Indonesian business: Learning about ASEAN

With 17,000 islands & 240 million people Indonesia's economy has grown 50% in the past seven years & an important part of the Asean Economic Community from 2015.

Jakarta

Photo above of the car-free streets of Jakarta (capital of Indonesia on island of Java) on monthly Car Free Day, morning gymnastics, games, jogging, bicycling, badminton, karate, an on-street library and musical performances take over the road from cars one day every month (Source: Wikipedia).

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Economics
MEETING THE CHALLENGES

Indonesia poised for rapid transformation

2/04/2012
Bangkok Bank

Indonesia has become a magnet for investment and we are seeing many foreign firms, including Thai companies, rush to establish a beach-head there.

There are many good reasons for this such as the country's large labour force, the huge potential of its domestic market and an abundance of natural resources. Given these advantages, it is hardly surprising that Indonesia has attracted a large flow of foreign direct investment and its gross domestic product has increased by 50% in the past seven years.

Naturally Bangkok Bank's customers, both in Thailand and from our overseas branches, are very interested in Indonesia. We agree that there is huge potential, and in response to the demand of our customers we are opening a second branch there, in Surabaya.

But it is important to also understand that Indonesia is very complex. It has a massive population of around 240 million people, a vast geographical spread across 17,000 islands, and there are immense differences in development and culture in different parts of the country.

Java is the centre of government and the industrial heart of the country. Approximately 60% of the population lives on this island - so for Thai manufacturers or service providers, this is the obvious place to go. However, companies looking to develop energy or natural resources generally invest outside of Java and so they need to consider many challenges, such as the level of infrastructure, the cost of transport and the need to provide supporting services.

At this particular stage of Indonesia's development, the major attraction for foreign manufacturers is the economy and size of the local workforce. Not only are wage rates in Indonesia less than half of those in Thailand, but the pool of labour in Indonesia is much larger and still has much potential to grow.

The labour market is already tight in Thailand, with our workforce due to start shrinking within about 10 years; however in Indonesia, around a third of the population is under 30 years old. This guarantees a huge labour supply in the future.

As the inflow of investment in Indonesia generates higher incomes we will see a social and economic transformation within a very short space of time. Although people are still very poor in Indonesia's far-flung islands, there is already rising consumer demand for first-stage consumer goods such as refrigerators and motorcycles and the growth potential is tremendous. Within about three years the number of people considered middle class in Indonesia is expected to triple to around 150 million.

For those setting up a manufacturing business either for the domestic or export market, Surabaya, in East Java, is generally the first choice to establish a base. The second largest city in Indonesia, it is the hub of the country's rapidly growing industrial sector. It is well served by transport links with a port and an international airport. Planning is also under way for a high-speed train link between Surabaya and Jakarta.

With the Asean Economic Community only three years away, investors considering setting up production facilities in Indonesia would be well advised to act quickly. Southeast Asia, with its strong economic growth potential and market of 600 million people, is extremely attractive to the rest of the world and Indonesia, like Thailand, is a prime location to tap into this market. If we don't establish ourselves in new markets when they are opening up, we may regret it later when we find ourselves shut out by our competitors.

Dr Kobsak Pootrakool is an Executive Vice-President with Bangkok Bank. Meeting the Challenges appears every two weeks. Questions, comments or suggestions can be sent to asiafocus@bangkokpost.co.th. [Twitter: @Kobsak]

For more in this series please visit www.bangkokbank.com.

(Source: Bangkok Post, Economics, MEETING THE CHALLENGES, Indonesia poised for rapid transformation, 2/04/2012, Bangkok Bank, link

Indonesia Business Vocabulary

Indonesia - "a country in Southeast Asia and Oceania. Indonesia is an archipelago [chain of islands] comprising approximately 17,508 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country" (See Wikipedia)

Java - "an island of Indonesia. With a population of 135 million (excluding the 3.6 million on the island of Madura which is administered as part of the provinces of Java), Java is the world's most populous island, and one of the most densely-populated places on the globe. Java is the home of 60 percent of the Indonesian population. The Indonesian capital city, Jakarta, is located on western Java" (See Wikipedia)

