Contemporary Issues in Indonesia - Assignment Example

International marketing of Table of Contents Executive summary 3 2.Introduction 3 3.Company background 3 Product and services 4 Overseas expansion 4 4.Introduction to Indonesia 5 5.Economic analysis 5 Economic data 5 Trade agreements and barriers 6 Economic rankings 6 6.Political and legal analysis 7 Role of government in the economy, political stability and risk 7 Legal system 8 Investment climate 8 7.Cultural analysis 8 8.Contemporary issues in Indonesia 9 Selling of products and services in Indonesia 9 9.Conclusion 9 References 11 1. Executive summary The paper is a macro analysis report of the business environment of Indonesia where retail chain Big W wishes to expand its overseas business. The Indonesian market provides a large consumer base from rural as well as urban market which may prove advantageous for Big W. the paper will be assessing economic, political, legal as well as cultural aspects of the country and determine potential benefits and threats for Big W in the Indonesian market. In addition to that contemporary issues such as marketing strategies and level of competition will be discussed in the paper. 2. Introduction The paper aims at assessing the scope of international marketing in Indonesia in the context of growth and development of international departmental stores in the country. For conducting an overall assessment, macro environmental analysis has been taken in consideration. The company that has been selected for this analysis is Big W, which is Australian by origin and is planning for expansion in Indonesia. Before getting into in-depth analysis a brief background of the company and its product and services has been provided. In context to overseas expansion, the motive behind such decision has also been discussed in the paper. Following company profile, a brief introduction of Indonesia has been provided along with a detailed study of economic, political, legal and cultural atmosphere of the country. Along with the environmental assessment, advantage and disadvantages associated with the location has also been discussed in the paper so that the company can evaluate the situation in a comprehensive manner before committing any resources. The paper is therefore not limited to mere analysis of Indonesian business environment. Instead, conclusion and recommendations are also provided regarding the same. 3. Company background Big W is one of the well-known discount departmental store chains in Australia. The retail chain is a part of Woolworths Ltd and has more than 100 stores all over Australia. The company aims at selling best quality brands at lowest possible cost. The business of Woolworths ltd is highly diverse and it can be said that the company created the subsidiary variety store for complementing Woolworths’ supermarkets. Big W employs approximately 17000 people all over Australia. The company is focused on delivering best quality at the best price, healthy and safe working environment for its employees and fair degree of return to its stakeholders. The store has a number of delivery systems that suit the consumer needs. Big W has recently diversified in the optometry segment as well providing physical as well as online store services along with eye test and other relevant facilities (Big W, 2014a). Product and services The store sells branded as well as unbranded products under various categories ranging from clothes, shoes, household products, sports goods to electronic goods. The store also sell home improvement products, food and liquor as well as general merchandise brands. Presently, the retail chain has started its online store as well where delivery services can be availed at any hour on any day of the week. The company has further added products such as glasses, contact lens, sunglasses, eBooks and artworks such as photos and personalized gifts. The products and services that Big W is selling at economic price is the greatest marketing strategy of the company. It was ascertained that the company has a refund policy where if consumers find a product at a cheaper price, Big W will refund full amount to them. Given the nature of the strategy, it can be easily assumed that the company has a dedicated supply chain network and have gained competitive advantage in the local market (Big W, 2014b). Overseas expansion Woolworths ltd is the largest retail chain in Australia and the company is planning to expand in the global market so that it can gain greater market share and earn competitive advantage globally. Additionally, the company has also observed tremendous growth of global retail chains such as Tesco and Wal-Mart, which further acted as a source of motivation for the company for global expansion. In the following section, the economic condition of Indonesia has been described which is another positive reason for attraction towards the Indonesian market. As the company has already achieved competitive advantage in its local market, through international expansion in Indonesia the company will gain access to other Asian countries as well. The retail industry is booming and most developed economies are flooding with low cost departmental stores. However, such stores are limited in Asian countries specially the developing nations. The described situation of Asian retail industry may prove advantageous for the company (Big W, 2014a). 4. Introduction to Indonesia Indonesia is one of the fastest developing countries located in South East Asia with a population of approximately 249 million. Indonesia is known for being the founding member of ASEAN and that of G-20 economies. The country is spread across approximately 1.9 million square kilometer. The country is the largest archipelago in the world comprising more than 17, 500 islands. Indonesia is considered as a bridging nation between Australia (Oceania) and Asia. The five major islands of Indonesia are Sumatra, Kalimantan, Java, Papua and Sulawesi. The capital of the nation is Jakarta and its monetary unit is Rupiah (United Nations Development Programme, 2014; The World Bank, 2014). According to BBC (2013), Indonesia has the largest Muslim population in the world and is highly diverse from ethnic perspective. The population ranges between rural hunter-gathers and urban elite and about three hundred languages are spoken in the country. The climatic condition of Indonesia is somewhat an amalgamation of both Asian and Australian climate and being located in the shifting tectonic plates, it is prone to volcanic eruptions and earthquakes (United Nations Development Programme, 2014). 