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Indonesia Amnesia

[whitespace] Indonesia
Marc Herman

Chopper Block: Following May's mayhem, some high-tech firms have pulled out of Indonesia altogether and others are re-evaluating their strategies.

Two months after late May's riots, Jakarta's high-tech district remains leveled. Wiped off the map. And the fair-weather firms of Silicon Valley are not much help.

By Marc Herman

JAKARTA--Indonesia is not a good place to be a chicken. Farmers today can't afford chicken feed, prices for live chickens have tripled and the birds look skinny and sick, like some kind of poultry wraiths, tottering their last few steps toward the chopping block. The Jakarta Post has reported that any minute now they will disappear, and then Indonesia will be an entire country, the world's fourth largest, without chickens. No more soto ayam, chicken soup, a local lunch staple. No eggs. No roosters crowing over the corn fields of West Java in the wet equatorial morning. Amid the many apparent symptoms of national failure, this inability to keep barnyard animals alive is perhaps the most ominous sign.

Even before the country exploded in May, the city appeared bleak. Along Jalan Sudirman, the broad avenue in the heart of Jakarta's business district, long-established businesses could not pay their rents in the modern skyscrapers. The only good sign in Jakarta in the months preceding the riots and downfall of former President Haji Muhommed Suharto was that the traffic had eased--because mass layoffs had sent millions of commuters home for good.

Less than a year ago electronics was a hot sector for international investment in Indonesia, including the possibility of nearly 200 million customers for emerging industries such as information technology. Jakarta's streets were filled with young executives talking on cell phones while driving their Jeeps. Internet cafes came into vogue.

Urban Indonesia had taken on the look of a Western consumer culture as the decade progressed, to the great interest of Western stock markets and Pacific Rim entrepreneurs. Acer, Oracle, Digital, Compaq, Intel, Apple, Seagate, Epson, Microsoft and Hewlett-Packard soon bought in, banking on future returns from new customers in the world's largest archipelago, ignoring both former President Suharto's abysmally opaque business environment and the fact that Indonesia was less a democracy than a feudal autocracy.

Then came the event that is here known as the krismon or krisis moneter--the Asian economic crisis. Whether the technology giants should have seen what was coming from their Sunnyvale or San Jose offices is a matter for historians to decide. Whether they should have trusted Suharto's economy while ignoring his Cosa Nostra style of administration is a matter for pundits to debate at the Commonwealth Club. But for the moment those questions are secondary to the immediate choices that need to be made by foreign computer companies deciding how to react to this massive country's problems.

With Indonesia suddenly in free fall, Silicon Valley companies are left with a hard decision: to try and ride out a virtual collapse of the computer market here; or to bail out of Indonesia, abandoning both an inevitable future market and the suffering Indonesian partners they had previously dealt with in good faith. The world is small enough now for events in Jakarta to bite San Jose.

But it is also still large enough for Silicon Valley to temporarily turn away from Indonesia if it chooses. And the Asian crisis continues: In recent weeks, Japan has lost a prime minister over it, the Dow has lost some of its head of steam in part over Asian worries, and Federal Reserve Chairman Alan Greenspan has testified to Congress about the Asian slowdown's potential drag on U.S. business.

Indonesia, with its massive potential as a demand market, is generally considered one key to the region's recovery. And Silicon Valley, a Pacific Rim region with not only partners but eager competitors in Asia, has some hard choices ahead.

Market Crash

HENDRA HALIM, a computer distributor in the Glodok's electronics marketplace--one of the few who did not lose everything in the riots in May--reports that Seagate, his troubled American supplier, has cut off his credit. A loan to save his business is impossible, because the government has pushed interest rates to an unfathomable 50 percent or higher. That's on the supply side. As for his customers, their currency, the rupiah, is worth 30 percent of what it used to be against the dollar.

The small businesses that used to buy databases are in receivership, with many of their owners only just returned from hiding in Singapore. Private customers are trading their savings for gold jewelry, the most stable form of currency available right now. The students who used to buy CD-ROMs spent most of the year throwing themselves against the Plexiglas shields of armed riot police because they can no longer afford notebooks. Not notebook computers. Notebooks.

