A Introductive Remarks

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Figure A-1 Structure of content

A.1  Preface

“A journey of a thousand miles begins with a single step.” (Traditional Chinese proverb)

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“Asia is not going to be civilised after the methods of the West. There is too much Asia, and she is too old, too.” (Kipling 1891)

International integration and globalization trends have increased still further during the two year course of this work. This trend is strengthened owing to accelerated world economic growth on the one hand, and is weakened by fear of terrorism and war, by uncertainty in the Middle East and by escalating raw materials prices, on the other. Today’s interconnectedness, exchange relations and worldwide interdependence, which were scarcely imaginable twenty years ago, nowadays confront companies and company strategists with multifarious problem scenarios. The coalescence of goods and services markets across individual country borders, the diffusion of new technologies and constantly accelerating capital flows lead to an expansion of the intensity and scope of economic cross-border relations between companies, and therefore to intensified competition. Developments and opportunities lead, especially from the cost standpoint, to increasing international competition between economic areas and companies, which demand new solutions.

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The Pacific Rim countries remarkably impress the financial markets due to their tremendous economic dynamism and an attractiveness which is again tempting those investors who withdrew during the 1997-98 financial crisis. Southeast Asia is a decisive growth driver over and beyond the Asia Pacific Rim, and is enjoying considerable economic upturn. Market potential such as that offered by Southeast Asia’s markets cannot fully be exploited long-term merely via exporting strategies. Instead, proximity to local markets will gain in importance to meet satisfactorily an increasing public and private demand for consumer and investment goods. Consequently, enterprises have to expand not only their local presence, but also their local marketing capacities. This commitment is a pre-requisite for a company’s optimum earning power and facilitates increased competitiveness in times of emerging global competitors. In this context, not only the dreaded East Asian conglomerates such as Benq, Samsung, LG, and Toyota are to be considered. Increasingly, companies are confronted with local Southeast Asian rivals, such as the Indonesian Indofood Group1 or Sampoerna2 whose size, influence and adaptability were underestimated for a considerable period of time.

The rapid growth in world trade in the last few years is one of the characteristic ramifications of globalization. Transportation of people and goods to all areas of the world has never before been as fast and cost-effective as it is today. Both causes and effects are, for example, direct investment on the part of overseas companies, creation of multinationals with cross-border supplier connections (global sourcing) and global financial transactions such as crediting and debiting. This economic behaviour is not only inevitably restricted and determined by social, political and economic opportunities, but also above all by the cultural framework which can counteract a commitment abroad. Entrepreneurial presence in global markets is linked to the problems which this work addresses.

Increasing international expansion and penetration of multinationals into evermore foreign and far-flung countries and areas (which, owing to their infrastructure, their political, social and economic conditions have not been taken into consideration till now) more than ever confront companies with new consumer groups, their foreign cultural contexts and their resulting complex peculiarities. International success and cultural understanding (intercultural self-competence3) are two sides of the same coin. It is vital to understand the crucial importance of cultural and social influences, and their range and scope. The present-day “cartoon crisis“4, demonstrating the gulf between sections of the West and the Muslim world, reveals how susceptible companies can be to cultural conflict and which threat these can pose in the worst case scenario. The backlash throughout the Muslim world against a series of Danish cartoons caricaturing the Prophet Muhammad is having a severe impact on prominent Danish businesses. Arla Foods, one of Europe's biggest dairy companies, normally sells products worth US$480 million a year to the Middle East.5 But a boycott of Danish firms across the region has reduced the company's sales there to zero in a matter of days.6 Even in less emotional times, foreign cultures and their effects on markets and consumers demand considerable efforts in order to secure sustainable long-term company success.

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Delaying adaptation to the foreign country’s, such as Indonesia’s context may lead to unsuccessful product launches and advertising campaigns, and thus to uneconomic propositions. In contrast, stringent market evaluation and marketing focused on intercultural compatibility increase the success rate. In fact, very successful global corporate groups, such as Coca-Cola, McDonald’s or Nestlé, have developed a thoroughly local and therefore culturally adapted marketing strategy. In an endeavour to solve the most urgent problems, these global players had to realize the dictates of culture and to assimilate them into their strategies. By looking at the companies’ websites for the respective individual markets the localization demand becomes apparent (Appendix 1, Figure 1-13).

Localized international marketing initiatives ensure sustainable strategic triumphs within the Southeast Asian market sphere where people are proud of national customs, ethnic roots and religious beliefs. The world simply seems to have become more similar, but differences ensure that international marketing continues to be challenging. It is therefore appropriate to reflect on the ever-more crucial role international marketing plays, the dilemma how to balance the need to leverage global strengths with the need to recognize local differences, and how companies reconcile these dilemmas in Indonesia. Unilever’s “Sunsilk Clean and Fresh”, McDonald’s “Ayam Goreng McD”, Heineken’s “Bintang Zero” (Appendix 1, Figure 14-16) are only three of the growing number of product launches where multinational companies (MNCs) show local passion and tap into the roots of indigenous diversity successfully. The success of these products is due to local knowledge and expertise and an appreciation of cultural differences and similarities in Indonesia, alongside a background of culturally adapted marketing strategies. These strategies disabuse all advocates of the irrational imagination of a culturally convergent, homogenous global consumer with the same mindset and attitudes worldwide and also the same needs, wants and preferences. The idea of the existence of a global consumer is and remains a myth, as is shown by this thesis in the Indonesian example. It is these issues that are addressed within this thesis.

Classic international and consumer marketing textbooks generally emphasize world markets and are often cross-border extensions of American marketing thought with no reference to developing and emerging (D&E) markets, such as Indonesia. This work offers a different approach to international marketing based on the recognition of diversity in world markets. The importance of culture is the basic premise which this book will sound and test and that which companies cannot continue to deny. The widened significance of culture in consumer behaviour is hereby considered as a means per se, and also as the ultimate vehicle for the development of an analytical diagram for intercultural marketing within the framework of this research. The impact of culture on consumer behaviour explains the necessity of an integrative analysis of cultural peculiarities when penetrating new markets. The issues of how to develop a marketing strategy, how to win the share-of-wallet-game and the issues of branding in an alien culture are current fundamental questions at a time when the sacrosanct myth of a global consumer (long and fiercely defended by American management gurus) is being dispelled. This work with its strategy of accommodating international marketing in the Indonesian context and transforming it into intercultural marketing offers an approach to addressing these challenges.

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The author invites the reader to undertake an exercise in de-centering and learning more about one specific country, instead of an overly simplistic view of Asian markets and their consumers. This book places special emphasis on the interests and needs of companies which are beginning to develop the Southeast Asian market region. In conclusion, it is to be hoped that the integrative analytical diagram for intercultural marketing, developed during the research underlying this thesis, will be applicable and pertinent outside Indonesia.

Berlin, January 2006

A.2 Technical comments

In this thesis, quotations have been made Harvard style, i.e. publisher, publication date and page reference follow the quotation in parentheses. If the comment refers to the subject of a complete book, then no page references are made. Owing to the length of internet addresses, they have not been reproduced in full in parentheses in the body of the text. Internet addresses with the dates they were called up can be found in the footnotes.

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Prior to the start of the individual sections or chapters, a summary can be found, which is framed. This is designed to indicate that it is a summary which will serve as an overview to the paragraphs to follow.

Summary

Examples from the real world are shaded grey in the entire text to make clear that it is a practical example. In these examples, as opposed to the main body of text, graphics and tables can be found along with pertinent images in an endeavor to make the practical example as vivid and clear as possible.

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Example

Several appendices are added to the thesis and attached in the form of a DVD to this work. In Appendix 1, relevant information which accompanies the comments in the text can be found, largely in the form of frequently commented upon advertisements from Indonesia, Singapore and Malaysia (collected and evaluated during research). The DVD also includes business school case-studies, field research pictures, activity reports, presentations and documents which originated form field research. All figures of this thesis can be found there, too. In Appendix 2 a list of all interviewees can be found (see also appendix at the end of this work) and Appendix 3 presents CVs in German and English as well as all documents required for the submission of this thesis.

Conventions

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This book follows the current conventions of spelling Indonesian names of places and persons as applied since 1972. Exceptions are made only when a person has preferred the traditional spelling, for instance Soeharto.

A.3 Introduction

“Eating a McDonald’s hamburger in Los Angeles never means the same as eating the same thing at the same moment in one of its counter-outlets in Yogyakarta, […] Consumption always makes a social statement […].” (Pinches 1999: 159-160)

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“Lifestyle has become a crucial site for the construction, negotiation and contestation of identity in Indonesia.” (Pinches 1999: 178)

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“International opportunities require careful exploration.” (Czinkota and Ronkainen 2004: 11)

A.3.1  Expanding markets in the Asian century and its challenges

Since the 1990s many western MNCs have been faced with the prospect of overcapacity in their home territories (Griffin and Pustay 2002: 456; Proff 2004: vii; Cravens and Piercy 2004: 21; Kotabe and Helsen 204: 29-33). This has prompted various large corporations to diversify their investment portfolio away from their saturated home markets toward establishing operations in the developing economies of the Asia-Pacific region (Andrews et al. 2003: 2; Keh and Chiang 2004: 1; Stone and McCall 2004: 3; Turpin and Shen 1998: xi). This behaviour is still highly noticeable. Many of these business activities, however, were unable to bring about the expected success. The main reason for these failures is the disregard of cultural diversity. At the beginning of the twenty-first century, it is therefore appropriate to reflect on the companies’ basic assumption of consumers and their behaviour in foreign markets. Companies worldwide are adopting new mindsets, business models and strategies to tap into the tremendous potential of Asian markets, but all too often overlook cultural components, which may influence these commitments. This is because the thesis of a purely economic globalization, predominant in many companies, postulates the emergence of an increasingly globally homogeneously thinking and acting consumer in the course of cultural unification.

This thesis aims to prove the emergence or existence of such a “global consumer” in Indonesia. A particular focus is hereby put on international marketing (the aim and execution of which is to encourage consumers to buy) and on the question of what influence culture could have on international marketing. Though one key fact of the marketing concept is an adaptation to the environment, this adaptation is limited by the majority of companies to legal, economic and political factors, and does not include the study of the target country’s cultural peculiarities. Even though many executives understand the need for such an adaptation in their domestic markets, they often believe that international customers are just like the ones the firm deals with at home. An adaptation of cultural factors could a priori bar the ethnocentric world view predominant in many companies. Likewise, a large part of the literature on international marketing tends to generalize und expects convergence of ideas, demands, needs and preferences of consumers worldwide, too, which gives managers the impression that globalization would lead to cultural homogenization with western overtones. It is precisely this idea, however, that leads to many firms committing grave mistakes. Repeatedly, it is believed that certain brands, like Coca-Cola or Nike, sell around the world virtually unchanged, however, this view is challenged by the perception that attempts to implement marketing standardization measures worldwide or to force a uniform standard upon end-consumers have led to major faux pas.7

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Since it became clear that ethnocentric international marketing strategies of mega-brand companies cannot be implemented worldwide because of cultural heterogeneities, the need to re-examine the question of the role of culture in international marketing and consumer behaviour has become apparent. This work endeavours to analyse the influence of culture on consumer behaviour focusing on Indonesia. Indonesia, a member of ASEAN8, was chosen since it is one of the world’s most populous countries. It is increasingly regarded as one of the economic driving forces of the twenty-first century despite the transformations from miracle to crisis with the Asia Financial Crisis, the war against terror and the SARS outbreak.9 Current data indicates that Indonesia is coming around again as international players make plans for increasing their opportunities in this region.10 With an improved political situation, stable macro economic conditions and rising consumer spending, Indonesia is heading for better times (Basri, presentation December 2004).11 This improvement is followed up closely by business strategists who consider that Indonesia is becoming one of the foremost consumer markets in the future (Far Eastern Economic Review 2003a; TD, interview December 2004; EV, interview December 2004). Companies in the fast moving consumer goods sector (FMCG) envisage the extension of their customer base, whereas developing and emerging markets play a particular role due to their population and increasing prosperity.

A.3.2 Subject and question framework

The objective of this investigation is to examine consumer behaviour in relation to cultural complexities using the example of the Indonesian consumer. It need to be borne in mind that there is no homogenously thinking and acting global consumer from any cultural origin who has the same needs and wants, and who demands the same products and reacts in the same way when he/she watches or reads an ad. Globalisation has not led to a simplification and unification of consumers’ preferences and behaviour. On the contrary, in many places there are more options for consumers than ever before and this has made corporate achievements dauntingly unpredictable. This work investigates to what extent culture impacts on consumer behaviour, and which cultural elements, for example language or religion, particularly influence consumer behaviour in Indonesia. In view of the opinion constantly expressed from the industry that the world is undergoing consumption and cultural homogenization (McDonaldization and Disneyization), this thesis aims to analyse if these assumptions reflect reality. Experience of marketing in Malaysia and Singapore, as well as preliminary observations in Indonesia seemed to indicate the very opposite, i.e. that owing to the large number of products and services available today worldwide, the choice for individual consumers who purchase, interpret and implement respective products in their local context, has increased enormously. This however corresponds rather to heterogenization of consumer behaviour and thus contradicts the assumptions of many business representatives. The proof of these assumptions is carried out on the basis of the following questions which form the framework of this thesis.

How can culture’s influence on consumer behaviour be investigated in a structured and comparative way? How does local culture shape Indonesian consumer behaviour? What are the features of Indonesian consumer behaviour? How do multinational companies (MNCs) and their local counterparts adjust their marketing strategies towards their Indonesian consumer base? Do changes in consumer behaviour occur over the course of time, and if so, which?

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From an academic point of view, this thesis is relevant since it deals with a question (the influence of culture on consumer behaviour) which has been neglected in the area of business studies which is why culture in daily business is assigned too little attention. From the point of view of area studies, and generally from the point of view of research in Indonesia, the thesis is important since Indonesia to date has not been considered from this point of view.

Although studies concerning intercultural communication with the frequently stated aim of improving communication across borders do exist, however investigations under intercultural aspects of the companies’ target groups (the consumers who these companies earn their money with) have not taken place. This confirms the general internal focus of intercultural communication research (mainly dealing with the company) while this thesis concentrates on looking at the market and chances the external view. Furthermore, the studies on Indonesian consumers available to companies are limited to psychographic studies (Table B-2, Figure B-10). These studies, however, scarcely contribute to explaining cultural influence on consumer behaviour. This was also the opinion of the interviewees.

A.3.3 Research framework

In principle, the thesis presented is an interdisciplinary one. It tries to establish a nexus between Southeast Asian studies and business studies using international marketing, the success of which is based on cultural aspects (which are object of investigation of area studies but are dealt with only superficially in business studies). To answer all the works underlying research questions, an analytical diagram (which will be elaborated in detail in Part C) was developed. This analytical diagram incorporates ten value orientations, which influence consumer behaviour. These can be measured in terms of empirical data and can be compared with various other levels of investigation. The analytical diagram, used in interviews during field research in Indonesia, is a construct especially developed for this work. With the aid of the analytical diagram made up of ten orientations which influence consumer behaviour, applied in Indonesia, a picture of the Indonesian consumer was painted, and his behaviour was analysed. The analysis will be completed via presentation of marketing activities, mainly from advertising, which reveal how certain companies adapt to local cultures.

