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Mercer bdb doing_business_in_indonesia_mar_2011
1. Breaking Down Borders
Doing business in Indonesia
Su-Yen Wong, Senior Partner and ASEAN Managing Director
Ake Ayawongs, ASEAN Head of M&A Consulting Services
www.mercer.com
2. Speakers
Su-Yen Wong
Senior Partner and ASEAN Managing
Director, Mercer
Ake Ayawongs
ASEAN Head of M&A Consulting
Services, Mercer
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3. Agenda
1. Background and Context
2. Remuneration trends
3. Benefits practices
4. Staffing issues
5. Expatriate issues
6. Acquiring in Indonesia
7. Conclusion
8. Q&A
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4. 1. Background and Context
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
5. Outlook in the region has improved further
Asia Pacific regional GDP forecast
Regional: GDP Forecasts, % real growth, 2009-2011
2009 2010 2011 (forecast)
20
15
10
5
0
-5
-10
CN IN VN ID AU PH SK NZ SG MY TW TH HK JP US
Source: IMA Asia Pacific Executive Brief, March 2011
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6. Inflation is increasing again
Potential impact on compensation increases
Regional Inflation Forecasts, % CPI
2009 2010 2011 (forecast)
15
13
11
9
7
5
3
1
-1
-3
IN VN ID PH SK NZ AU HK MY SG CN TW TH JP US
Source: IMA Asia Pacific Executive Brief, March 2011
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7. Organizations need to plan on the basis of…
Upward inflationary pressures
– Potential impact on salary growth
– Need to target compensation spending
High fuel prices to continue into the foreseeable future
– Review operating models
– Renew focus on efficiency gains
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8. 2. Remuneration Trends
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
9. Compensation: Basics
Minimum wage
– Varied by province, district, and sector
– Multinational companies tend to have a higher compensation
standard
Frequency of payments
– 13 months; the 13th month is a statutory requirement
– Market practice indicates that employees who work less than a year
receive pro-rated amount of the 13th month salary
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10. Average Industries Salary Increase vs. Inflation
Salary increases continue to outstrip inflation
Current inflation rate is usually considered for budget increase planning in the
following year
Inflation rate All Industries Base Salary Increase
13.1%
10.7% 10.9% 8.4%
13.0% 7.5%
8.2%
6.4% 9.8% 9.2%
4.8% 5.1%
2006 2007 2008 2009 2010 2011
(forecast)
Source: IMA Asia Pacific Executive Brief, Mercer Total Remuneration Survey
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11. Factors Determining Salary Increase
Percentage of companies
Individual Performance 96
Company Performance 81
Inflation 79
Position in Salary Range 72
Job Level 46
26 Market Competitiveness
14 Length of Service
All Industries
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12. Variable Pay Trends (% of Annual Base Salary)
Average Overall
24.00
22.3 22.6 22.2
22.00 21.5
20.00
18.00
(%)
16.00
14.00
12.00
10.00
All Industries
2008 2009 2010 2011 (forecast)
Source: Mercer 2010 Total Remuneration Survey APCBF Report and Preliminary Mercer 2010 Total Remuneration Survey (All Industries)
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13. 3. Benefits Practices
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
14. Benefits: Social Insurance (1 of 2)
JAMSOSTEK (Jaminan Sosial Tenaga Kerja) is a social security
scheme in Indonesia that prescribes the minimum coverage for
retirement, accident, death and health benefits
Implemented in 1993 as a replacement for ASTEK, which in turn had
been in place since 1978
Membership is compulsory for companies with over 10 employees, or
with a monthly payroll of at least IDR 1 million
JAMSOSTEK policies for personal accident, life insurance and old-age
security benefits are compulsory
– But companies can opt out of JAMSOSTEK’s health benefit as long
as they provide an equal or better program
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15. Benefits: Social Insurance (2 of 2)
Employers contribute to JAMSOSTEK’s four elements – occupational
accident, death, health maintenance and old age. The employer’s
contribution rate for occupational accident varies depending on the
company’s industrial risk classification
The contribution rates applied to base salary are as follows:
– 0.24% to 1.74% of the monthly wage for the occupational accidents
plan (depending on the nature of business);
– 5.7% of monthly wage for the old-age saving plan, of which
employees contribute 2.0% and the company contributes 3.7%;
– 0.30% of monthly wage for the death benefits plan; and
– 3% (single) and 6% (married) for the health benefit plan – optional if
the company provides an equal or better plan
