Indonesian Enterprises

Paul Korsvald, the general manager of a large Norwegian paper company's subsidiary, Indonesian Enterprises, had several decisions to make before the day was over.  His first decision was whether to build a small mosque next to his corrugated carton plant near Jakarta, Java.  Among the Indonesian Enterprise workers, 34 were Chinese and were primarily Confucians and Buddists, 4 were Javanese Christians, and 2 of Indian extraction were Hindus.  The other 352 plant workers and supervisors and the 48 office managers, and workers under him said they were Muslims (see Appendix).  Many, however, were not strict followers. They practiced an Islam that had been blended with Hindu, Buddhist, and other beliefs.  Jim Sterba (Wall Street Journal, September 29, 1987) observes:

Islam is different in the world's largest Moslem nation, Indonesia.  It has a sense of humor. It doesn't seem so stern and insistent.  It is more tolerant than Islam elsewhere.

This toleration was attributed by scholars to Indonesia's vast diverse land and population.  The country, comprising 13,677 islands of which 6,000 are populated and covering 3,200 miles, has a population of more than 180 minion people of 366 different ethnic groups.  Although 250 different languages are spoken, Bhasa Indonesia is the official language taught in the schools.  Half of the population was Javanese and two-thirds of all Indonesians lived in Java, which constituted 7% of the land mass.

Friday is the holiest day of the week for Muslim, and the company was required by custom to permit workers, especially the men, to attend noon prayers and collective recitals of the Koran.  Although government offices closed at 11:00 a.m. on Fridays, Indonesian Enterprises' policy was to close the plant and offices from 11:30 a.m. until 2:30 p.m. only.  Paul Korsvald observed that typically fewer than 20 Muslim factory and office workers returned to work on Friday.  Many excuses were given by the others such as it was impossible to catch a bus or services were longer than expected.

Actually, after services was a time for workers to visit with friends to gossip and learn what had taken place during the week.  It was also a time to bargain, barter, and buy a variety of goo& and food sold near the mosque.

What bothered Paul Korsvald most was the loss in production output and paying people for not working.  The average monthly salary for factory workers was approximately US $ 100; for office workers, it was US $150 for a six-day work week.  The day began at 7:00 a.m. and ended at 3:30 p.m. including an hour-and-a-half for lunch.

How could he meet the religious needs of the Muslims and non-Muslims without losing production output and keeping costs down?  To build a mosque would cost about US $30,000.  Four thousand dollars of this would be spent to purchase and transport sacred stones from Mecca.  If Korsvald decided to buy the mosque, he would then have to obtain the services of the local hadji (one who had made the pilgrimage to Mecca) for US $15 to bless the ground before construction began.  In addition, he would be required to purchase a goat for sacrifice for about US$ 20.  The goat's head would be buried near the mosque; the remainder given to the workers for a feast.  He would also have to provide onions and green peppers to be placed on a stick to keep the rains away on the opening day of the mosque.

If he decided not to build the mosque, Paul Korsvald could also continue the current practice or he could rent seven buses for three hours, at a cost of US $50 per bus.  While the buses would probably arrive on time to take the employees to the mosque, Korsvald was unsure if employees would return to the factory on the buses.

The Possible Purchase of Call or Prayer Call Clocks

Korsvald was faced with another dilemma as well: whether to buy from Maruem Murakerni and Company, Ltd. either ten semiautomatic prayer call clocks or fully automatic prayer call clocks, or some combination of the two.  Good Muslims are required to pray five times a day, first in the morning when they arise, before lunch, mid-afternoon, after sunset and before retiring.  This schedule did not have to be followed to the letter, for according to the Koran, "When ye journey about the earth, it is no crime to you that you come short in prayer if you fear that those that disbelieve will set upon you."  Typically, employees would pray whenever they had spare time.  However, by not praying at the prescribed times, some of the reward was lost.  According to Muslim tradition, every corner of Allah's universe was equally pure, so the employees would spread their prayer rugs wherever they were when they decided to pray.  Standing erect with their hands on either side of their face and their thumbs touching the lobes of their ears, they would begin, "God is most great."  Still standing, they would continue with the opening Ayat (passage from the holy Koran):

                Praise belongs to God, Lord of the Worlds,
                The Compassionate, the Merciful.
                King of the day of Judgment.
                Tis thee we worship and thee we ask for help.
                Guide us in the straight path.
                The path of those whom thou hast favored.
                Not the path of those who incur thine anger
                Nor of those who go astray.