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The initial step in the investigation determined which trend Indonesia could reveal in the individual orientations and which ramifications these facts would have on consumer behaviour. The results of this evaluation and further questions pertaining to consumer behaviour were then presented and discussed in interviews on site in Indonesia. The interviewees were marketing specialists from multinationally operating companies (mostly from general management level) who were invited to interviews in international hotels in Jakarta. Where deemed necessary, results from investigations on Malaysian consumer behaviour (found in the course of my master thesis) were included. Furthermore I attended an INSEAD business school seminar (Marketing of Consumer Goods in Asia) through which I had contact to western as well as to Asian senior managers, who I could question about their experience concerning the impact of culture on consumer behaviour, and to whom I could present and explain the analytical diagram. Since the seminar was intended to sensitise managers to Asian consumer behaviour, I was able to form an impression as to how even INSEAD, one of the top three MBA schools worldwide, deals with the phenomenon of cultural influences on consumer behaviour (here Japanese culture is mostly equated with Asian culture!).

Besides interviews in Indonesia with managers, journalists and employees of organisations such as YKLI (Indonesian Consumer Foundation), thanks to intensive networking I was able to question celebrities from public life and popular on TV such as Ratih Sang, Dewi Motik Pramono and Inneke Koesherawati, who colour consumption via their role model function. Besides interviews, various advertising events were attended in Indonesia, such as the Indonesian Advertising Association’s Power Breakfast. These meetings facilitated mostly informal conversations, which did however lead to important findings relating to localization trends in advertising. The results of the interviews were completed with observations of Indonesian consumers in malls, or modern outlets, and also on traditional markets which were the subject of the first field research in March 2004. The interviews took place in the period from August to December 2004, when the second field research was conducted. In the appendix an overview of the interviewees can be found. The interviews are available in digital format (.dss and .m4p).

A.3.4 Literature

The first serious book on the subject of the cultural aspects of marketing was written by Jean-Claude Usunier in 1997. It was published more than twenty years after the warnings by two other Frenchmen, André Laurent and Michel Crozier, about the limitations of Anglo-Saxon approaches to management and organization theories. Usunier’s book, however, only scratches the surface. His main stance was to compare the differences between cultural systems in which marketing activities unfold. Usunier refers to culture as a factor affecting business, like other socio-political, financial, ecological, and legal factors. Contrastingly, this work understands culture as the context in which sellers (companies) and buyers (consumer) meet. Culture is not just another element in the equation as it is the dominant factor, one that pervades all relationships and behaviours and, importantly, meaning. Culture challenges the fundamental strategy of marketing and is all-pervading. Hence, culture must be considered as the context within which all transactions with stakeholders take place.

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Even in 2006 the number of books dealing scientifically with the influence of culture on consumer behaviour, is very limited. Almost all the works, such as Schütte and Ciarlante (1999) and Leong, Ang and Tan (2001) are from authors from the field of business studies who take culture seriously but do not elaborate on the direct influence of culture on consumer behaviour and as a consequence, on international marketing. Furthermore to date there has been no publication which approaches Indonesian consumers in an interdisciplinary way as does this thesis. This thesis aims to compensate for these shortcomings.

A.3.5 Roots

The original impetus for this paper was triggered by personal project experiences in the Southeast Asian region from 2000 to 2002, when the impact of cultural factors in connection with consumer behaviour and international marketing became clear. Experience and analyses in connection with a product introduction in Malaysia led firstly to the creation of my master thesis entitled “Konturen und Dimensionen eines südostasiatischen Kultur- und Käuferverhaltens” (“Contours and Dimensions of Southeast Asian Culture and Consumer Behaviour“), and secondly to the closer inspection of advertising campaigns conducted by multinationals in Southeast Asian countries. In this context I concentrated on the automobile industry which becomes obvious for example in figures (C-12, 13). Furthermore it became apparent that despite the multitude of surveys researching the influence of culture on intercultural communication, the findings of these studies have not found their way into international marketing. Although many managers are given the opportunity to take advantage of intercultural trainings, the knowledge gleaned is not used for the conception of marketing strategies. The evaluation of these issues led to the following decision: (1) to investigate the influence of culture on consumer behaviour and (2) to use as an example Indonesia which is considered by many companies (such as Nestlé) one the most important markets for fast moving consumer goods.

A.3.6 Structure

This work is subdivided into five parts (A-E). In part A chapters A.5 and A.6 in particular should be drawn attention to. Chapter A.5 offers an introduction to area studies which besides business studies is the starting point of this work. The elaboration on area studies is intentionally dealt with in detail in order to attach importance to for readers unfamiliar with this discipline. The same applies to chapter A.6. It introduces the field of research Indonesia. Content and literature of this chapter will already be familiar to the Indonesia specialist. Part B presents basic theoretical principles of this thesis, which are the theories on globalization and the main features of marketing teachings. Chapters B.4 and B.5 sum up some thousand pages of marketing literature in 35 pages to transfer basic knowledge to readers not familiar with these concepts. Part C, the main part of the thesis, commences with an in depth discussion of the analytical diagram forming the basis of this work and of the structuralist culture models the diagram is based on. In chapter C.2 research results are introduced and in chapter C.3, the evaluation of the former. Part D consists of a case study carried out during the research trip to Indonesia. This case study reflects a current phenomenon: the renaissance of religion and how companies react to this new Zeitgeist. Part E summarizes the results of this thesis. This part is followed by the bibliography and a documentation of the interviews.

A.4  The Landscape: Area and Business Studies

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Summary Since this thesis establishes a nexus between area studies12 and business studies, it is necessary to go into detail on the history, position and state of area studies. The intersection between area studies and business studies is culture, the actual starting point of area studies. It has however been a neglected aspect of business studies which, although not totally repudiating the influence of culture on economic methods, only take culture into account rudimentarily. By considering international marketing and its target group (consumers in Indonesia) from the perspective of area studies, this thesis assumes that culture is to be recognized as a decisive factor in International marketing and its influence for example on consumer behaviour, needs to be investigated.

A.4.1  The starting point

Asian studies as a modern science was first developed by European scholars in the 18th and 19th centuries (Yamamoto 1986).13 The major driving force behind the development was the then expansion of European economic and political powers throughout the world, rendering it necessary for Europeans to understand Asian countries and peoples (Osterhammel 1998: 15-27). Between the 1950s and 1970s, Asian studies in various forms grew and thrived on the campuses of many American universities and colleges where it was first institutionalized (Jervis 2002). The birth of Southeast Asian studies itself can be traced back to the needs of the American military during the last world war (Harootunian and Sakai 1999: 596).

Much has been written on the Western origins of Southeast Asian Studies and the “constructedness” of the object of this field of study, “an externally defined region” (Heryanto 2002: 3). The view of an externally constructed region, i.e. an artificial construct lacking in cultural common ground is, however, polemic. Wolters (1999: 106), for example, who has been active in seeking out sources of cultural unity in Southeast Asia, maintains his focus on Southeast Asia as a region and as a cultural area sharing widespread cultural traits. Besides the criticism that Southeast Asian studies is a subject which is not based on cultural or geographical realities, it is also often criticized for being in general an anachronistic subject in a global epoch.

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Jackson (2003: 1) explains in this context that globalization theorists have questioned the geographical isolation and distinctiveness of the different cultures that area studies sought to understand. In addition, he presents the idea that area studies is now widely considered to be based upon false premises and to be an epistemologically invalid approach to understanding contemporary Asian societies and cultures (ibid: 2). Trouillot (2005: 1) adds that “recent changes associated with globalization are alleged to have exhausted the relevance of area studies”. It is generally argued that this need for justification is a reflection of our times where it is questioned whether in a globalized environment, area studies (Southeast Asian studies in this case), is still relevant (Troillot 2005: 1; McVey 1998: 37-64). Burgess (2004: 122) documents that a number of projects and networks (for example, Pacific Asian Cultural Studies Forum, Project for Critical Asian Studies, Crossing Borders: Revitalizing Area Studies)14 have emerged in recent years that attempt to redefine and revitalize area studies in the context of changing global conditions. Burgess adds (2004: 122): “These initiatives can be seen as responses to academic ‘crisis’ generated by changing global conditions”.

The criticism of the research object, i.e. Southeast Asia, is amplified by criticism of its research approaches, namely that area studies on the whole is suffering from a “theory cringe“. This means that scholars of Southeast Asian studies often look outside the field for major theoretical developments, and see the region as a source of data only. Many Southeast Asian specialists are accused of, and partly rightly so, working in a space devoid of theory. Furthermore, frequently many research works are purely descriptive in character. The reverse however is also true, i.e. that other courses of study, for example political sciences, work with analytical methods developed outside the region, also considering Southeast Asia as a databank without really knowing the culture and languages of the countries they are studying. Therefore they are often unable to develop thorough insights. At this juncture one can especially think of political scientists who discovered the gravitation field of transformational research and who, from the end of the 1990s, devoted their attention towards the then emerging pro-democratization movements in order to put their thesis to the test.

This trio of critical evaluations (eternally constructed study object, anachronistic research field, pre-scientific approach, i.e. devoid of theories and descriptive research methods) of Southeast Asian studies, or area studies in general, continues and leads to a crisis within the field of studies owing to manifold budget-slashing initiatives at university level. Southeast Asian studies has been profoundly affected by financial retrenchment at many colleges and universities, as support for intensive language study, extensive field work, and specialized faculty and library resources has become increasingly scarce (Houben 2004: 87-95). The erosion of traditional funding sources is one reason for the contemporary crisis in area studies, according to Jervis (2002).

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The picture of growth of Southeast Asian studies in particular, and area studies in general, is no longer completely valid (Houben 2004: 87-95). In this sense, the experience of Southeast Asian specialists can be summarized appropriately. In relation to the current continuance of Southeast Asian studies Heryanto (2002: 8) comments that “… Southeast Asian studies in the world’s major centres has experienced difficult conditions due to a series of budget cuts by universities and governments”. The result of this is that the evolution of area studies, Southeast Asian studies in this respect, is at a pivotal point - intellectually, institutionally, and financially - and apparently has to justify itself in times of tighter budgets (Clammer 2000: 47-65; McVey 1998: 37-64).

All this leads to a discussion of a possible, necessary repositioning or renewal of Southeast Asian studies, often considered to be a subject in danger of extinction (Orchideenfach)15 threatened with marginalisation, and in an endeavour to guarantee long term survival in university operation. Reports targeting the crisis of area studies published for example in Australia, argue for the necessity of repositioning and renewing Asian Studies through the deepening, diffusion, and exchange of knowledge in and between government, business, media, non-governmental organizations (NGOs), education and community circles.

Notwithstanding, the importance of area studies remains unshaken for the understanding of the respective area in spite of all criticism. It is a troubling reality that the need for focused interdisciplinary, pluralistic study of different parts of the world has hardly diminished, although disciplinary boundaries are breaking down, the cold war and colonial era are over, and globalization is on the march. It can be argued that the political complexities of the late twenty-first-century world, and the changes brought about by accelerating worldwide trade and communication, make area studies more urgent than ever. This work attempts to draw attention to the importance of area studies in general and Southeast Asian studies in particular, by using an interdisciplinary research approach and an, for internationally operating companies, attractive subject matter, in order didactically to document and contribute to the understanding of this region.

A.4.2 Implementing cultural capital: The call for a more direct dialogue with the corporate world

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Europe’s and particularly Germany’s economic involvement in Southeast Asia have increased significantly over the last two decades. Still there is an imbalance: while it is clear that Germany has substantial and growing interest in Southeast Asia, commitments reflecting this interest are unclear (Houben 2004: 87, 95). Despite the aforementioned realities, the work at hand provides evidence that there is a place for area studies in an era of global culture, international conglomerates, and transnational flows of people, goods, information and capital. Morris-Suzuki (2000: 20) justifies this in the following way: “… area-based projects cannot be replaced by singular, universalizing cultural studies.” Without the kind of interdisciplinary perspective and in-depth knowledge of particular places that area studies fosters, such understanding will not be possible and will provide one of the few institutionalized spaces for interdisciplinary conversation within academia.

Furthermore, there is indication of widening interest in and competence in Asia elsewhere in academia as well as outside the universities and this interest should be addressed in order to promote the importance of area studies and to underline its competencies. Interest in Asia is being expressed, for example, by an increasing number of business schools offering Asia modules in their master of business administration (MBA) curricula, executive programs and seminars on Asian business behaviour and publications offering information about how to do business in Asia.16 Unquestionably, most of these offers are commoditized mass-produced knowledge and blatantly fail or refuse to deal with culture and business in any satisfactory way, as most offerings play a rather hands on service role for the professional communities and often lead to hasty overgeneralizations about Southeast Asia on the basis of vacation experiences. In the course of this thesis the author attended a so-called executive education course in order to form his opinion.17 Thereby the impression was reinforced that cultural aspects in marketing are granted only limited attention. And exactly this leads to the (in the course of this study) frequently indicated problems in practice where culture is namely often the decisive factor for successful marketing and the misrepresentation of this fact leads to failure. But it is precisely this omission (treating culture as a “rubbish bin variable” in business schools' curricula) which offers opportunities for area studies to draw attention to its own competencies.

In this perspective area studies must further ensure that knowledge and understanding of particular places continues to be founded in the serious study of culture, language, and history, while opening up this discipline to new questions, new approaches, and new ways of understanding both history and changes in the contemporary world (Bowen 2000: 3-19; Watson 1997: viii; McVey 1998: 37-64). The important challenge posed today is how to keep Southeast Asian studies “relevant”, as Clammer (2000: 47-65) expresses it. The commitment to rigorous and detailed knowledge that has characterized area studies at its best must not be abandoned, and must indeed be strengthened. For this to occur, it is also clear that some of the basic premises and procedures of the field will have to be rethought.

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The interdisciplinary basis of area studies and discussion about their raison d`être in a globalized world open the opportunity to expand their traditional perspective on that of business and economic studies, for example. A renewed area studies field should strive to make connections among these disparate and typically disconnected fields as for example Hwy-Chang Moon and Donghun Lee did in 2002.18 As the future of area studies and therefore the future of Southeast Asian studies does not lie in the restoration but in the reassessment of its boundaries – so that learning about Southeast Asia becomes as holistic and complete as possible – Southeast Asian studies has to adopt topic areas which are beyond its traditional fields of research. Failure to address this challenge will not mean the end of area studies. However, with an expansion of area studies for example in the direction of business studies (business studies modules could be included in bachelor and master programs focusing on Southeast Asia), Southeast Asian studies could see a revival in the depth and comprehension of their regional focus. Furthermore, and of utmost importance in times of cutbacks and budget slashing initiatives, is the fact that a collaboration between area studies and the economic world can lead, for example, to the acquisition of new capital from company sources. In a time of change in the identity and purpose of donors to area studies programs, it is time to act to tier it to management as a form of cultural capital provider to companies and to tie them up as capital contributors. Interdisciplinary approaches and solutions to area studies can ultimately be much better for companies than those of trained business graduates who travel to a foreign country for three weeks and then think that they know everything concerning one country without having extensive field experience. The interdisciplinary basis of area studies opens the object area for this study and receives an expansion by including business studies.

In closing, it is necessary once again to point out that area study projects remain an essential method for understanding the twenty-first century world. It cannot be denied that patterns of global cultural fusion are becoming visible in some domains. However, distinctive forms of discourse and culture continue to be place-based, bounded, bordered, and marked by spatial discontinuities, even under globalization (Jackson 2003: 3); to prove this can be a key assignment of contemporary Asian studies, as this work shows.

