Electric Services in Indonesia: A Strategic Reference, 2007
ICON Group International, July 2007, Pages: 214
How to Strategically Evaluate Indonesia
Perhaps the most efficient way of evaluating Indonesia is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to electric services are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).
Latent Demand and Accessibility in Indonesia
This report provides a detailed overview of factors driving latent demand and accessibility for electric services in Indonesia. Latent demand is largely driven by economic fundamentals specific to electric services. This topic is discussed in Chapter 2 using work carried out in Indonesia on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for electric services in Indonesia. I use the term “micro” since the discussion is focused specifically on electric services.
Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Indonesia. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Indonesia. The numbers are only indicative of an average firm whose primary activity is in Indonesia. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Indonesia. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “electric services”, as defined in Chapter 3. Again, while “electric services” does not exactly equate to “electric services”, it nevertheless gives an indicator of how Indonesia compares to other countries for a proxy adjacent category along various dimensions.
Chapter 4 deals with macro-accessibility and covers factors that go beyond electric services. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Indonesia:
Openness to Trade in Indonesia
Openness to Direct Investment in Indonesia
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Indonesia. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Indonesia. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.
1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate Indonesia 1
1.3 Latent Demand and Accessibility in Indonesia 3
2 ELECTRIC SERVICES IN INDONESIA 5
2.1 Latent Demand and Accessibility: Background 5
2.2 Latent Demand: Market Composition 5
2.3 Latent Demand: Market Data 6
2.4 Latent Demand: Leading Segments 6
2.5 Key Suppliers 7
2.6 Prospective Buyers 7
2.6.1 PLN 7
2.6.2 Independent Power Producers (IPP) 7
2.6.3 Private Power Generators 8
2.7 Accessibility: Market Entry 8
2.7.1 Market Issues and Obstacles 9
2.8 Accessibility: Trade Event 9
2.9 Key Contacts 9
3 FINANCIAL INDICATORS: ELECTRIC SERVICES 10
3.1 Overview 10
3.1.1 Financial Returns and Gaps in Indonesia 10
3.1.2 Labor Productivity Gaps in Indonesia 13
3.1.3 Limitations and Extensions 14
3.2 Financial Returns in Indonesia: Asset Structure Ratios 15
3.2.1 Overview 15
3.2.2 Assets - Definitions of Terms 15
3.2.3 Asset Structure: Outlook 18
3.2.4 Large Variances: Assets 19
3.2.5 Key Percentiles and Rankings 22
3.3 Financial Returns in Indonesia: Liability Structure Ratios 37
3.3.1 Overview 37
3.3.2 Liabilities and Equity - Definitions of Terms 37
3.3.3 Liability Structure: Outlook 39
3.3.4 Large Variances: Liabilities 40
3.3.5 Key Percentiles and Rankings 43
3.4 Financial Returns in Indonesia: Income Structure Ratios 56
3.4.1 Overview 56
3.4.2 Income Statements - Definitions of Terms 56
3.4.3 Income Structure: Outlook 58
3.4.4 Large Variances: Income 59
3.4.5 Key Percentiles and Rankings 62
3.5 Financial Returns in Indonesia: Profitability Ratios 75
3.5.1 Overview 75
3.5.2 Ratios - Definitions of Terms 75
3.5.3 Ratio Structure: Outlook 77
3.5.4 Large Variances: Ratios 78
3.5.5 Key Percentiles and Rankings 81
3.6 Productivity in Indonesia: Asset-Labor Ratios 96
3.6.1 Overview 96
3.6.2 Asset to Labor: Outlook 97
3.6.3 Asset to Labor: International Gaps 98
3.6.4 Key Percentiles and Rankings 101
3.7 Productivity in Indonesia: Liability-Labor Ratios 116
3.7.1 Overview 116
3.7.2 Liability to Labor: Outlook 116
3.7.3 Liability and Equity to Labor: International Gaps 117
3.7.4 Key Percentiles and Rankings 120
3.8 Productivity in Indonesia: Income-Labor Ratios 133
3.8.1 Overview 133
3.8.2 Income to Labor: Outlook 133
3.8.3 Income to Labor: Gaps 134
3.8.4 Key Percentiles and Rankings 137
4 MACRO-ACCESSIBILITY IN INDONESIA 150
4.1 Executive Summary 150
4.2 Infrastructure Development 150
4.2.1 Transportation 150
4.2.2 Power 150
4.2.3 Information and Communication Technology 150
4.3 Political Risks 151
4.3.1 Economic Relationship with the United States 151
4.3.2 Major Political Issues Affecting the Business Climate 152
4.4 Marketing Products and Services 152
4.4.1 Distribution Channel Options 152
4.4.2 Agents and Distributors 152
4.4.3 Franchising Activities 154
4.4.4 Direct Marketing Options 155
4.4.5 Joint Ventures and Licensing Options 155
4.4.6 Creating a Sales Office 155
4.4.7 Selling Strategies 157
4.4.8 Press Contacts 157
4.4.9 Advertising Options 157
4.4.10 Pricing Issues 159
4.4.11 After Sales Service and Customer Support 159
4.4.12 Public Sector Marketing 159
4.4.13 Selling to Specialized Sub-Markets 161
4.4.14 Regional “Growth Nodes” 162
4.4.15 Intellectual Property Risks 162
4.4.16 Hiring Local Counsel 163
4.5 Import and Export Regulation Risks 163
4.5.1 Trade Barrier Risks 163
4.5.2 Valuations on Imports 164
4.5.3 Licenses Required for Imports 164
4.5.4 Controls on Exports 165
4.5.5 Import Documentation Requirements 165
4.5.6 Free Trade Zones and Warehouses, Special Import Provisions, and Entering Temporary Imports 165
4.5.7 Labeling Issues 166
4.5.8 Adherence to Free Trade Agreements 166
4.6 Investment Climate 166
4.6.1 Security 166
4.6.2 Legal Certainty 166
4.6.3 Decentralization 167
4.6.4 Openness to Foreign Investment 167
4.6.5 Conversion and Transfer Policies 169
4.6.6 Expropriation and Compensation 170
4.6.7 Dispute Settlement 170
4.6.8 Performance Requirements and Incentives 170
4.6.9 Right to Private Ownership and Establishment 171
4.6.10 Protection of Property Rights 171
4.6.11 Transparency of the Regulatory System 172
4.6.12 Efficient Capital Markets and Portfolio Investment 172
4.6.13 Political Violence 173
4.6.14 Corruption 173
4.6.15 Bilateral Investment Agreements 173
4.6.16 OPIC and Other Investment Insurance Programs 174
4.6.17 Labor 174
4.6.18 Foreign Trade Zones and Free Ports 175
4.7 Trade and Project Financing 175
4.7.1 Financing Options 176
4.7.2 Financing Agricultural Exports 179
4.8 Business Travel 179
4.8.1 Local Business Practices 179
4.8.2 Travel Advisory and Visas 180
4.8.3 Infrastructure for Conducting Business 181
4.9 Key Contacts 186
4.9.1 Chambers of Commerce 186
4.9.2 Related Business Councils and Associations in the U.S.A 187
4.9.3 Indonesian Trade Associations 188
4.9.4 Trade and Project Financing 188
4.9.5 Indonesian Government Contacts 190
4.9.6 U.S. Government Contacts 191
4.9.7 Indonesian Embassy and Consulates in the United States 195
4.9.8 Consultants and Market Research Firms 196
4.9.9 Law Firms and Attorneys 200
4.9.10 Related Internet Sites 204
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 205
5.1 Disclaimers & Safe Harbor 205
5.2 Icon Group International, Inc. User Agreement Provisions 206
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