Unfortunately for Paul Korsvald, the prayers continued from noon to afternoon, because each Muslim employee would wait until he or she had spare time.  If Paul Korsvald bought the semi-automatic clocks for US $30 and the fully automatic for $35 and placed them in prominent locations throughout the plant and office, the clocks could be synchronized to proclaim an Azan (prayer call) ten minutes before noon and at 2:40 in the afternoon.

Another option existed.  He could eliminate the lunch hour, the practice of the Dutch-owned companies, and end the working day at 2:00 p.m.  Rather than buy the clocks, he would make it known through supervisors that plant operations would cease ten minutes before noon for prayers.

The Need to Increase Productivity During Ramadan

A third decision confronting Korsvald dealt with solving the problem of low productivity of employees during Ramadan, the holy month of fasting and the ninth month in the Arabian calendar.  In this month, Muhammed, according to Muslim tradition, received the holy Koran from God as guidance for his people and made his hyiria from Mecca to Medina.  From dawn to dusk, during this period Muslims abstain from food and drink.  Among those automatically exempted were the sick, the very old, very young, pregnant and nursing women, soldiers in war, and persons on long trips.  Although no one in Indonesia is legally compelled to fast, many Muslim employees did.

When Ramadan fell during the hottest season, fasting took its toll.  Employees, observing tradition, were noticeably nervous, excitable, and prone to flare-ups of temper.  Korsvald estimated that productivity in the plant and office declined 20-30%.  Korsvald had identified dime options to address this issue and suspected there were others.  First, he could start the plant at 3:30 in the afternoon and end at midnight.   Second, he could close the plant for two weeks and require employees to take their vacations during this time.  Third, he could require only those Muslim employees who were fasting to take vacations.

Selecting the Manager of the Accounting Department

A fourth decision had nothing to do with religion.  He had to decide whether Mr. Abukar, a native Javan, or Mr. James Lee, an Indonesian of Chinese nationality, should be appointed to the position of manager of the accounting department.  In Norway, promotion decisions were primarily based upon employee's prior work performance.  However, discussions with other Western general managers operating in Java and researchers from Business International revealed a consensus that decisions on promotions in Indonesia placed more importance on ethnic background, personalities, and individual circumstances.  Thus, managers in Indonesia had to consider whether a prospective manager was Javanese, an outer islander, Chinese, or Indian.  Although Indonesia's motto is "Unity in Diversity," it made a difference for instance if a prospective manager was Javanese, Sumatran, or Moluccan.

The Javanese are considered an agrarian-based conservative people proud of their traditions and strong family ties.  They value harmony and sensitivity to others, characteristics that historians attribute to feudal influences.  Additionally, they are reluctant to convey information that could displease business associations or cause conflicts.

The outer Islanders, the Bataks of Sumatra and the Moluccans, are more prone to say what they think.  The Dutch set up large tobacco, rubber, and palm oil estates in Northern Sumatra, so modem agricultural developments were concentrated there.  Because these products were produced primarily for export in contrast to rice production in Java, which is consumed locally, natives possessed greater experience in international trade.  The straightforwardness of the outer islanders complemented the style of Western managers, resulting in a disproportionate number of outer islanders holding key positions in foreign companies in Java.

While the Chinese accounted for less than 2% of the population, they played a key role in business and owned, according to reliable sources, more than 50% of the nation's private capital.  Despite high levels of education and administrative experience, they were excluded from the bureaucracy and the military, which was dominated by the Javanese.

The official ideology of the Indonesian government was Pancasila, which consisted of five principles affirming belief in one God, humanitarianism, national unity, democracy, and social justice.  A balance between national unity and social justice proved difficult.  Any foreign company having too many Chinese executives would be vulnerable to resentment from indigenous Indonesians (pribumi) workers, and the Indonesian government might intervene and press for social justice.  While Indians were also vulnerable to resentment they were too small a group to constitute a threat.
Paul Korsvald had many issues to consider.  James Lee was older, and age was important to Indonesians.  He was unquestionably the best qualified of the two, technically and in managerial experience.  He had more years of work experience with the company.  Lee, fearing a backlash from the pribumi staff, might fail to give them firm orders to take disciplinary actions when needed.