A.5  Indonesia: The complex sphere of marketing - starting points

Summary In order to evaluate whether Indonesia and its consumers would be a viable market and business arena, and to ameliorate the opportunities for an entrepreneurial commitment there, relevant factors must be exposed a priori an investigation of consumer behaviour. It is misleading to assume that consumers are extraneous to their environment and that they are immune to happenings and occurrences around them. These include not only political and economic changes but also transformations in the social domain. An insight into the poly-ethnic and multi-religious social structure of the country will follow a historical synopsis. Without the benefit of this foundation of knowledge, the success of a corporate commitment of any kind seems imprudent. The maxim of this thesis is: “Pay attention to the environment”, which is one of marketers’ favourite slogans. Indeed, marketers should pay attention to and learn about forces that affect consumers’ behaviour. The following observations are deliberately very detailed because they reflect the conditions of an entrepreneurial commitment in Indonesia. Special emphasis is placed on Indonesia’s religious and linguistic variety since these are core constituents of the analysis of cultural influence on consumer behaviour in the main part of this thesis.

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A.5.1  A visual introduction

Selamat datang di Indonesia! 19 Welcome to around 220 million citizens shaping the world’s fourth most populous nation epitomizing a kaleidoscope of cultures and ethnicities. Welcome to the largest Muslim society outlining one of the few democratic states in the Islamic world. Welcome to an emerging economy bouncing back and attracting an increasing number of investors operating in a wide array of industries.

At the start of the new millennium the economic centre of gravitation has shifted back to the Asian continent, where Indonesia is again arresting international financiers’ attention (EV, interview December 2004). In 2005, after a period of economic crisis, forests of asparagus-like towers of steel and glass, luxurious shopping complexes and neo-classical housing estates were again under construction. In August 2003, the Far Eastern Economic Review noted that “Indonesia’s Rich Are Back” (McBeth 2003: 44). We have become familiar with images of well-heeled commuters in endlessly long traffic jams and an emerging middle-class celebrating its lifestyle in the ever growing number of malls and in en vogue restaurants. Growth rates, particularly in retail are captivating. The omnipresent parabolic antennas have become the symbol of success and are set up in even the most remote hamlets. Despite this neon-light-twinkling modernization, extreme contrasts still shape Indonesia. However, social schism is not as striking as in India or the Philippines, and poverty is down again from the crisis highs of the Asia Financial Crisis in 1997, of which Indonesia was a prominent victim.

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Looking for burgeoning business environments, multinational companies (MNCs) are again considering Indonesia. Increasing levels of income and purchasing power along with the very large number of consumers in locations where there has been little penetration constitute an untapped market which too many companies seem to have neglected during their gold-rush in China during the last decade. With the rising confidence of international investors in the newly elected president, Susilo Bambang Yudhoyono, Indonesia might become a hotbed of foreign direct investment (FDI) in Asia. Historic highs on the stock index, double digit sales growth and incredibly optimistic consumers are luring investors back. Indonesia’s most prominent investor is Altria’s Philip Morris International which agreed to buy Sampoerna20 for US$5.2 billion in early 2005.

In the year 2006 Indonesia’s inhabitants have more opportunities for disposing of their income than ever before. Chic malls and apartment high-rises convey the feeling of belief in the future while at the same time historical amnesia – the inevitable by-product of the modernization process – is prominent and surpasses, one suspects, the level of belief in the future in Euro-American societies: the “Now” of mass consumption dominates. All those observers who merely expect impoverished rice farmers will be surprised by the country’s prosperity, even if it continues to be beleaguered by a multitude of disparate problems. The country and its inhabitants are striding out into the future irrespective of occasional setbacks and still unresolved problems, in an endeavour to integrate intensively into the economic world both as manufacturers and consumers. The following sections will introduce Indonesia, its peoples and their history.

A.5.2 Indonesia: An Introduction21

The Republic of Indonesia (Bahasa Indonesia: “Republik Indonesia“) extends in excess of 5,100 km from East to West on both sides of the equator between the Southeast Asian mainland and the Australian continent, thus encompassing a large portion of the Malaysian archipelago (BPS 2004: 5-17). Indonesia is not only the largest country in Southeast Asia with an area of 1.9 million square kilometres, but is five times bigger than Germany. The sprawling largest archipelago in the world consists of more than 18,000 islands, around 6,000 of which are considered to be inhabited. The political and economic centre of Indonesia - its capital city Jakarta - lies in the outer north-westerly Java, which is home to almost two thirds of the Indonesian population despite the fact that the island covers a mere 7 percent of the entire national territory. The population distribution is, on the whole, very disparate (Suryadinata, Arifin and Ananta 2003: 1-30). The average population density is 108 inhabitants per square kilometre rising to over 900 per square kilometre in mid and western Java (BPS 2004: 7). This makes Java one of the most densely populated regions on earth, where about one half of the Indonesian population lives. Indonesia borders Malaysia on the island of Borneo, Papua New Guinea on the island of New Guinea and East Timor on the island of Timor. In addition to the capital city of Jakarta, principal cities of high population include Surabaya, Bandung, Medan, Palembang and Semarang.

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Indonesia is at least nominally the state where the most Muslims live. Of the around 220 million inhabitants, approximately 88 percent count as Muslim. This means that approximately 193 million people belong to the Muslim community of believers. Even though Islam is not the official state religion, and although the constitution does not actually explicitly name Islam as the official religion, in the past it played and today continues to play a central role in the political and socio-cultural dynamics of the country. The first indications of the Islamic influence on the region dates back to the seventh century A.D. and were a result of intensive contact via trading with the Arabic world and what is today known as India. Since that date Islam and Hindu-Buddhism have combined with indigenous beliefs and cultural traditions to colour the identity of Indonesia’s inhabitants (Schumann 1999: 432). Indonesian heterogeneity is reflected above all in Indonesia’s ethnic diversity. The insular state is home to a total of 360 different ethnic groups, 30 of which make up the Malay people, which the Indonesian majority predominantly belongs to. Additionally, linguists have calculated 250 different regional languages. Confronted with this unique variety, Denys Lombard (1999) has described the Malaysian archipelago as a crossroads of civilizations, which due to their ingenuity are able to integrate the differing strands and influences by means of an unchanging cultural core.

Furthermore, after the collapse of the authoritarian Soeharto regime in May 1998, and due to the democratization process, Indonesia could be considered the third most populous democracy in the world. However, even if the first free elections after Soeharto’s fall in 1999 and the recently finished ones of 2004 can be described as rather fair and democratic (some limitations taken into consideration), political trench warfare between different Indonesian societal power holders and their supporters has not stopped. In the conflict over internal political exertion of influence, representatives of the old political elite, reform oriented powers, civil social organizations, the military and last but not least the representatives of the newly reinforced political force of Islam, face each other. On the one hand, by establishing a pluralist party system in recent years, by achieving relative freedom of the press, the official retreat of the military from the parliamentary process, important steps have been taken towards consolidated democracy. On the other hand, the political and administrative arena (since 1999 decentralization has been accomplished, as well as the strengthening of the legislature and judiciary against the executive) in Indonesia continues to be influenced by 30 years of patriarchal structures which developed under the Soeharto regime. Cronyism, corruption and nepotism have been the instruments favouring certain clientele which characterized the state apparatus of the time and which still prevent transparency of political and bureaucratic processes to date (Bourchier and Hadiz 2003: 18-21).

Bambang Susilo Yudhoyono, a retired general, won in the country’s first direct presidential ballot which ended in September 2004. With his western educational background which included numerous military training courses in the USA, he is considered to be open to further democratic reform, and thanks to his former career as a minister in Megawati’s cabinet, he is less obliged to military forces than to civilian ones. Since the national elections in 2004, he has been faced, however, with a parliament strongly characterized by party political fragmentation. Now the individual aspects in this introduction will be elaborated on.

A.5.3 Geographical framework

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Figure A-1 Map of Indonesia

Indonesia’s surface area is divided up into around 18,000 islands of which approximately 6,000 are inhabited (BPS 2004: 5-17). Indonesia extends in a north-south direction from approximately 6° north to 11° south over approximately 1,875 km, in a west-easterly direction, from an easterly longitude of 95° to 141° for more than 5,000 kilometres. North of Indonesia, one of the eleven countries of Southeast Asia, lie Malaysia, Singapore, the Philippines and Palau, and to the west, Papua New Guinea, to the south lie Australia and the Indian Ocean, which forms Indonesia’s border to the west. Towards the Malayan Peninsula with Western Malaysia and Singapore, Indonesia’s border is formed by the Strait of Malacca, and the border to the Philippines’s islands lies in the middle of the Celebes Sea.

The Indonesian archipelago represents one of the most unusual areas in the world, encompassing a major juncture of the Earth’s tectonic plates, the dividing line between two faunal realms, and the meeting point for the peoples and cultures of mainland Asia and Oceania (Bellwood 1997: 8-9; Parnwell 1999: 24), as such making Indonesia a bi-continental country (this ecological boundary has been called the Wallace line after its discoverer). These factors have created a highly diverse environment and society. The major Indonesian islands are characterized by rugged volcanic movements, covered by dense tropical forests, which slope down to coastal plains often covered by thick alluvial swamps and bordered by shallow seas and coral reefs (Bellwood 1997: 11-14). Cultivated land is mainly devoted to rice, which in many areas is grown on mountain terraces or to such cash crops as rubber (Parnwell 1999: 26-27). Because of its insularity, Indonesia has no large rivers comparable to those on the Asian mainland. The seas surrounding Indonesia, however, must also be viewed as a dominant physical feature, having an important effect on climate, transportation and the development of culture. Its location on the edges of tectonic plates, specifically the Pacific, Eurasian, and Australian, means Indonesia’s physical structure is unique and complicated because it involves a complex series of shelves, volcanic mountain chains, and deep-sea trenches. Indonesia is frequently hit by earthquakes (and as in December 2004 by tsunamis). There are some 220 active volcanoes in Indonesia (the greatest concentration [22] is on Java) and many hundreds are considered extinct. Flora and fauna which are tropical differ markedly between Kalimantan, Bali, and western islands on the one hand, and Sulawesi, Lombok, and islands further east on the other. The climate of Indonesia is controlled by its land structure and position astride the Equator, which assure high, even temperatures, and by its location between the two landmasses of Asia and Australia, which strongly influences the monsoonal rainfall patterns. Indonesia’s climate is tropical with a relatively stable temperature of 27°C (BPS 2004: 21-22). The rainfall is mostly triggered by monsoon winds; in the western part of the archipelago precipitation falls all year round, while in the eastern part, the southwest monsoon winds are relatively dry (Parnwell 1999: 29-30).

A.5.4 Population and demographics

A.5.4.1  Population data

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Indonesia, as an archipelago, is characterized by significant disparities in its regional demographic perspectives (Caldwell 1997: 59-67). Indonesia’s population statistics are difficult to estimate. The country’s Central Statistics Bureau (BPS)23 quotes 219.9 million as the population for 2005 (projections based on 2000 census which came upon some obstacles, mainly related to riots [BPS 2004: 49]), while the CIA Fact book estimates are over 240 million24. Suryadinata, Arifin and Ananta (2003: 2-3) state 205 million as the total population for the year 2000. Java is the most populous island in the world (83.7 million in 2000) (Suryadinata, Arifin and Ananta 2003: 12-13; BPS 2004: 64-65) and Jakarta one of the most populous and densely populated metropolitan areas. Jakarta with around 9 million residents (Suryadinata, Arifin and Ananta 2003: 3) is in 11th place internationally behind Shanghai (1), Mumbai (2), Karachi (5), Delhi (6), Manila (7), and Seoul (9) (BPS 2004: 595). The urban agglomeration is much bigger, however, as these figures refer only to the city proper. When it comes to the most populous urban agglomerations, Jakarta comes in 6th place with 18 million people (ibid 2003: 3; BPS 2004: 64), well behind Tokyo (1) and Seoul (4).25 Other cities in Indonesia, such as Yogyakarta (3 million), Surabaya (2.6 million), Medan (2.5 million), Bandung (2.2 million), Ujung Pandang (Makassar) (1.25 million), Denpasar (500,000), and Banjarmasin (450,000) have significantly smaller populations. Provinces with huge population figures outside the main island of Java are North Sumatra with 11.5 million and South Sulawesi with 7.8 million (ibid 2003: 3). The Indonesian population depicts the following age structure: 30 percent are 0-14 years, 20 percent are 15-24 years, 25-20 years 10 percent. Less than 10 percent of the total population is older than 55 years (ibid 2003: 4-5). The huge contingent of persons younger than 24 years (around 50 percent of the total population) makes Indonesia an incredibly young market compared to industrialized nations (ibid 2003: 4-5). The older component of the population is, however, increasing. The life expectancy at birth is 69.75 years and the literacy rate (definition: 15 years or older who can read and write) is 87.9 percent. School age population, according to Susenas 2003 was 75.65 million or about 35 percent of the total population (BPS 2004: 103). In their most recent forecast, the United Nations Populations Division projects that Indonesia will be one of the largest contributors to world population growth until 2050 with an increase of 239 million people and a total population of just below 500 million.

Concerning demographics, there is a wide diversity across Indonesian regions in the fertility rate, mortality rate, life expectancy, and population mobility (both internal and international) (see for example: BPS 2004: 50-51, 103-105, 108-109). There is a striking paradox in population trends: on the one hand, there has been a rapid decline in fertility for over two decades in Indonesia (Indonesia is one of the few developing countries where the Total Fertility Rate (TFR) is below the reproductive level of 2.1 children per woman)26. On the other hand Indonesia has experienced a massive increase of population (Dwiyanto 1997: 292-300). Indonesia’s population has nearly doubled since the 1960s, with a moderately high rate of growth, but there have been significant regional contrasts in this rate (Adioetomo 1997: 232-245; Lubis 1997: 246-255; Dasvarma 1997: 256-263). In Java, for example, population growth has been significantly less than in the outer islands. A sharp decline in fertility rates has also been in progress throughout Indonesia (Lubis 1997: 246-255). The two major factors for this decline have been an increase in the age when people marry and the rapid introduction of birth-control methods (on the topic of family planning in Indonesia, see particularly: Hull: 57-82, in: Niehof and Lubis [eds.] [2003]). Mortality rates have also declined substantially since the 1950s, largely because of improved health care, better dietary and nutrition practices, and improvements in housing and water quality.

