Managing a Diverse Workforce in Indonesia

INDONESIAN ENTERPRISES
Paul Korsvald, the general manager of a Iarge Norwegian paper company's
subsidiary, Indonesian Enterprises, had several decisions to make before the day
was over. His first decision was whether to build a small mosque next to his
corrugated carton plant near Jakarta, Java. Among the Indonesian Enterprise
workers, 34 were Chinese and were primarily Confucians and Buddhists, 4 were
Javanese Christians, and 2 of Indian extraction were Hindus. The other 352 plant
workers and supervisors and the 48 office managers, and workers under him
said they were Muslims (see Appendix). Many, however, were not strict followers.
They practiced an Islam that had been blended with Hindu, Buddhist, and other
beliefs. Jim Sterba (The Wall Street Journal, September 29,1887) observes:

Islam is different in the world's largest Moslem nation. Indonesia. It has a sense
of humour. It doesn't seem so stern and insistent. It is more tolerant than Islam
elsewhere.

This toleration was attributed by scholars to Indonesia's vast diverse land and
population. The country, comprising 13,677 islands of which 6,000 are populated
and covering 3,200 miles, has a population of more than 180 million people of
366 different ethnic groups. Although 250 different languages are spoken, Bhasa
Indonesia is the official language taught in the schools. Half of the population was
Javanese and two thirds of all Indonesians Iived in Java, which constituted 7% of
the land mass.

Friday is the holiest day of the week for Muslims, and the company was required
by custom to permit workers, especially the men, to attend noon prayers and
collective recitals of the Koran. Although government offices closed at 11:00
A.M. on Fridays, Indonesian Enterprises policy was to close the plant and offices
from 11:30 A.M. until 2:30 P.M. only. Paul Korsvald observed that typically fewer
than 20 Muslim factory and office workers returned to work on Friday. Many
excuses were given by the others such as it was impossible to catch a bus or
services were longer than expected.

Actually, after services was a time for workers to visit with friends to gossip and
learn what had taken place during the week It was also a time to bargain, batter,
and buy a variety of goods and food sold near the mosque.

What bothered Paul Korsvald most was the loss in production output and paying
people for not working. The average monthly salary for factory workers was
approximately US$100; for office workers, it was US$150 for a six-day work week
The day began at 7:00 A.M. and ended d 3:00 P.M. including an hour-and-a-half
for lunch.

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How could he meet the religious needs of the Muslims and non-Muslims without
losing production output and keeping costs down? To build a mosque would cost
about US$30,000. Four thousand dollars of this would be spent to purchase and
transport sacred stones from Mecca. If Korsvald decided to buy the mosque, he
would then have to obtain the services of the local hadji (one who had made the
pilgrimage to Mecca) for US$15 to bless the ground before construction began.
In addition, he would be required to purchase a goat for sacrifice for about
US$20. The goat's head would be buried near the mosque; the reminder given to
the workers for a feast. He would also have to provide onions and green peppers
to be placed on a stick to keep the rains away on the opening day of the mosque.

If he decided not to build the mosque, Paul Korsvald could also continue the
current practice or he could rent seven buses for three hours, at a cost of US$50
per bus. While the buses would probably arrive on time to take the employees to
the mosque, Korsvald was unsure if employees would return to the factory on the
buses.

THE POSSIBLE PURCHASE

OF CALL OR PRAYER CALL CLOCKS
Korsvald was faced with another dilemma as well: whether to buy from Maruem
Murakemi and Company, Ltd. Either ten semi-automatic prayer call clocks or fully
automatic prayer call clocks or some combination of the two. Good Muslims are
required to pray five times a day, first in the morning when they arise, before
lunch, mid-afternoon, after sunset and before retiring. This schedule did not have
to be followed to the letter, for according to the Koran, “When ye journey about
the earth, it is no crime to you that you come short in prayer if you fear that those
that disbelieve will set upon you.” Typically, employees would pray whenever
they had spare time. However, by not praying at the prescribed times, some of
the reward was lost. According to Muslim tradition, every corer of Allah’s
universe was equally pure, so the employees would spread their prayer rugs
wherever they were when they decided to pray. Standing erect with their hands
on either side of their face and their thumbs touching the lobes of their ears, they
would begin “God is most great.” Still standing, they would continue with the
opening Ayat (passage form the holy Koran):

Praise belongs to God, Lord of the Worlds,

The Compassionate, the Merciful,
King of the day of Judgement.
Tis thee we worship and thee we ask for help
Guide us in the straight path
The path of those whom thou hast favored
Not the path of those who incur thine anger
Nor of those who go astray

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Unfortunately for Paul Korsvald, the prayers continued from noon to afternoon,
because each Muslim employee would wait until he or she had spare time. If
Paul Korsvald bought the semi-automatic clock for US$30 and the fully automatic
for US$35 and placed them in prominent locations throughout the plant and
office, the clocks could be synchronized to proclaim an Azan (prayer call) ten
minutes before noon and at 2:40 in the afternoon.