Now they are back at school, having finished taking over the parliament, but they are still bumming their favorite clove cigarettes off Western reporters because they can't afford their own dollar packs. These kids will not be buying computers any time soon.

Even prior to May's riots, sales of computers had already fallen as much as 80 percent in Indonesia. That stands to get worse. Prices had more than doubled as a result of the currency crisis, even before looters walked off with the stock and rioters set the warehouses on fire. Importers of components such a disk drives or printers had it just as bad.

Just prior to the riots, Halim says, he normally sold 6,000 disk drives a month. Following the violence, his store was shuttered behind a steel security gate, with Halim nowhere to be found in the middle of a weekday. His customers are in many cases now ruined also, burned out of their shops a few blocks away.

Halim sells to PC manufacturers in Jakarta. We had first spoken in his small headquarters on a busy street in North Jakarta. The office, housed in a concrete garage, was decidedly low-tech. It ran on power from a loud Honda generator that morning because the electricity was out. Tropical rains had turned the dirt parking lot to soup. His office is located down a road along a dirt canal. Its only identification is a small green Seagate logo on a door behind a homemade noodle cart.

"We sold 60,000 disk drives last year. Now we sell 30 percent of that, maybe 20,000 this year," Halim said. A 40ish man in a white oxford shirt and tie, he had decorated his large office to seem more than a cinder-block box--with a weathered red carpet and a set of shelves filled with Seagate plaques and a few certificates from Conner, the Seagate subsidiary for whom Halim used to be the Jakarta distributor.

Far from the relaxed model of a Silicon Valley executive, Halim looks as though he has spent a long time in the sorts of jobs that keep a man around the docks: his sleeves rolled up, tie loosened, arms dropped heavily on his desk. Marc Andreeson or the stylish young programmers at startups in Menlo Park may offer the image of the humane, post-industrial global communications revolution, but Halim is the persistent reality: a hard-pressed goods trader, working out of a storage shed, buying himself a Mercedes in a good year, but living or dying by the exchange rate the rest of the time.

Like most people in the Indonesian electronics industry, Halim speaks English. He did not blame Seagate in particular for his woes. "Actually," he said, turning his hands up behind the desk, "Seagate has been pretty flexible. They gave us more time to pay after the rupiah falls. They extended our credit. But the most they can give us is three months."

Compared to many here, however, Halim is doing well. Prior to the riot, he had laid off none of his 21 employees and was even hiring two more, one sales rep and one technician to assemble the drives. He had still given bonuses for Idul Fitre, the Muslim holiday marking the end of Ramadan. His business had shrunk, but he was muddling through. That is now overwhelmingly likely to change.

Indonesian estimates of layoffs in the local computer industry as a result of the crisis have ranged from thousands to tens of thousands--with the latter figure appearing more likely. Damages from May's riots, still being tabulated, range from millions to billions of dollars. And the industry will have to be totally rebuilt.

Glodok's central shopping district no longer exists. It is a twist of melted I-beams and exposed concrete stairwells. Two months after late May's riots, Jakarta's high-tech district remains leveled. Wiped off the map.

Credit Raiding

THE DAMAGE EXTENDS beyond cosmopolitan Jakarta. In addition to tightening its rules for sales and distribution, for example, Seagate--facing its own financial woes at home--has indefinitely postponed the opening of an assembly plant in the Indonesian city of Medan, on the northern island of Sumatra, another region hit hard by riots. The plant would have employed 2,000.

Personal computers and components (the bulk of Indonesia's IT market) will vanish if the region is orphaned by its Silicon Valley suppliers. Filling the shelves of a small operation like Halim's had already been a high-stakes gamble. But with the loss of credit from Seagate, Halim now has had to switch professional roles from disk-drive salesman to currency speculator in order to keep his company afloat.