Two major migration patterns have become discernible. The first involves the growing flow of people into urban areas, particularly Jakarta, which has resulted in an overall increase in the proportion of the population living in cities (BPS 2005: 50). Temporary, or circular, migration between rural and urban areas in connection with employment has also been common (see for example: Duncan 2005: 47-50; Findeisen 2005: 54-56). The second pattern is of people leaving Java for the outer islands. The central government has facilitated much of this movement (called transmigration - “transmigrasi”) by sponsoring a program of resettling landless Javanese in sparsely populated areas (Vickers 2005: 193; Grabowsky 1999: 63). Urbanization in Indonesia as in the rest of Southeast Asia has been influenced by changing national economies and “the rate of urbanization in Southeast Asia has been growing at a phenomenal rate”, according to Ho (2002: 1). Southeast Asia receives investment inflows, which largely benefit the metropolitan regions that will continue to experience rapid population growth in these areas (Grabowsky 1999: 63-65). The reasons for this are the following. First, drawing on the work of Jones (1991, 1993), the share of primary industry in total output has declined, replaced by a rising manufacturing share that tends to have an urban bias. Second, as a result of globalization of the economic system, the presence of indigenous industry has been supplemented by the inflow of foreign direct investments in search of lower cost production sites and emerging markets. Such inflows increased in the 1980s and 1990s, initially from the U.S., Europe and Japan, and more recently from East Asia (Wie 2002: 203-210). The third reason is a perception of better job opportunities, along with access to urban amenities in health and education, which are the main ingredients for rural-urban migration. As mentioned, industrial development has brought large-scale migration to urban areas – 42 percent of the population lived in cities in 2000, compared with 30.9 percent in 1990 and 22.3 percent in 1980.

A.5.4.2 Ethnic groups

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The Indonesian national motto “Bhinneka tunggal ika” (Unity in diversity), makes reference to the extraordinary diversity of the Indonesian population: there are more than 1,000 different ethnic/sub-ethnic groups (Suryadinata, Arifin, Ananta 2003: 6) and 250 distinct languages, and most of the major world religions are practiced there, in addition to a wide range of indigenous ones. Within this diversity there are certain groupings and concentrations; thus, most of the people are of Malay ancestry, speak languages that have an Austronesian (Malayo-Polynesian) base, and profess Islam (Villiers 2001: 25). The largest of the subgroups comprise of the Javanese, whose language is also the most dominant (Suryadinata, Arifin, Ananta 2003: 13).

According to the 2000 census, the population prorates in the following way: Javanese (41,7 percent), Sundanese (15,4 percent) Malay (3,4 percent), Madurese (3,3 percent), Batak (3,0 percent), Minangkabau (2,7 percent), Betawi (2,5 percent), Buginese (2,5 percent), Bantenese (2,1 percent), Banjarese (1,7 percent), Balinese (1,5 percent), Sasak (1,3 percent), Makassarese (1,0 percent), Cirebon (0,9 percent), and Chinese (0,9 percent) (ibid: 8-9). All other groups display a proportion significantly less than 1 percent of the total population of which Suryadinata, Arifin, Ananta (2003: 7-9) present more than 80 (ethnic groups less than one percent of total population) and document the multi-ethnic composition of the Indonesian society with their figures. This ethnic plurality varies from one province to another (ibid: 14). With the end to the Soeharto rule in 1998 there was also an end to strict social engineering and no public discussion of sectarianism (differences in ethnicity, race and religion were forbidden in the media) (Vickers 2005: 214). This led to the fact that the “pot of difference boiled over” (Vickers 2001: 214) and to feelings which shored up extremist sentiments against different ethnic groups, mainly Sino-Indonesians (subject of jealousy and competition) who are predominantly Christian. Thus, anti-Chinese sentiment blended with wider Christian-Muslim conflicts (see for example: Hefner 2000: 167-213).

A.5.4.3 Languages

Indonesia has more languages than any other country in the Asia-Pacific region, with the exception of the island of Papua New Guinea (Sneddon 2003: 196). Most of the languages spoken in Indonesia have an Austronesian base. The major exceptions are those of Papua and some of the Moluccas, where Papuan languages are used. The Austronesian family is broken into 18 major groups within which languages are closely related though distinctly different. It has much in common with other Malay dialects that have long served as regional lingua francae (Sneddon 2003: 22). The official language of Indonesia is Bahasa Indonesia (“Indonesian language“), a form of Malay, spoken in the Riau-Jambi area of eastern Sumatra, which belongs to the family of Austronesian languages (Nothofer 1999: 74-75). The name for the family, Austronesian, is made up of Greek formatives meaning “southern islands”. Since it is a relatively simple and widely used language that was not associated with one of the dominant ethnic groups, “Bahasa Indonesia” has been accepted without serious question and has served as a strong force of national unification although most Indonesians speak a (local) regional language (“bahasa daerah”) as their first tongue. Only 7 percent of Indonesians speak the Indonesian language as their first language, 90 percent speak one of 350 regional Austronesian languages, and 3 percent speak Mandarin or other Chinese dialects. Bahasa Indonesia is almost universally taught in schools and is spoken by nearly every Indonesian. Reference should be made to the fact that the use of the Indonesian language promises status, as Sneddon (2003: 210) notes:

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“Indonesian is typically used for prestigious activities, and in using Indonesian people acquire prestige, or at least see themselves as doing so.” (Sneddon 2003: 210)

In addition, Indonesian is associated with education and modernity and is the language of Jakarta, where people viewed as powerful, wealthy and attractive, reside. Speaking like such people helps one acquire some of their prestige (Sneddon 2002: 210) and therefore it can be seen as a device for gaining prestige. The term “bahasa gado-gado” (“mixed-up language” - gado-gado being a mixed vegetable dish) is used derisively by Indonesians. The use of English is supposed to add status to the speaker as English is associated with modernity and education.

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The Austronesian regional languages along with the majority of languages in Indonesia are Javanese (75 million speakers in North west Java, central Java and on Madura), Sundanese (27 million speakers in west Java) and Madurese (9 million speakers in east Java and on Madura) (Sneddon 2003: 198). As the largest regional language in Indonesia, Javanese is in no danger of extinction (Sneddon 2003: 210). Between the 1980 and 1990 census, the number of Javanese speakers rose by almost nine million (Sneddon 2003: 210). Owing to the ethnic heterogeneity in the individual provinces of Indonesia, and the resulting multilingualism, advertising should be avoided in regional languages.

A.5.5 Religion

Islam is Indonesia's main religion, with around 88 percent of Indonesians declared Muslim according to the 2000 religious census, making Indonesia the most populous Muslim-majority nation in the world. The Indonesian Central Statistic Bureau (BPS) conducts a census every 10 years. The latest data available, from 2000, indicates that 88.22 percent of the population label themselves Muslim, 5.87 percent Protestant, 3.05 percent Catholic, 1.81 percent Hindu, 0.84 percent Buddhist, and 0.2 percent other, including traditional indigenous religions, other Christian groups, and Jewish (BPS 2004: 106-107). The country's religious composition remains a politically charged issue, however, and some Christians, Hindus, and members of other minority faiths argue that the census underestimated non-Muslims (Suryadinata, Arifin and Ananta 2003: 103-138). In addition, Indonesian beliefs appear to be too complex to classify as belonging to a single world religion, a statement that will become apparent in the course of the text. The Constitution grants "all persons the right to worship according to their own religion or belief" and states, "the nation is based upon belief in one supreme God" (Dahm 1999: 230-231). The Government generally respects these provisions; however, some restrictions exist on certain types of religious activity and on unrecognized religions. The Ministry of Religious Affairs extends official status to five faiths: Islam, Catholicism, Protestantism, Buddhism, and Hinduism. Religious organizations other than the five recognized faiths can register with the Government, but only with the Ministry of Culture and Tourism and only as social organizations. This restricts certain religious activities. Unregistered religious groups cannot rent venues to hold services and must find alternative means to practice their faiths.

A.5.5.1  Indian religions

Before the arrival of the Abrahamic faiths of Christianity and Islam in the Malay Archipelago, the popular beliefs in the region had been thoroughly influenced by Indic religious philosophy through Hinduism and Buddhism (Kulke 1999: 98-111). Both Java and Sumatra were subject to considerable cultural influence from the Indian subcontinent during the first and second millennia of the Common Era (Swearer 2002:119-123; Hiltebeitel 2002: 3-40). Hinduism as well as Buddhism, which share a common historical background and whose membership may even overlap at times, were widely propagated in the Malay archipelago. The influence of India (an “Indianization” of Southeast Asia is referred to) has determined the historical structure of the region to date (Kulke 1999: 98; Gomez 2002: 45). The Indianization occurred gradually and varied in several areas in terms of intensity and duration (Villiers 2001: 44; Gomez 2002: 45; Swearer 2002: 119-123). Nowhere was the indigenous culture completely destroyed, instead they were enriched in most areas (Villiers 2001: 44). Ancient popular indigenous and magical tenets were never completely overtaken by Hinduism, Buddhism or Islam; “adat” or customary law has never been superseded by Hindu or Islamic laws. Instead, they merged (Villiers 2001: 76). Just as with Islam later, Indianization and with it, Hinduism and Buddhism spread through trade (Villiers 2001: 44; Gomez 2002: 45). Hindu ideas followed the traders and merchants’ routes into the Southeast Asian courts. Religious concepts and rituals, Sanskrit, highly developed art forms (for example in Ramayana, epic Hindu literature [expressed in shadow play puppet shows, “wayang“], Mahabharata, Harivamsa and the Puranas) and social and political systems were not only brought by traders, but also through the Brahmanic people (Villiers 2001: 76-77; Hiltebeitel 2002: 5-10), who supported local lords in erecting a monarchical state form (power legitimization) (Villiers 2001: 83; Kulke 1999: 105). In the sixth and seventh centuries, many maritime kingdoms arose in Sumatra and Java, which controlled the waters in the Straits of Malacca and flourished with the increasing sea trade between China and India and beyond (Villiers 2001: 90).

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The appearance of these powerful monarchies, whose heads (kings) were, in the tradition of the Indian constitution, the epitome of earthly gods, (Villiers 2001: 84) had far-reaching implications, which are apparent for example in huge collective projects such as the erection of imposing temples, or evident in the watering and drainage systems (Kulke 1999: 105). Besides the blending of Hindu and Buddhist traditions (for example the Hindu monarchs were considered the embodiment of Vishnu or Shiva and the Buddhists, as the manifestation of Buddha), the Indian caste system was, owing to contact with the indigenous cultures in all of Southeast Asia, not only adapted in a dramatically modified manner in the area of today’s Indonesia.

This recurring phenomenon of emerging modifications in social, political and religious spheres at the conjuncture of indigenous and foreign elements, is described in literature as “selective adaptation”, and can be considered today as a modus procedendi of Southeast Asian cultures. After the appearance of the earliest influences of Indianization, the Buddhist Empire came into being in the 7th century in Sumatra. From the 13th century onwards, the last great Hindu empire, Majapahit, which extended to become one of the first empires on an inter-regional scale, ruled from eastern Java (Kulke 1999: 105).

Although Java was to a large extent converted to Islam during the 15th century and afterwards, substantial elements of Hindu (and pre-Hindu) customs and beliefs persisted among ordinary Javanese. “Agama Hindu Dharma” is the formal name for Hinduism in Indonesia. It is practiced by 93% of the population of Bali, but also in Sumatra, Java (especially by the Tenggerese people on the east), and Kalimantan. About 3% of Indonesian population is officially Hindu. However, as mentioned, Indonesian beliefs are too complex to classify as belonging to a single world religion. Across the archipelago the Hindu legacy, along with the older mystic traditions, still influences popular beliefs. The caste system, although present in form, was never rigidly applied. The epics “Mahabharata” (Great Battle of the Descendants of Bharata) and “Ramayana” (The Travels of Rama), became enduring traditions among most Indonesians, expressed in shadow puppet play (“wayang”) and dance performances (Taylor 2003: 21).

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The Indonesian government has recognized Hinduism as one of the country's five officially sanctioned, monotheistic religions. Partly as a result, followers of various tribal and animist religions have identified themselves as Hindu in order to avoid harassment or pressure to convert to Islam or Christianity. Furthermore, Indonesian nationalists have laid great stress on the achievements of the Majapahit Empire, which helped attract certain Indonesians to Hinduism. These factors have led to a certain resurgence of Hinduism outside of its Balinese stronghold. The distribution of Hindus throughout Indonesia shows that they reside in all provinces but mostly in Bali where 75 percent of the Hindu population lives (Suryadinata, Arifin, Ananta 2003: 120). Central Kalimantan was the second largest Hindu province in 2000 and East Java, the third largest. The Buddhist population is the smallest among the official religions (Suryadinata, Arifin, Ananta 2003: 123). The geographical distribution of this group has changed a lot over time. The majority of Buddhists used to live in Java, where in 1971 55 percent of all Buddhists still lived (Suryadinata, Arifin, Ananta 2003: 128). However, by 2000 this figure had dropped to 37 percent. Today North Sumatra and Jakarta are provinces with the largest number of Buddhists, and west Kalimantan is the province with the most rapid increase (14 percent annually) in the Buddhist population (Suryadinata, Arifin, Ananta 2003: 128).

A.5.5.2 Islam

Islam arrived in Southeast Asia and in doing so, Indonesia too in the same way that India’s religions did, i.e. via trading (Bellwood 1997: 139; Reid 1993a: 151-152; Johns 2002: 169). Even though at the outset there were no conversion attempts, from the end of the 13th century onwards the first Muslim states had begun to emerge and in the late 16th century the majority of today’s Indonesia and the Malaysian peninsula had converted to Islam (Damais 1990: 353-415; Woodward 1989: 53; Reid 1993b: 132). In Malacca, converted Javanese traders and soldiers brought Islam to Java in the 15th century (Villiers 2001: 270). The penetration of Java through Islam took place in very different ways (Headley 2004: 210-212). First, it was disseminated from harbour to harbour, along the coast, and then it penetrated the mainland (Ricklefs 1974: 2; Dale 1980: 27; Johns 2002: 178-180). However, Islam did not extinguish pre-Islamic beliefs, rather the multitudinousness of landscapes of religions increased (For a systematic and original history of Islam in Java, see the excellent work of Headley [2004] “Durga’s Mosque - Cosmology, Conversion and Community in Central Javanese Islam”).