Surabaya - the second largest city in Indonesia, located in East Java, the hub of the country's rapidly growing industrial sector (See Wikipedia)

middle class - not rich, not poor (have basic needs such as food and housing taken care of, so can save and buy extra things they need, example: spend money on their child's education through university) (See Wikipedia and MIT paper: What is middle class about the middle classes around the world?)

expected
- believe will happen คาดว่า (จะเกิดขึ้น)
triple - three times the number or size of something จำนวนสามเท่า
expected to triple

Within about three years the number of people considered middle class in Indonesia is expected to triple to around 150 million.

challenge - some goal that is difficult to achieve and reach, requires a lot of energy and effort 
meeting a challenge - achieving a difficult to achieve to achieve goal
poised for - about to do or achieve something ได้มาซึ่ง
transformation - change
rapid - happening quickly อย่างรวดเร็ว
rapid transformation - quick change
Indonesia poised for rapid transformation

investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
magnet for investment - a place that many companies want to invest in

rush -
go quickly; to move or do something very quickly รีบเร่ง, วิ่ง
establish - to start something (like a company or organization) that will likely continue for a long time สถาปนา, ก่อตั้ง, จัดตั้ง
beach-head -  1. a company's first business operations in a country, before expanding; 2. an area on a beach that an army takes control of, before launching an attack further inland  (See Wikipedia)
rush to establish a beach-head

Indonesia has become a magnet for investment and we are seeing many foreign firms, including Thai companies, rush to establish a beach-head there.

potential - the possibility of success ที่มีศักยภาพ ที่เป็นไปได้
huge potential - a great possibility of success
domestic - within the country ภายในประเทศ
the huge potential of its domestic market
labour force - all the people in an area or country available for work แรงงาน
natural - found in nature (not made in a factory by humans) ตามธรรมชาติ
natural resources - things such as coal, trees and oil that exist in nature and can be used by people ทรัพยากร
abundance - having a lot of something
abundance of natural resources
advantages - benefits; things that put you ahead of the competition

foreign direct investment (FDI) - "direct investment by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive for investment or to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds" (See Wikipedia)

attracted a large flow of foreign direct investment

gross domestic product (GDP)
- the total value of all the goods and services produced by a country in one year (See Wikipedia)

gross domestic product has increased by 50% in the past seven years.

There are many good reasons for this such as the country's large labour force, the huge potential of its domestic market and an abundance of natural resources. Given these advantages, it is hardly surprising that Indonesia has attracted a large flow of foreign direct investment and its gross domestic product has increased by 50% in the past seven years.

demand - the need and desire to buy goods and services by households and businesses
branch - an office or shop representing a large company or organisation in a particular area สาขา

Naturally Bangkok Bank's customers, both in Thailand and from our overseas branches, are very interested in Indonesia. We agree that there is huge potential, and in response to the demand of our customers we are opening a second branch there, in Surabaya.

complex - has several parts with many connections, difficult to understand
massive - very large in size, amount or numberใหญ่โต มหาศาล
population - all the people who live in one country, area or place กลุ่มที่อาศัยอยู่ในบริเวณหนึ่ง
massive population - many people living there

vast - extremely large in area, size, amount, etc. กว้างใหญ่, มหาศาล มหึมา  
spread - to cover, reach or have an effect on a wider or increasing area or number of people กระจายไปทั่ว
vast geographical spread - very big place with lots of land

immense - extremely large มหึมา มหาศาล
development - the gradual growth and formation of something
immense differences in development and culture

But it is important to also understand that Indonesia is very complex. It has a massive population of around 240 million people, a vast geographical spread across 17,000 islands, and there are immense differences in development and culture in different parts of the country.

obvious - clear; easy to see, recognise or understand ชัดเจน
energy - oil to drive cars and trucks; natural gas, coal to generate electricity, etc
challenges - difficult tasks that require great effort; new and difficult problems to solve, that require effort and determination
infrastructure - the high-cost facilities that everyone in the economy shares (water, roads, electricity, trains) สาธารณูปโภค
transport - to move people or things from one place to another ขนส่ง
provide - to give someone something that they want or need
providing supporting services - give help  

Java is the centre of government and the industrial heart of the country. Approximately 60% of the population lives on this island - so for Thai manufacturers or service providers, this is the obvious place to go. However, companies looking to develop energy or natural resources generally invest outside of Java and so they need to consider many challenges, such as the level of infrastructure, the cost of transport and the need to provide supporting services.

