HRM Issues for German Companies Establishing a Subsidiary in Indonesia

Lange, Jenny S.

Leseprobe

Jenny Soesanto Lange

HRM Issues for German Companies Establishing a Subsidiary in Indonesia

ISBN: 978-3-8366-4209-5

Herstellung: Diplomica® Verlag GmbH, Hamburg, 2010

Zugl. Hochschule für Wirtschaft und Umwelt Nürtingen-Geislingen (ehemals FH

Nürtingen), Nürtingen, Deutschland, MA-Thesis / Master, 2009

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Abstract

Indonesia, with over 240 million people and rich of natural resources and

abundant human resources, is very attractive for investors operating in wide array of

industries.

Many reports on Human Resource Management (HRM) and the English journals

have written about the developing countries in Europe, Africa, and Asia (countries such as

Hong Kong, China, and India), but surprisingly, writing on HRM issues in Indonesia has

been rare and limited to mainly to labor economics and macro-level Human Resources

Development (Bennington and Habir, 2003, pp. 373-374). Therefore, this thesis intends to

make a contribution to literatures of HRM issues in Indonesia, especially for German

companies which are establishing their subsidiaries in Indonesia.

This study examines Human Resource Management Issues in Indonesia for

German subsidiaries from environment context such as political, economical, socio-

cultural, technological, environmental and legal perspective (PESTEL Analysis); culture

dimension difference between Indonesia and Germany; and the current issues of

managing human resources in Indonesia by firms, especially for multinational companies,

such as issues of general condition of labors, recruitment and selection process,

compensation appraisal, performance management, trade unions, gender and children

workers.

iii

Acknowledgements

I would like to thank many people who directly or indirectly contributed to

development and completion of my master thesis. Foremost, I would like to thank my

husband, Michael Lange, for his support and motivation; my father, Eddy Soesanto and

my sisters, who motivated and prayed for me. Their support was invaluable, especially

through the final few weeks of the finishing this master thesis.

Specifically, I would like to thank my supervisor, Prof. Dr. phil. Richard Wilcox,

for

his unwavering academic support and his patience to assist me until I accomplished this

project.

I respectfully acknowledge the contribution of the many book authors, whose

their books I used as references in my thesis and also some Human Resource

Development (HRD) consultant companies in Indonesia that help me by providing

references.

Most of all, I am grateful to my uncle, Susanto, for his financial support so that I

could take my master degree in Germany.

Table of Contents

Abstract

Acknowledgments

iii

Table of Contents

List of Figures

vii

List of Tables

viii

Abbreviations

Introduction

1.1

Problem Statement

1.2

Purpose of Study

1.3

Assumption and Limitation

1.4

Methodology

1.5

Definition of Terms

1.5.1

Human Resource Management

1.5.2

Human Resource Management Issues

Indonesia in Overview

2.1

Geographical Framework

2.2

Climate and Resources

PESTEL Analysis of Indonesia

3.1

Political Analysis of Indonesia

3.1.1

Political System

3.1.2

International Relations

3.1.3

Terrorism Issues

3.1.4

Internal Conflict Issues

3.1.5

Corruption Issues

3.1.6

Military Politics

3.2

Economical Analysis of Indonesia

3.2.1

Foreign Trades

3.2.2

Foreign Direct Investment

3.2.3

Currency and Banking

3.2.4

Job Growth and Unemployment

3.3

Socio-cultural Analysis of Indonesia

3.3.1

Demographics

3.3.2

Ethnic Groups and Religion

3.3.2.1

Ethnic Groups

Table of Contents (Continued)

3.3.2.2

Religion

3.3.3

Languages

3.3.3.1

Regional and National Language

3.3.3.2

Official Language

3.3.4

Education

3.3.5

Health

3.3.6

Human Development

3.4

Technological Analysis of Indonesia

3.4.1

Intellectual Property Rights

3.4.2

Research and Development

3.4.3

Maturity of Technology

3.4.4

Telecommunication

3.4.5

Transportation

3.5

Environmental Analysis of Indonesia

3.5.1

Environmental Issues

3.5.2

Environment Regulation

3.6

Legal Analysis of Indonesia

3.6.1

Legal System

3.6.2

Labor Law

3.6.3

Tax System

Comparison: Cultural Dimension between Germany and Indonesia

4.1

Performance Orientation

4.2

Assertiveness

4.3

Future Orientation

4.4

Humane Orientation

4.5

Institutional Collectivism

4.6

In-Group Collectivism

4.7

Uncertainty Avoidance

Human Resource Management Policies and Practices in Indonesia

5.1

General Condition of Employment

5.1.1

Type of Employment

5.1.2

Disability and Older Workers

5.1.3

Wages System

5.1.4

Working Hours

5.1.5

Worker' Social Security

5.2

Recruitment

5.3

Personnel Selection

Table of Contents (Continued)