With the syncretism of new religions with Indian culture, the Javanese proved to be very experienced and thus “wayang” (Geertz 1964: 261-267), “gamelan” (ibid: 278-280) and “keris” were maintained irrespective of whether or not they were in accord with Islamic belief. “Wayang” (shadow play) in particular was passed down to the new apprentices, in order to create a new way of spreading Islam among the people (Johns 2002: 185-186; Headley 2004: 409-413). Even if Islam frowned upon the worship of Javanese deities, “wali” (holy men), they were nonetheless worshipped and their graves became pilgrimage destinations (Taylor 2003: 71). In the majority of Java, the conversion to Islam made very little change necessary to handed down customs and rituals in real terms (Woodward 1989: 1-4). Devout orthodox religion only reached the trading classes and partly the courts. It took until the 19th century for Islam to become a widespread and popular religion (Johns 2002: 178-179; Villiers 2001: 272). In Java in particular, a substantial number of Muslims follow a non-orthodox, Hindu-influenced form of Islam known as “abangan” (Geertz 1964: 309-338), while across the archipelago the Hindu legacy, along with the older mystic traditions, influence popular beliefs (Geertz 1964: 121-130, 227-260). Woodward (1989: 17) remarks in this respect:

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“Java is exceptional in the Islamic world not because it has retained pre-Islamic ideas but because of the indigenous and artful ways in which such a large body of Hindu and Buddhist tradition has been so thoroughly islamisized.” (Woodward 1989: 17)

To a significant degree, the striking variations in the practice and interpretation of Islam (in a much less austere form than that practiced in the Middle East) reflect its complex history (Federspiel 2001: 5). As a result, many Indonesian "Muslims" are non-practicing, follow Indonesia's indigenous (animist) traditions (a fact that the government vehemently denies), or are entirely secular. Introduced piecemeal by various traders and wandering mystics from India, Islam probably came to these regions in the form of mystical Sufi tradition. Sufism easily gained local acceptance and became synthesized with local customs. Unlike coastal Sumatra, where Islam was adopted by the elite and masses alike, partly as a way to counter the economic and political power of the Hindu-Buddhist kingdoms, in the interior of Java the elite only gradually accepted Islam, and then only as a formal legal and religious context for Javanese spiritual culture (Geertz 1964: 121-139, 215-225, 227-260, 309-338). These historical processes gave rise to enduring tensions between orthodox Muslims and more syncretistic, locally based religions (tensions that are still visible today). On Java, for instance, this tension is expressed in a contrast between the traditionalist “santri” and “abangan”, an indigenous blend of native and Hindu-Buddhist beliefs with Islamic practices sometimes also called “Javanism”, “kejawen”, “agama Jawa”, or “kebatinan” (Schumann 1999: 440). On Java “santri” is not only referred to a person who is consciously and exclusively Muslim, but also describes persons who remove themselves from the secular world to concentrate on devotional activities in Islamic schools called “pesantren”, literally the place of the “santri”. In contrast to the Mecca-oriented philosophy of most “santri”, the current of “kebatinan”, which is an amalgam of indigenous, Hindu-Buddhist, and Islamic (especially Sufi) beliefs can be found. This loosely organized current of thought and practice, was legitimized in the 1945 constitution and, in 1973, when it was recognized as one of the “agama” (religions). President Soeharto counted himself as one of its adherents. “Kebatinan" is generally characterized as mystical, and some varieties are concerned with spiritual self-control. Although there are many varieties circulating, “kebatinan” often implies pantheistic worship because it encourages sacrifices and devotions to local and ancestral spirits (Headley 2004: 255-258). These spirits are believed to inhabit natural objects, human beings, artefacts, and gravesites of important “wali” (Muslim saints). Illness and other misfortunes are traced to such spirits, and if sacrifices or pilgrimages fail to placate angry deities, the advice of a “dukun” or healer is sought.

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Another important tension dividing Indonesian Muslims is the conflict between traditionalism and modernism (Barton 2001: 244-255). The nature of these differences is complex, confusing, and a matter of considerable debate, but traditionalists generally reject the modernists' interest in absorbing educational and organizational principles from the West. Specifically, traditionalists are suspicious of modernists' support of the urban “madrasa”, a reformist school that included the teaching of secular topics. The modernists' goal of taking Islam out of the “pesantren” and taking it to the people is opposed by the traditionalists because it threatens to undermine the authority of the “kyai” (religious leaders). Traditionalists also try, unsuccessfully, to add a clause to the first tenet of the Pancasila state ideology requiring that, in effect, all Muslims adhere to the “sharia”. On the other hand, modernists accuse traditionalists of escapist unrealism in the face of change; some even hint that “santri” harbours greater loyalty towards the “ummah” (congregation of believers) of Islam than to the secular Indonesian state.

Most Muslims in Indonesia are Sunni, although some follow other branches of Islam, including the Shiite, who number approximately 100,000 nationwide. One can say that the deepening of Islam in Indonesia might be regarded as still taking place, deepening with each succeeding generation. In following this viewpoint it can be asserted that over the past four hundred years Muslims in the region slowly altered their perceptions of Islam, since the heterodox religious trends of the early period have slowed momentum, and more standard Sunni Islamic practices and patterns have slowly gained in importance (Federspiel 2001: 5). In general, the mainstream Muslim community belongs to two of the above-explained orientations: the "modernists," who closely adhere to scriptural orthodox theology while embracing modern learning and modern concepts; and predominantly Javanese "traditionalists," who are often followers of charismatic religious scholars and organized around Islamic boarding schools.

Despite its overwhelming Muslim majority, the country is not an Islamic state. Over the past 50 years, many Islamic groups have sought sporadically to establish an Islamic state, but the country's mainstream Muslim community, including influential social organizations such as Muhammadiyah (on the Muhammadiyah, see for example: Johns 2002: 175-177) and Nahdatul Ulama (NU), reject the idea. Proponents of an Islamic state argued unsuccessfully in 1945 and throughout the parliamentary democracy period of the 1950s for the inclusion of language (the "Jakarta Charter") in the Constitution's preamble making it obligatory for Muslims to follow sharia. During the Soeharto regime, the Government prohibited all advocacy of an Islamic state. With the loosening of restrictions on freedom of speech and religion that followed the fall of Soeharto in 1998, proponents of the "Jakarta Charter" resumed advocacy efforts. The re-Islamization of Indonesia, evident since the beginning of the 1990’s, will be further elaborated on in Part D of this work (for example, see also: Hefner 2000: 128-166). Proposals to amend the constitution to include sharia were however rejected (for example see: Salim and Azra [2003]: 1-16; Azra 2004: 133-149; Hooker 2003: 33-47; Hooker 2004: 199-220; Mawardi 2003: 125-147). As indicated, Islam is the dominant religion in Indonesia with more than 177 million followers (Suryadinata, Arifin and Ananta 2003: 106). The concentration of Muslims in each province ranges widely from over 97 percent to less than 10 percent in 2000. The highest concentration of Muslims was found in Gorontalo (98 percent) and the lowest, in East Nusa Tenggara (8 percent). There are 15 provinces in Indonesia with a concentration of the Muslim population of more than 90 percent. The five biggest are West Java, Central Java, Yogyakarta, East Java and Banten. Particularly, West Kalimantan, Central Kalimantan and East Kalimantan have seen increases of more than 10 percent in Muslim population between 1971 and 2000 (Suryadinata, Arifin, Ananta 2003: 112).

A.5.5.3 Christian religions

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From the 16th century on, the Christian faith reached the region first as Catholicism and then as Protestantism. This often occurred in connection with economic and political expansion of western powers (Wendt 1999: 454; Reid 1993: 132-133). A typical characteristic of the Southeast Asian population, and with it, of Indonesia’s population, is to integrate and assimilate foreign cultural elements into the tapestry of its own traditions (Bellwood 1997: 5). This characteristic did not stop at Christianity either and gave Christianity its own local character over time. The Catholics on the Indonesian archipelago proselytized by the Portuguese were converted to Protestantism by the “Vereenigde Oostindische Compagnie” (VOC - United East India Company) and a protestant community formed in Batavia. However, the Dutch traders were disinterested in the actual mission (Wendt 1999: 462). Only in the 19th century were protestant missionaries able to spread Christianity on a larger scale. Christianity was spread mostly among the minorities, for example, the Batak in central Sumatra, where Christianity continues to be strongly rooted today (Suryadinata, Arifin, Ananta 2003: 114). The highest concentration of Christians in 2000 (87 percent) is found in East Nusa Tenggara, followed by Papua (75 percent) and North Sulawesi (69 percent).

A.5.6 Social consequence of ethnic and religious pluralism in Indonesia

Without wanting to go into depth on stratum or class differences in Indonesian society, with the illustration of its ethnic, linguistic and religious composite, a portrait of Indonesian society can be painted which demonstrates readily perceptible and potentially unstable dividing lines. The ethnic heterogeneity of the Indonesian population and the population’s irregular profile concerning employment structure and wealth distribution, which, in contrast to Malaysia, was less influenced by colonial economic and immigration policies, is still apparent. Furnivall (1939: 446) describes the Indonesian conglomerate society as a “plural society”. Cribb and Brown (1995: 65) consider Furnivall’s study to be a “classic study of colonial Indonesia”, and to date it has not lost any of its relevance. Furnivall (1939: 446) defines a plural society as follows: “a plural society; [is] a society, that is, comprising two or more elements or social orders which live side by side, yet without mingling, in one political unit”. Furnivall (1945: 167-168) continues:

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“It is this plural society that I suggest is characteristic of the modern tropics. One finds there a society in which two or more groups live side by side but separately within the same political unit. All the members of all the groups are subject alike to the economic process of natural selection by the survival of the cheapest, and all respond in greater or less degree to the economic motive, the desire for individual material advantage. But that is all they have in common. Each group holds by its own religion, its own culture and its own ideas and ways of life; the members of each group mix with those of other groups only in the market place, in buying and selling.” (Furnivall 1945: 167-168)

According to this, Furnivall considers certain Southeast Asian societies in genere to be less homogenous than their western counterparts since several ethnic groups coexist there in one country but inter-ethnic connections are only ascertainable to a limited extent. In a post-war article, Furnivall asserted that “in the plural society of Southeast Asia the racial groups (European, Indian, Chinese and Native) inherit different traditions; they differ in religious profession, in literature, music, art and way of life” (Furnivall 1946: 124). Furnivall’s authority as a historian of Southeast Asia, and specifically of colonial Indonesia, was and still is given great deference. However, Furnivall’s concept of “plural society” has had a mixed reception in scholarly circles. Some have applied it (and in some cases extended its application) to other parts of the world (Smith 1965; Kuper and Smith 1969; Kuper 1974). Others have found the concept useful but prefer to speak of a “segmented society” or “segmentation” (Hoetink 1967; Nicholls 1974). The concept has evoked a wide range of criticism, in particular criticism of the claims made by Furnivall and his followers, which may conveniently be consulted (Rex 1959; Rubin 1960; Muijzenberg 1965; Hollander et al. 1966; Kupper and Smith 1969; Rex 1970; Cross 1971).27 The only scholars to question Furnivall’s characterization of Netherlands’ India as a “plural society” were the Dutch (Wertheim 1964; Muijzenberg 1965 and 1966; Wertheim 1968; Doorn 1983). In a contribution to the “International Encyclopaedia of the Social Sciences”, Wertheim (1968: 433) criticized Furnivall’s use of the concept of “plural society” in the Indonesian context. He refuted Furnivall’s denial of social and cultural contacts among the different racial groups by pointing to a “creolization process” in the colony, so that “in many cases the offspring of the immigrant groups (Europeans and Chinese) even adopted the native language” (ibid: 433). Despite the phenomenon of the highly acculturated peranakan Chinese of Java, who were living disproof of Furnivall’s assertion that the Chinese group held by “its own religion, its own culture and language, its own ideas and ways” (Furnivall 1948: 304), is still relevant as a model with insight into Indonesian society, even if under partly changed conditions. The present work re-examines Furnivall’s characterization of Indonesia as a “plural society” paying particular attention to effects on consumer behaviour and marketing which need to take these sharp lines between different population groups into account. The intra-societal difficulty previously pointed out, i.e. the schism, will be presented in the author’s version of a schematic representation.

Heidhues’ (1974: 18) idea of a simplified model based on the pyramid model, has deliberately been avoided, as this idea counteracts Furnivall’s model and statements, since Heidhues equates class with ethnicity (“class synonymous with race“), a fact that does not reflect today’s Indonesian social realities. According to Heidhues, Furnivall’s plural society model can be “simplified” to look like a pyramid consisting of three layers: Her “simplification” discovers a hierarchy among the races in Furnivall’s writing which others, including Wertheim, have criticized him for neglecting, but which do not, at least today, exist. The figure below shows the author’s representation to demonstrate the intra-societal complexities (intra-gesellschaftliche Problemlagen). The segregational fields are depicted in the four squares, while determining, invariable problems are shown in bold face. Ethnic group belonging (suku) is of paramount importance. It determines mostly religious pertaining (agama), language (bahasa), and to an extent class division (kelas), whereas economic disparities are less ethnically determined than, for example, in Malaysia.

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Figure A-2 Intra-societal complexities (“intra-gesellschaftliche Problemlagen“) – SABE-Model

The disadvantage of Furnivall’s concept, i.e. its static means of observation, is overcome in the model depicted above, by virtue of the fact that within one ethnic group there can be divisions from economic viewpoints, for example, between different social strata. These observations lead to the division of the population into certain target groups (for example for sales approach) being more complicated than in very ethnically homogenous countries, or in countries where there are a number of minorities geared to the leading culture (as is the case in the USA) and where assimilation of the dominant culture is only a question of time. Religious and ethnic resentment along with differences between urban and rural life spaces, continue to be precarious and have deteriorated with the fall of the Soeharto’s regime, which ruled by suppression and stigmatization of ethnic conflicts. The characterization of Indonesian society as plural is still evident today and even more so the more cultural freedom comes with democratization processes. Today, the cultural divisions seem to be rather enforced (although Indonesia went through decades of strong assimilation policies). Therefore overcoming these intra-societal complexities is scarcely imaginable in the foreseeable future, and therefore must be taken into consideration in marketing strategies.

Consequentially, marketing and sales managers must generate a strategy for how a highly heterogeneous market, in this case Indonesia, is to be penetrated. In times of re-emergence of religious and cultural values and searches for identity, advertising and sales messages need to encounter different ethnicities. The case-study (Part D) will present in depth a strategy from the point of view of an ethnic specific marketing strategy.

A.5.7 History

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Indonesia has seen unprecedented turmoil in recent years, facing first the Asian financial crisis, then the fall of President Soeharto after 32 years in office (Wanandi 2003: 17-27), the first free elections since the 1960s (Ellis 2003: 53-72; Mietzner 2000: 39-57), the loss of East Timor (Lowry 2000: 91-108), independence demands from restive provinces (Nursalim 2003: 100-120), and bloody inter-ethnic and religious conflict. The financial crisis of 1997-98f (krisis moneter – “krismon“), developed into a multi-dimensional crisis (krisis total – “kristal“), which further exacerbated the economic situation (Manning and van Diermen 2000: 1-14). Additionally, Indonesia was the target of terrorist organizations (Jones 2004: 23-38) and was afflicted by a devastating tsunami disaster.

