International Business Environments Paper

International Business Environments Paper

By

Jason Jacob

Deakin University

Executive Summary

Sims Metal Australia may expand globally in Indonesia, according to this poll. CAGE organises the review. This study found that cultural, political, legal, and economic factors affect market entry. Indonesia is growing in Asia and has a vast market, giving international companies opportunities and challenges. Islam and its ideas of collaboration and hierarchy affect business. Interacting with natives requires care and skill. Indonesia is a constitutional republic with political risk and modest corruption. These considerations affect foreign assets politically. It implements intellectual property and foreign ownership rules as civil law. Indonesia's rapid economic expansion presents opportunity, but market and government challenges must be watched. Sims Metal Australia should enter the market through a joint venture or cooperative agreement, according to research. In this technique, local specialists mitigate risks and assure cultural and environmental compliance. Direct spending requires more thinking and money, but it is not closed. Sims Metal Australia can navigate Indonesia's difficult market and maximise its potential while respecting rules and succeeding with the advised plan.

Table of Contents

TOC h u z t "Heading 1,1,Heading 2,2,Heading 3,3,"Introduction4Cultural factors4Political factors8Legal factors10Critique of different approaches to international business opportunities12Recommendation14Conclusion15Reference List16

Introduction

This paper analyses the Indonesian market to determine if Sims Metal Australia can expand there. Sims Metal Australia, a metals and electronics recycling company, has a major potential in Indonesia, one of Australia's regional trade partners. The report's main goal is to assess Indonesia's market environment and identify key aspects that might affect the company's development plan. This paper will use the CAGE paradigm to compare Indonesia and Australia's Cultural, Administrative, Geographic, and Economic disparities. The Cultural factor will examine how local values, religion, and language affect business. The administrative part will cover politics, regulation, and law. Geography will analyse physical and logistical market entrance concerns. Finally, the economic study will include Indonesia's recycling-related economic data and trends. This research will analyse Sims Metal Australia's Indonesia expansion possibilities and constraints using the CAGE methodology.

Cultural factors

Business connections in Indonesia are heavily influenced by culture. Indonesian culture favours collectivism, which prioritises family and social harmony over individual goals (Kristian, 2024). This collectivist perspective affects corporate operations since stakeholders generally reach consensus on decisions, favouring collaborative over confrontational tactics. Foreign enterprises should emphasize respect and community participation to create and maintain solid relationships with local partners and stakeholders due to this cultural attribute. Hierarchical structures are very important in Indonesian culture. Respect for authority and seniority is valued in business and society. Business deals are frequently top-down, with senior executives making key decisions. Effective management and negotiating in Indonesia requires understanding and navigating these hierarchical systems since corporate success typically depends on building connections with key persons and respecting top executives. Furthermore, Islam dominates Indonesian life. Islamic values impact social conventions and economic operations in a Muslim-majority nation (Arifianto, 2020). Islamic law, or Sharia, affects money and commercial ethics. The Islamic restriction on interest (riba) demands Islamic banking standards, which might affect interest rates. Ramadan and other religious holidays need adaptations to company hours and staff productivity to accommodate fasting and prayer. Foreign companies entering the Indonesian market must identify these religious behaviours to develop daily operations and long-term strategy.

Figure 1: The revenue of the Apparel market in Indonesia

(Source: Statista, 2024)

There will be steady growth in the clothes market in Indonesia from 2024 to 2028, with sales rising by 3.2 billion U.S. dollars this whole time. The measure is expected to hit 25.8 billion U.S. dollars in 2028, which will be a new record high. It has been going up for eight years in a row.

Furthermore, language is another major issue in Indonesian business. Indonesia has several local dialects and languages, but Bahasa Indonesia is utilized in formal interactions. Regional dialects can affect commerce and communication in Indonesia, even if Bahasa Indonesia unites the country (Wardhana, 2020). Effective company operations typically demand Bahasa Indonesia knowledge or local interpreters to communicate. Thereby, understanding regional languages and cultural differences may also improve ties with local partners and customers.

