Rodamas Group

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9B09M049

RODAMAS GROUP: DESIGNING STRATEGIES FOR CHANGING REALITIES IN EMERGING ECONOMIES

Marleen Dieleman and Shawkat Kamal wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2009, Ivey Management Services Version: (A) 2009-06-23

Mucki Tan, deputy chairman and main shareholder of the Rodamas Group, was thinking about the future of his group of companies. It was a hot and humid afternoon and clouds were building up on the horizon in Jakarta, the capital of Indonesia. Tan wondered whether the traditional local partnership role his company had played with different foreign multinationals was losing its advantage. The roles a local partner fulfills for multinational players in emerging economies can also be outsourced, and Tan had noticed the rapid growth of service firms in Jakarta that employed consultants, lobbyists and lawyers working for multinationals. Also, starting from 1994, the Indonesian government allowed multinational companies to operate in the country with 100 per cent foreign ownership in certain sectors. In 2008, the world economy was about to enter into a crisis, which was likely to bring problems, but also to offer opportunities. Did the business model developed by Tan’s entrepreneurial father need a major overhaul? What were the alternatives? After Tan had reorganized and streamlined the company, selling off some of its smaller businesses, it was time to choose a new course of action. He knew he had to be very careful in selecting the right option. INDONESIA: A PROMISING EMERGING ECONOMY

Indonesia is a vast archipelago with a population of around 240 million, and has, over the years, experienced significant growth. The country became independent from Dutch colonial rule after the Second World War, and has since transformed from a mostly agricultural society to an emerging industrial economy. The period in which Suharto was president, from 1966 to 1998, was one of especially rapid economic growth. This came with inflows of foreign direct investment, for example in manufacturing for the large local market or in the extraction of Indonesia’s many natural resources. Economic prosperity translated into declining poverty rates, but was also accompanied by a system of cronyism in which Suharto nurtured relations and distributed business opportunities to a limited group of business families. The larger business families developed sprawling conglomerates that spanned several sectors of the economy. Often they were owned by families descended from Chinese migrants.

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9B09M049

Foreign investors operating in the country looked for partners, and often found them among these larger family firms. Local partners were essential to manage the appropriate connections in a country that was rapidly developing but which still suffered from weak infrastructure, law enforcement, and rampant corruption, making every aspect of operations, including obtaining permits, buying land, hiring personnel, procuring inputs and distributing products, a challenge. The cultural diversity and geography for example, with hundreds of languages and islands, made it hard to distribute products and effectively market them. The low disposable income compared with the large...
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