A.5.7.1  Pre-Colonial Times

As stated beforehand, the Indonesian archipelago stretches for more than 3,000 miles east to west and is the largest island complex in the world (BPS 2004: 3-4). The sea surrounding Indonesia has inevitably influenced Indonesian history (Ptak 1998: 21-38; Furnivall 1944: 20-53; Ptak 1999: 89-106; Bellwood 1997: 137; Hall 1985: 26-47, 232-260; Reid 1993: 1-19; Chaudhuri 1985: 9-33; Reid 1996: 15-50; Ray 1994: 48-86; Tuck 1998: 144-336; Chauduri 1965: 3-18; Coedès 1968: 19-21; Boxer 1985: VI 3-17; Bulbeck et al. 1998: 17-178; Kearney 2004: 1-10, 57-76; Rony and Wiarda 1977: 36-44; Arasaratnam 1995: III, 42-53, IV 480-490; Wheeler 1965: 122-175; Villiers 2001: 15-16). Monsoon winds blowing north and south of the equator have facilitated communication and commerce within the archipelago and with the rest of maritime Asia (Parnwell 1999: 29). Reid (1993: 1) notes: “Commerce has always been vital to Southeast Asia.” Easy overseas communication did not, however, result in the formation of territorially large kingdoms (Hall 1985: 78-102). The many estuaries of Sumatra and Borneo, facing the inland seas, possessed an abundance of nutritious seafood that facilitated a settled mode of life, and the contacts between the people of one estuary and their neighbours were more important to them than those they could make with overseas lands (Coedès 1967: 1-33). Indonesian maritime history is the story of the efforts of local groups, endowed with more or less comparable resources, to protect their separate identities. Records of foreign trade, however, begin only in the early centuries AD. A study of the Roman historian Pliny the Elder’s “Natural History” suggests that, in the 1st century AD, Indonesian outriggers were engaged in trade with the east coast of Africa (Indonesian settlements may have existed at that time in Madagascar, an island with distinctively Indonesian cultural traits) (Höllmann 1999: 34). Regular voyages between Indonesia and China did not begin before the 5th century AD (Villiers 1999: 89-97; Villiers 2001: 78-82). Chinese literature in the 5th and 6th centuries refers to western Indonesian tree produce (Taylor 2003: 23). During this time, small estuary kingdoms were beginning to prosper as international entrepôts (Andaya and Andaya 1982: 20-31; Hall 1968: 41-64; Hall 1985: 78-102; Wolters 1967). Under the influences of Hinduism and Buddhism, several kingdoms formed on the islands of Sumatra and Java from the 7th until the 14th century. During this time economic growth created by trade affected the regions of both the Malaccan Strait and the Java Sea (Houben 2002: 37-39)

The cultural effects of these commercial exchanges, usually described as “Hinduization”, or “Indianization” have been discussed for many years (Coedès 1967: 50-70; Marr and Milner 1986: 3-22; Mabbet 1977: 1-13, 143-161). It is now held that Hinduism was brought to Indonesia not only by traders, but also by Brahmans, who attempted to accustom the population to feudal structures by means of clever tactics, i.e. through shadow plays (“wayang“) in Java recounting Indian epics (with their multitude of queens and princesses), and besides, saw that their rulers were worshipped like gods in their palaces which were to represent the “centre of the universe” (Dahm 2002: 1; Headley 2004: 10-18). Sanskrit inscriptions, attributed to the 5th and 6th centuries, have been found in Kalimantan, a considerable distance form the international trade route and also in western Java (Villiers 2001: 94). They reveal that Indian literati, or their Indonesian disciples, were honoured in some royal courts (Taylor 2003: 27-59). The rulers were prominent “rakas”, heads of groups of villages in areas where irrigation and other needs had brought inter-village relationships and supra-village authority into being, and inscriptions indicate that some rulers were seeking to extend their influence (Kulke 1990: 172; Hall 1985: 111). Eastern Javanese inscriptions throw little light on happenings before the 10th century, but the evidence from south-central Java, and especially the Kedu Plain in the 8th and 9th centuries, is more abundant (Villiers 2001: 46-63). This period in central Java is associated with the Sailendra princes who were of Indonesian origin and not, as once suspected, from mainland Southeast Asia (Taylor 2003: 36-39). The last indianized kingdom in eastern Java was Majapahit which ruled much of the southern Malay Peninsula, Borneo, Sumatra, Bali, and the Philippines from about 1293 to around 1500 (Hall 1985: 232-260; Hall 1968: 79-93; Steinberg 1987: 83-90). Its greatest ruler was “Hayam Wuruk”, whose reign from 1350 to 1389 marked the empire's peak (Villers 2001: 112). Dates for the end of the Majapahit Empire range from 1478 to 1520 when Majapahit found itself unable to control the rising power of the Sultanate of Malacca (Villiers 2001: 265). Due to the unification of power and territorial supremacy over vast areas of the Indonesian archipelago, Indonesian nationalists of the 1920s and 1930s made use of the historical memory of the Majapahit Empire as evidence that the peoples of the archipelago had once been united under a single government, and so could be again, in modern Indonesia (Case 2002: 210).

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The fall of the Majapahit empire was linked to the Islamization of today’s Indonesia, since the fall of Sumatra’s harbours and the rapid rise of Malacca during the 15th century had important repercussions not only for the spread of Islam but also for the entire equilibrium of powers in Southeast Asia (Ricklefs 1993: 3-13; Schumann 1999: 434-440; see also Pigeaud 1976). Foreign Muslims had traded in Indonesia and China for many centuries and a Muslim tombstone in eastern Java bears a date corresponding to 1082 (Villiers 2001: 258-262). But substantial evidence of Islam in Indonesia begins only in northern Sumatra at the end of the 13th century (Villiers 2001: 270-273). By the 13th century, in the absence of a strong and stable entrepôt in western Indonesia, foreign traders were drawn to harbours on the northern Sumatran shores. The establishment of the first Muslim centres in Indonesia was probably due to commercial circumstances. It was obvious that the coastal states of northern Sumatra and the Malaysian peninsula were the first to be submitted to Islamic influence, since one of the most significant trading routes in Southeast Asian ran through the Strait of Malacca (Villiers 2001: 260). By the 15th century the beachheads of Islam in Indonesia had multiplied with the emergence of several harbour kingdoms (ruled by local Muslim princes) and by 1526, the majority of Javanese rulers had converted to Islam (Villiers 2001: 282). The rise of Muslim Malacca led to the previously mentioned changes in Java (Villiers 2001: 265-270), as well as to the fall of Malacca to the Portuguese in 1511, often taken as a turning point in Indonesian history.

A.5.7.2 Colonial times

Over the next century Portuguese efforts were to be directed to securing control of the trade in the Spice Islands (Taylor 2003: 131-132). The Portuguese conquests were accompanied everywhere by missionary work, but this had limited success not only because of Portuguese brutality to the indigenous people (Villiers 2001: 276-280). After almost a century of Portuguese dominance, the Dutch conquered as colonial rulers. In 1602 the Dutch East India Company (Vereenigde Oostindische Compagnie [VOC]) received its charter and began to establish its own commercial monopoly (liquidated in 1799) (van Goor 1999: 149-155; Taylor 2003: 149). The company, the first multinational company so to speak, laid the foundation of the Dutch commercial empire and became the paramount power of the archipelago (on the history of the VOC, see for example: Beelen [2002]). The gradual commercial expansion of European powers from the 15th to the 18th century is generally called an “Age of Commerce” (Reid 1990, 1993, 1995, 2000). The Dutch did not arrive with religious demands for conversion or in order to expand their territory: they were first and foremost interested in trade (Villiers 2001: 285-288). They became, however, involved in inner Javanese conflicts from which they emerged triumphant (van Goor 1999: 153, 155, 158).

Netherlands’ India was one of the first Dutch colonies and with the help of its raw materials, the colonial power became affluent. Batavia (founded on the ruins of Jayakarta in 1619), what is known today as Jakarta, quickly became a powerful metropolis (van Goor 1999: 153). In 1830 the Dutch government revised its colonial policy thoroughly, in which they introduced among other things, the “cultivation system” (“cultuurstelsel”), which was to make Java a profitable colony (Dahm 1999: 173-174; Steinberg 1987: 156-158). This system was based on the demand that the whole country was to be considered property of the colonial ruler, and farmers in return for using the land, had to use a fifth of the land for the cultivation of produce deemed suitable for export by the government (Steinberg 1987: 157). The results of this system were different, and it even led to famine and social stagnation, which led to the abolition of the system in 1870 (van Goor 1999: 159-160). From 1908 onwards, the Netherlands extended their realm of power from Java to the whole Indonesian archipelago. Only the province Aceh in the north of Sumatra, managed to resist, but was eventually conquered, too, after a 30-year war (Dahm 1999: 168; van Goor 1999: 159). The Dutch gradually consolidated their hold on the area over two centuries, eventually uniting the archipelago in around 1900 (Steinberg 1987: 292-311). The territorial extent of the Republic of Indonesia is today defined principally by the boundaries of the former Dutch colonial empire in Southeast Asia. The territories now comprising the country had never constituted a single political entity before the establishment of Dutch colonial rule, and their pre-colonial history was marked by the rise and fall of a number of important empires and kingdoms (Taylor 2003: 1-4).

A.5.7.3 On the way to independence

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It was only in the 19th century, that Indonesian societies which had experienced considerable pressure from Europeans were submerged by Western influences (Dahm 1999: 173; van Goor 1999: 165). Colonial developments led to changes in Indonesian society. The growing cities became the home of a new urban way of life and stimulated social change (Steinberg 1987: 301-302). A new elite emerged under the influence of the expanding Western impact. So did a new class of unskilled and semiskilled workers who found employment as domestic servants or as labourers in the light industries that began to develop. These transformations led to the growth of a confident indigenous middle class, which was unwilling to stand for any sign of racist discrimination or inequality from a foreign ruler (Steinberg 1987: 301-302). The beginning of the protest is signalized by two movements which have to be described as proto-nationalistic. On the one hand, the “ratu-adil“-movements (the population hoped for the appearance of a messianic “ratu adil” [fair ruler] who would restore the golden age promised in the Indian concept of the cyclical nature of life). On the other hand, there were the “tarekat” (Islamic brotherhoods), initiatives serving Islamic interests (Dahm 1999: 174-175). This Indonesian nationalism in the 20th century must also be distinguished from earlier movements of protests: the “Padri War”, the “Java War”, and the many smaller examples of sporadic agrarian unrest had been pre-nationalistic movements, the products of local grievances. By contrast, the nationalism of the early 20th century was the product of the new imperialism and was part of wider currents of unrest affecting many parts of Africa and Asia (Dahm 1999: 168-202). In Indonesia nationalism was concerned not merely with resistance to Dutch rule but with new perceptions of nationhood, embracing ethnic diversity of the archipelago and looking to the restructuring of traditional patterns of authority in order to enable the creation of Indonesia as a modern state (Vickers 2005: 73-79). By the end of World War I, there were thus a variety of organizations in existence. One of those organizations was the “General Study Club”, founded in 1926 in Bandung, with Sukarno, the later first president of Indonesia as its secretary. He established the “Partai Nasional Indonesia” (PNI) (National Party of Indonesia) in 1927 (Dahm 1999: 184) and made an effort to create a national movement. Upon the end of Japan’s wartime occupation, independence was proclaimed by Sukarno in 1945. The Dutch formally transferred sovereignty in 1949, after a period of armed struggle (Dahm 1999: 229).

A.5.7.4 Sukarno

Criticizing Western liberal democracy as unsuited to Indonesian circumstances, Sukarno (a standard work on Sukarno is: Dahm [1966]) called for a political system of “democracy with guidance” based on indigenous procedures (Vickers 2005: 144-150). Wessel (2005: 8) reflects on the social repercussions of this decision as follows: “The establishment of Guided Democracy destroyed any remaining hopes of democratic development …” The Indonesian way of deciding important questions by way of deliberation (“musyawarah”) designed to achieve a consensus (“mufakat”) was the procedure at the village level and became the model for the nation, which was tantamount to an integrative state philosophy (Dahm 1999: 231), as was the state philosophy identified by the five pillars of “Pancasila”. In it, each citizen is recognized as having the following rights: (1) monotheism, (2) belief in national unity, (3) principle of humanity, (4) democracy, and (5) social justice (Vickers 2005: 117). Javanese deep-rooted striving for harmony is apparent in the five principles of “Pancasila” (Dahm 1999: 231). Sukarno’s policy was renowned for its chaos and betrayal, and neither the party-based parliamentary system prior to 1959 nor the era of “guided democracy” managed to bring stability to the country (Vickers 2005: 133-138). The increasing randomness of Sukarno’s regime triggered an ostensibly communist attempted coup d’état. This attempted coup failed because of a counter-attack by the army in the course of which, between 100,000 and one million people were killed, especially actual or supposed adherents of Indonesia’s communist party, “Partai Komunis Indonesia“ (PKI) and Chinese (see for example: Leven and Roberts [1999]). This is considered to be one of recent history’s largest politically motivated genocides (a standard work on this catastrophic aftermath is: Cribb [1990]). The causes have been unsatisfactorily researched to date, and as a consequence, it is not possible to establish the exact death toll. In 1996, Sukarno was forced to hand over power to Soeharto, a member of the military.

A.5.7.5 Soeharto

Soeharto’s initial success was partly based on people’s expectations, which had remained unfulfilled by Sukarno’s policies. Soeharto (on Soeharto, see for example: Vatikiotis 1993: 1-31) was elected for six further five-year terms, and, supported by the military, imposed a repressive regime (Vickers 2005: 197-209). There was no freedom of the press or of expression (Vatikiotis 1998: 107-108). A small number of Soeharto’s family and friends amassed vast wealth, primarily through the exploitation of Indonesia’s abundant natural resources (Vatikiotis 1998: 50-52). He imposed authoritarian rule while allowing technocrats to run the economy with considerable success (Case 2002: 36-38). Soeharto’s social and political system’s slogan was “Economics first, politics later“. The period was nevertheless characterized by rapid economic expansion, particularly after 1970, and this probably helped to legitimize the regime in the eyes of the people (Vatikiotis 1998: 32-59). Achieving a democracy, as established in the constitution, was relegated to second place. Furthermore the military (ABRI) attained an important position in parliament while the position of the parties was severely limited. Soeharto’s policy of allowing army involvement in all levels of government down to village level fostered corruption. His “transmigration” programs (which moved large number of landless farmers from Java to other parts of the country) fanned ethnic conflicts. In the middle of the 1980s, all social organizations and political parties (Law on Mass Organizations) had to recognize the “Pancasila” as ”asas tungaal”, as their only principle. This led to a neutralization of political parties and to a de-politization of society.

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From a structural viewpoint, the economic policy under Soeharto led to increasing prosperity and economic progress, which in turn led to intense urbanization, especially in Java (in 1990 a third of the population lived in the cities) (Spreitzhofer 2003: 52). The extension of bureaucracy and increase in power of the state was associated by the population with the increasing prosperity created by the state. During the time of “Orde Baru” (New Order), Javanese culture with its paternalism and its hierarchical social structures were useful tools to obviate demands for democracy and human rights (Vickers 2005: 183). Bureaucrats’ attitude to the people was often described as neo-feudal. The New Order was also accused of social intransigence, i.e. Javanese cultural elements such as the patron-client-ties, dominated (Vatikiotis 1998: 111-112). Nonetheless as early as the end of the 1980s, social division was evident in society; this could be traced back to enormous differences between members of society. It led to initial protests which were increasingly silently tolerated by the military from the 1980s onwards. This demanded political change especially after Soeharto’s fifth re-election in 1988. Even individuals within the political system like Murdiono demanded that de-regulation of the economy have its counterpart in politics. With this, Murdiono supported the idea that increasing complexity in economy required political de-centralization (Vatikiotis 1998: 115).

Prudent economic management enabled Indonesia to record consistently high rates of economic growth (well in excess of the expansion of the population) for more than two decades (Wie 2002: 203-215; Wie 2001: 163-169). This growth, which averaged more than six percent a year between 1970 and 1996, was achieved despite a number of external shocks, including sharp movements in oil prices and in international exchange rates, which affected the terms of trade and the value of the country’s external debt. From a low-income country in the mid-1960s, Indonesia transformed itself into a middle-income country, with an estimated income per head of almost US$1,150 in 1996 (Bird 2001: 45-66). A breakdown of the economy’s growth performance by sector shows that industry was the principal engine of growth (Hall 2000: 155-174; Wie 2002: 199, Figure 7.1). Manufacturing expanded more rapidly than the economy as a whole (Wie 2002: 199, Figure 7.1). The need to ensure matching growth in infrastructure stimulated a sharp acceleration in the rate of growth of the utility and construction sectors. The electricity, gas and water component of GDP expanded by an average of around 14 percent a year between 1986 and 1996, while the construction sector expanded by more than ten percent in the same period (van der Eng 2001: 181-199; Strauss, Beegle, Dwiyanto, Herawati, Pattinasarany, Satriwan, Sikoki, Sukamdi and Witoelar 2004: 1-5). Social change accelerated under the New Order (Cribb 2001: 231-233; Gerke 2000: 135-158; Robison 1996: 79-104; Heryanto 1999: 159-187; Antlöv 1999: 188-207). Along with the decline in the position of traditional aristocracies went the growth of a new bureaucracy, the rise of the army both in politics, administration and in commercial activity, the establishment of Indonesian business calls, and the presence of Chinese business interests, the latter sometimes in association with civilian or military indigenous Indonesian entrepreneurs (Hall 2000: 95-98). These developments suggested that a new (albeit extremely diverse) middle class was emerging, defined in part by economic function, by access to political power, and by a lifestyle of conspicuous consumption (Gerke 1999: 135-158; Robison 1996: 79-104; Heryanto 1999: 159-187; Antlöv 1999: 188-207).

