Management in Indonesia

This report has written this report to make recommendations to the senior management team of the Australian fashion shoe company, Zu, on the feasibility of Indonesia as a possible location for global operations. The report investigates the legal, political, economic, socio-cultural and technological environments of Indonesia and therefore explains why Indonesia is a suitable for the company, Zu, to operate.

Political environment

As Indonesia is becoming a democratic society, people are encouraged to become more independent and provide for themselves. This means that more people are becoming involved in the work force and relying on their own income, which is beneficially for a retail outlet such as Zu.

Indonesian being a more democratic culture means its political system is also beginning far more stable than what it has been is the passed. If there is a stable political environment, then there is a lot less disputes between politicians, meaning that the people of Indonesia are more relaxed and more liked to spend money as it takes a lot of the uncertainty out of every day life.

Legal environment

When franchising a fashion retail outlet, such as Zu, in Indonesia, there are a number of strict laws to be abided by, and therefore it is important to get the correct legal and administrative advice concerning the franchise agreement, the operations manual, terms and conditions of trading, appropriate disclaimers for any prospectus produced, property issues and employment matters.

It is also necessary that the franchisor has a clear understanding of the Indonesian language, as the franchise agreement includes specific matters and has to be executed in Indonesian. The commercial arrangements tend to remain a matter for negotiation between the parties.

The ministry of trade issues a certificate of registration for the franchise once all the conditions have been for filled. Therefore the department has ultimate authority in relation to the registration and deregistration of the franchise.

The regulation stipulates that priority should be given to domestic goods and products. This would mean that Zu would not be able to produce their shoes in countries such as Brazil and Italy and that they would have their own factory in Indonesia. As the cost of labour and materials is far cheaper in Indonesia, this would work in favour to the company because they would be able to produce more shoes at a lower cost.

Economic environment

Indonesia’s economy is continuously growing and has grown quite a substantial amount since the 1970’s, although the country is still very poor. Almost half the population is living in poverty, with more than 100 million people living of less than US$2 a day. Distribution of wealth in Indonesia is very uneven. Some provinces, especially in eastern Indonesia, are much poorer than others.

One of Indonesia’s most highly manufactured products is footwear and clothing, meaning that converting Zu’s factory outlets from places such as Brazil should not be too inconvenient. Major big export products of Indonesia include oil, gas, coal, textiles, rubber and timber. Imports include cars, machinery, chemicals and some foods, which shouldn’t have much impact on a fashion franchise. Indonesia’s biggest trading partners are the US, Singapore and Japan. Therefore, if Zu was to become a worldwide franchise, their goods could be exported from Indonesia to those countries.