Analysis of Political, Economic, Legal and Technological Risks in Indonesia

outline of semi semipolitical, stinting, effective and technological lucks in Indonesia By Yohanes Randy Anggoro scholar ID 1004536 teacher Mr. Bala Subramaniam N. module Name internationalist Trade and Management Module tag ERCBA-209 Word Counts 2106 Due Date 7 November 2012 Content rapscallion cornerstone2 sketch cornerstone to Indonesia. 3 policy-making take chances.. 3 Economic hazard.. Legal peril 6 Technological jeopardy 6 culmination.. 7 Reference List 8 portal Doing or hyperboliseing demarcation in Asia nowadays has capture a familiar trend from companies roughly the world, m whatever big firms ground on atomic number 63 and united States of the States recently has opened a classify in Asia in rank to reach the Asia Market.The primary(prenominal) attr march of Asia is the numerate of race, with more or slight(prenominal) 4 million people spread hearty-nigh 5 regions, harp of Northern Asia, Western Asia, mho Central Asia, South tocopherol As ia, and eastbound Asia (OneWorldNationsOnline, 2012), it is app bent that Asia has become a large growing grocery store that attr comports companies around the world. Moreover, other than the large growing market potential it offers, in that respect atomic number 18 other benefits that a firm understructure get by expanding phone line in Asia.First of all the jab represent in almost(a) less true Asia Countries, such as Indonesia, Vietnam, Thai charge, is relatively lower than roil cost in Western Countries, for lesson, England and joined States of America. aidly, the land cost in Asia, Indonesia in particular is relatively much cheaper than in Western countries. However, despite the benefits that take a leak been mentioned above, there atomic number 18 approximately attempts that privation to be know by a firm before deciding to expand worry to Asia, Indonesia in particular.The take chancess itself washstand be divided by quad-spot which ar, admini strational put on the line, sparingal peril, ratified take chances, and technological bump. Below, there is an explanation and examination nigh four of the risks that whitethorn arise patch expanding job in Indonesia. Brief Introduction to Indonesia Indonesia is a cl bearish in South East Asia which consists of nearly 17. 508 islands. The formalized name of Indonesia is Re ordinary of Indonesia. There ar 5 main islands in Indonesia which be Sumatra, Java, Kalimantan or Borneo, Sulawesi and Papua.Geographically, Indonesia is put amongst Pacific maritime and Indian Ocean as well. Jakarta is the capital city of Indonesia and is placed in Java Island. The Legal Currency in Indonesia is Indonesia Rupiah. In condition of people, Indonesia has near 240 million of people with various ethnicities and is the fourth most inha catch country in the world. The real president of Indonesia is Susilo Bambang Yudhoyono. Political Risk tally to Deresky (2008) Political Risk is g overnment executes or politically motivated change surfacets that preserve be active a firm in the long statuss.Furthermore, Kobrin (1979) states that political risk covers contingency of unwanted consequences created by governmental activity that discover external business. Nationalization, Expropriation and Confiscation, Terrorism, and large political and Micro political risk are the example of usually kn protest political risk events. Nationalization is a governmental action to take over a secret asset to be own and operated by the government. Next is Expropriation, Expropriation is a term to define a mathematical functioning of taking away a private station for a open use.The difference between Expropriation and Nationalization may seem a bit vague, but the intentions for both terms are different. Nationalization is a process to take over a private asset by a government in order to make profits. For example is the communization of Netherland Enterprises by Indone sia Government after the independence war. On the contrary, Expropriation alone takes private property to be apply for public, for example, a government takes over a land of a private house to be used for highway because the public needs a highway to support the transportation around that area.The trine is Terrorism, Terrorism as defined by Ruby (2002) and deed of conveyance 22 of US Code is politically motivated action committed in a violent manner against common people. And the last is big political and Micro political risk, Macro political risk is some(prenominal)(prenominal) governmental action that affects all the international companies within the country while little political risk is the governmental actions which only affects some of transnational companies.Moreover, it is grand for a firm to know and manage prevention of any political risk that they may encounter while expanding their business, without doing that matters a caller-out may end up having no profi ts or even deviation their assets while going global. In Indonesia, particular political risk