It works like this: If Halim takes out a contract with Seagate, or any U.S. supplier, to buy 1,000 disk drives at $100 each, he is locking in that day's exchange rate for the rupiah. That means he is betting $100,000 on the rupiah's stability that day. If the rupiah strengthens against the dollar the next day, he loses. So even if he can find customers amid Jakarta's rapidly disappearing middle class, he may lose money on the exchange rate with his American suppliers.

It's a complicated situation for any computer seller or assembler in Indonesia. If, under President Habibie's promised reforms, the rupiah doesn't quickly get stronger, businesses like Halim's are doomed. But if, in the few bits of business they manage to carry out in the coming weeks, deals are made at the currently weak exchange rate, the Indonesian importers can't help but hope for continued weakness.

Many American companies are pulling back, and some are clearly pulling out. Database producer Oracle has reportedly laid off 75 percent of its staff. Oracle's Jakarta office would not confirm the figure, but did say there has been "significant downsizing" as a result of the crisis.

Apple Computer has all but abandoned the people who sell its products here, according to the local Apple retailers. "We have negotiated with Apple to ask them to help with our rupiah, but they don't," says Hindewan*, business manager for InMac, one of Apple's largest Jakarta dealers. "H-P did help. But Apple, since the crisis begin, never gave us anything; they just let us close."

The result has been severe losses for Apple dealers here. It's a particularly sharp irony for the company pushing a worldwide ad campaign featuring an image of Gandhi. In Jakarta, however, the company's message to its hard-pressed Indonesian distributors is not "Think different." It is instead the same one heard off the backs of trucks in Jakarta's vegetable markets: cash and carry only.

"The price [is] getting up. Really, really high. And all payment [is] in cash now," said Alex Besrial, an executive at Powercom, a Jakarta Apple retailer.

Other companies have responded more positively to Indonesia. Digital, the No. 2 corporate IT concern here (behind IBM), has not indicated any pullback. Corporate IT, however, is a smaller and less risky market segment than the more important PC market. In that area, Hewlett-Packard, which sells 95 percent of the inkjet printers in Indonesia, temporarily lowered prices on some models in the country to give local distributors a break.

While some companies may have cut prices, however, other South Bay companies have played hardball with their Indonesian partners, at a time when local businesses and their employees are in need of as much flexibility as can be offered by the rest of the world. Even H-P, despite lowering some prices, is also no longer extending credit to its three Indonesian distributors. (Distributors in Australia and Taiwan, which also work in Indonesia, are still able to buy goods on credit.)

Current predictions for the end of the crisis range from one to three years after the start of a recovery. The recovery has not started yet, however. In some areas of Jakarta, they haven't even finished clearing the wreckage.

For sellers of finished PCs rather than components--Jakarta's counterparts to the floor sales staff working in a Sunnyvale Computer City--things look even bleaker. Jebsen, a salesman in Glodok for a store now destroyed, used to average $50 per sale. In his early 20s, tall, amicable but clearly desperate, Jebsen graduated from technical school last spring trained as a programmer but could not find a job, so he is working for as long as he needs to in sales.

It is a decidedly bad time to be young and talented in Indonesia. The common assumption of the computer industry in America--that it is the province of young people using a new industry as a place for their creativity and energy--does not arrive across the Pacific intact. Jebsen lives with his parents and brings his pay home to the family. He sells computers made in Santa Clara by Acer, the No. 2 seller of PCs in Indonesia; Compaq is No. 1 here.

Without those sales and their commissions, computer sales reps in Jakarta make about $3 a day. By comparison, a liter of gas can cost almost half that.

The Acer billboard in Glodok is now curled into itself like a cinder. There are overturned, immolated cars in front of the Compaq dealerships. Three days after the riot, the area remained sealed by police, who reluctantly let in only reporters and the occasional cat.

Broken Promise

WITH ALL THAT, Silicon Valley companies reading news from Indonesia could easily be forgiven if they did not plunge boldly ahead here. "When people are worried about rice and sugar, they're not worried about scanners," says Janice Lim, a spokesperson for H-P in Jakarta. This was at Jakarta's Shangri-La hotel, a five-star, marbled peculiarity set behind a Fashion Cafe in the business district. Inside the Shangri-La there was no currency crisis. Bon-bons filled bakery cases, and rooms were renting at $100 a night, a virtual fortune by local standards.