Another option existed. He could eliminate the lunch hour, the practice of the
Dutch-owned companies, and end the working day at 2:00 P.M. Rather than buy
the clocks, he would make it known through supervisors that plant operations
would cease ten minutes before noon for prayers.

THE NEED TO INCREASE

PRODUCTIVITY DURING RAMADAN
A third decision confronting Korsvald dealt with solving the problem of low
productivity of employees during Ramadan, the holy month of fasting and the
ninth month in the Arabian calendar. In this month, Muhammed, according to
Muslim tradition, received the holy Koran from God as guidance for his people
and made his hyiria from Mecca to Medina. From dawn to dusk, during this
period Muslims abstain from food and drink. Among those automatically
exempted were the sick, the very old, very young, pregnant and nursing women,
soldiers in war, and persons on long trips. Although no one in Indonesia is legally
compelled to fast, many Muslim employees did.

When Ramadan fell during the hottest season, fasting took its toll. Employees,
observing tradition, were noticeably nervous, excitable, and prone to flare-ups of
temper. Korsvald estimated that productivity in the plant and office declined 20-
30%. Korsvald had identified three options to address this issue and suspected
there were others. First, he could start the plant at 3:30 in the afternoon and end
at midnight. Second, he could close the plant for two weeks and require
employees to take their vacations during this time. Third, he could require only
those Muslim employees who were fasting to take vacations.

SELECTING THE MANAGER

OF THE ACCOUNTING DEPARTMENT
A fourth decision had nothing to do with religion. He had to decide whether Mr.
Abukar, a native Jam, or Mr. James Lee, an Indonesian of Chinese nationality,
should be appointed to the position of manager of the accounting department. In
Norway, promotion decisions were primarily based upon employee's prior
performance. However, discussions with other Western general managers
operating in Java and researchers from Business International revealed a
consensus that decisions on promotions in Indonesia placed more importance on
ethnic background, personalities, and individual circumstances. Thus, managers
in Indonesia consider whether a prospective manager was Javanese, an outer

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islander, Chinese or Indian. Although Indonesia's motto is "Unity in Diversity," it
made a difference for instance if a prospective manager was Javanese,
Sumatran, or Moluccan.

The Javanese are considered an agrarian-based conservative people proud of

their traditions and strong family ties. They value harmony and sensitivity to
others, characteristics that historians attribute to feudal influences. Additionally,
they are reluctant to convey information that could displease business
associations or cause conflicts.

The outer Islanders, the Bataks of Sumatra and the Moluccans, are more prone
to say what they think The Dutch set up Iarge tobacco, rubber, and palm oil in
Northern Sumatra, so modern agricultural developments were concentrated
there. Because these products were produced primarily for export in contrast rice
production in Java, which is consumed locally, natives possessed greater
experience in international trade. The straightforwardness of the outer islanders
complemented the style of Western managers, resulting in a disproportionate
number of outer islanders holding key positions in foreign companies in Java.

While the Chinese accounted for less than 2% of the population, they played a
key role in business and owned, according to reliable sources, more than 50% of
the nation’s private capital. Despite high levels of education and administrative
experience, they were excluded from the bureaucracy and the military, which was
dominated by the Javanese.

The official ideology of the Indonesian government was Pancasila, which

consisted of five principles affirming belief in one God, humanitarianism, national
unity, democracy, and social justice. A balance between national unity and social
justice proved difficult. Any foreign company having too many Chinese
executives would be vulnerable to resentment from indigenous Indonesians
(pribumi) workers, and the Indonesian government might intervene and press for
social justice. While Indians were also vulnerable to resentment they were too
small a group to constitute a threat.