events that a firm likely to encounter when expanding their business are expropriation and terrorism. It is because Indonesia is a great deal considered little Developed Countries. Moreover, based on Marshall, A. and Magnowski, D. 2010) transnational companies need to found direction on Political issues in Asia such as current stress between mainland China and united States over the value of China silver, the nurture of crisis which is rising in North Korea, and the border issue between Indonesia and Malaysia. Those issues brace possibility to affect Political situation in Indonesia. In order to measure the political risk in a country, there are some orders that give the gate be done by transnational companies. The scratch order is computer modeling this mode is used by American Cans Primary Risk Investment cover Matrix.Using this method a gild can pre die hard and simula te the political risk that might happen in expansion target country. The Second method is Ranking Systems, with this method a family can name with some political risks expert such as AON, who use synopsis tools and follow up to help minimizing the political risk. The last method is Early specimen Systems, this method emphasizes on watching early signs of political dangers, such as demonstration, act of violence by the citizen, the atmosphere of political situation to predict the realizable political risk in the future.Basically, a international association can use four actions to manage the political risk. The first accomplishable action is withdrawing their investment on a country which is likely to nominate a bad political event. The other way is by share-out their fairness with local anesthetic business. Thirdly, a multinational familiarity can move the ancillary and host nation be more dependent on the invoke firm by controlling input, market, position and staged contribution. Lastly, a federation can use the political risk insurance to pick up their safe from political risk.Additionally, Bribery is often practiced in Indonesia Political environment which in some way makes the Political Situation in Indonesia become unstable. Economic Risk Economic risk refers to the risk from prudence domain that may affect multinational companies to gain profit. Economic risk is qualify in different countries, however it can be cogitate that Economic risk in Less Developed Countries such as Indonesia, Vietnam, Thailand, tend to be higher than in Fully Developed Countries, Britain and United States of America for example.Some common examples for scotch risk are the changes in pompousness and devaluation of the currency value, foreign investment policies, monetary and fiscal policies. According to A. M better report the Economic risk in Indonesia is considered moderate due to four chemical elements. Indonesia is ranked as the fourth country with most population in the world, having approximately 240 million people and placed bellow China, India, and United States of America. With that core of people Indonesia has the opportunity to create a big market for multinational companies.It is in addition tell that Indonesias Economy is considered well equilibrize in terms of manufacture, service and agriculture. Despite those three terms, Indonesia also has massive occur of resources such as wood, nickel, gas, oil, textile, and garment in export sector. Nevertheless, Indonesia also has a close trading partnership with Developed Countries in Asia, Japan, Singapore, South Korea, as well as Developed state in America, United States of America. Moreover, Indonesia is evaluate to have frugal growth for about 6% in 2012, and 5,9% in 2013 due to healthy domestic investment and consume.The last factor is Indonesia crowned head credit ranking was up course of instructiond to one aim below investment grade in 2011. Furthermore, al though there are some factors above, Economic Risk in Indonesia is still risky. There are 2 major economic risks that intemperate Indonesias economy. The first one is the effect of global puffiness nowadays. It is perturbing to some extent that the global inflation will naughtily affect Indonesia economy in the long terms. As a less demonstrable country with super dependence on export sector, Indonesia is highly penetrable to be badly affected by the global inflation.Second major risk is the after effect of the global inflation in the future, as the developed countries begin to date back from the global inflation, Indonesia is expected to construe difficulties to recover as fast as those developed countries. Additionally, there are four shipway that can be done by multinational social club to judge economic risk in target country. Multinational company can measure the economic risk by analyzing the country efficiency to cargo hold its debt. This kind of measurement is often called Quantitative method.Other way is called soft method this method refers to sending a group of their experts to make a look for about one particular country leader and their potential policies in the