5. Economic analysis Economic data Indonesia is a developing economy having lower middle income level and a gross domestic product (GDP) worth US$ 868.3 billion (The World Bank, 2014). It is one of the largest emerging economies in the world that provide a large consumer base and acts as a bridge between Asia and Australia. The economy of Indonesia is stable and has rich natural resources; these factors along with its consumer capacity attract new ventures and investors in the country (United Nations Development Programme, 2014). According to the Asian Development Bank (2014), the economic growth of the country was sluggish in 2013 due to moderate level of investment and low external demand. Additionally, banks had to raise interest rates for restraining rising inflation and increasing current account deficit. It was, however, ascertained that the GDP of the economy grew to 5.8% in 2014 and expected to grow to 6% in 2015 as per Asian Development Bank Outlook. Since 2013, private consumption has increased by 5.3% while that by the government increased by 4.9%. The report further suggests that the inflation is expected to decline substantially while output will be increasing in 2015 (Asian Development Bank, 2014). Trade agreements and barriers In Indonesia, MFN (Most favored nation) treatment is provided to all WTO (World Trade organization) members and the country is strengthening its economic ties through bilateral agreements and active participation in ASEAN. Indonesia has strict law concerning anti-dumping, safeguard practices and countervailing. The simple average MFN tariff of Indonesia has reduced from 9.5% in 2006 to 7.8% in 2012. However, the average MFN tariff for industrial and agricultural import is as high as 7.5% and 9.5% respectively. Studies suggest that the tariff rates of the country ranges between zero and ten and the highest tariff is applicable on vehicles. Indonesia does practice certain exceptions to the existing tariff rate by offering significantly reduced tariff rate ranging between 0.8% and 5.9% through bilateral agreements and ASEAN foreign trade agreements. The taxation system involves a number of indirect taxes such as value added tax and excise duty. The economy levies a flat rate of 10 percent as value added tax and high excise duty and luxury tax ranging between 10% and 75% on various imported products, which are considerable high when compared with domestic production (World Trade Organization, 2013; World Bank Group, 2014). Economic rankings In the global competitiveness report 2013-2014 by World Economic Forum (2014), Indonesia is ranked at 38 among 148 countries and has been ranked at 100 out of 178 countries in context of economic freedom. It was observed that Indonesia is not exactly economically free country but has strong competitive position. The index of economic freedom suggests that overall trade freedom score of the economy is 74.8 which is considered as fairly good. Additionally, the aggregate score of the country has improved by 1.6 points from the previous year (World Economic Forum, 2014). When the rankings were exclusively compared between Indonesia and Australia, it was ascertained that Indonesia has greater fiscal freedom compared to Australia and level of trade freedom is almost same between both the countries and higher than the world average. Additionally, monetary freedom of Indonesia has fluctuated sufficiently in recent years but in 2014 it is same as that of Australia (The Heritage Foundation, 2014a; 2014b; 2014c). 6. Political and legal analysis Indonesia went through a complete political transformation post the upheaval of 1998 as 30 years of authoritarian governance of General Suhartho dissolved and the Rupiah collapsed. Presently, Indonesia is the largest Muslim democratic country in the world. In last few years, a number of religion parties rose and fell but presently equilibrium has been established in the economy in the direction of reform minded secular nationalism. Susilo Bambang Yudhoyono is the first democratically elected Indonesian president who was elected consecutively twice since 2009. During his tenure, the political system strictly focused on terrorism and national security. Other political reforms included decentralization of political power, development of under-developed areas and greater participation in economic growth. Despite these efforts, widespread corruption continuous to exist in the economy as well as there is an increasing gap between rich and poor in the country (Australian Government, 2004). Role of government in the economy, political stability and risk The Indonesian economy weathered the financial crisis of 2008 well and exhibited strong growth while mitigating energy, food and financial market crises. The GDP during that period was around 6% and since then it has been varying between 5% and 6%. The country however faced serious economic challenges in 2009 due to increased unemployment. During this period, banks increased interest rate so as to curb down inflation and increasing current account deficit. The government has played significant role in managing economic risk and maintaining stability in the nation. In 2009, economic reforms were introduced through revised tax rates resulting to significant increasing in non-taxable income. Between 1966 and 1998, Indonesia observed rapid economic growth and reduction in poverty despite Suharto’s authoritarian rule. The risks related to the economy are mitigated by optimum utilization of abundant natural resources, low cost labor force and prudent fiscal policies (World Trade Organization, 2013). Legal system Indonesia is a democratic country with presidential rule where the sovereignty is vested in the interest of the citizens. The fundamental laws of the country are defined in the Indonesian constitution and the related functions are classified as executive, legislative and judicative power. The president and the vice president hold the executive power and are directly