5.4

Compensation Appraisal

5.5

Performance Management

5.6

Trade/Labor Union

5.7

Gender Issues

Conclusion and Recommendation

Reference

Appendix A

Appendix B

vii

List of Figures

Figure 2.1 Map of Indonesia

Figure 3.1 Bribery Payers Index in Indonesia 2008

Figure 3.2 Age Structure of Indonesia's Population 2009

Figure 3.3 Education System in Indonesia

Figure 4.1 Culture Dimension Difference (Society Practice):

German versus Indonesia

Figure 4.2 Culture Dimension Difference (Society Value):

German versus Indonesia

Figure 5.1 Sample of Recruitment Advertising

Figure 5.2 Selection Procedures in Large Companies in Indonesia

Figure 5.3 Measurement of Candidates' Qualification

viii

List of Tables

Table 2.1 Indonesia Key Facts

Table 3.1 Opportunities and Threats of Indonesian Politic for German Companies

Table 3.2 Opportunities and Threats of Indonesian Economic for

German Companies

Table 3.3 FDI Growth in Indonesia

Table 3.4 Number of Employees in Indonesia by Sectors 2008

Table 3.5 Working Age Population in Indonesia by Activity and Education 2008

Table 3.6 Opportunities and Threats of Indonesian Socio-culture for

German Companies

Table 3.7 Demographic Highlight of Indonesia

Table 3.8 Languages Spoken in Indonesia

Table 3.9 Top Indonesian Universities 2008

Table 3.10 Opportunities and Threats of Indonesian Technology for

German Companies

Table 3.11 Opportunities and Threats of Indonesian Environment for

German Companies

Table 3.12 Opportunities and Threats of Indonesian Legal for German Companies

Table 3.13 Special Tax Rates to Specific Type of Corporation in Indonesia

Table 3.14 Graduated Scale of Taxable in Indonesia

Table 4.1 Germany versus Indonesia: Higher versus Lower Performance Orientation 39

Table 4.2 Germany versus Indonesia: Higher versus Lower Assertiveness

Table 4.3 Germany versus Indonesia: Higher versus Lower Future Orientation

Table 4.4 Germany versus Indonesia: Lower versus Higher Humane Orientation

Table 4.5 Germany versus Indonesia: Lower versus Higher Collectivism at Workplace 45

Table 4.6 Germany versus Indonesia: Lower versus Higher In-Group Collectivism

Table 4.7 Germany versus Indonesia: Higher versus Lower Uncertainty Avoidance

Table 4.8 Germany versus Indonesia: Higher versus Lower Uncertainty Avoidance at 48

Workplace

Table 5.1 Minimum Wages in Some Provinces in Indonesia 2007-2009

Table 5.2 Number of Jamsostek Members 1999-2007

List of Tables (Continued)