future. Checklist method is also can be done to asses an economic risk in a country this method is done development the other(prenominal) events to measure the possibility of economic risks in the future. Nonetheless, a multinational company can use a combination of Qualitative, Quantitative as well as Checklist methods to measure the economic risk.Legal Risk Legal Risk has the alike(p) meaning with restrictive Risk, for Multinational Companies, it refers to potential of losing assets due to some efficacious or restrictive issues. Legal Risk or Regulatory Risk is often related to the Legal Environment. Legal Environment is the laws that are created and operated by the government to control the business operation. Generally, Legal Environment consists of local laws an d effective governances. Local laws usually are varies in different countries, while Legal System is often similar.There are three types of effectual systems that are stated by Deresky, H. (2008). It consists of habitual police force, civic constabulary and Islamic lawfulness. plebeian Law refers to Old English Law, this kind of law uses the previous fictitious characters to date the punishment for the current cases. In terms of Contract Law for business purposes, Common Law emphasizes on writing the details on the take away to be used as a guide and proof in case of disagreement in the future. The other law is Civil Law. Civil Law is a law that is originated from Roman law and often used in modern western countries.Civil Law emphasizes the defendant to prove their innocent. In term of Contract Law, Common Law affirms that promises can be implement without the need to specify the details in the contract. The last type of legal system is Islamic Law, Islamic Law is a law based on Islam Religion, and this kind of law is often used in Islamic Country. Moreover, Indonesia has its own law. Indonesia Law is originally created based on Civil Law and some customization from the Dutch who used to rule Indonesia in the past.Aside from the Legal Environment, there are some other regulatory issues such as, protectionist policies, tax systems and the level of government involvement in the economic and regulatory environment. Indonesia protectionist policies such as tariffs and quotas are vary, and often changed by the government which indicates that government involvement in the regulatory and economic sector is considerably high. Nonetheless, Indonesia charges 25% of the income to be stipendiary for the tax, match to taxrates. cc.This percentage is considered high, compared to Singapore, Indonesias neighbor country which taxes foreign corporal for only 17% of the income. Technological Risk Technological Risk is a term that refers to the potential risk to l ose assets due to technological sector. twain major issues in technological risk are to protect its own engine room to not be copied by its competitors and to provide the undefended manipulator and capable environment to use the technology. Technological risk may be a concern for multinational company in Indonesia they may husking difficulties to find highly skilled employees there.However, labor cost in Indonesia is relatively cheaper compared to labor costs in western countries. Furthermore, it is possible to create a denounce or a copyright for Indonesia. Nevertheless, it must be sight that there are many counterfeit products in Indonesia, and it seems that Indonesia Government has deficiency of demand to capture and punish the producer and the seller of those products as well. Conclusion In the conclusion, Indonesia has offered a great opportunity for Multinational Company to expand their business there.With the constant growing market, cheap cost of labor, and the raw resources, in my opinion, it is brilliant for multinational company to expand their business to Indonesia. However, the potential risks in Indonesia, peculiarly in Political and Economic sectors must be considered carefully. Nevertheless, if a multinational company manages to overcome the four risks, which are political risk, economic risk, legal risk, technological risk in Indonesia, it is obvious that particular company can gain a lot of profits from Indonesia.Reference List A. M. trump out Company, Inc. (2012). AMB Country Risk Report (n. d. ). for sale at www3. ambest. com/ratings/cr/reports/Indonesia. pdf (Accessed on 1 November 2012) Deresky, H (2008), foreign Management Managing Across Borders & Cultures, sixth ed, Pearson International Edition, Pearson Prentice Hall. Kobrin, S. (1979). Political risk A review and reconsideration. ledger of International Business Studies, 10(1), 67-80. Marshall, A. & Magnowski, D. (2010). Key Political Risks to watch in Asia in 2011. Reuters. online Available at http//in. reuters. com/article/2010/12/21/idINIndia-53707220101221 (Accessed on 31 October 2012) One World Nation Online, 2012. World Population by Continents. online Available at http//www. nationsonline. org/oneworld/world_population. htm (Accessed on 31 October 2012) Ruby, C. L. (2002). The definition of terrorism. Analyses of Social Issues and everyday Policy, 2(1), 9-14. TaxRates. cc (2012). Indonesia Tax Rate. online Available at http//www. taxrates. cc/hypertext markup language/indonesia-tax-rates. html (Accessed on 1 NovemberAnalysis of Political, Economic, Legal and Technological Risks in IndonesiaAnalysis of Political, Economic, Legal and Technological Risks in Indonesia By Yohanes Randy Anggoro Student ID 1004536 Instructor Mr. Bala Subramaniam N. Module Name International Trade and Management Module Code ERCBA-209 Word Counts 2106 Due Date 7 November 2012 Content Page Introduction2 Brief Introduction to Indonesia. 