Total JAMSOSTEK contribution is in the range of 9.24% - 13.74% of
basic salary
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16. Typical Benefits
% Companies Provide (All Industries)
Health care* 97%
Training & Education 95%
Vehicle benefits 82%
Life Insurance* 57%
ADD* 51%
Travel Insurance 47%
Retirements 46%
Loans 37%
Company products Discount 21%
*On top of statutory requirements
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17. Health Benefits and Insurance
Outpatient Benefits - Clinical
• Typically outpatient covered clinical and dental. The cap including dependants
• If reimbursement is only partially given, then the typical percentage reimbursed is 90%
Inpatient Benefits
• Most of companies provide inpatient benefit for employees and dependants
• Typical inpatient clinical is capped at maximum daily room and board rate
Life Insurance Trends
• 55% of companies provide Life Insurance benefits
• Around 71% of companies who have Life Insurance benefits provide in terms of months’
salaries, on average 23MBS for Executive, Professional Sales, Professional Non-Sales, Para
Professional level and 35MBS for Management level
Accidental Death & Disability (AD&D) Trends
• 42% of companies provide ADD benefits
• Around 69% of companies who have ADD benefits provide in terms of months’ salaries, on
average 34MBS for Executive, Management, Professional Sales level; 33MBS for Professional
Non-Sales level and 37MBS for Para Professional level
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18. Labour Law 13/2003 Service Year (Y) Severance Gratuity
(months) (months)
Severance and Gratuity Pay
Y<1 1 0
Payable to all employees who 1 Y<2 2 0
have been terminated from the 2 Y<3 3 0
company due to the attainment
3 Y<4 4 2
of retirement age and also pre-
retirement age termination 4 Y<5 5 2
– Severance pay is calculated at a 5 Y<6 6 2
base rate of one month’s wages
for each year of service, up to a 6 Y<7 7 3
maximum of nine months pay 7 Y<8 8 3
– Payment for reward of service
8 Y<9 9 3
consists of adding one month’s
pay for every three years of 9 Y < 12 9 4
employment, starting with two
12 Y < 15 9 5
month’s pay for 3 years, up to a
maximum of 10-months wages 15 Y < 18 9 6
for 24 years of service
18 Y < 21 9 7
Fully sponsored by Employer 21 Y < 24 9 8
24 Y 9 10
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19. Employment System: Hiring and Firing
Index: ASEAN Comparison
Country / Difficulty of Rigidity of Difficulty of Rigidity of Firing Costs
Region Hiring Index Hours index Firing Index Employment (Weeks)
Index
East Asia & 20 30 22 24 52
Pacific
Indonesia 61 40 70 57 157
Malaysia 0 0 10 3 74
Singapore 0 0 0 0 4
Philippines 22 60 40 41 90
Thailand 67 40 20 42 47
Source: Doing Business 2004, World Bank
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20. 4. Staffing Issues
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
21. Hiring Intention – Next 12 months
More companies plan to recruit/add headcount in 2010
Percentage of companies (All Industries)
8 3
37
49
60
44
2009 2010
Recruiting/Adding No Change Reducing
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22. Hiring Intentions
Asia Pacific 2010
90 Hiring Intentions - Next 12 Months
Increase headcount (%) No change (%) Reduce headcount (%)
80
70 60%
60
50
40
30
20
10
0
IN CN VN ID KR MY SG TH PH JP TW HK NZ AU
Source: Mercer 2010 Total Remuneration Survey
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24. 5. Expatriate Issues
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
25. Cost of Living – Asia Pacific cities
Cost of Living - Base City Singapore
140
118
120
98 100
94 96 96
100 89
86
76 77 77 78 79
Ranking
80 70
67 67 68
60
40
20
0
Hong Kong
Kuala Lumpur
Shanghai
Wellington
Hanoi
Jakarta
Singapore
Bangkok
Mumbai
Dhaka
Seoul
Taipei
Manila
Sydney
Tokyo
Beijing
Colombo
Source: Mercer Cost of Living Calculator, Mar 2010
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26. Quality of Living – Asia Pacific cities
Sydney 103
Wellington 102
Base City Singapore 100
Tokyo 98
Hong Kong 92
Kuala Lumpur 87
Seoul 85
Taipei 84
Shanghai 79
Bangkok 72
Beijing 72
Manila 68
Jakarta 63
Colombo 62
Mumbai 62
Hanoi 60
Islamabad 50
0 20 40 60 80 100 120
Rank
Source: Mercer Quality of Living Calculator, Mar 2010
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27. Expatriates: Common issues
When executives are relocated from one country to another, companies
need clear, objective information that establishes the quality-of-living
differences between cities
The differences in the quality of living are other important factors that
affect employees’ willingness to relocate
Cost of living has a direct impact on employees’ living standards
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28. 6. Acquiring in Indonesia
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
29. The M&A landscape
