Indonesian state-owned enterprises (SOEs) operating in high-value-added manufacturing sectors have shown impressive progress recently. In March 2016, the railway company Industri Kereta Api (INKA) exported 15 wagons, first batch of 150 wagons ordered by Bangladesh Railways; for the primary time, INKA exported passenger trains abroad.
In May, shipbuilder PAL Indonesia accomplished its first warship export by providing a strategic maritime transport vessel to the Philippine Department of Defense; PAL is currently constructing a second warship for a similar customer.
In recent years, state-owned weapons manufacturer Pindad signed contracts with many countries, including Laos, Nigeria, the Philippines, Thailand and the United Arab Emirates. Aircraft manufacturer Dirgantara Indonesia (DI) has expanded its exports of the multi-role aircraft, called CN-235, to Thailand AND Senegal at the tip of 2016.
According to the business plans of those state-owned enterprises, their internationalization strategy has only just begun. INKA intends to enter Egypt, Burma, Pakistan, Sri Lanka and Thailand, and PAL Indonesia plans to penetrate Southeast Asia and the Middle East. Driven by roughly 200 letters of intent to buy from domestic and foreign airlines, DI is anticipated to start business production of its own 19-seat commuter planes, called the N-219, in 2017.
Pindad wonders foreign direct investment AND cross-border acquisitions and it’s already getting stronger international partnerships to expand its global reach.
In addition to being a serious customer of SOEs in strategic industries, the federal government plays a key role in driving the internationalization of SOEs. In recent years, the federal government has directly provided funds to assist SOEs modernize production and product development.
Between 2011 and 2016, the federal government transferred an amount of Indian 7.7 trillion from the budget to the above-mentioned state-owned enterprises. The government made the primary major investment in state-owned manufacturing corporations because the 2011-12 Asian financial crisis to spice up industrialization amid falling commodity prices. The second government investment took place in 2015–2016, as the federal government emphasized the importance of strengthening the worldwide competitiveness of state-owned enterprises.
The Indonesian Export Financing Agency, or Indonesian Eximbank, also plays a vital role in supporting the worldwide operations of state-owned enterprises. In 2015, Indonesia’s Eximbank was given a special mandate to support industrial modernization and long-term export expansion through the National Interest Account (NIA) program.
Indonesian Eximbank profit 270 billion rupees in financing exports under this program contributed to INKA winning a world tender in Bangladesh. The government too expressed the likelihood for DI to make use of the NIA program when exporting its aircraft in the longer term.
As of September 2016, state-owned enterprises received 13.9 percent total financing of Indonesian Eximbank. This share is more likely to increase because the NIA program expands to other manufacturing sectors.
What’s more, governmental economic diplomacy One of Jokowi’s foreign policy priorities is to assist state-owned enterprises expand abroad. The government has instructed state-owned enterprises to prioritize entering non-traditional markets and using these markets as testing grounds or springboards for implementing a broader globalization strategy. To support state-owned enterprises, the federal government is actively in search of out and partnering with emerging economies which may be small today but have long-term growth potential. Jokowi himself enthusiastically promoted INKA products in Sri Lanka president AND prime minister.
In addition to the nationwide challenges related to increasing spending on research and development and coping with the issue of the so-called lack of engineersSOEs operating in strategic industries must consider the next issues when implementing their internationalization strategy.
First, monitoring and coordination will grow to be tougher for management of SOEs in search of to enter foreign markets as organizations grow in size and complexity. This issue was raised over 20 years ago by: studies which analyzed the explanations for the limited global competitiveness of Industri Pesawat Terbang Nusantara, formerly generally known as DI, despite significant accumulation of technological capabilities.
Therefore, state-owned enterprises must proceed to speculate in strengthening their management capabilities and improving their ability to research and adapt to changes in trends within the international market and in the worldwide value chain.
Second, government financial support for SOEs operating within the manufacturing sector is proscribed in size and scope in comparison with that of another developing countries, but there stays the potential for a pointy backlash from competing countries as the worldwide trade environment deteriorates. Global Trade Alert, a corporation that monitors trade and investment policies, has designated: red triangle to Indonesia Eximbank’s support for INKA, which implies the organization believes the implemented solution “almost definitely discriminates against foreign business interests.
To take care of this issue, the Indonesian government must closely follow the discussion on “competitive neutrality“internationally.
Source: Kyunghoon Kim, The Jakarta Post