Table 5.3 Attrition Rates in Indonesia 2006-2007

Table 5.4 Type of Recruitment Companies in Jakarta

Table 5.5 Wages Composition (includes Compensation) in Large Companies

in Indonesia

Table 5.6 Compensation Appraisal for Expatriate Workers in Indonesia

Table 5.7 Working Population in Indonesia by Main Industry and Sex 2008

Table 6.1 Summary: HR Issues Affected by Indonesian Culture

Abbreviations

ASEAN

Association of South East Asia Nations

BAPEDAL

Badan Pengendalian Dampak Lingkungan,

Environmental Impact

Management Agency

BAPPENAS

Badan Perencanaan dan Pembangunan Nasional

The National

Development Planning Agency

Bank Indonesia, Central Bank of Indonesia

BPS

Badan Pusat Statistik, BPS-Statistics Indonesia

CDC

Communicable Disease Control

CIA

Central Intelligence Agency

COG

Certificate of Guarantee

CPI

Corruption Perception Index

DPD

Dewan Perwakilan Daerah, Regional Representative Council

EVP

Employment Value Proposition

FDI

Foreign Direct Investment

FES

Friedrich Ebert Stiftung, Friedrich Ebert Foundation

GDI

Gender-related Development Index

GDP

Growth Domestic Product

GEM

Gender Empowerment Measure

HDI

Human Development Index

HIV/AIDS

Human Immunodeficiency Virus/ Acquired Immuno-Deficiency Syndrome

HPI

Human Poverty Index

HRD

Human Resources Development

HRM

Human Resources Management

ICW

Indonesia Corruption Watch

ILO

International Labor Organization

Intellectual Property

Jamsostek Jaminan Sosial Tenaga Kerja, Social Security

KPK

Komisi Pemberantasan Korupsi, Commission Eradication Corruption

KSPSI

Konfederasi Serikat Pekerja Seluruh Indonesia, Indonesian Confederation of All-

Indonesian Trade Unions

Abbreviations (Continued)

LIP

Lembaga Informasi Perburuhan

MAS

Masculine Index

MPR

Majelis Permusyawaratan Rakyat, People's Consultative Assembly

MSMes

Medium-Sized Enterprises

NGO

Non-Governmental Organization

NRC

Non-refundable Certificate

P.T.

Perseroan Terbatas

PESTEL

Political, Economical, Socio-cultural, Technological, Environmental, Legal

R&D

Research and Development

RBIs

Resources-Based Industries

ROA

Research on Asia

TAI

Technology Achievement Index

TCI

Technology Creation Index

TRIP

Trade Related Aspect of Intellectual Property Rights

UNDP

United Nation Development Program

UNESCO

United Nations Educational, Scientific and Cultural Organization

USA

United States of America

USAID

United States Agency for International Development

WHO

World Health Organization

Introduction

Indonesia has a strategic position on major trade routes and possessing a rich

variety of natural resources. With total numbers of 17,508 islands, the Archipelago is on a

crossroads between two oceans, the Pacific and the Indian Ocean, bridges two

continents, Asia and Australia, and has hundreds of different languages. These factors

have created a highly diverse environment and society. They influence the social, political

and economic life of the country. Under such circumstances, HRM of foreign companies

establishing subsidiaries in Indonesia, have numerous challenges.

Chapter 2 and 3 start identifying the overview of Indonesia and what kind of

environment aspect such as politic, economic, socio-culture, technology, environment

and legal of Indonesia influence Human Resource Management policies and practices in

Indonesia. Furthermore, this part addresses the opportunities and threats for German

subsidiaries in Indonesia regarding HRM Issues. It is an essential introduction part for

German companies in order to optimize opportunities and minimize threats, when they

establish subsidiaries in Indonesia.

Since international business involves the interaction and movement of people

across national boundaries, an appreciation of cultural differences is essential. Research

into these aspects, which is explored in Chapter 4, helps us to understand of differences

the culture dimension between Germany and Indonesia that influence human resource

policies and practices. The object of this chapter is to help in managing, working together

and dealing with the difference in thinking, feeling, acting and reacting of German and

Indonesian people. This study uses the research of GLOBE Study of culture dimension

such as Performance Orientation, Assertiveness, Future Orientation, Humane Orientation,

Institutional Collectivism, In-Group Collectivism, and Uncertainty Avoidance.

Chapter 5 examines the current issues of HRM in Indonesia, especially for German

companies establishing a subsidiary in Indonesia, such as general condition of

employment (type of employment, wages system, working hours, and worker' social

security), recruitment and selection issues, compensation appraisal, performance

management, trade unions, and gender issues. In this chapter show us, how political,

economical, socio-cultural, technological, environmental, and legal aspects; and culture

dimension of Indonesia, strongly influence HRM policies and practices in Indonesia.

The conclusion and recommendation as the last part, summarizes all of chapters

and underlines the most essential things of HRM Issues for German subsidiaries, an

overview of the current challenges for German subsidiaries, and suggests a

recommendation for the next research.