Opposition to the regime started to become more vocal in the mid-1990s (the parliamentary election campaign in May 1997 was exceptionally violent) and was given added momentum by the severe economic crisis that gripped Indonesia in late 1997 (Sadli 1999: 16-27). Soeharto fell from power after widespread rioting in 1998 and has so far escaped efforts to bring him to justice for decades of dictatorship (see for example: Forrester and May 1998: 1-23; Manning and van Diermen 2000: 1-14; Budiman 1999: 41-58; Aspinall 1999: 212-238).

A.5.7.6 Post-Soeharto Indonesia

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After Soeharto’s resignation in May 1998, Habibie, whose hold on power was never secure (Crouch 1999: 127-148), became president. One of his few notable achievements was the holding of a democratic election, Indonesia’s first for 34 years (Masters 1999: 9-14; Mietzner 2000: 39-57). Despite the numerical strength of the Indonesian Democratic Party-Struggle (PDI-P), the People’s Consultative Assembly (MPR) appointed Abdurrahman Wahid, a moderate Muslim cleric and leader to the National Awakening Party (PKB), as president. Mr Wahid was formally impeached by the MPR on the grounds of incompetence and Ms Megawati29, his vice-president, became president in 2001 (Wessel 2005: 13). Following the near-chaotic presidency of Mr Wahid, a general consensus emerged among all political parties on the need to restore stability. In 2004 the first direct elections for the president and vice-president took place (Wessel 2005: 15-16). The second round of the elections resulted in a landslide victory for Susilo Bambang Yudhoyono30. He pledged to prioritise job creation and fighting corruption.

The political change eventually should create a fairer and more predictable investment environment. Newly established independent auditors and, eventually, greater central bank independence should make policy implementation and governance more efficient (Gunningham, speech, March 2004)31. Also, a more active civil society gradually should increase government and other stakeholder accountability (Ramesh, speech, March 2004). Increased regional autonomy (on the topic of regional autonomy, see for example: Aspinall and Fealy 2003: 1-14; Rasyid 2003: 63-71; Antlöv 2003: 72-86; Rohdewohld 2004: 259-274) will decentralize many government responsibilities, in the long term potentially improving economic efficiency and community participation. However, investors face some short term risks during the transition to a new democratic and decentralized political system (Brodjonegoro 2004: 125-140; Nguyen and Richter 2003: 1-16). Opposition to some aspects of the reform program could become more vocal (Basri 2004: 39-60). Some newly empowered bureaucrats and political parties oppose foreign ownership, threatening the sale of corporate and state assets (Bird 2004: 93-107). Bureaucratic, union and regional resistance also hamper the reform and sale of state enterprises. Finally, devolution will affect central government revenue, and could affect the foreign investment environment by complicating transparency and consistency issues (Nasution 2003: 121-148; Redway 2003: 149-165). Indonesia faces growing demands for independence among several provinces (Aspinall and Fealy 2003: 1-14), where secessionists have been encouraged by East Timor’s 1999 success in breaking away after a traumatic 25 years of occupation. Militant Islamic groups have flexed their muscles over the past few years. Some have been accused of having links with Osama bin Laden’s al-Qaeda organization, including the group blamed for the Bali bombings of 2002 (Jones 2004: 23-38) and 2005.

A.5.8 A short economic history from independence until today

Indonesia has played a modest role in the world economy since independence, and its importance has been considerably less than its size, resources, and geographic position would seem to warrant. The country is a major exporter of crude petroleum and natural gas (BPS 2004: 297-358). In addition, Indonesia is one of the world’s main suppliers of rubber and a less-significant producer of a wide range of other commodities, such as coffee, tea, tobacco, copra, spices (cloves and nutmeg), and oil-palm products (BPS 2004: 297-358). Widespread exploration for deposits of oil and other minerals has resulted in a number of large-scale projects that have contributed substantially to general development funds (Dick 2002: 188-189; Hill 2000: 155-174). Although the projects have tended to reinforce the general position of Indonesia as a supplier of raw materials to world markets, the country has also become an important producer of manufactured goods for domestic consumption and export (Leinbach 2004: 3-7).

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Indonesia has demonstrated an astonishing economic history and belongs to a group of countries which have taken off rapidly in economic terms (Hill 2000: 3-8; Wie 2002: 198-201; 207-215; Booth 1999: 562; Schwinghammer 1997: 219-222; Strauss, Beegle, Dwiyanto, Herawati, Pattinasarany, Satriawan, Sukamdi and Witoelar 2004: 1-2). Economic growth in these countries (“Asian miracle” versus an “Asian drama” postulated in the 1960s) is undoubtedly one of the few success stories in the developing economy, otherwise renowned for its lack of success (Booth 1999: 562). What is remarkable about the success of these countries is the astronomical acceleration of the economies - never before have there been countries whose economies have developed as quickly as these ones (Worldbank 2001: 1). At the same time as the economic success, international status and confidence on the part of Southeast Asian countries have been boosted enormously (Booth 1999: 562-564).

As early as in the 1950s, Benjamin Higgins (1968: 678), the author of the most influential book on Development Economics at that time, characterized Indonesia as the “chronic dropout”. He concluded that “Indonesia must surely be accounted the number one failure among the major underdeveloped countries (Higgins 1968: 678). Economic mismanagement and the subordination of development to political ideals during the first 16 years of independence led to financial chaos and to serious deterioration in the capital stock (Wie 2002: 194-197). With a major change of economic direction after Soeharto assumed power in the mid-1960s, some measure of stability was regained, and the conditions for an orderly policy of rehabilitation and economic development were established (Wie 2002: 203-215). Since the mid-1960s the government has played a crucial role in development, but the private sectors has become more influential (Hill 2000: 19-23). Low pay and poor working conditions in the swollen bureaucracy have fostered corruption that has distorted development and imposed a substantial burden (Wie 2002: 213; Vickers 2005: 136-137; Booth 1999: 580-581). Wie (2002: 213) explains:

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“The ‘KKN’ (korupsi, kolusi, nepotisme [corruption, cronyism, nepotism] practices … distorted market incentives by rewarding ‘rent-seeking’ rather than productive entrepreneurial activities.” (Wie 2002: 213)

Practices such as the preferential treatment of well-connected businessmen led to the explosive growth of large business conglomerates owned and controlled by Soeharto cronies (Chua 2005: 67). In the 1990s, East Asia’s emerging market economies registered an impressive growth performance which led people to term it the “Asian miracle” (Booth 1999: 662-564; Hall 2000: 261-262; Wie 2002: 203). Economies like South Korea, Taiwan, Hong Kong, and Singapore (dubbed the “Asian Tigers”) and their “tiger cubs” (Malaysia, Thailand, the Philippines and Indonesia) became the world’s main manufacturing base for information and communication technology (Wie 2002: 203). The “Asian miracle” growth story was on the one hand driven by the demand from industrial countries to outsource their manufacturing production to lower-cost countries (Booth 1999: 569-570; Hall 2000: 155-179). On the other hand, Asian governments’ keenness to create a very favourable environment for foreign investors and a skilled population made it an attractive choice (Trinh 2003: 3). During the 30 years of president Soeharto’s “New Order” (“Orde Baru”) government, Indonesia’s economy grew from a per capita GDP of US$70 to more then US$1,000 by 1996 (Hill 2000: 11-13). Annual real GDP growth averaged nearly seven percent from 1987 until 1997, and most analysts recognized Indonesia as a newly industrializing economy and emerging major market. Manufacturing surpassed agriculture, in terms of percentage of gross domestic product (GDP) in the early 1990s. Indonesia’s labour force has nevertheless remained predominantly agricultural (Wie 2002: 220-225). However, high levels of economic growth from 1987-1997 masked a number of structural weaknesses in Indonesia’s economy (Wie 2002: 235-237). The legal system was weak, and there was and is no effective way to enforce contracts, collect debts, or sue for bankruptcy (Fitzpatrick 2004: 178-190; Schröder-van Waes and Sidharta 2004: 191-203). Banking practices were very unsophisticated, with collateral-based lending the norm, and widespread violation of prudential regulations (Manning 2004: 234; Hill 2000: 260-263; Arndt and Hill 2000: 1-15; Sadli 2000: 16-27). Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade, and export restrictions all created economic distortions (Hill 2000: 272-284; McGillivray and Morrissey 1999: 3-26).

A.5.8.1  The Asian Crisis

When confidence in the economic structure of some Asian economies sharply deteriorated, the Rupiah’s value plunged in early 1998 (Aspinall, van Klinken, Feith 1999: 1-18; Wie 2002: 235-237). The Asian crisis had begun and Asia fell victim to globalization (see for example: Der Spiegel, 19 Oct 1998: 76-80; Die Welt, 25 Oct 1999: 14; Die Welt, 22 Sep 1999: 21; Financial Times Deutschland, 01 Aug 2002: 26; Financial Times Deutschland, 23 Jun 2000: 34; Frankfurter Allgemeine Zeitung, 15 Dec 1997: 32; Frankfurter Allgemeine Zeitung, 22 Dec 1997: 24).32 This vulnerability transformed sharp exchange rate depreciation into a major financial crisis by mid 1998 (see for example: Feridhanusetyawan and Anas 2000; Wie 2002: 237-240; Hill 2000: 272-284; Aspinall, van Klinken, Feith 1999: 1-18). The regional financial problems that swept into Indonesia in late 1997 quickly became an economic and political crisis (Aspinall, van Klinken and Feith 1999: 19-40). Indonesia’s initial response was to float the Rupiah, raise key domestic interest rates, and tighten fiscal policy (Hill 2000: 272-284).

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Speculative attacks on various Asian currencies which were perceived as overvalued were directly responsible for the crisis. The more profound causes were seminal in creating a bubble economy in which negative current accounts and an increasing short term foreign indebtedness deterred investors (Wie 2002: 237-240). These had fuelled up the market euphoria with money diverted from Latin America to Asia after the 1995/95 Mexican crisis (during the first term of 1996 credits worth more than US$34.7 billion poured into the region) (Tagesanzeiger, 06 Jan 1997: 23).

Ten weeks after the impact of the Thai devaluation was beginning to be felt in Indonesia, the government of Indonesia invited the International Monetary Fund (IMF)33 to help overcome what had become a deep financial and economic crisis in Indonesia (Soeasastro 2003: 165; Wie 2002: 232-233). In October 1997, Indonesia and the (IMF) reached agreement on an economic reform program aimed at macroeconomic stabilization and elimination of some of the country’s most damaging economic policies, such as the National Car Program and the clove monopoly, both involving family members of Soeharto (Hill 2000: 120). On 22 January 1998 the Rupiah fell to its historic low of Rp17,000/US$1, following the nomination of Habibie as a vice president candidate by Soeharto’s party, Golkar.

By then Soeharto’s days were numbered (Aspinall 1998: 130-153). Riots began to break out and demonstrations demanding him to step down were on the rise (see for example: Forrester and May 1998 for the fall of Soeharto and events surrounding the crisis). The announcement on May 4th of a 71 percent increase in fuel prices and a 20 percent increase in electricity prices provoked social unrest. It culminated in two-day rioting (which especially targeted the Chinese minority) that left parts of Jakarta devastated. As efforts to shore up his power were unsuccessful, President Soeharto stepped down on May 21st (Manning and van Diermen 2000: 1-14; Lee 1999: 12-40). The effects of the financial and economic crisis were severe (Ananta 2002: 1-27; Perdana and Gaduh 2003: 209-225). Inflation reached 77 percent in 1998. In 1998, real GDP contracted by an estimated 14.7 percent. The economy bottomed out in mid-1999, and real GDP growth for the year was an anaemic 0.3 percent. The Rupiah, which had been in the Rp2,400/US$1 range in 1997 reached Rp17,000/US$1 at the height of the 1998 violence and returned to the Rp8,000-10,000/US$1 range since then with significant volatility (Sadli 2000: 16-27). Although a severe drought in 1997-1998 forced Indonesia to import record amounts of rice, overall imports dropped precipitously in the early stage of the crisis in response to unfavourable exchange rates, reduced domestic demand and absence of new investment. Although reliable unemployment data is not available, formal sector employment contracted significantly (Nooteboom and Kutanegara 2002: 5-6; Marks 2004: 158). The sharp drop in output following the crisis also damaged corporate balance sheets and affected turnover and profitability. After growing at around seven percent per year in the two decades preceding the crisis, Indonesia’s output contracted 15 percent over the year to the June quarter of 1998. Expenditure shrank, with contraction most marked in private investment, as undercapitalized banks virtually ceased credit to corporations. Falling investment and diminishing confidence reduced consumption, further damaging investment and employment prospects. As in most severely affected crisis economies, the lower exchange rate did not immediately benefit exports (Pardede 1999: 3-39). However, activities based on natural resources largely withstood the crisis.34

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While the social impact of the crisis is expected to continue beyond the crisis, the general indicators suggest that the crisis has brought the social condition back to the situation in the early 1990s (Feridhanusetyawan 1999a: 2-11). While it remains controversial, the level of poverty in 1998 was again comparable to that in 1990 (Feridhanusetyawan 1999b: 41). The 1997 financial crisis interrupted two decades of impressive economic growth, which lifted Indonesia’s per capita income from US$310 in 1976 to US$1,144 in 1996 (Department of Foreign Affairs and Trade East Asia Analytical Unit 2000:1). Strong growth also produced major structural changes in the Indonesian economy, and made real gains in raising living standards and reducing poverty. Per capita GDP rose sharply but by 1999 had slipped back 40 percent to US$ 694 due to the 70 percent depreciation of the Rupiah since 1997 and falling GDP in 1998. Purchasing power parity, PPP, estimates of per capita per GDP fell by a smaller but still substantial 24 percent, from I$ 3,700 to I$2,800.35

Early assessments on the social impact of the crisis predicted that the improvement in social welfare for the last three decades was washed out during the first year of the crisis in Indonesia (on the social impact of the crisis, see, for example: Feridhanusetyawan 1999; Perdana and Gadu 2003; Breman and Wiradi 2002 present the social impact of the crisis based on anthropological fieldwork in two villages in West Java). The labour market has been remarkably flexible in adjusting the crisis so that the increase in unemployment has been small, supported by high labour turnover and sharp real wage decline (Marks 2004: 158). The flexible labour market also provided a buffer to shrinking output, employment and profits, with the agricultural sector absorbing a large share of workers dismissed from the urban economy. Rural employment growth increased from 0.6 percent before the crisis to 2.3 percent after it. Growth in urban employment slowed down significantly. Many urban workers also moved into the informal sector, where employment grew by around 7 percent during 1997-98, to 65.4 percent of total employment. Real income has declined, but people have maintained their consumption. Despite the generally negative impact of the crisis on employment and consumption, some parts of the community adapted to the crisis (known as “krismon” [krisis moneter]) better than others (Nooteboom and Kutanegara 2002: 3-32). Living standards fell sharply between 1996 and 1998, with the number of people living below the poverty line increasing by around 65 percent, from around 11 to 18 percent of the total population, depending on the survey (Strauss, Beegle, Dwiyanto, Herawati, Pattinasarany, Satriawan, Sikoki, Sukamdi and Witoelar 2004: 1-5, 70-82). However, this was still well below the poverty rate of 40 percent recorded in the 1970s.