Hofstede's Cultural Dimensions illuminate Indonesia's culture. In Indonesia, high Power Distance scores indicate acceptance of unequal power allocation and support for hierarchical institutions (Evinita, 2022). This factor emphasizes Indonesian business practices' respect for authority. Indonesia prefers organized and predictable situations, as seen by its high Uncertainty Avoidance score. Indonesian firms and customers may choose established procedures and meticulous preparation over creative or riskier enterprises.

Figure 2: Maslows Hierarchy of Needs

(Source: Polevoy, 2020)

Indonesia's collectivist culture values collective well-being above individual success. This culture values group agreement and long-term connections over short-term benefits and individual achievement in business. Finally, Indonesia's high Masculinity score suggests a culture that values competition, success, and performance, which may affect business practices and expectations (Sahertian and Jawas, 2021). Sims Metal Australia should grasp Indonesia's cultural values, religious influences, language, and Hofstede cultural factors before growing into the Indonesian market. Thus, adapting to these cultural aspects will improve corporate operations, relationship building, and compliance with local customs.

Political factors

Indonesia is a presidential democracy (Isra et al., 2020). Executive, Legislative, and Judiciary are the main political branches. The president, elected for five years, is the head of state and government and has significant executive power. A Vice President and Cabinet of ministers supervise government departments with the President. The bicameral People's Consultative Assembly has two chambers consisting of the Regional Representative Council and the People's Representative Council. The DPR, with 575 proportionally elected members, is the major legislative body. However, the DPD serves regional interests and has little legislative power. The Supreme Court leads the independent Judiciary, which enforces and interprets laws.

Indonesia's political system has several parties. The PDI-P, Golkar Party, Gindra Party, and National Awakening Party are notable Indonesian political parties. These political parties often work together to win a DPR majority and shape national policy and administration. Regional interests, ethnic diversity, and ideological differences affect political stability and policy implementation (Maron, 2022). Foreign firms fear Indonesia's political risk. Recent political instability and policy uncertainty have included protests and policy shifts. Transparency International's Corruption Perceptions Index ranks Indonesia low compared to other Southeast Asian nations, suggesting a severe corruption issue. Despite the Corruption Eradication Commission and other anti-corruption initiatives, corruption still hurts the economy (Umam et al., 2020). Corruption may cause unexpected regulatory changes and permission and licence issues. Foreign companies may struggle with bureaucratic processes and bribes or unofficial donations. Recent anti-corruption programs and reforms aim to address these issues, although their success and consistency may vary. Despite challenges, Indonesia has supported foreign investments in areas that support national development goals including recycling and sustainability. The government offers tax breaks and regulatory reforms to attract foreign direct investment. The 2020 Omnibus Law on Job Creation simplifies firm processes and reduces administrative burdens (Samawati and Sari, 2020). Indonesia has enacted laws to enable recycling companies to achieve environmental sustainability and trash management. The government's waste reduction and recycling goals provide opportunities for companies like Sims Metal Australia, which recycles metals and electronics (Halog et al., 2021). Recycling companies' strategic goals of enhancing waste management infrastructure and reducing environmental impact may improve investment conditions. Indonesia's politics and environment provide opportunities and challenges. However, the country's focus on economic development and sustainability, together with ongoing reforms, encourages international investment, particularly in recycling. The corporations must adapt their approach to minimise political risk and corruption.

Figure 3: The GDP share of Indonesia by Sector

(Source: Statista, 2023)

Early 2023 estimates showed 18.67% of Indonesia's GDP was manufacturing. This made it the country's principal economic driver. Next came farming, then wholesale and retail. Its abundant resources make Indonesia one of the world's greatest economies.