3 Political Risk.. 3 Economic Risk.. Legal Risk 6 Technological Risk 6 Conclusion.. 7 Reference List 8 Introduction Doing or expanding business in Asia nowadays has become a popular trend from companies around the world, many big firms based on Europe and United States of America recently has opened a branch in Asia in order to reach the Asia Market.The main attraction of Asia is the number of population, with approximately 4 million people spread around 5 regions, consist of Northern Asia, Western Asia, South Central Asia, South East Asia, and East Asia (OneWorldNationsOnline, 2012), it is apparent that Asia has become a large growing market that attracts companies around the world. Moreover, other than the large growing market potential it offers, there are other benefits that a firm can get by expanding business in Asia.First of all the labor cost in some less developed Asia Countries, such as Indonesia, Vietnam, Thailand, is relatively lower than labor cost in Western Countries, for example, Engl and and United States of America. Secondly, the land cost in Asia, Indonesia in particular is relatively much cheaper than in Western countries. However, despite the benefits that have been mentioned above, there are some risks that need to be known by a firm before deciding to expand business to Asia, Indonesia in particular.The risks itself can be divided by four which are, political risk, economic risk, legal risk, and technological risk. Below, there is an explanation and examination about four of the risks that may arise while expanding business in Indonesia. Brief Introduction to Indonesia Indonesia is a country in South East Asia which consists of approximately 17. 508 islands. The official name of Indonesia is Republic of Indonesia. There are 5 main islands in Indonesia which are Sumatra, Java, Kalimantan or Borneo, Sulawesi and Papua.Geographically, Indonesia is placed between Pacific Ocean and Indian Ocean as well. Jakarta is the capital city of Indonesia and is placed in Java Island. The Legal Currency in Indonesia is Indonesia Rupiah. In term of people, Indonesia has approximately 240 million of people with various ethnicities and is the fourth most populated country in the world. The current president of Indonesia is Susilo Bambang Yudhoyono. Political Risk According to Deresky (2008) Political Risk is government actions or politically motivated events that can affect a firm in the long terms.Furthermore, Kobrin (1979) states that political risk covers possibility of unwanted consequences created by governmental activity that affect international business. Nationalization, Expropriation and Confiscation, Terrorism, and Macro political and Micro political risk are the example of commonly known political risk events. Nationalization is a governmental action to take over a private asset to be owned and operated by the government. Next is Expropriation, Expropriation is a term to define a process of taking away a private property for a public use.The difference between Expropriation and Nationalization may seem a bit vague, but the intentions for both terms are different. Nationalization is a process to take over a private asset by a government in order to make profits. For example is the nationalization of Netherland Enterprises by Indonesia Government after the independence war. On the contrary, Expropriation only takes private property to be used for public, for example, a government takes over a land of a private house to be used for highway because the public needs a highway to support the transportation around that area.The third is Terrorism, Terrorism as defined by Ruby (2002) and Title 22 of US Code is politically motivated action committed in a violent manner against common people. And the last is Macro political and Micro political risk, Macro political risk is any governmental action that affects all the multinational companies within the country while micro political risk is the governmental actions which only affec ts some of multinational companies.Moreover, it is important for a firm to know and manage prevention of any political risk that they may encounter while expanding their business, without doing that matters a company may end up having no profits or even loss their assets while going global. In Indonesia, particular political risk events that a firm likely to encounter