1.1

Problem Statement

There are about 250 German firms, which have subsidiaries in Indonesia. One

problem of their subsidiaries is Human Resources Management problems such as:

What kind of environment context strongly affect HRM in Indonesia?

What kind of ecruitment, personal selection, compensation appraisal, and

performance management method should German subsidiaries use?

How to manage Indonesian people?

How about discrimination (gender, age, ethnic, religion) at workplace?

How about legal system in Indonesia?

Since writing on HRM issues in developing countries have been rare, includes

Indonesia (Bennington and Habir, 2003, p. 373), HRM literatures are more needed,

especially in this case, for German companies establishing subsidiaries in Indonesia.

1.2

Purpose of Study

The purposes of this study are:

To address HRM issues in Indonesia for German companies establishing

subsidiaries in Indonesia from environment context.

To explore the art of managing people in Indonesia based on culture dimension

aspects.

To make a contribution to literatures of HRM policies and practice in Indonesia.

1.3

Assumption and Limitation

This study has the following assumption and limitation:

Assumption:

Since Indonesia consists of more than 500 ethnics which have different habits,

customs and etiquette, this thesis has an assumption that the results of analyze

in Indonesian culture or situation are general result. The reason is because each

ethnic has its own culture and it is not easy to address each difference of them.

However, issues of some ethnics are addressed if there are some important

points relevant to Human Resources Management practices.

In Indonesia, term Human Resources Development (HRD) is most used than

HRM, because HRM is seen as much broader than HRM, which tends to be seen

as "personal administration" (Bennington and Habir, 2003, p. 387). Although

there is a little bit difference between the definitions of both terms, this study

had an assumption that HRD is not distinguished from HRM.

As HRM practices vary across enterprise types, industries, and regions, this

study just addresses the general HRM practices.

Limitation:

By analyzing PESTEL of Indonesia, it is stressed only on opportunities and

threats for German companies establishing subsidiaries in Indonesia. The

political, economical, social-cultural, technological, environmental and legal

issues, which are not relevant to human resources management in Indonesia,

would not be discussed.

Since GLOBE Study differ the regions of Germany into East Germany and West

Germany, by analyzing cultural dimension, this thesis limits `Germany' as `West

Germany'.

By addressing HRM issues in Indonesia, this thesis addresses only the HRM

issues in formal and private sectors. Some issues in public or informal sectors

are explored, only if these issues are important to know or as a comparison to

formal and private sectors.

1.4

Methodology

This study used the following methodologies:

Science Literatures Analysis

It was used particularly for Chapter 2, 3 and 5. The data was collected from

national and international institutions; national and international newspaper,

magazines, papers, thesis, dissertations, textbooks and from HRM/Management

Consulting in Indonesia.

Comparative Study

Chapter 4 used more comparative study of data collection from textbooks and

some Intercultural Management Consultants.

1.5

Definition of Terms

1.5.1

Human Resource Management

The role of a definition in any field is important. This chapter helps identifying an

HRM definition in the global context.

Dowling, Welch and Schuler (1999, p. 2) define HRM as "activities undertaken by

an organization to utilize its human resources effectively. These activities would include

at least the following: human resources planning, staffing, performance management,

compensation and benefits, and labor relations".

In Indonesia, term "Human Resources Development (HRD)" most used than HRM,

because HRM is seen as much broader than HRM, which tends to be seen as "personal

administration" (Bennington and Habir, 2003, p. 387).

McLean and McLean (2001, p. 322) further define HRD as "any process or activity

that, either initially or over the long term, has the potential to develop adults' work-based

knowledge, expertise, productivity and satisfaction, whether for personal or group/team

gain, or for the benefit of an organization, community, nation or, ultimately, the whole of

humanity."

McLean and McLean (2001, pp. 321-322) also identify six findings related to HRD

in an international context. First, the most extensive HRD literature is in "the U.S. and the

UK, with India emerging as having extensive literature." Second, the influence of the U.S.

definitions may "be explained by the fact that many international students are being

educated about HRD in the U.S." Third, "professional organizations seem to play an

important role." Fourth, "the definition of HRD is influenced by a country's value system."

Fifth, HRD "is still in an emerging state in many countries." Sixth, "in several countries,

HRD is not distinguished from HR but is seen, systematically, as being a part of HR."