Legal factors

Indonesia follows a civil law system that relies on written legislation and regulations instead of judicial precedents (Arifin, 2020). The legal structure is significantly shaped by Dutch colonial law, placing a strong emphasis on codified laws and formal procedures. For organizations, this implies that legal conflicts are settled by interpreting these legislation rather than relying on previous court decisions, necessitating a comprehensive comprehension of pertinent rules to guarantee adherence. The Investment Law (Law No. 25 of 2007) and the Company Law (Law No. 40 of 2007) are the main legislation that have an impact on international enterprises operating in Indonesia. The Investment Law provides a comprehensive framework for regulating foreign direct investment, encompassing processes for granting investment approvals, offering incentives, and ensuring protections. The government provides tax holidays, customs charges exemptions, and other incentives to entice foreign investors to engage in various areas. However, specific industries are subject to limitations or need specific permits, and adherence to local legislation is obligatory.

Figure 4: Regulatory enforcement index in 2023 in Indonesia

(Source: Statista, 2024)

The Company Law regulates the formation, administration, and termination of corporations in Indonesia. The text outlines the prerequisites for business registration, which include the requirement for a local representation and compliance with particular corporate governance criteria. In order to conduct business operations in Indonesia, foreign firms are required to form a legal organization, such as a foreign investment company (Wicaksono and Saputra, 2021). The registration of this company with the Ministry of Law and Human Rights is mandatory, and it must comply with legislation pertaining to corporate structure, reporting, and tax duties. Foreign ownership rules specify that in several areas, foreign organizations be permitted to possess 100% ownership of a corporation. However, some industries are subject to limitations or necessitate collaborative partnerships with local counterparts. Foreign ownership in sectors like natural resources and media is restricted to a specific proportion to guarantee local involvement and authority. In addition, international investors frequently have to adhere to local content and employment restrictions, which may oblige them to employ Indonesian citizens or get supplies from local sources.

Foreign entities are prohibited from having full ownership of land concerning land ownership. Alternatively, individuals have the option to rent land for a predetermined duration, usually lasting up to 30 years, and may have the opportunity to extend the lease. The National Land Agency regulates land use rights, and firms must traverse an intricate procedure to obtain land leases and assure adherence to zoning and environmental standards (Wade, 2020). Furthermore, Indonesia's intellectual property protection is regulated by many laws, such as the Copyright Law (Law No. 28 of 2014), the Patent Law (Law No. 13 of 2016), and the Trademark Law (Law No. 20 of 2016). These laws establish structures for the registration and implementation of copyrights, patents, and trademarks, providing legal remedies in instances of violation. However, the implementation of regulations might be difficult due to administrative inefficiencies and inconsistent enforcement practices in different areas. Businesses should collaborate with local legal professionals to successfully manage the process of IP registration and provide robust protection of their intellectual property (Grimaldi et al., 2021). Thereby, Indonesia's civil law system provides a systematic approach to legal issues. However, companies need to handle important restrictions concerning investment, company establishment, ownership, and intellectual property protection with caution. Comprehending and adhering to these legal obligations are essential for effectively starting and maintaining a business in Indonesia.

Critique of different approaches to international business opportunities

Many internationalisation strategies may be used to enter the Indonesian market. Direct investing, partnerships, and joint ventures are examples. Each strategy has merits and downsides, notably in terms of culture, economy, and society.

Joint Ventures: Joint ventures include local companies forming a new company. This method reduces market entrance risks by using the local partner's experience, contacts, and resources. Kusniati (2024) found that joint firms prosper in Indonesia, where rules are complicated and people are different. Neighbourhood groups may help to learn about local business practices, meet influential people, and navigate government processes. A cooperation might teach Sims Metal Australia how to recycle locally and follow the law, easing market access. However, partners may have different firm goals and management styles, which can cause conflict. Finding a trustworthy and cooperative local partner is difficult and time-consuming, but crucial to a joint venture's success.

Figure 5: Advantages of the Joint Ventures

(Source: Kumar Srivastav, 2019).

Partnership: Instead of starting new businesses, corporations might collaborate through marketing and strategic alliances. Unlike joint enterprises or outright investing, this method gives investors more freedom and less risk. Sims Metal Australia may use local recycling or trash management organisations' networks and skills to enter the industry.