A look at some recent examples
What’s driving this activity
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30. Deals in Indonesia have largely been Out-In and In-In transactions and
in the Resource, Financial Services and Consumer Retail sectors
Note: Deal Volume chart includes deals with unannounced deal values, which may not be reflected in the Deal Value chart; Data only for deals with at least 30% stake;
Deals denote either target/seller OR bidder (as opposed to target/seller AND bidder) within each specified geography; by announcement date
Source: MergerMarket; Mercer Analysis
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31. M&A checklist for HR
A summary of key things to keep in mind
SEVERANCE and RETENTION
• Union plans, if any
• Retention plans
• Restructuring costs
COMPENSATION
• Incentive plan cash flows
• At-risk compensation
• High level of benefit costs
RETIREMENT
• Defined benefit plan liabilities and projected costs
• Increasing pension plan governance
HEALTH & BENEFITS
• Retiree medical liabilities and projected costs
• Cost escalation
• Many plans and vendors
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32. Indicative characteristics of Indonesian national culture
Collectivism –
Individualism Collective Individual
Power Distance
Small Large
Time Orientation
Short-term Long-term
Femininity –
Masculinity
Collaboration & Competition & Strength
Consensus
Uncertainty
Avoidance
Uncertainty is a given Uncertainty is
avoided
Source: Hofstede, R. M. (2001). Culture's Consequences: Comparing Values, Behaviours, Institutions and Organizations Across Nations, Thousand Oaks, California: Sage Publications, Mercer Analysis
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33. Key actions and issues – Culture and communication
Culture
– Indonesians tend to obey their leaders without questioning authority
– However, they like to be informed well in advance if there is a change
– In general, seniority is valued and confrontation, especially to those who are older,
should be avoided
Effective Change Communication in M&As
– Communicate culture, history, philosophies, visions, goals, core values, practices
and achievements of the acquiring company to remove uncertainty and give
employees a level of comfort, to understand the effectiveness of both formal and
informal communication channels and utilize these channels, and to treat those
leaving with the same respect and attention as those staying
– English language might be a problem for direct labor level staff. Higher level staff
usually have higher educational levels and English language proficiencies
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34. 7. Conclusion
1 Background and Context
2 Remuneration Trends
3 Benefits Practices
4 Staffing Issues
5 Expatriate Issues
6 Acquiring in Indonesia
7 Conclusion
35. In Summary
Labour costs in Indonesia remain comparatively low
– However, higher salary increases estimated in 2011 as compared to 2010, and getting
closer to pre crisis levels
– With clear signs of economic recovery and organisations starting to hire again, attrition
rates starting to trend upwards
– Inflation could create bigger mismatch between employer/employee expectations
Six in every 10 companies looking to add headcount in the next 12 months
– Employers need to keep pace with market practice in order to attract and retain talent
– Organisations would need to focus on:
Focused talent management, including segmentation
Leadership development
Compelling employee value proposition
Employers will need holistic human capital approach to drive increased productivity.
Expatriate managers can facilitate this process, but employers need to be mindful of cost and
quality of living issues to ensure success
Also need to monitor legislative changes to ensure compliance with the law
Indonesia is a hot market for M&A, with a number of recent deals in the Resource, Financial
Services and Consumer Retail sectors
Attention to communication and culture is critical for success
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37. For more information on regional strategies, risks and opportunities
Visit our Breaking Down Borders
website to access articles, points of
view, podcasts and more information on
investing in Indonesia.
www.mercer.com/breakingdownborders
Su-Yen Wong
Senior Partner and ASEAN Managing Director, Mercer
su-yen.wong@mercer.com
Ake Ayawongs
ASEAN Head of M&A Consulting Services, Mercer
ake.ayawongs@mercer.com
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38. Next in the Breaking Down Borders webcast series
Doing business in Australia
27 April 2011
Access recordings of past webcasts on
www.mercer.com/breakingdownborders
- Doing business in India
- Doing business in Japan
- Doing business in China
- Doing business in Korea
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