Paul Korsvald had many issues to consider. James Lee was older, and age was
important to Indonesians. He was unquestionably the best qualified of the two,
technically and in managerial experience. He had more years of work
experience with the company. Lee, fearing a backlash from the pribumi staff,
might fail to give them firm orders to take displinary actions when needed.

On the other hand, Mr. Abukar was reasonably competent technically, pleasant
to all employees and well-linked by the Indonesian accounting staff. He came
from a respectable family, with several relatives working as lower level
executives in the government. Further, the promotion would help him financially,
because he had a large family to support. In the past, he had been extremely
loyal to the company. He had been reluctant, however, to assume authority,

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make decisions, and work overtime. Due to a dearth of pribumi managers, it
would not be difficult for Mr Abukar to find another job at a higher salary.

Korsvald could seek a consensus (mufakat) of his key executives through tedious
consultation (muskawarah). Whatever choice his consensus brought about he
risked shaming the candidate (malu) in front of others if he did not handle the
promotion well. Under no circumstances did he want to create malu.

NEED TO FORMULATE: POLICIES

His last decision was how to formulate a policy covering responsibilities of his
employees to achieve results, to reduce kickbacks, and to determine under what
circumstances loans would be made to employees.

The frequent cases of stomach ulcers and heart attacks among European and
American managers in Indonesia, he though, resulted from their failure to
counteract djamkeret (“dj” pronounced like “j”) or rubber time. He observed that
Indonesians could not be rushed and would leave an employer who tried to make
them move faster or work harder. When asked, “When will the job be finished,”
adherents to djamkeret would simply reply “sometime during the next few days”.
Modern plants with international commitments could not operate this way. So, he
needed policy that could dampen the excuses of djamkeret.

European companies operating in Asia have been offering bribes and kickbacks
since the 1600s when the British East India Company won duty-free treatment for
its exports by giving Mongol rulers expensive gifts including rare paintings and
carvings. Korsvald, however, had difficulty adjusting to the succession of
kickbacks and payoffs necessary to conduct business in Indonesia. On one
occasion, his sales manager had to send twelve bottles of scotch for a party
given by a purchasing agent of large of corporate customer. On another, he had
to give US$10,000 to the large corporate customer’s local director. In the latter
case, he was surprised to receive a silver tray as a gift from the local director.
Last year on Christmas morning, he awoke to find a Christmas tree brightly lit
and heavy with gleaming ornaments. On it was a card from another company’s
director to whom he had been forced to make kickbacks for years. “Muslim
economics require that the wealth of he people be widely shared,” he mused, “it
insists that acquisitions and competitiveness be balanced by fair play and
compassion.”

In addition to kickbacks to customers, many foreign businessmen in Indonesia

felt it was necessary to place someone in power in the Indonesian government
associated with their company. It was rumoured the family of the president of
Indonesia owned shares in 15 companies including a hotel, a flourmills, and two
cement factories. The president’s brother strongly denied any favouritism and
added that several charitable foundations were set up with business earnings.

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Trading on influence was not considered corrupt unless it involved excesses. To
maintain a low profile, distant relatives of top military and government officials
were placed as heads or directors of companies rather than members of their
immediate families.

Korsvald observed that the Chinese were adaptable. If they had to give gifts to
generals or make deposits to an official’s Singapore bank account and become
friends for life, they did so. According to Barry Newman in the The Wall Street
Journal, April, 14, 1978:

The strategy of gift giving has been perfected by Cukongs of

Indonesia, about 30 moneyed Chinese who have made
fortunes for themselves and, as it happens, for the country’s
ruling elite. “We don’t worry,” says a manager in one of
their companies. “We have information first hand. We know
what’s going on.” Occasionally, when there is money to be
made, a Cukong will take a fellow Chinese for a ride on his
coat-tails.

Korsvald wondered if kickbacks and payoffs to high officials known as

“untouchables” should be continued by his company. Frequently, he had trouble
determining whether middlemen who received bribes from the company to give to
his ranking officials still had influence. He was never sure how much to pay or if
he was paying the right person. His experience in Indonesia convinced him that
establishing good personal relations and trust did not always entail a payoff.

