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During the first six months of 2012, the amount of South Korean investment in Indonesia soared to US$1 billion, almost three times as much as the year before, according to the Investment Coordinating Board (BKPM). South Korea is now the third-largest foreign investor in this country after Singapore and Japan. Korean Chamber of Commerce and Industry in Indonesia (Kocham) president C.K. Song talked to The Jakarta Post’s Tassia Sipahutar about pportunities in Indonesia and the challenges of doing business here.
Question: How did South Korean business begin in Indonesia?
Answer: We believe the first South Korean company to arrive in Indonesia was Kodeco in 1965. A timber business then, it exported wood to South Korea. Kodeco focuses on oil now.
Then, Korindo arrived in 1969. It is the flagship of Korean business in Indonesia and is still the largest group in the country. They have about 30 subsidiaries in timber, palm oil, insurance, finance, automobiles and many other areas.
After Korindo, food seasoning producer Miwon arrived in 1973. These three companies were the pioneers who made Korean people understand Indonesia.
How has it been since then?
In the late 1980s and early 1990s, many Korean companies opened factories in this country in labor-intensive sectors like clothing, footwear and toys. Cheap labor and vast natural resources were the main pull factors.
The early 2000s were very challenging. There was terrorism and issues with the International Monetary Fund (IMF). Some Korean companies left, others stayed. Those who stayed faced difficulties running their businesses.
Four years ago, when the global crisis hit, labor-intensive businesses returned to Indonesia. Many people realized Indonesia was quite stable in terms of political, social and financial issues. The Indonesian government was opening up to foreign investments.
There was also the China factor. Manufacturing costs have become increasingly high and there are fewer young people in China.
Now South Korean businesspeople are comfortable in running their operations in Indonesia. Everything is growing: the garment business, shoe business and electronics.
Some Korean companies are also involved in infrastructure projects for the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI).
How many South Korean companies are there in Indonesia?
There are about 1,500 companies doing business today in Indonesia. We do not put much importance on the actual number because it has increased only slightly. What is more important is that these companies have greatly expanded their scope.
Our contribution to this country is significant. True, we are only number three in terms of investment. We might bring less money than the others, but we create more jobs. This is what Indonesia needs and it is quite important.
Korean companies employ about 1 million Indonesians directly. One million may not sound like much, but think of family dependents. Maybe one person supports five people. So, 5 million people are supported by Korean companies.
Which one is more important? Channeling more investments or creating more jobs?
Both; investing and creating jobs are equally important. That is what Indonesia needs. We will try to balance the two in the future.
How will you achieve that?
We will try to bring more businesses to Indonesia, but when we do bring business, we want to make sure it will be secure. Labor unrest and strikes make us worried, as they did some months ago. We want sustainable growth. To achieve that, we need to budget. The 40 percent wage increase last year shocked us as we expected 10 percent. If it is too much, it worries everyone.
How much is too much?
Forty percent is too much. In the past 10 years, wage increases have been based on inflation and rose by about 10 percent every year. We did not expect the 40 percent surge.We talked to the Indonesian Employers Association (Apindo), ministers, the South Korean Embassy and the Indonesian Chamber of Commerce and Industry (Kadin).
Strikes are the worst thing in business because we need to have peaceful operations. The impact of strikes on the country’s image is huge and I think the government understands the situation. Anywhere in the world, the most important thing is stability.
Most of our companies do not own the brands of the products we make. We manufacture and export for international brands in other countries. So, if our clients see problems in Indonesia, they will choose other manufacturers in other countries.
So, what’s your plan for the future?
Everything is good in Indonesia now. The Indonesian local market will continue to grow as buying power continues to increase. Projects are multiplying. There are many great opportunities here.
We will increase exports to get more dollars into Indonesia. We have the capability and capacity, but because of the global crisis, I do not think there will be any dramatic growth next year in Europe, America or China.
Exports by South Korean companies can grow by 6 percent alongside Indonesia’s growth. But it also depends on the local situation, such as labor unrest.
We pray next year will be peaceful in terms of negotiations with workers and officials. We hope people will be more mature and understanding about global conditions as we are competing globally.
If Indonesia stays stable and sustainable, it will be a paradise for investment.
For South Korean companies, once we put our business here, we are a family of Indonesia. Investment is here, family is here. This is our second home.