Figure 6: The Partnership Strategy

(Source: Fahmi and Adharina, 2024).

In Indonesia's culturally rich and diverse market, keeping regional expertise and customers is vital, and collaborations may assist firms achieve this, according to Fahmi and Adharina (2024). Partnerships may not have the same control or integration as partnership agreements or direct investments. This may impair legal compliance, especially in important areas for long-term profitability and smooth operations.

Direct investment involves forming completely owned subsidiaries or acquiring existing enterprises. With this strategy in place, Sims Metal Australia will have complete operational autonomy, allowing them to immediately implement their own policies and procedures. Indonesia is a wonderful area to invest since the government supports foreign investment in recycling and sustainability enterprises that assist accelerate development. Direct investments allow Sims Metal Australia to comply with environmental regulations and sustainability goals (Halog et al., 2021). Straight investing is riskier and expensive. Indonesia's cumbersome business registration process and property ownership restrictions may be difficult and expensive. Monitoring and enforcing local laws and customs involves a lot of time and expertise.

Social factors: Indonesia's ethnic groupings and regional traditions must be considered while internationalizing. Joint ventures and partnerships can use local knowledge and networks to integrate with diverse social groups. According to Perrone (2021), direct investment has more effect but may be harder to adapt to local customs. CSR and community participation are needed to build strong relationships and community support.

Thoughts on Sustainability: Indonesia prioritises waste and environmental control. Lin (2022) suggests joint ventures and direct investments might assist firms attain these goals. Collaborations with local recycling firms may help you meet environmental regulations. A firm can achieve its sustainable aims with direct investments, but they should be handle appropriately to comply with local environmental legislation. Partnerships can reach sustainability goals with comparable methods and great loyalty.

Cultural consideration: Indonesian unity and organisation affect firm management. Agreements and collaborations can help with cultural intricacies since indigenous partners can advise on communication and connection. Every system must recognise the importance of hierarchical decision-making and community service. Considering, the challenges, Sims Metal Australia may benefit from partnership (Jayasiri et al., 2023). They might use local knowledge and skills to manage their operations. This may ease market entrance and absorption into Indonesian culture and society. Direct financing gives investors complete power but demands cultural and regulation readiness. Each plan must consider the company's goals, resources, and Indonesian market.

Recommendation

After considering Indonesia's market, culture, political and legal issues, and worldwide expansion goals, Sims Metal Australia was advised as follows. Due to Indonesia's size and strategic importance in Asia, experts advise Sims Metal Australia to actively pursue its market (Suryanta, 2021). A strategic alliance with a local recycling expert looks like the ideal approach. This strategy uses local knowledge and relationships to navigate Indonesia's complex legal system and diverse culture. Sims Metal Australia might reduce risks, maintain earnings, and profit from the partner's well-established firm and local market understanding through a joint venture. Building partnerships with local sustainability and environmental regulations may also boost the company's image and operational efficiency.

Direct business requires a lot of income and local understanding. Sims Metal Australia must prioritise local regulation and community participation when spending directly (Suryanta, 2021). This reduces risks and improves connections. Joint ventures combine local expertise and common resources, making them a good method to enter new markets. The well-rounded approach has strategic benefits and decreased risk. Finally, Sims Metal Australia should seek a joint venture or strategic partnership to enter the Indonesian market. The corporation seeks a profitable market while avoiding risks and adapting to local norms. The plan meets these goals. Investment in Indonesia is wise since it has growth potential and strategic benefits. However, local engagement and environmental commitment are crucial to the selected strategy.

Conclusion

Sims Metal Australia should aggressively join Indonesia's market since it has growth potential and is strategically vital in Asia. A joint venture or strategic partnership with a local firm is optimal. The local firm may give local experience, aid with legal concerns, make it simpler for diverse cultures to operate together, and minimise the risks and expenses shared by all partners. This strategy helps the firm develop recycling and achieve sustainability criteria in a challenging but attractive market. Direct investment is still viable, but it demands a better awareness and integration into the local ecosystem. In conclusion, Sims Metal Australia may use local competent people to take advantage of the Indonesian market potential and expand long-term by forming a joint venture or partnership.