Downstairs, new H-P products filled a broad lobby, part of a sales kickoff for the new models released just prior to the riots. A press conference accompanied the kickoff. Rice may be getting too expensive for the average Indonesian, but reporters at the conference received the normal corporate toys in goody bags: mouse pads, hats, T-shirts and a stuffed green monster that looked like a cross between a frog and John Lithgow.

The monster was a character from a new H-P commercial. No one from the press knew that and wondered about the peculiar doll. No one had seen the ad because H-P can't afford television time in Jakarta right now, with TV ad rates through the roof.

Despite her nagging doubts, Lim said a market for high tech will survive in Indonesia. She argues that people in the country, particularly small businesses, view computers as essential items rather than luxuries. This is particularly true since the crash, she said over the free H-P lunch after the press conference. Offices that hope to weather the crisis, and businesses that need to seek out new markets, are mortgaging themselves to buy what computers they can afford, figuring that computerization is one key to the next few bad years.

It's a peculiar concept at first: weighing the importance of computers against that of rice and milk, and deciding computers measure up well. But Lim is not the only one banking on the idea that computers are essential, even in a country without much plumbing. Business, after all, must go on.

"In this economic situation, people will be focusing on internal consolidation of costs. Information technology is a cost-saving measure," says Elisa Lumbantoruan, country marketing manager for Digital in Indonesia. "There is also the millennium bug. People can't wait."

Somewhere between Al Gore's Internet evangelism and Moore's law of the ever-speedier processor, there is an implication that Silicon Valley may yet save the world. But in Jakarta, what you see is thousands of people, mostly Chinese Indonesians, who banked not on a socially relevant technology, a unique approach to business culture or a new definition of communication and community, but just on a business with an explosive potential to make them money in a developing nation.

That Indonesia and its computer industry have collapsed now may be the Indonesians' problem. The world is not yet so small that North America cannot simply move on to another market for the next few years until Jakarta recovers. If that happens over the next few years of hard recovery, however, it casts Silicon Valley's promises of not just profit but a changed world in an unkind light.

Indonesia can always sell itself in pieces, mercantilist style--it has oil and minerals--particularly if it can't sell itself as a market for goods. But before the crisis came this seemed less necessary than it had in the past. In Glodok Plaza, people were prosperous through a new kind of trade. They had found an industry that promised to build resources rather than take them.

That wasn't all. For awhile, it also was possible to believe that not just the money information brought, but the technology itself, would help save Indonesia. In some ways it has. Silicon Valley had a hand in the recent events that brought Suharto down and began what may be an era of greater openness in Indonesian society. Students, demonstrators and opposition figures--harassed and in many cases "disappeared" during the months leading up to May--often ducked government detection by communicating via the Internet.

Reports from the international media came uncensored the same way. When the worst days arrived, those who fled the city or the country used email to keep in touch with those left behind. Most importantly, students who took over the Indonesian parliament, forcing events forward, said repeatedly amid their standoff that they were confident of their safety because they knew the world was watching; the protesting students' conception of the world was of a high-tech, interconnected one, a world that would know if the soldiers surrounding the parliament began shooting. Students in China nine years ago could not say so with such certainty.

It remains to be seen how the U.S. will respond. There are several promises on the table, however. In advertisements and speeches--the manifestos of a still-new industry--the implication has always been that the code writers and hardware designers of Silicon Valley were shrinking the world not only for the thrill of it, or the money, but because a smaller world is a more humane world. Silicon Valley did, presumably, "Think Different."

If so, now comes Silicon Valley's chance to prove that has arrived in Indonesia, a place still in extremis. Amid the ruins of Jakarta, the computer industry's promise will soon be kept, or will be proven just another sales pitch. In Jakarta, Silicon Valley's partners wait.

*Many Indonesians go by only one name.

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From the August 6-13, 1998 issue of Metro.

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