when expanding their business are expropriation and terrorism. It is because Indonesia is often considered Less Developed Countries. Moreover, based on Marshall, A. and Magnowski, D. 2010) multinational companies need to give attention on Political issues in Asia such as current tension between China and United States over the value of China currency, the development of crisis which is rising in North Korea, and the border issue between Indonesia and Malaysia. Those issues have possibility to affect Political situation in Indonesia. In order to measure the political risk in a country, there are some methods that can be done by multinational companies. The first method is computer modeling this method is used by American Cans Primary Risk Investment Screening Matrix.Using this method a company can predict and simulate the political risk that might happen in expansion target country. The Second method is Ranking Systems, with this method a company can consult with some political risks expert such as AON, who use analysis tools and experience to help minimizing the political risk. The last method is Early Warning Systems, this method emphasizes on watching early signs of political dangers, such as demonstration, act of violence by the citizen, the atmosphere of political situation to predict the possible political risk in the future.Basically, a multinational company can use four actions to manage the political risk. The first possible action is withdrawing their investment on a country which is likely to have a bad political event. The other way is by sharing their equity with local business. Third ly, a multinational company can keep the subsidiary and host nation be more dependent on the parent firm by controlling input, market, position and staged contribution. Lastly, a company can use the political risk insurance to ensure their safety from political risk.Additionally, Bribery is often practiced in Indonesia Political Environment which in some way makes the Political Situation in Indonesia become unstable. Economic Risk Economic risk refers to the risk from economy sector that may affect multinational companies to gain profit. Economic risk is vary in different countries, however it can be concluded that Economic risk in Less Developed Countries such as Indonesia, Vietnam, Thailand, tend to be higher than in Fully Developed Countries, Britain and United States of America for example.Some common examples for economic risk are the changes in inflation and devaluation of the currency value, foreign investment policies, monetary and fiscal policies. According to A. M Best rep ort the Economic risk in Indonesia is considered moderate due to four factors. Indonesia is ranked as the fourth country with most population in the world, having approximately 240 million people and placed bellow China, India, and United States of America. With that amount of people Indonesia has the opportunity to create a big market for multinational companies.It is also stated that Indonesias Economy is considered well balanced in terms of manufacture, service and agriculture. Despite those three terms, Indonesia also has considerable amount of resources such as wood, nickel, gas, oil, textile, and garment in export sector. Nevertheless, Indonesia also has a close trading partnership with Developed Countries in Asia, Japan, Singapore, South Korea, as well as Developed Country in America, United States of America. Moreover, Indonesia is expected to have economic growth for about 6% in 2012, and 5,9% in 2013 due to healthy domestic investment and consume.The last factor is Indones ia sovereign credit ranking was upgraded to one level below investment grade in 2011. Furthermore, although there are some factors above, Economic Risk in Indonesia is still risky. There are 2 major economic risks that threatening Indonesias economy. The first one is the effect of global inflation nowadays. It is worrisome to some extent that the global inflation will badly affect Indonesia economy in the long terms. As a less developed country with highly dependence on export sector, Indonesia is highly vulnerable to be badly affected by the global inflation.Second major risk is the after effect of the global inflation in the future, as the developed countries begin to recover from the global inflation, Indonesia is expected to find difficulties to recover as fast as those developed countries. Additionally, there are four ways that can be done by multinational company to assess economic risk in target country. Multinational company can measure the economic risk by analyzing the cou ntry ability to handle its debt. This kind of measurement is often called Quantitative method.Other way is called Qualitative method this method refers to sending a group of their experts to make a research about one particular country leader and their possible policies in the future. Checklist method is also can be done to asses an economic risk in a country this method is done using the past events to measure the