On the other hand, Mr. Abukar was reasonably competent technically, pleasant to all employees and well-Iiked by the Indonesian accounting staff.  He came from a respectable family, with several relatives working as lower level executives in the government.  Further, the promotion would help him financially, because he had a large family to support.  In the past, he had been extremely loyal to the company.  He had been reluctant, however, to assume authority, make decisions, and work over-time.  Due to a dearth of pribumi managers, it would not be difficult for Mr. Abukar to find another job at a higher salary.

Korsvald could seek a consensus (mufakat) of his key executives through tedious consultation (muskawarah).  Whatever choice this consensus brought about, he risked shaming the candidate (malu) in front of others if he did not handle the promotion well.  Under no circumstances did he want to create malu.

The Need to Formulate Policies

His last decision was how to formulate a policy covering responsibilities of his employees to achieve results, to reduce kickbacks, and to determine under what circumstances loans would be made to employees.

The frequent cases of stomach ulcers and heart attacks among European and American managers in Indonesia, he thought, resulted from their failure to counter-act djamkeret ("dj" pronounced like "j") or rubber time.  He observed that Indonesians could not be rushed and would leave an employer who tried to make them move faster or work harder.  When asked, "When will the job be finished," adherents to djamkeret would simply reply, "sometime during the next few days."  Modem plants with international commitments could not operate this way.  So, he needed a policy that could dampen the excuses of djamkeret.

European companies operating in Asia have been offering bribes and kickbacks since the 1600s when the British Fast India Company won duty-free treatment for its exports by giving Mongol rulers expensive gifts including rare paintings and carvings.   Korsvald, however, had difficulty adjusting to the succession of kickbacks and payoffs necessary to conduct business in Indonesia.  On one occasion, his sales manager had to send twelve bottles of scotch for a party given by a purchasing agent of a large corporate customer.  On another, he had to give U.S. $10,000 to the large corporate customer's local director. In the latter case, he was surprised to receive a silver tray as a gift from the local director.  Last year on Christmas morning, he awoke to find a Chrismnas tree brightly lit and heavy with gleaming ornaments.  On it was a card from another company's director to whom he had been forced to make kickbacks for years.   "Muslim economics require that the wealth of her people be widely shared," he mused, "it insists that acquisitions and competitiveness be balanced by fair play and compassion."

In addition to kickbacks to customers, many foreign businessmen in Indonesia felt it was necessary to place someone in power in the Indonesian government associated with their company.  It was rumored the family of the president of Indonesia owned shares in 15 companies including a hotel, a flour mill, and two cement factories.  The president's brother strongly denied any favoritism and added that several charitable foundations were set up with business earnings.

Trading on influence was not considered corrupt unless it involved excesses.  To maintain a low profile, distant relatives of top military and government officials were placed as heads or directors of companies rather than members of their immediate families.

Korsvald observed that the Chinese were adaptable.  If they had to give gifts to generals or make deposits to an official's Singapore bank account and become friends for life, they did so.  According to Barry Newman in (Wall Street Journal, April 14,1978):

The strategy of gift giving has been perfected by Cukongs of Indonesia, about 30 moneyed Chinese who have made fortunes for themselves and, as it happens, for the country's ruling elite.  "We don't worry," says a manager in one of their many companies.  "We have information first hand.  We know what's going on." Occasionally, when there is money to be made, a Cukong will take a fellow Chinese for a ride on his coattails.

Korsvald wondered if kickbacks and payoffs to high officials known as the "untouchables" should be continued by his company.  Frequently, he had trouble determining whether middlemen who received bribes from the company to give to his ranking officials still had influence.  He was never sure how much to pay or if he was paying the right person.  His experience in Indonesia convinced him that establishing good personal relations and trust did not always entail a payoff.