As mentioned in sub-chapter 1.4, this thesis uses HRM definitions as well.

1.5.2

Human Resource Management Issues

As defined above, HRM consists of the following activities:

Recruitment

Recruitment is defined as "searching for and obtaining potential job candidates in

sufficient numbers and quality so that the organization can select the most

appropriate people to fill its job needs" (Dowling, Welch, and Schuler, 1999, p. 69).

Selection Process

According to Dowling, Welch, and Schuler (1999, pp. 69-67), selection process is "the

process of gathering information for the purposes of evaluating and deciding whom

should be employed in particular jobs."

Compensation Appraisal

Compensation can be defined as "any form of financial payment for basic work

responsibilities. It represents a commitment of some kind of the companies as a

payment to employees for working for the companies" (Piotrowski, 1992, p. 284).

Performance Management

Performance management is defined as "an iterative process of goal setting,

communication, observation and evaluation to support, retain and develop

exceptional employees for organizational success, to reach organizational mission and

goals such as encourage and reward behaviors aligned with organizational mission and

goals, and curb or redirect non-productive activities" (Greenberg and Simunek-Appelt,

2008).

Trade/Labor Union

According to Minister of Manpower and Transmigration Republic of Indonesia

(Republic of Indonesia,

KEP. 255/MEN/2003, Art 1)

a worker/labor union is "an

organization that is formed from, by and for the workers/laborers both in or outside of

the company, which is in nature free, open, independent, democratic, and responsible

to strive for, defend and protect the rights and interests of the workers/laborers and

improve the welfare of the workers/laborers and their families."

Indonesia in Overview

Selamat datang di Indonesia!

Welcome to the world's fourth most populous country in the world with over 240

million people from a multitude of ethnic groups, customs, religions and languages (The

World Factbook, 2009).

The name Indonesia is composed of two Greek words: "Indos" which means

Indian, and "Nesos" meaning islands. Republik Indonesia, or translatable as The Republic

of Indonesia, is not only the largest country in Southeast Asia with an area of 1.9 million

square kilometers, but it is also five times bigger than Germany.

Table 2.1 Indonesia Key Facts

Country Area (CIA)

Number of Islands(CIA)

1,919,440 sq km

17,508 islands

Country's Name

Capital City

Head of Government

Republic Indonesia

Jakarta

President Susilo Bambang Yudhoyono

Currency

GDP per capita (Economy Watch)

Inflation (BI))

IDR (Indonesian Rupiah)

US$ 2,246.27 (2008)

7.39% (Jan,2009)

Population (CIA)

Ethnic Composition

Major Ethnic (the latest census 2000)

Major Religion (the latest census 2000)

240,271,522

About 500 ethnic

Javanese (40.6%)

Muslim (86.1%)

Source: CIA, World Factbook 2009; Economy Watch 2008; Central Bank of Republic of Indonesia (BI);

Indonesia's Census 2000

Colonization by the Dutch started shortly after 1600. Then Japan occupied the

islands from 1942 to 1945.

The Dutch settled mainly on Java, where the company chose

as its `headquarters' the city of Batavia (the current Jakarta). From this period onwards,

Java was to be the center of Indonesian development (Tichelman, 1980, p. 105).

Jakarta,

currently the capital city of Indonesia, is still the economic center of the country, and

deep contrasts exist between the latter and the country sides, which is more often than

not characterized by extreme poverty.

2.1

Geographical Framework

Indonesia is located in Southeastern Asia, between 6

08' North latitude to 11

15'

South latitude, and from 94

45' to 141

05' East longitude. This location is a strategic

position on major trade routes and possessing a rich variety of natural resources. With

total area 1,919,440 sq km, consists of land 1,826,440 sq km and water 93,000 sq km, it

consists of five major islands and about 30 smaller groups. There are total numbers of

17,508 islands of which about 6000 are inhabited (CIA, 2009). Straddling equator, the

archipelago is on a crossroads between two oceans, the Pacific and the Indian Ocean, and

bridges two continents, Asia and Australia. These factors have created a highly diverse

environment and society. In short, its location

influences the social, political and

economic life of the country.

