Archive for IBMP 16845 International Financial Management KEU 441

FOREIGN SUBSIDIARY COMPANIES IN INDONESIA

Posted in Uncategorized with tags on February 10, 2009 by apriliawijayati

PREFACE

There is no country in this world that can fulfill its needs without having relation with other countries. The relation is done by both, developed countries as well as underdeveloped countries.

Multinational or global corporation is defined as a firm that operates in an integrated fashion in a number of countries. Multinational firms now make direct investments in fully integrated operations, from extraction of raw materials, through the manufacturing process, to distribution to consumers throughout the world. Today, multinational corporate networks control a large and growing share of the world.

Companies go global for 6 primary reasons:
1. to broaden their market
After a company has succeeded in its home market, growth opportunities are often better in foreign markets. And also, as products become more complex, and development becomes more expensive, it is necessary to sell more units to cover the costs, so larger markets are critical.
2. to seek raw materials
Many oil companies (in U.S.) have major subsidiaries around the world to ensure access the basic resources needed to sustain the companies’ primary business line.
3. to seek new technology
Companies explore the globe for leading scientific and design ideas, because there is no single nation has a commanding advantage in all technologies.
4. to seek production efficiency
Companies in high cost countries are shifting production to low cost regions.
5. to avoid political and regulatory hurdles
When a country has a legal and political issue, then the company will try to found any other place where the controversies have resolved.
6. to diversify
By establishing worldwide production facilities and markets, firm can protect the impact of adverse economic trends in any single country.

Subsidiary company, in business matters, is defined as an entity that is controlled by a bigger and more powerful entity. The controlled entity is called a company, corporation, or limited liability company, and the controlling entity is called its parent (or the parent company).

In Indonesia we can find many subsidiary companies such as BMW Indonesia, Cadbury Indonesia, PT, Carrefour, Electrolux Indonesia, PT, Ericsson Indonesia, Johnson & Johnson Indonesia, PT, Merck Indonesia, PT, Nestle Indonesia, PT, Nokia Networks, Qantas Airways Ltd, Reebok Worldwide Trading Company, PT, Unilever Indonesia Tbk, and so on.

GOVERNMENT, PUBLIC, AND FOREIGN SUBSIDIARY COMPANIES IN INDONESIA

Nowadays, Indonesian government does many efforts to attract foreign investor to Indonesia. But in reality, there is no sufficient policy system, no regulation, no bureaucracy and safety guarantee to protect them who want to invest in Indonesia. Actually, public have a hope that this foreign investment can help Indonesia to recover the economics condition that felt getting worst.

Government’s invitation to the foreigner to invest in Indonesia has never been stop to be yelled. Even in the Megawati era, year 2003 is defined as investment year.

Not only by giving a hope in the consumption level from people and the export of goods and services, the government also has an optimism to the number of investment target.

But, I think many things have not ready yet to support the government seriousness to attract foreign investor to built subsidiaries. In the case of giving safety guarantee, for example in the some regions in Indonesia, I think the condition is not safe enough to attract foreign companies to have subsidiaries in Indonesia. Many crimes like robbery, plunder, and destruction that are shown to the foreign companies, can make the investor think many times to invest, to make subsidiaries or expand their business here. This is added by the regulation in Indonesia that is not well provided; much more make the safety issues being a worry to the investor. Instantly, the business law or regulation in Indonesia is still not well enough to support the foreign investor.

Actually, many foreign companies give statements that they want to be investor, investing and having their subsidiary companies in Indonesia. But in fact, it is just only a statement.

Many constraints from Indonesia make them all cancel their investment. Not only by safety issues, but it is including the bureaucracy and the business policy in Indonesia that is still not profitable enough to the investor.

Public also realize that it is becoming the constraints for the foreign investor to enter Indonesia’s market or to have subsidiary companies in Indonesia. Along this time, it has became public understanding that the bureaucracy permission in Indonesia needs long process and long time, yet by charging other cost that can be said relatively huge.

Beside those issues above, the investors have to meet with the taxation regulation, customs duties and also illegal extraction. Many foreign companies that are gathered by an association have ever asked the government to review the taxation system, especially in the case of production sharing contracts in Penanaman Modal Asing (PMA). Also the regulation is always changing. It is not only the taxation, or other retribution, but it is applied in the case of employment regulation and minimum province wages that always increasing.

THE ADVANTAGES AND DISADVANTAGES

There are advantages and disadvantages when foreign subsidiary companies enter Indonesia’s market.

The advantages:
1. to cut down the unemployment
When the company, even the foreign subsidiary company are standing in Indonesia, it is automatically need like workers to be worked there. And since it is getting bigger then it will need more workers and it can cut down the unemployment in Indonesia.
2. price stabilization
If the price of something inside the country is high or expensive, or the quantity is not enough or can not fulfill the demand of the market, it needs to be added by the other things that can be the other choices to make the balance of demand and supply, and then the price will be stable.
3. to increase the consumption quality
For example when we can not produce a good that the quality is not as good as the foreign has. By the presence of foreign subsidiary company here with the high goods quality, it will become our motivation to try and try more to increase our product quality.
4. speeding up the movement of technologies
Automatically by standing together with foreign subsidiary companies that have better technology system, we need to adapt. It makes the local company little bit understand and encouraged to explore the other technology system.

Then the disadvantage is the worries of public that is considering of the foreign generally entering Indonesia’s market with good management system, better than the local companies, in the long period, it is possible for them to dominate Indonesia’s economics and to kill the local businesses.

HOW TO FACE THE WORRIES?

Because of the worries of public, event though we support the foreign investor to come, but we have to be careful showing up our agreement to the entering of investor in the certain sectors. Especially to the energy strategic sector like fuel and oil and electricity power plant, and agricultural product processing sector like agriculture, plantation business, and forestry.

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