Lower-level civil servants continually practiced the ancient Indonesian form of

social commerce called the “sticky handshake.” Traditionally, funds acquired
through extortion were called “smooth money”, “lubricating money” or “rule 2000”
(it will cost you 2000 rupiahs). More recently, they have labelled “illegal levies”
and were required for everything from processing a passport to exporting
corrugated boxes. It would be almost impossible to stop “illegal levies,” because
low-level civil servants needed them to live. Nevertheless, the National
Command for the Restoration of Security and Order, a government body, was, at
present, trying to ban illegal levies. The response was a combination of outrage
and jealousy from civil servants who believed that he higher-ups were taking
more and not spreading it around. Although Indonesian Enterprises’ workers
were better paid than civil servants, they, too, sought ways to increase their
incomes. Any items the company had in stock that could be sold easily, like glue
and starch, had to be closely monitored and physically secured, or they would be
stolen.

Korsvald knew compassion was necessary and could produce practical results
each morning. He provided free bottles of “vitasoy,” soy bean milk processed in
Indonesia by the Hong Kong Soy Bean Products Company of Hong Kong, to
mitigate the effects on his employees of malnutrition and tuberculosis, both

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common ailments in Indonesia. The result was an increase in worker
productivity.

Sometimes, though, his compassion created problems. He gave 25 corrugated

boxes to one employee who said he wanted the boxes for moving to a new
home. Later, he discovered that the boxes were sold to a woman going to
Pakistan. When Korsvald confronted the employee, the employee became
nervous and started to cry. “My wife was sick and I needed the money,” the
employee sobbed, “I’m not a criminal.” Korsvald knew it would be difficult to fire
the employee because of strict Indonesian labour laws, so he returned the money
to the woman and treated the payment as an advance loan to the employee.
Later, the employee sent flowers to Korsvald.

He wondered about what other policies he should prepare for purchasing and
advancing loans. Should his purchasing agent be responsible for all purchases
up to a certain amount, say $300 in Indonesian rupiahs? Should the purchasing
agent be able to further delegate authority to other departments? Should he let a
policy on advance loans be made by the comptroller? Weren’t there inherent
dangers?

In one Western company in Jakarta, when loan policies were delegated to a

pribumi comptroller, salary advances had more than quadrupled. The chief
executive called in the comptroller to find out if the report was in error. It was not.

The comptroller said that, rather than follow the policy blindly, cases were judged
individually. The company’s new chief engineer needed a large sum of money to
pay three years’ rent advance for the house he had just leased and such
advances were normal in Jakarta. A one-year advance in pay was made to an
older employee who was making his pilgrimage to Mecca (Hajj), which every
devout Muslim was required to do at least once in his or her life. While the
comptroller gave explanations for each advance in salary, the chief executive
noticed a loan of four months’ salary to a recently hired factory worker. When the
comptroller was questioned about this advance he said, “The man is my brother-
in-law, and my wife would be embarrassed if I didn’t grant him this favour.”

Korsvald wanted policies that would prevent such a problem from occurring in
Indonesian Enterprises.

APPENDIX: ISLAM AND THE KORAN

The word Islam literally means submission to the will of anybody, but in a
religious sense it is properly defined as acceptance of what has been ordered or
commanded by God via a man named Mohammed. The principles that regulate
the life of Muslims in their relationship with God are called the Five Pillars of
Islam. The first pillar is Islam’s creed, “There is no God by Allah and Muhammed
is his prophet.” The second pillar is prayer and Muslims are required to be

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constant in prayer, which under normal conditions means praying five times a
day. The third pillar of Islam is charity. Those with money should help those who
are less fortunate. The fourth pillar is the observance of Ramadan the ninth
month of the Arabian Calendar. Ramadan commemorates God’s making
Muhammed a prophet and ten years later Muhammed’s Hijiah flight from Mecca
to Medina. The fifth pillar of Islam is pilgrimage. Once during a lifetime a Muslim
is expected to visit Mecca.

The word Koran literally means “that which is read,” but no Muslims it is the
sacred book that contains the word of God as revealed to Muhammed. The book
consists of 114 chapters, 6,000 verses, and over 80,000 words. There is no
specific order except the shorter chapters are at the beginning. It contains
information pertaining to prophets and the people to whom they were sent. It
also contains laws, dogmas, and ethical ideas. In addition, it is considered by
Muslims as a first-rate piece of literature. Many Muslim writers copy its style
which they consider miracle of eloquence. In many parts it is rhymed and unlike
ordinary prose, it is chanted rather than read. During daily prayers Muslim
usually recite the opening chapter of the Koran and any other part they like.

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