After contracting sharply in 1998, Indonesia’s economy returned to positive growth in 2000 led by stimulatory macroeconomic policy, a low exchange rate, stable prices, lower interest rates and stronger private consumption (Basri 2004: 39-60).

A.5.8.2 Current situation

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Indonesia’s post-crisis is marked by drastic change of a multidimensional nature, not only economic change (Basri 2004: 39-60; Basri, speech December 2004, Jakarta [MarkPlus: Indonesia in 2004]). The political, economic and institutional changes Indonesia is facing are monumental in historic terms. Reform is gradual and a result of compromises (Jones 2004: 23-38). Indonesia’s economic growth rate is still the lowest among that of the five crisis affected countries36 and Indonesia has performed poorly compared to other crisis-affected countries. It has still not reached pre-crisis GDP levels (GDP in Rupiah terms in 2002 is still around two percent below that of 1997. In contrast, Korea’s GDP is 24 percent above that of 1997), followed by the Philippines (16 percent), Malaysia (eleven percent) and Thailand (five percent). Private consumption played a key role in the recovery of all countries, with Korea and Philippines consumption levels in 2002 being 18 percent above that of 1997. Additionally, and this is an aspect worth mentioning, Indonesia is the only country that became more domestically oriented during the recovery period (Aswicahyono and Maidir 2003: 184). Indonesians seem to be more than unsympathetic to foreign investors and protests against acquisitions and mergers involving foreign companies are en vogue. Local companies have successfully accommodated the changes in the business environment, for example with the alterations of product sizes and product packaging reflecting the decreased spending capacity of consumers.

Although, Indonesia has finally achieved macroeconomic stability (seven years after having suffered from unprecedented economic turbulence), there is little evidence that increasing macroeconomic stability and reduced vulnerability is translating into higher growth. Though Indonesia continued to have the advantages of a large labour force, abundant natural resources and modern infrastructure, private investment in new projects largely ceased during the crisis (Bird 2004: 93-107). Despite being the only Asian member of OPEC, Indonesia’s fuel production has declined significantly over the years, owing to aging oil fields and lack of investment in new equipment. As a result, despite being an exporter of crude oil, Indonesia is now a net importer of oil and had previously subsidized fuel prices to keep prices low. Furthermore, although Indonesia has a market-based economy the government still plays a significant role, it owns more than 164 state-owned enterprises and administers prices on several goods, including fuel, rice and electricity (Basri 2004: 39-60). A fact, which besides the monopoly position of some domestic companies and the legal uncertainty of investments, deters foreign investors from channelling funds into the country.

In late 2005 Indonesia faced a “mini-crisis” due to rising oil prices and imports. The currency reached Rp12,000/US$1 before stabilizing. The government was forced to cut its massive fuel subsidies, which were to cost US$14 billion for 2005, in October. This led to a more than doubling in the price of consumer fuels, resulting in double-digit inflation. However, this situation did not lead to social unrest as it was expected. As of early 2006, Indonesia’s economic outlook is more positive. Economic growth accelerated to 5.1 percent in 2004 and reached 5.6 percent in 2005 and real per capita income has reached pre-crisis levels. Growth is driven primarily by domestic consumption, which accounts for roughly three-fourths of Indonesia’s gross domestic product and the Jakarta Stock Exchange (JSX) was one of the best performing market in Southeast Asia in 2004, up some 42 percent. Problems that continue to put a drag on growth include low foreign investment levels, bureaucratic red tape, and widespread corruption (Fritzen, speech, March 2004; Westcott, speech, March 2004).37

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Future growth can be expected in several key areas in Indonesia. Due to growing demand for automobiles domestically and interest of manufacturers to use Indonesia as a hub for car production and export, Indonesia is being rediscovered (DM, interview December 2004). Growing expectations of the Indonesian consumer beyond the Toyota Kijang Models has led car companies to adapt to demands.38 According to the Association of Motor vehicles Importers (AIKI) more than 7,500 vehicles were imported in Q1 (first quarter) of 2004, which is a triplication compared to the previous year. Toyota Manufacturing Indonesia39 invested US$380 million in a production plant for “International Multipurpose Vehicle Cars (IMV)” and plans to produce 70,000 cars per year which are mainly reserved for export. Also, the telecommunication sectors confirm growing consumer demand and prosperity of Indonesian consumers. According to the Indonesian Association of Cellular Telephone Operators, the number of cellular subscribers was to rise to 28 million in 2004 and 65 million by 2007.40 However, the picture of the Indonesian economy is tarnished by an aggregate economic growth of below six percent (six percent are needed to reduce unemployment). Moreover, Indonesia has only hesitantly made use of the international fair weather for reforms during the last few years and its external and domestic debt make it vulnerable to future shocks (Walter 2004: 1). Corruption is still a huge problem but it seems that under Indonesia’s new president, this serious problem will be tackled and will optimistically leave a more sanitized picture of Indonesia in the eyes of investors.

Unfortunately, Indonesia, traditionally an exporter of oil and gas, does not benefit from the rise in global oil prices as it consumes nearly all its oil whose supply it utilizes in less than technical up to date and economical ways. A consistently stated reason (given in interviews for this work) why Indonesia still receives comparable low foreign direct investments is that nominal (not real) wages (versus actual earnings) have increased significantly since the end of the Soeharto regime and that this lead to high labour costs (per hour) and unit labour costs which make manufacturing in Indonesia even for Indonesian companies rather unattractive.41

These contemporary findings and the preceding explanations on cultural forms (that range from those of the old Malay, through the traditional Javanese and Balinese forms, which are heavily influenced by the Hindu stories of the Mahabharata and Ramayana, to cultural forms that have evolved from this complex heritage) exhibit Indonesia’s rich diversity that one is confronted with. This multifaceted cultural starting position and its impact on consumer behaviour in Indonesia will be the subject matter of Part C. In Part B the theoretical starting points of this work will be presented.


Fußnoten und Endnoten

1  http://www.indofood.com/index.asp (4 January 2006)

2  http://www.sampoerna.com/default.asp?language=english&page=aboutsampoerna/history (4 January 2006), http://www.faz.net/s/Rub645F7F43865344D198A672E313F3D2C3/Doc~E884E12FADCD64AC7BC2E693B086012E8~ATpl~Ecommon~Scontent.html (8 September 2005); http://www.altria.com/investors/02_00_NewsDetail.asp?reqid=684673 (8 September 2005)

3  Neologism: to acquire cultural knowledge oneself and to utilize it by means of the integrative, multidimensional analytical diagram, developed and illustrated in the course of this work.

4  http://news.bbc.co.uk/1/hi/world/middle_east/4688602.stm (20 February 2006)

5 http://www.arlafoods.com/APPL/HJ/HJ202COM/HJ202D01.NSF/O/9061156A93F8479EC1256F8C004A6355 (20 February 2006)

6  Arla spokesman Louis Honore: “We have built up our business in the Middle East countries for 40 years, and have had production in Saudi Arabia for 20 years, and then within five days or so this is all in ruins.” http://news.bbc.co.uk/1/hi/business/4676826.stm (20 February 2006)

7  Actually, Coca-Cola sells its main soft drink brand Coca-Cola (Coke) well only in its home market. In other markets such as Germany, Japan or Indonesia, the company bought or introduced brands offering beverages accommodating local tastes and demand. In Germany that is the mineral water Bonaqa, in Japan several tea brands and in Indonesia Fresh Tea, a sort of ice tea.

8  ASEAN: The Association of Southeast Asian Nations is a political, economic, and cultural organization of countries located in Southeast Asia. Founded in 1967, its aim is to foster cooperation and mutual assistance among members. Members are: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Source: http://www.asean.or.jp/eng/general/base/glance2004.html; http://www.aseansec.org/home.htm (10 February 2005)

9  http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000192183.pdf (13 October 2005); http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000185704.pdf (23 March 2005); http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000045778.pdf (11 September 2002); http://news.ft.com/cms/s/953f43f4-a4c7-11da-897c-0000779e2340.html (24 February 2006)

10  http://www.bkpm.go.id/en/forum/html/tops.php?Cat_Id=1&TopId=27 (27 October 2005)

11  http://siteresources.worldbank.org/INTEAPHALFYEARLYUPDATE/Resources/Key_Indicators_Indonesia.pdf (1 October 2005)

12  Area studies is defined here as a strategy for building understanding based on holistic analysis of a specific place or culture. At its best, this analysis combines language, humanities, and the social sciences to build knowledge that is both systematic and contextual (Koppel 1995).

13  The Bataviaasch Genootschap van Kunsten Wetenschappen was created by Dutch scholars in Jakarta in 1778, the Asiatic Society of Bengal was founded in Calcutta in 1784, and the Société Asiatique was established in Paris in 1882.

14  The projects and networks were established by the Goldsmiths College (University of London), the University of Washington and the Ford Foundation respectively.

15  German: “orchid subject” meaning exotic subject.

16  Top Business schools with campuses in Asia are for example: INSEAD (http://www.insead.edu/campuses/asia_campus/index.htm), The University of Chicago Graduate School of Business (http://chicagogsb.edu/visit/singapore/); ESSEC Business School (http://www.essec.edu/study-international-business-school/campus-essec), Duke University Fuqua School of Business (http://www.fuqua.duke.edu/index.html).

17  INSEAD, Asia Campus Singapore, October 2004, http://executive.education.insead.edu/consumer_goods_asia/

18  Other examples of the expansion of area studies beyond tradition topics are: Jong-Hak Eun, Keun Lee (2002), Is an Industrial Policy Possible in China?: The Case of the Automobile Industry, in: Journal of International And Area Studies, Vol. 9, No. 2, December 2002: 1-22. Lifeng Geng (2003) Expatriate Managers in International Joint Ventures, in: Journal of International And Area Studies, Vol. 10, No. 2, December 2003: 63-78.

19  Indonesian for: Welcome to Indonesia.

20  P.T. Handjaya Mandala Sampoerna Tbk.

21  The following two pages serve as an introduction only. All topic areas presented here will be discussed in greater detail (including references) in the subsequent sections.

23  http://www.bps.go.id (12 July 2005)

24  http://www.cia.gov/cia/publications/factbook/geos/id.html (17 August 2005)

25  http://www.infoplease.com/ipa/A0884418.html (12 July 2005)

26  Pakistan, for instance, has a TFR of about 5 children per woman. In India, Iran and Nigeria the TFR is above the reproductive level of 2.1 children per woman. The ten countries which will contribute most to world population growth over the next 30 years are India, China, Pakistan, Nigeria, Ethiopia, Indonesia, Unites States of America, Bangladesh, Zaire, and Iran – in that order. http://www.iiasa.ac.at/Research/LUC/Papers/gkh1/chap1.htm (12 August 2005)

27  The “plural society” of Furnivall and those who have followed him should be distinguished from other social science concepts of pluralism. The distinctions are usefully discussed by Nicholls (1974).

29  Megawati Soekarnoputri is the daughter of Soekarno, the first president of Indonesia, and has been active in politics since 1987. She assumed leadership of the Indonesian Democratic Party (PDI) in December 1993. Her party won the 1999 parliamentary election, but she was outmanoeuvred in the October presidential election and forced to accept the vice-presidency. However, in July 2001 she assumed the presidency following the impeachment of Mr Wahid. She lost the 2004 elections largely because of the perception that she had failed in her pledge to rid the country of corruption, cronyism and nepotism (commonly referred to as KKN).

30  Mr Yudhoyono was born in East Java in 1949. He rose to the rank of lieutenant-general and was the army chief of territorial affairs before being appointed to the cabinet in October 1999 as minister of mines and energy. His political star rose with his appointment to the influential post of co-ordinating minister for political, social and security affairs in 2000. While in office, Mr Yudhoyono won international acclaim for his strong stance against terrorism, and domestically he gained a reputation for honesty.

31  Conference: “Regulation, Deregulation and Re-regulation in Globalizing Asia”, National University of Singapore, The Public Policy Programme, 22nd until 24th March 2004.

32  In the meantime, journalistic and scientific publications on the Asia Financial Crisis are unmanageable. A good source on the internet is: hhtp://www.stern.nyu.edu/~nroubini/asia/AsiaHomepage.html. In general Arndt and Hill offer a fantastic resume of the events. Arndt and Hill (1999), Southeast Asia’s Economic Crisis. Origins, Lessons and the Way Forward. To be highlighted, too, are: Henderson (1998), Asia Falling: Making Sense of the Asian Currency Crisis and its Aftermath. Ibid. (2000) Asian Dawn. Recovery, Reform and Investing in the New Asia. Kenward, L. R. (2002), From the Trenches – The First Year of the Indonesian Crisis of 1997/98 as Seen from the World Bank’s Office in Jakarta. Jakarta, Centre for Strategic and International Studies. Radelet, S. C. Wing, T. W. (2000), “Indonesia: A Troubled Beginning”, in: Jeffrey D. Sachs and Klaus Schwab (eds.), The Asian Financial Crisis – Lessons for a Resilient Asia (Cambridge: The MIT Press): 165-184.

33  http://www.imf.org/external/ns/search.aspx?NewQuery=Indonesia+%2B+1998&Site+Search.x=0&Site+Search.y=0 (12 August 2005)

34  In particular, minerals and energy relied less on banking and financing and external creditors, and their costs benefited from the lower exchange rate. In 1997 and early 1998 agriculture suffered from El Nino induced drought, but later recovered.

35  International dollars ( I$) measure average per capita income of a country in terms of its purchasing power in the US economy; that is, in 1999 the average Indonesian received income sufficient to buy US$ 2,800 worth of goods and services at US prices. Because nominal exchange rates do not always reflect international differences in relative prices, PPP rates are used to allow a standard comparison of real price levels between countries and hence allow better comparisons of average income levels between economies.

36  Indonesia, Malaysia, Philippines, Thailand, and the Republic of Korea.

37  Conference: “Regulation, Deregulation and Re-regulation in Globalizing Asia”, National University of Singapore, The Public Policy Programme, 22nd until 24th March 2004.

38  Bfai (Bundesagentur für Außenwirtschaft) (2004), Zukunftsmarkt Asien-Chancen einer aufstrebenden Region, p. 14, Köln, Germany

39  95 percent belongs to Toyota Japan and 5 percent to the local partner Astra International.

40  http://www.telkom.co.id/infoterkini/view_news.asp?id=948&newscat= (20 April 2005);

41  Puma, for example, moved manufacturing from Indonesia to India where labor unit costs are not lower than in Indonesia, but where predictability of legal decisions and legal security for the company in case of copy-right infringements are offered (DM, interview November 2004).



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