Reference List

Arifianto, A.R., 2020. Rising Islamism and the struggle for Islamic authority in post-reformasi Indonesia. TRaNS: Trans-Regional and-National Studies of Southeast Asia, 8(1), pp.37-50.

Arifin, M., 2020. A Decade Review Of Civil Law in Indonesia. Kumpulan Penelitian Dan Pengabdian Dosen, 7(4), pp.78-83.

Evinita, L.L., 2022. The effect of power distance and individualism on the reliability of audit evidence. 8ISC Proceedings: Business, pp.164-172.

Fahmi, F.Z. and Adharina, N.D., 2024. Cultural values and innovation in indigenous entrepreneurship: a case study from Indonesia. International Journal of Entrepreneurship and Small Business, 51(1), pp.62-85.

Grimaldi, M., Greco, M. and Cricelli, L., 2021. A framework of intellectual property protection strategies and open innovation. Journal of Business Research, 123, pp.156-164.

Halog, A., Balanay, R., Anieke, S. and Yu, T.Y., 2021. Circular economy across Australia: taking stock of progress and lessons. Circular economy and sustainability, 1(1), pp.283-301.

Halog, A., Balanay, R., Anieke, S. and Yu, T.Y., 2021. Circular economy across Australia: taking stock of progress and lessons. Circular economy and sustainability, 1(1), pp.283-301.

Isra, S., Idris, F. and Tegnan, H., 2020. Designing a Constitutional Presidential Democracy in Indonesia. J. Pol. & L., 13, p.22.

Jayasiri, G., Herat, S. and Kaparaju, P., 2023. Management of Small WEEE: Future Directions for Australia. Sustainability, 15(18), p.13543.

Kristian, I., 2024. Implementation of Human Resource Management and The Harmony of Organizational Culture. The International Journal of Education Management and Sociology, 3(1), pp.38-45.

Kumar Srivastav, A. (2019). Advantages of Joint Venture.https://www.wallstreetmojo.com/advantages-of-joint-venture/.

Kusniati, R., 2024. How Indonesia and Thailand Transform International Law: A Study of Access and Benefit Sharing. Uti Possidetis: Journal of International Law, 5(2).

Lin, L., 2022. Venture capital in the rise of sustainable investment. European Business Organization Law Review, 23(1), pp.187-216.

Maron, A., 2022. Beyond the Hegemony of Neoliberal Ideas: Ideational Diversity and Policy Variegation in the Neoliberal State. Critical Sociology, 48(7-8), pp.1345-1360.

Perrone, N.M., 2021. Investment treaties and the legal imagination: How foreign investors play by their own rules. Oxford University Press.

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Sahertian, P. and Jawas, U., 2021. Culture and excellent leaders: case of indigenous and non-indigenous Indonesian leaders. Heliyon, 7(11).

Samawati, P. and Sari, S.P., 2020. Problematic of the draft of omnibus law on job creation in Indonesian. Journal of Xian University of Architecture & Technology XII, no, 3, pp.3982-3906.

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Statista. (2024). Indonesia: apparel market revenue 2016-2027. https://www.statista.com/forecasts/1228614/indonesia-revenue-apparel-market.

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Suryanta, B., 2021. Indonesia's integration into the regional and global economies.

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Wade, M., 2020. Island City: urban development, planning, and real estate in Jakarta. University of California, Berkeley.

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MBG774 International Business Assignment

Case Study on the Internationalisation of Sims Metals

MBG774 International Business Assignment

Case Study on the Internationalisation of Sims Metals

Note:

The case is based on publicly available information. The internationalization of Sims Metals into Indonesia is only hypothetical/and fictitious scenario, so it does not represent what the company is planning to do.