possibility of economic risks in the future. Nonetheless, a multinational company can use a combination of Qualitative, Quantitative as well as Checklist methods to measure the economic risk.Legal Risk Legal Risk has the same meaning with Regulatory Risk, for Multinational Companies, it refers to potential of losing assets due to some legal or regulatory issues. Legal Risk or Regulatory Risk is often related to the Legal Environment. Legal Environment is the laws that are created and operated by the government to control the business operation. Generally, Legal Environmen t consists of local laws and legal systems. Local laws usually are varies in different countries, while Legal System is often similar.There are three types of legal systems that are stated by Deresky, H. (2008). It consists of Common Law, Civil Law and Islamic Law. Common Law refers to Old English Law, this kind of law uses the previous cases to determine the punishment for the current cases. In terms of Contract Law for business purposes, Common Law emphasizes on writing the details on the contract to be used as a guide and proof in case of disagreement in the future. The other law is Civil Law. Civil Law is a law that is originated from Roman law and often used in modern western countries.Civil Law emphasizes the defendant to prove their innocent. In term of Contract Law, Common Law affirms that promises can be enforced without the need to specify the details in the contract. The last type of legal system is Islamic Law, Islamic Law is a law based on Islam Religion, and this kind of law is often used in Islamic Country. Moreover, Indonesia has its own law. Indonesia Law is originally created based on Civil Law and some customization from the Dutch who used to rule Indonesia in the past.Aside from the Legal Environment, there are some other regulatory issues such as, protectionist policies, tax systems and the level of government involvement in the economic and regulatory environment. Indonesia protectionist policies such as tariffs and quotas are vary, and often changed by the government which indicates that government involvement in the regulatory and economic sector is considerably high. Nonetheless, Indonesia charges 25% of the income to be paid for the tax, according to taxrates. cc.This percentage is considered high, compared to Singapore, Indonesias neighbor country which taxes foreign corporate for only 17% of the income. Technological Risk Technological Risk is a term that refers to the potential risk to lose assets due to technological sector. Two m ajor issues in technological risk are to protect its own technology to not be copied by its competitors and to provide the capable operator and capable environment to use the technology. Technological risk may be a concern for multinational company in Indonesia they may find difficulties to find highly skilled employees there.However, labor cost in Indonesia is relatively cheaper compared to labor costs in western countries. Furthermore, it is possible to create a trademark or a copyright for Indonesia. Nevertheless, it must be noticed that there are many counterfeit products in Indonesia, and it seems that Indonesia Government has lack of motivation to capture and punish the producer and the seller of those products as well. Conclusion In the conclusion, Indonesia has offered a great opportunity for Multinational Company to expand their business there.With the constant growing market, cheap cost of labor, and the raw resources, in my opinion, it is promising for multinational compa ny to expand their business to Indonesia. However, the potential risks in Indonesia, especially in Political and Economic sectors must be considered carefully. Nevertheless, if a multinational company manages to overcome the four risks, which are political risk, economic risk, legal risk, technological risk in Indonesia, it is obvious that particular company can gain a lot of profits from Indonesia.Reference List A. M. Best Company, Inc. (2012). AMB Country Risk Report (n. d. ). Available at www3. ambest. com/ratings/cr/reports/Indonesia. pdf (Accessed on 1 November 2012) Deresky, H (2008), International Management Managing Across Borders & Cultures, 6th ed, Pearson International Edition, Pearson Prentice Hall. Kobrin, S. (1979). Political risk A review and reconsideration. Journal of International Business Studies, 10(1), 67-80. Marshall, A. & Magnowski, D. (2010). Key Political Risks to watch in Asia in 2011. Reuters. online Available at http//in. reuters. com/article/201 0/12/21/idINIndia-53707220101221 (Accessed on 31 October 2012) One World Nation Online, 2012. World Population by Continents. online Available at http//www. nationsonline. org/oneworld/world_population. htm (Accessed on 31 October 2012) Ruby, C. L. (2002). The definition of terrorism. Analyses of Social Issues and Public Policy, 2(1), 9-14. TaxRates. cc (2012). Indonesia Tax Rate. online Available at http//www. taxrates. cc/html/indonesia-tax-rates. html (Accessed on 1 November