elected by general people every five years. The president heads the states as well as the country. The legislative power is held and managed by the house of representative and the senate who are elected by citizens in the general election held every five years. The house of representative is responsible for law making, budgeting and representing common people for supervision of executive power. The house of representative has the authority to question executive decisions on behalf the common people. The judicative power lies with the supreme court and constitutional court (Australian Government, 2004; Export.gov, 2012). Investment climate The growing middle class, strong domestic sectors, political stability and a sound macroeconomic environment in Indonesia makes the country an attractive choice for foreign direct investment. The Investment Coordinating Board is primarily responsible for providing investment license to foreign entities. However, one of the major difficulties in the FDI is governmental regulatory control on natural resources of the country. The positive factor about investment climate of Indonesia is that the government allows foreign parties to invest up to 99% in domestic banks. It was further observed that Indonesian companies can pursue business with local approval while foreign companies require administrative and legislative permission for continuation of operations. Indonesia does not have a very strong intellectual property right for protection of intellectual properties resulting to high level of piracy and duplicity. The trademark law and copyright law are presently under review. Additionally, the economy maintains transparency in its reporting and has adopted the international standards (Export.gov, 2012). 7. Cultural analysis Indonesia is home to a very rich cultural heritage where art and culture are enlaced with the religion and traditions of the country. The basic principle of life in Indonesia is mutual assistance, which has been derived from community life in rural areas. The official language of the country is Indonesian or Bahasa Indonesia. In addition to that, at least three hundred other languages are spoken in the country. Indonesia is primarily a Muslim country but its cultural practices can be observed to be influenced by religions such as Hinduism, Buddhism and Confucianism as well (Embassy of Indonesia, 2010). The architecture of Indonesia is highly impact by Indian and European architecture. Significant Chinese and Arabian architectural influence can also be observed therein. The arts such as dance and drama depict mythologies of local as well as that of foreign countries. The material art, on the other hand, includes unique and expressive Indonesian and Balinese paintings. Unlike many countries, the Indonesian art forms are not only based on folklores but also on religious ceremonies (Embassy of Indonesia, 2010). 8. Contemporary issues in Indonesia Selling of products and services in Indonesia It was ascertained that if a foreign company pursues retailing in Indonesia, it needs to appoint an Indonesian agent as per Ministry of Trade regulations. A number of management agreements need to be followed in order to protect interest of both the parties. In Indonesia, direct marketing through local distributors has been adopted by a large number of companies such as Amway and Tupperware and it is a very successful strategy for foreign companies in the country. Electronic commerce activities are yet to gain momentum in Indonesia and are generally not implemented by operating companies. Additionally, advertising and trade promotion is generally done through newspaper, magazine and business journals (Export.gov, 2012). 9. Conclusion The macroeconomic analysis of Indonesia suggests that the economic condition of the country is improving and relative degree of political stability has been established in the country. Geographical as well as from consumer perspective, the area of Indonesia is vast and will provide a large number of opportunities to Big W for business expansion. It was also ascertained that Indonesia is like a virtual bridge between Oceania and Asia, which further creates scope for potential opportunities. The assessment suggest that besides minor issues related to foreign investment and economic freedom, expansion in Indonesia can prove to be a winning strategy for Big W. References Asian Development Bank. (2014). Economy. Retrieved from http://www.adb.org/countries/indonesia/economy. Australian Government. (2004). Political and economic environment. Food exporter’s guide to Indonesia, 63-63. BBC. (2013). Indonesia profile. Retrieved from http://www.bbc.com/news/world-asia-pacific-14921239. Big W. (2014a). Big W’s mission and values. Retrieved from http://www.bigw.com.au/help/BIGWMissionandvaluesContent. Big W. (2014b). Products and services. Retrieved from http://www.bigw.com.au/. Embassy of Indonesia. (2010). Indonesian culture, arts and traditions. Retrieved from http://indonesia.gr/indonesian-culture-arts-and-traditions/. Export.gov. (2012). Doing Business in Indonesia: 2012 Country Commercial Guide for U.S. Companies. Retrieved from http://export.gov/indonesia/static/2012%20CCG%20Indonesia_Latest_eg_id_050874.pdf. The Heritage Foundation. (2014a). Indonesia. Retrieved from http://www.heritage.org/index/country/indonesiaopen-markets last/. The Heritage Foundation. (2014b). Country rankings. Retrieved from http://www.heritage.org/index/ranking. The Heritage Foundation. (2014c). Graph the data. Retrieved from http://www.heritage.org/index/visualize?countries=australia|indonesia&src=ranking. The World Bank. (2014). World development indicators: Indonesia. Retrieved from http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true. United Nations Development Programme. (2014). About Indonesia. Retrieved from http://www.undp.or.id/general/about_indonesia.asp. World Bank Group. (2014) Doing business: Indonesia. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/indonesia. World Economic Forum. (2014). The Global Competitiveness Index 2013–2014 rankings. Retrieved from http://www3.weforum.org/docs/GCR2013-14/GCR_Rankings_2013-14.pdf. World Trade Organization. (2013). Trade policy review. Retrieved from http://www.wto.org/english/tratop_e/tpr_e/s278_e.pdf. Read More