Figure 2.1 Map of Indonesia

Source: CIA. The World Factbook 2009

The five main islands are: Sumatra (473,606 sq. km); the most fertile and densely

populated islands, Java (132,107 sq. km); Kalimantan, which the third largest island in the

world (539,460 sq km); Sulawesi (189,216 sq km); and Papua (421,981 sq km) (National

Portal Republic of Indonesia, 2005). Indonesia's other islands are smaller in size. If we

compare Germany with 357,021 (sq. km) to Indonesia, Germany is only 66% total area of

Kalimantan or 18.6% of Indonesia.

The country has numerous mountains and some 400 volcanoes, of which

approximately 100 are active

Everyday Indonesia experiences three vibrations, at least

one earthquake a day and one volcanic eruption in a year. However, Volcanoes have not

only brought earthquake and disasters, but also fertility to the ground and abundant

supply of mineral deposits.

Moreover

with ten maritime neighbors - India, Thailand, Malaysia, Singapore,

Vietnam, the Philippines, Palau, Australia and Timor Leste - the task is particularly

complex for Indonesia. Meanwhile, maritime boundaries with the Philippines, Palau, and

Timor Leste are now under negotiation or in preparation for negotiation (Arsana,

February 2009).

2.2

Climate and Resources

Geography of Indonesia tells us not only about the land forms in Indonesia, but

also the flora, fauna, climate and resources of Indonesia.

Due to split by the equator, Indonesia has a tropical climate, with the coastal

plains about 28°C, the inland and mountain areas in average 26°C, and the higher

mountain about 23°C.

Indonesia has only two seasons, a dry season and wet or rainy season. In most

areas, the rainy season starts from December to March and dry season from May to

October (Frederick & Worden, 1993).

Because of its abundant natural resources, Indonesia has main comparative

advantages, which are actually in the form of resource-based industries (RBIs) such as

fisheries and ocean resources, agriculture, forestry, biotechnology, energy and mineral

resources and tourism, and non-conventional resources such as hydrate gas, deep sea

water industries, bio-energy from marine algae, pharmaceutical products from aquatic

organisms, wave energy, tidal energy and ocean thermal energy conversion (Dahuri,

January 2009).

PESTEL Analysis of Indonesia

Before addressing human resources management issues in a country in which we

would like to establish the subsidiaries, it is useful to analyze the environmental factors of

the companies, so that we could develop opportunities and avoid threats. The related

environmental factors for the can be classified into two main groups: internal and

external factors. The external factors consist of general environmental factors and

industry environmental factors. These general environmental factors are outside the

control of the firms but these factors influence the future development of the firms. One

of environmental study tools that focused on important factors of external environment

which are tremendously complex and dynamic is PESTEL analysis which consists of

Political, Economical, Socio-cultural, Technological, Environmental and Legal factors

(Analoui & Karami, 2003, p. 74-76).

PESTEL analysis are generally based on data sources such as newspapers, current

books, trade organizations, government agencies, industry, analysts, financial analysts. By

this method, we can imagine a more real picture of Indonesia and based on it, German

companies can maximize the environmental opportunities and minimize threats.

3.1

Political Analysis of Indonesia

The Republic of Indonesia then gained its independence from the Dutch in 1949

after a four-year anti-colonial insurrection. Independence was followed by a period of

parliamentary democracy which was replaced in 1959 by President Sukarno's "Guided

Democracy," which lasted until 1965.

President Suharto ruled Indonesia until 1998.

During this 32 year period, his authoritarian "New Order" provided the political stability

thought necessary by his supporters for fast paced economic growth.

A period of reform,

or "reformasi," followed Suharto's fall. Suharto was succeeded by B.J. Habibie (1998-

1999), Abdurrahman Wahid (1999-2001), and Megawati Sukarnoputri (2001-2004).

Despite the political instability during this period, a number of key reforms designed to

enhance good governance and expand democracy were implemented (Bresnan, 2005, p.

59).

A key test for President Susilo Bambang Yudhoyono, the current president, who

was elected in 2004 and re-elected in 2009, will be his ability to establish Indonesian

political legitimacy based on good governance and a more firmly established civil society

Ende der Leseprobe aus 96 Seiten - nach oben

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HRM Issues for German Companies Establishing a Subsidiary in Indonesia

Autor

Jenny S. Lange (Autor:in)

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2009

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