Case Memo (Indonesia)

June 17, 2019 Law

• What main concepts/theories/analytical frameworks from the assigned readings for the week are illustrated by or most useful in helping you understand the issues described in the case? Explain.

The theory of political systems in the reading can be well explained how Indonesia’s political factors affect its economic performance. According to the reading, political systems can be assessed by two dimensions: the degree of emphasizing collectivism as opposed to individualism and the degree of democratic or totalitarian. Starting with President Suharto who left Indonesia an economic wreck after his 30-year career, internal dissent was suppressed. He also used “crony capitalism” to advance his family’s and friends’ businesses. In 1997, the Indonesian economy went into a tailspin, marked the bottom for Indonesia. The International Monetary Fund gave Indonesia $43 billion for rescue package, but Suharto was revealed that he took this money for personal gain. Suharto made Indonesia move rapidly toward a vigorous democracy, resulting in high individualism and degree of democratic in Indonesia, which hurt its economy dramatically in 1990s.

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Another helpful theory I think is “Differences in the structure of law between countries can have important implications for the practice of international business.” The laws of Indonesia forced foreign business hard to survive. The court recommended foreign oil and gas companies hand over the business to local firms after operating for 10 years. Jail time, loss of income by excessive red tape, and long time waiting to establish a business were the risks that foreign companies had to face, decreasing opportunity of obtaining benefits from international business and driving businesses away.

• What do you consider as the overall message or lesson learned from the case?
• Why is this message or lesson important to global business managers?


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