the per capita use of paper: Americans use 200 kg, and the Japanese even more, but Indonesians have increased their usage from 1 to 15 kilograms. On our tour of the factory, we saw a modern machine that can produce several times the amount of the original machines; the original machines came from a Taiwanese company that was about to sell them to Vietnam, when the Viet Cong rolled into Saigon and put an end to that order (in more ways than one). The current machine was made in Beloit, Wisconsin.

Lunch was an interesting stop. A mall developer invited street hawkers to set up shops inside a mall, called the village; it offered the variety of the street, with the hygienic safety of a mall. The gado-gado (a salad with peanut sauce and a bit of chili), with lychee tea, was wonderful.

The afternoon visit was to another company owned by Sinar Mas, one dealing with an even bigger villain to health-conscious environmentalists—a processor of palm oil. The company, Sinar Mas Agro Resources and Technology (SMART), has helped Indonesia overtake Malaysia as the No. 1 palm oil producer in the world. Another factor that has helped Indonesia overtake Malaysia is that the Malaysians have worn out the soil; I recall visiting the Palm Oil Board when we were in Kuala Lumpur, and they told us that Malaysia companies were buying plantations in Indonesia. A third complication was that the Malaysian forests were hiring a lot of Indonesians, since the Malaysian economy was more developed; a new minimum wage law in Indonesia resulted in a Wall Street Journal article questioning whether Malaysia could afford to continue hiring Indonesians. Anyway, importing the palm oil kernels from plantations in Kalimantan and Papua, the plant in Surabaya processes the oil into a variety of products—mostly cooking oil, but also margarine (including in single sachet servings that would be useful for camping) and refined products for shampoo and soaps. It has factories in China and India as well—palm oil is widely used for cooking in Asia. The executives addressed several questions about the “black marketing” (boycotts) that it sounds like U.S. activists instituted. One was the charge that palm oil is high in cholesterol. They noted that cholesterol comes from animal fats—not plants (they did not mention that palm oil is high in transfats). The other question involved taking out rainforests (Indonesia has the second largest rainforests after Brazil) to create palm oil plantations. They countered that the land was not productive, wasn’t rainforest, and created jobs—the dilemma of many environmental questions!

We got back relatively early, which meant we could have dinner on our own, and a few of us wandered over to the mall next door and ate at an Indonesian seafood restaurant. It was possible to order despite the absence of English (no English menu and no foreigners is a good combination for me), partly because of technology. One of the faculty had a telephone with a bahasa Indonesia dictionary, which helped us order 3 fish dinners—fish being probably the main source of protein at this point in the Indonesian diet.

As we say in Bahasa, “Salamat Malam”–good night.

 

Surabaya (or in the old days, Soeribaea)

We are in Surabaya, 420 miles east of Jakarta, and 7 degrees south of the equator. The capital of East Java, it’s a city of about 3-4 million, on the Java Sea, with some intriguing mountains in the distance. It took us most of the day to get here yesterday, which is probably the first lesson today about Indonesia; it is hard to get around not just the 17,000 islands spread over 3,000 miles—sometimes it’s hard to get around one of the islands, in this case, Java, the most populous. My understanding is that there is not a highway across the island.

We had a nice mix of activities today, which began with a visit to the National Mosque of Surabaya, a huge building with a blue and green dome that dominates the city. As I’ve stressed, Indonesia has a Muslim majority, but everyone stresses it’s a secular democracy. However, even in the airport, we saw many more Muslims dressed in the traditional robes than we had seen in Jakarta.

Our second visit was to one of the tourist-listed places (it says something that of the six places listed in the brochures for tours, two are malls, and one is a national park)—the Hotel Majahapit. The historic hotel (you knew there was a reason it was special for me!) was built by the Sarkie Brothers, who brought luxury to SE Asia from the 1890s into the 20^th century. I’ve stayed in several—the Raffles in Singapore (home to the Singapore Sling), the Eastern and Oriental in Penang, and two in Cambodia—and had dinner at their hotel—the Strand—in Rangoon. The Majahapit (born in 1910 as the Oranje) well lived up to the brand name. The older part of the hotel is Colonial, the newer part (dating from the 1930s, and opened by Charlie Chaplin) is art deco. We got to see a number of rooms (one of which had a “crapper”; for those who don’t know it, John Crapper invented a toilet, with a tank that sat up high and a pull chain to flush), including the one occupied by the Dutch High Command in 1945 in the face of Indonesian efforts to declare independence of Holland. An angry local mob stormed the hotel’s flagpole and tore off the blue on the bottom of the Dutch flag, leaving only the Red-and-White, which remains the flag of the Republic of Indonesia. Not coincidentally, the Scout neckerchief is red and white today, partly because the Scouts played an active role in the war for Independence.

The business visit this afternoon was arranged by UPH, the Lippo group university I mentioned we had visited in Jakarta. It has a newer, smaller (600-student) campus in Surabaya, targeting a similar market segment—mostly wealthy Chinese. I think I mentioned that the Lippo group is building housing units centered around schools and hospitals (which it builds into the community). The University in Jakarta has a medical school, which helps the group get a lead on physicians.

The company we visited works for chicken feed—rather works with chicken feed, and chickens. It is the main supplier of ayam (chicken) for KFC and McDonalds, and is overall the third largest chicken processor in Indonesia. From what the Chief Financial Officer told us, the company is operating close to capacity, which means it’s not exporting (and, to my surprise, said chicken prices in the U.S. are less than in Indonesia), but because the consumption rate in Indonesia is 4.8 kg a year, much lower than elsewhere in Southeast Asia, the executives expect they can continue to grow domestically for a long time. I learned a lot about chickens—given my Chicago upbringing, it was almost a surprise to learn that chickens do not grow prepackaged. Instead, the company buys “grandfather generations” from the U.S. and France, hatches them out for 6 months, gets a second “parent” generation for six months, then takes the third generation (“one-day chicks”) for 32 days of scientific feeding until the chickens weigh 1.8 kilograms. The company manufactures chicken feed, harvests (their words) broilers and roasters, processes (slaughters) and sells them to, as I said, McDonalds and KFC, or at retail, under the brand name “Gold Star” to Carrefour and other retailers in Indonesia. They served us enough samples after our session that we might have upped the average to 4.9 kilograms.

I was just thinking it would be nice to observe the stars in the southern hemisphere. Unfortunately, this is the hot and rainy season, and we’ve barely seen the sun, much less the stars. The other season, though (April-October) is hot and humid. In other words, the temperature now is roughly 88 degrees with a 30% chance of rain—everyday.