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Friday December 08, 2006

Stop fighting among each other and start rebuilding together, for lags far behind on the world’s productivity scale, was the strong rebuke given to and Indonesians by productivity guru Prof. Michael Porter of Harvard Business School in Jakarta last week.  Although not exactly in these words, yet the message was loud and clear.  

To the outside world, Indonesians today appear preoccupied with themselves , or are destroying one another, and are easily self satisfied, said Michael Porter as reported in Kompas daily of 30 November. Such a negative mindset must change and must transform itself into a paradigm of entrepreneurship, a mindset on how to improve productivity and increase competitiveness in today’s tough global environment. 

“The government and the private sector are today busy trying to solve the complex problems faced by ’s economy” said Porter. Corporations are also preoccupied, fighting to obtain a piece of the available economic pie, rather than trying to enlarge the pie by improving its own competitiveness” said Professor Michael Porter, recognized as the Most influential Business Thinker today. He delivered his speech on 29 November in a Seminar in Jakarta on the theme: “How to Make more Competitive”.  Porter’s concepts on clustering and competitiveness have been applied by governments in Singapore, Malaysia, Vietnam, China, Brazil, Costa Rica and others. 

“The government and the private sector, in fact, understand well the problems that are faced by . Unfortunately, continued Porter, their efforts have not resulted in significant changes. This is because there are too many inefficiencies in many fields, among others, caused by long and winding red tape in the bureaucracy, a lack of expertise, and inadequate infrastructure. As a result, ’s economic growth since Reformasi has remained stagnant, its productivity has remained low, and direct foreign investments have not grown significantly, while exports have not been satisfactory. This is in direct contrast to the rest of the world that is moving and changing at a very fast speed. Therefore, right now is the moment for to increase productivity in more significant measure, advised Porter. 

But all these efforts must be undertaken in an integrated fashion. The private sector must expand its businesses based on the mindset to become the best and its products must be unique. Do not compete along the same dimensions, for that is a wrong strategy, continued Porter.  

On the other hand, the government must become the catalyst to develop the private sector. The government must undertake reforms in bureaucracy and its policies. Commensurately, Trade Associations and the Chamber of Commerce must change their role from being institutions whose main purpose is to lobby for government protection, - they must now transform themselves into organizations that promote healthy competition among corporations, unite the industry, and open up access to knowledge, information and research. 

In fact, Porter said, has strength in its abundance of natural resources. Today, also possesses good leadership and many excellent thinkers. “So why is it, then, that ’s economy has remained stagnant? 

Collaborate, Change Mentality and Behaviour 

I think that a large part must be blamed on mentality and behaviour, said Michael Porter.  Furthermore, there is a lack of collaboration, and still missing is the will to build win-win opportunities, so that each party to the deal may feel that he or she is part of a winning team. 

According to the Global Competitiveness Report of 2006-2007, ranks no. 35 from among 121 countries rated. But, when including the parameter of GDP, falls to 
no. 83.   

The evening before, in speech at a dinner hosted by VP Jusuf Kalla, Prof. Michael Porter underlined the need for integrated efforts to increase ’s economic integrity. For, today has an inefficient labour system, lacks adequate infrastructure its red tape is long and winding red tape, and lacks sufficient expertise. 

At the moment, Porter said, lags behind other countries, whose productivity has grown much faster. will find it difficult, therefore, to catch up since its productivity is low. Ten years ago was ahead compared to many Asian countries, while was a closed economy. Today, however, the situation has reversed. To the outside world, now seems to be closing itself from foreign investments, whilst is at the forefront of attracting foreign investments. 

To investors, is identified as a country that is facing many complicated issues. It is over-protective of its domestic industries, and is most difficult to work together as a partner. Few investors are today interested to invest in , where the labour problem is considered a major drawback. Although ’s new labour law appears to be protective of Indonesian workers, nonetheless, it is in fact destroying business as a whole. The government needs to look seriously into these obstacles and apply reforms of its policies. Reform of the bureaucracy is of the utmost importance in line with reforms made in macro-economic policies, in politics, law enforcement and in the social system. 

These reforms must include reform of regulations and policies, the establishment of stable institutions, professionalism in governance, and provision of a social safety net, which must exist side by side with coordinated policies vis-à-vis the private sector. In this regard, Porter suggests clustering to increase productivity.

Porter sees that in today, instead that the national government, regional governments and the private sector work together, they seem to be out to destroy one another. This situation is very different in , he said, where the 51 states compete healthily among each other with the result that the country’s overall competitiveness is high. 

Government must act as Catalyst and Create the right Business Environment 

On cooperation between the Government and the private sector, Michael Porter had this to say, as reported by the Jakarta Post: the Indonesian government is placing too much emphasis on the privatization program compared to removing business hurdles. In enhancing business competitiveness, the fight against corruption should be the main priority of the government.  According to Porter, the privatization program should not be the government's number one priority as fighting corruption, and eliminating excessive bureaucracy and the problems caused by conflicting regulations were more important. 

The government must “create the right business environment to allow companies to operate productively because in today's world economy, nobody is going to come to and do business if the environment is not productive," he said. 

Another critical aspect of competitiveness, Porter said, was the adoption of economic policies that would allow enterprise clusters to form and work together. "Governments at both the provincial and national level should be able to work together,"  

He said that government alone could not create wealth. There was only one type of entity in society that could actually create wealth, and that was firms. 

"Only firms can create wealth. Firms may be state owned, but that's not what's important. Firms create wealth when they create products and services that they sell, and profit from the local market and international market. So no matter how good the business environment is, will only be successful when its firms become competitive," he explained. 

Private Sector must change Mindset and Create Competitive Strategy 

In order to be competitive, Porter said, a company must have a strategy. 

"Strategy is about creating a unique position in the market. Deliver something different!" 

"The worst mistake in strategy is to get into a competition, and competing on the same thing with competitors. It's not good for customers, either," he said. Characterizing the country as a business entity with 220 million stakeholders, Porter urged to find its own unique potential that could differentiate it from other countries. 

"I wouldn't think in terms of size or market as meaning uniqueness. I would think about what are the kind of needs in Asia or in that are unique, that we () understand better than companies from the and Europe ," advised Prof. Michael Porter as reported by the Jakarta Post.

Finance Minister, Sri Mulyani, on her part agrees that it is time for action. We should not keep finding fault with one another, but instead we should work together and support one another. Competitiveness must be done together and by all. Sri Mulyani, nonetheless, concedes that although the government has taken a number of significant measures to push the country’s economic growth, yet to the outside world, these changes are done too slow. This means, that while has accomplished a number of successes, the outside world demands that thousands more issues must be resolved immediately. This is not possible, confirms VP Jusuf Kalla, as reform takes time. 

In response, Deputy Chairman of Indonesia’s Chamber of Commerce, KADIN, Anthon Riyanto agrees that the slow implementation in infrastructure policies, public services, law enforcement, taxations, and labour issues, have hampered the growth of business to improve productivity and increase competitiveness. Since bad roads and the high cost of transport, for example, add to production costs. The private sector lack of competitiveness is caused by ’s high cost economy that are the result of uncertainties in law enforcement, as well as corruption and inefficiencies in the bureaucracy.
(Sources: Kompas, Jakarta Post)                                               (Tuti Sunario)