Days 11, 12, 13 & 14: A week in the big durian

Hello!
If you may remember from one of my former posts, durian is the spiky smell fruit that southeast asian love and many people cannot even stand to try because of the smell.  Apparently, expats call Jakarta the big durian because they have a love-hate relationship with this crazy city.  At first glance, Jakarta is a heaving, spiky, smelly mass but delicious and sweet inside.  As I said in my last post, Jakarta is a study in contrast.  Frustratingly, you can sit in an hour and a half of traffic to travel a very short distance but when you arrive you will be greeted by some of the most hospitable and generous people in the world!

On Monday, we had a super busy and intense day.  It was truly like drinking from a fire hose.  We began our morning with a lecture from Mr. Chatib Basri, an economics advisor and professor.  He spoke about the economy of Indonesia.  Currently, Indonesia is growing rapidly and has a relatively unique demographic bonus.  Unlike other Asian countries, Indonesia does not have the pressure of an aging population because most of their growth is driven by a younger demographic.  Now, as we know, this demographic bonus is not a sustainable competitive advantage because the population will age and then they will have some of the same problems other asian countries have.  However, for now, it has contributed to attracting a lot of foreign capital.  Indonesia is the fourth most populous country and it is also a muslim majority country.  However, Indonesia is really a melting pot of cultural traditions and religious backgrounds and as such they have much more religious tolerance than might be expected.  Mr. Basri spoke about two main challenges for the Indonesian economy: poor infrastructure and corruption.  The Infrastructure is really deplorable here and companies must spend a lot of money and time trying to work within it and around it.  Corruption is still quite prevalent even though there was a huge shift of power and a democratization of Indonesia within the last 12 years. 

After, Mr. Basri’s wonderful lecture, we had the pleasure to speak with three members of the US Embassy.  We learned about what the US does to encourage foreign investment and economic development in Indonesia.  We also learned about how strategically important good relationships between the US and Indonesia is to the US because of the growth potential, population, and religious identity.  Indonesia does not like to take sides in conflict and they have always approached our diplomatic relations very carefully but, because Obama spent time in Indonesia, there has been a marked increase in US favorability for Indonesians.  We also learned about how ineffective and struggling the Indonesian education system is.  USAID works hard with the Indonesian government to try to improve education and education opportunities in Indonesia but with the high levels of poverty, small tax payer base (15 million), and generations of poor education it is an uphill battle.  It made me incredibly grateful for my educational opportunities and even for our arguably flawed educational system in the US. 

After enjoying lunch, we met with three representatives of Indonesian Financial Services.  An executive from Danamon bank gave us an overview of the financial markets and landscape of Indonesia.  I won’t completely bore everyone here but it was truly incredible to learn about the structure of their financial system as it compares to the US.  What a difference!  They have a very open financial system.  Foreigners can own a significant portion of Indonesian firms and they welcome FDI.  However, there isn’t a lot of depth or liquidity in their markets and it is quite unsophisticated compared to ours, London, or Singapore.  To give you an idea of the incredible difference between Indonesian financial markets and ours, the mortgage market makes up a tiny portion of the financial sector and mortgages are only serviced by one bank whereas in the US mortgage banking accounts for nearly 1/3 of our financial sector. This has incredible structural ramifications on their economy.  For example, it is more difficult to establish credit or start a new business because home ownership, as we know it, is not common.  We also learned about Citibank Indonesia from Tigor who was just appointed as head of Citibank Indonesia.  Tigor shed light on the opportunities and struggles of Citi in Indonesia.  Finally, we heard from Jerry Ng about BTPN.  To set the stage, Jerry Ng was our wonderful host and created incredible opportunities for us in Indonesia.  Jerry is a joyful, charismatic, thoughtful, humble, and inspiring leader.  I really could go on about him for forever!  Jerry pioneered a different model of micro-finance in Indonesia.  His model has been wildly successful from a social perspective and amazingly lucrative.  Jerry took BTPN from a small unknown bank into a developing country success story.  Jerry provides financing to small and medium business owners through deposit funding provided by wealthy clients.  The Micro-finance arm charges fair but high interest rates and the funding part of the bank provides competitive interest rates.  Jerry has built this business through scale, simplicity, convenience and speed.  Jerry completely reengineered banking in the developing world.  He re-invented the wheel.  I would be happy to share more specifics about how Jerry achieved this with anyone who is interested. This is a btpn branch:

After a full day of drinking from the Indonesian fire hose, we were graciously invited to dine with Jerry and his family.  We went to the Bunga Rampai restaurant where we ate traditional Indonesian food.  The food was incredible—everything from satay to spicy soup.  The ambience was also incredible.  The restaurant is in a dutch colonial house with traditional architecture and crisp white linens.  It was breathtaking and so fun for all of us to be together. Below is a picture of the restaurant:

The next day, we visited BTPN and got to see Jerry’s revolution of banking in action.  We visited two of his customers and got to speak to them about how they budget to repay their loans and what the loans have done for their businesses.  We also got to see their back room operations and witness a financial training session with some of their customers.  We saw how BTPN leverages technology to make the processes more efficient and to overcome infrastructure obstacles.  For example, the relationship officers go to the business owners and handle the cash transactions remotely through mobile technology.  The mobile technology has thumbprint recognition because many of these entrepreneurs can’t sign their own names and don’t have identity cards. Below is a picture of a typical customer and the training classes they receive:

After that, we went to the joint venture motorbike manufacturing plant between PT Astra International and Honda Motor.  We received a tour of the enormous facility where everything from melting metal to testing the bikes goes on.  Everyday, this particular plant produces over 6,000 bikes.  The efficiency and logistics were astounding.  It’s pretty amazing that this type of physical labor in the hot factories that are creating overwhelmingly noxious smells is an opportunity for many Indonesians to avoid poverty and take care of their families.  We also noticed that there were no women on the factory floor and the workers informed us that this is not because of any mandate but merely because of perceived cultural roles.  We learned about how motorbikes are really popular in Indonesia as a form of transportation and how Honda dominates this market space.  

On Wednesday, we were able to visit PT Kawan Lama.  Kawan Lama means old friend and was started by a man who had a shack where he sold tools.  Through his vision, he built an empire based off franchising ACE Hardwares, creating a tool-line (Krisbow) and aggressively expanding into other industries like real estate, logistics, and toy stores.  We toured their corporate offices where everyone seemed so happy to be working there and the family is intimately involved in all the business’s operations.  I was very struck by the fact that there were no offices in the entire building.  Everyone was seated together in the same open air areas, including the chairman.  After a lovely lunch in their office, some of the executives took us on a tour of their new shopping mall.  The shopping mall is the latest in Kawan Lama’s expansion efforts and their first foray into real estate development.  The shopping mall was clean, modern, and sprawling; we were able to see their full range of stores and products while asking their management about how this project had come to fruition. Here is a picture of their offices:

After a full day with Kawan Lama, we joined some UVa alumni at a bar down the street where we visited with them.  I met a really neat girl, Avina, who works at an Indonesian Private Equity Fund.  She told us about her really positive experiences as an Indonesian woman in the Financial Services sector at an Indonesian firm.  After this cocktail reception, I took the opportunity to take advantage of The Ritz-Carlton’s impeccable spa and had a wonderful massage.  It was really great because we had been so busy.  I was so tired during the massage that I fell asleep during it but it was still lovely!

The next day, we had another early morning. We caught cabs to an office nearby that headquarters PT Lautan Luas, another Indonesian firm.  Lautan Luas offers diversified products and services within chemical manufacturing and distribution.  They have many subsidiaries and joint ventures that creates a fairly complicated corporate structure.  One of those subsidiaries is the Linc Group, a logistics company.  We spoke with the head of Linc Group, who shed light on how businesses cope with the terrible infrastructure and the complexity that an archipelago presents.  I was interested to find out that it is less expensive to ship things to China than it is to ship something from one part of Indonesia to another. We also learned about how Lautan Luas plans to invest heavily in water treatment because water is such a major problem in Indonesia.  The CEO of Lautan Luas is a huge advocate for and supporter of Habitat for Humanity, so he also explained the challenges he faces with Habitat for Humanity Indonesia.  We also spent the last part of the meeting with Lautan Luas presenting recommendations on several real business cases Lautan Luas has experienced.  My group and I tackled a case about a joint mining venture  in a remote part of China where there were management and partnership issues. 

That evening, when we returned to The Ritz, we had a private audience with the manager who oversees The Ritz-Carltons and Marriots in Jakarta.  Pierre was very french and took us through how they build and maintain brand equity through stupendous customer service for The Ritz Carlton.  Pierre had some funny anecdotes and explained the Ritz’s rigorous training for employees and the philosophy it seeks to embody: “we are ladies and gentlemen serving ladies and gentlemen.”  Pierre also spoke to how he does all this and manages the bottom line.  Pierre discussed how he manages developing world problems (power outages) and out of your control situations (earthquakes).  He also frankly discussed the terrorist attack on this particular Ritz and how he managed that crisis.  After speaking with Pierre, we were taken on a behind-the-scenes tour of the Ritz.  We saw everything from the Presidential Suite to the laundry.  It was really neat to see how they accomplish such great customer service after enjoying it for the time we were there.

Next Stop: Yogyakarta!
Love you guys,
Maddy