stage - a part of an activity or process or a period of development ระยะ, ช่วง, ตอน a particular point in time during a process or set of events ระยะเวลา ช่วงเวลา
stage of development
stage of Indonesia's development
workforce - all the people in an area or country available for work, all the people who work for a company แรงงาน
local workforce
wage - an amount of money that you earn for working, usually according to how many hours or days you work each week or month ค่าจ้าง
wage rates in Indonesia less than half of those in Thailand
labour pool - a group of people available for work สมาคม กลุ่มสถาบัน
potential - possible; possible or likely for event or situation to happen ความเป็นไปได้
potential to grow
has much potential to grow

At this particular stage of Indonesia's development, the major attraction for foreign manufacturers is the economy and size of the local workforce. Not only are wage rates in Indonesia less than half of those in Thailand, but the pool of labour in Indonesia is much larger and still has much potential to grow.

tight labour market - supply is much less than demand; shortage (so wages are rising)
guarantees - makes some event or situation happen for sure

The labour market is already tight in Thailand, with our workforce due to start shrinking within about 10 years; however in Indonesia, around a third of the population is under 30 years old. This guarantees a huge labour supply in the future.

far-flung - far away
far-flung islands - island that are far away (from the main island of Java)
consumer - someone who buys and uses goods and services ผู้บริโภค
consumer demand 
the growth potential - the possibility that a company or economy will grow in the future, have a high growth rate, expand quickly
tremendous - very great in amount or level, or extremely good ใหญ่โตมาก ที่มากมหาศาล ที่ดี 
the growth potential is tremendous

As the inflow of investment in Indonesia generates higher incomes we will see a social and economic transformation within a very short space of time. Although people are still very poor in Indonesia's far-flung islands, there is already rising consumer demand for first-stage consumer goods such as refrigerators and motorcycles and the growth potential is tremendous.

first choice - of very good quality หัวกะทิ, ชั้นหนึ่ง, ดีที่สุด
base - a place from where an activity can be planned and operated ฐานที่มั่น
the first choice to establish a base

hub - the central or main part of something where there is most activity จุดศูนย์กลาง
sector - a part of the economy ภาคเศรษฐกิจของประเทศ (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) (See Wikipedia)
the hub of the country's rapidly growing industrial sector

link (verb) - to connect เชื่อม
links (noun) - connections ความเชื่อมโยงกัน
transport links - roads, railways, shipping via sea or rivers
port - an area of water where ships stop, including the buildings around it ท่าเรือ
international - ระหว่างประเทศ between countries
served by transport links with a port and an international airport.
Planning is under way for a high-speed train link

For those setting up a manufacturing business either for the domestic or export market, Surabaya, in East Java, is generally the first choice to establish a base. The second largest city in Indonesia, it is the hub of the country's rapidly growing industrial sector. It is well served by transport links with a port and an international airport. Planning is also under way for a high-speed train link between Surabaya and Jakarta.

Asean Economic Community -
near zero tariffs and barriers to trade between ASEAN states; and labour markets where workers can move freely between countries; starting in 2015

facilities
- the buildings and equipment for an activity สถานที่และสิ่งอำนวยความสะดวก สิ่งอำนวยความสะดวก
production
facilities - factories
would be well advised to act quickly - you should do

attractive
- worth having or doing
prime - main or most important ที่สำคัญที่สุด of the best quality ที่ดีที่สุด
prime location - one of the best and most important locations
tap - use
tap into - start using (something that is very useful)
tap into a market - start doing business in a market
a prime location to tap into this market

regret - a feeling of sadness about something sad or wrong or about a mistake that you have made, and a wish that it could have been different and better ความโทมนัส,ความเสียใจ,ความเศร้าโศก
we may regret it later

With the Asean Economic Community only three years away, investors considering setting up production facilities in Indonesia would be well advised to act quickly. Southeast Asia, with its strong economic growth potential and market of 600 million people, is extremely attractive to the rest of the world and Indonesia, like Thailand, is a prime location to tap into this market. If we don't establish ourselves in new markets when they are opening up, we may regret it later when we find ourselves shut out by our competitors.

About the author

columnist
Writer: Jon Fernquest
Position: Online Writer