Lower-level civil servants continually practiced the ancient Indonesian form of social commerce called the "sticky handshake."  Traditionally, funds acquired through extortion were called "smooth money," "lubricating money" or "rule 2000" (it will cost you 2,000 rupiahs).  More recently, they have been labeled "illegal levies" and were required for everything from processing a passport to exporting corrugated boxes.  It would be almost impossible to stop "illegal levies," because low-level civil servants needed them to live.  Nevertheless, the National Command for the Restoration of Security and Order, a government body, was, at present, trying to ban illegal levies.  The response was a combination of outrage and jealousy from civil servants who believed that the higher-ups were taking more and not spreading it around.  Although Indonesian Enterprises' workers were better paid than civil servants, they, too, sought ways to increase their incomes.  Any items the company had in stock that could be sold easily, like glue and starch, had to be closely monitored and physically secured, or they would be stolen.

Korsvald knew compassion was necessary and could produce practical results each morning.  He provided free bottles of "vitasoy," soy bean milk processed in Indonesia by the Hong Kong Soy Bean Products Company of Hong Kong, to mitigate the effects on his employees of malnutrition and tuberculosis, both common aliments in Indonesia. The result was an increase in worker productivity.

Sometimes, though, his compassion created problems.  He gave 25 corrugated boxes to one employee who said he wanted the boxes for moving to a new home.  Later, he discovered that the boxes were sold to a woman going to Pakistan.  When Korsvald confronted the employee, the employee became nervous and started to cry.   "My wife was sick and I needed the money," the employee sobbed, "I'm not a criminal."  Korsvald knew it would be difficult to fire the employee because of strict Indonesian labor laws, so he returned the money to the woman and treated the payment as an advance loan to the employee.  Later, the employee sent flowers to Korsvald.

He wondered about what other policies he should prepare for purchasing and advancing loans.  Should his purchasing agent be responsible for all purchases up to a certain amount, say $300 in Indonesian rupiahs?  Should the purchasing agent be able to further delegate authority to other departments?  Should he let a policy on advance loans be made by the comptroller?  Weren't there inherent dangers?

In one Western company in Jakarta, when loan policies were delegated to a pribumi comptroller, salary advances had more than quadrupled.  The chief executive called in the comptroller to find out if the report was in error.  It was not.

The comptroller said that, rather than follow the policy blindly, cases were judged individually.  The company's new chief engineer needed a large sum of money to pay three years' rent advance for the house he had just leased and such advances were normal in Jakarta.  A one-year advance in pay was made to an older employee who was making his pilgrimage to Mecca (Haj), which every devout Muslim was required to do at least once in his or her life.  While the comptroller gave explanations for each advance in salary, the chief executive noticed a loan of four months' salary to a recently hired factory worker.  When the comptroller was questioned about this advance he said, "The man is my brother-in-law, and my wife would be embarrassed if I didn't grant him this favor."  Korsvald wanted policies that would prevent such a problem from occurring in Indonesian Enterprises.

Appendix:  Islam and the Koran

The word Islam literally means submission to the will of anybody, but in a religious sense it is properly defined as acceptance of what has been ordered or commanded by God via a man named Muhammed.  The principles that regulate the life of Muslims in their relationship with God are called the Five Pillars of Islam.  The first pillar is Islam's creed, "There is no God but Allah and Muhammed is his prophet."  The second pillar is prayer and Muslims are required to be constant in prayer which under normal conditions means praying five times a day.  The third pillar of Islam is charity.  Those with money should help those who are less fortunate.  The fourth pillar is the observance of Ramadan the ninth month of the Arabian Calendar.  Ramadan commemorates God's making Muhammed a prophet and ten years later Muhammed's Hijiah flight from a Mecca to Medina.  The fifth pillar of Islam is pilgrimage.  Once during a lifetime a Muslim is expected to visit Mecca.

The word Koran literally means "that which is read," but to Muslims it is the sacred book that contains the word of God as revealed to Muhammed. The book consists of 114 chapters, of 6,000 verses, and over 80,000 words.  There is no specific order except the shorter chapters are at the beginning.  It contains information pertaining to prophets and the people to whom they were sent.  It also contains laws, dogmas, and ethical ideas.  In addition, it is considered by Muslims as a first-rate piece of literature.  Many Muslim writers copy its style which they consider a miracle of eloquence.  In many parts it is rhymed and unlike ordinary prose, it is chanted rather than read.  During daily prayers Muslims usually recite the opening chapter of the Koran and any other part they like.