9 - Reluctant Internationalization: The Case of the Salim Group

Summary

Introduction

Globalization has become a keyword for managers today, and many companies claim to be global as they increasingly do business across borders. Globalization can be understood as the phenomenon occurring as a result of the perceived contraction of time and space. Companies often start activities abroad because it can bring advantages such as more economies of scale, access to global networks and technologies, and learning from locally different product markets. Within business circles an important globalizing trend is the break-up of the value chain, where different steps in the production process take place in different locations. Western companies have taken the lead in building up international investments and sales, but in recent years companies from emerging markets have started to follow suit.

The Indonesian economy under President Soekarno could be characterized as closed, but under President Soeharto, Indonesia became increasingly embedded in the global economy. Exports rose from the 1980s onward, and foreign direct investment surged in the period up to the Asian crisis. Soeharto was responsible for remarkable economic growth during his presidency, which made Indonesia a sizeable consumer market. The economic growth also facilitated the parallel emergence of many home-grown business groups, the largest of which are often owned by families of Chinese descent (Robison 1986). Business groups, or conglomerates, exist around the world, but are particularly common in emerging markets, including in Southeast Asia (La Porta 1998; Claessens et al. 2000). Many of those emerging market business groups consist of numerous separate companies active in a range of industries, often under the control of a family, or a coalition of families (Granovetter 1995).

While during Soeharto's New Order the economy was relatively open, many trade barriers existed to protect local industries. Especially well-connected business groups, such as those of Soeharto's children and a few Indonesian Chinese groups benefited from a favourable regulatory environment. In the period after the Asian Crisis however, as a result of IMF demands, many of the existing protectionist measures benefiting those businesses close to the Soeharto regime have been abolished, thereby moving a step more in the direction of an open market economy. In an era of globalization and the integration of markets, one would also expect that Indonesian Chinese business groups would follow suit and ride the waves of globalization.