You are to search and read publicly available information on this case company for the purpose of your assignment. So, we would request you DO NOT contact the company directly, as there is no need to do so. There should be lots of available information. Please ask your UpGrad teaching assistant should you have any questions, and they can forward questions to Deakin Faculty.

Sims Metal Management/Sims Metal Australia, a part of Sims Limited, is an Australian based global company, a leader in metals and electronics recycling. Sims Limited is a publicly listed company on the Australian Securities Exchange (ASX) under the code SGM. It is one of the largest collector, processor, and supplier of recycled metal in Australia.

Sims Limited is a locally owned public company, deriving its revenue from the recycling of ferrous and non-ferrous metals and electronics. The company has approximately 4,000 employees and operates in Australia, New Zealand, the United States of America, Canada, Papua New Guinea, and the United Kingdom. The company is administered from its registered office in Mascot, New South Wales (IBIS World, 2024)

Sims Metal Management was founded in Sydney, Australia in 1917, by Allbert Sims, a recycled metals dealer. Today, Sims Metal Australia has grown to be the leading collector, processor and supplier of recycled metal in Australia. Through a network of 30 physical locations in operation, servicing all states and territories in Australia, Sims Metals processing capacity, including five fragmentisers, shears, balers and granulating plants, adhering to proper environmental and quality standards, they produce products that are recognized and sought around the world. Sims Limited has constructed a network of processing facilities, to fully support metal and electronics recycling in the Australasia region (Sims Metal Australia, 2024)

These processing centres, process an excess of 1.5 million tonnes of material per annum. Sims Metal Management Australia has proven to be able to deal with a wide range of services including material handling and logistical solutions to industry, both large and small, government and the public, to support effective metal scrap recovery.

Sims Metal Management Australasia provide solutions to customers both in local and regional recycling, in Papua New Guinea and New Zealand (Sims Metal Australia, 2024).

As of FY21, Sims Limited reported impressive financial results:

Sales revenue: AUD $5,916.3 million

Statutory EBIT: AUD $314.0 million

Underlying EBIT: AUD $386.6 million

Source: August 17, 2021, ASX & Media Release, (ASX: SGM, USOTC: SMSMY), Sydney, NSW, Australia

For the purpose of this assignment, we want you to take the position that Sims Metal Australia believes that Indonesia would be an interesting market to consider for foreign expansion. After all, Indonesia is one of Australias major regional trading partners, ranked 13th largest two-way trading partner by value ($26.2 billion) and our 9th largest export market ($15.7 billion) in 2022-23, Indonesia is expected to play an even more important role in terms of strategic collaborations beyond trade between the two nations (DFAT, 2024).

Sims Metal Australia is looking for innovative ideas about how to enter and manage in the Indonesian market given its strategic location in Asia and its potential for scrap metal recycling in meeting the demands of the Asian markets, in face of the growing global concerns of sustainability.

You belong to an International Business Management Consultancy firm that specialises in providing international business development services to companies wishing to expand to foreign markets. You have been engaged by Sims Metal Australia, to firstly analyse the Indonesian country profile/market environment from the perspective of Sims Metal Australia (Assessment 1), and then develop a strategy & entry mode plan for Sims Metal Australia (Assessment 2) into Indonesia. You have been engaged as consultants to advise Sims Metal Australia, on how it should venture into Indonesia.

114300030670500

References

Sims Metal Australia (2024) Sims Metals Australia - About us. [Online]. Available at https://www.simsmm.com.au/about-us/ Accessed 20 June 2024.

Sims Limited. (2021) Sims Limited Announces Fiscal 2021 Full Year Results [Online]. Available at

https://www.simsltd.com/press-releases/sims-limited-announces-fiscal-2021-full-year-results/ Accessed 20 June 2024.

Australian Government Department of Foreign Affairs and Trade. (2024) Indonesia country brief [Online]. Available at https://www.dfat.gov.au/geo/indonesia/indonesia-country-briefIBISWorld. (2024) Sims Limited - Company Profile Report [Online] Available at

https://www.ibisworld.com/au/company/sims-limited/