Why is this happening to us and what can we do about it?

In recent months Control Risks has been asked this question all too frequently by companies operating in Indonesia. More often than not the company is experiencing what can charitably be termed a regulatory challenge, which may have begun with a police raid or the receipt of a demand for a multi-million-dollar “settlement” to make an investigation into a supposed infringement go away. In this article, Joe Morris from Control Risks’ Indonesia practice summarises a best practice approach to answering the question and ensuring that your business continues to thrive in what remains one of South-east Asia’s most exciting markets.

Challenging times

Multinational companies encounter a host of difficulties and unforeseen challenges in Indonesia. Across key sectors and in all parts of the country, regulators, law enforcement agencies, local partners and competitors can all make life difficult, aided by an at times deliberately confusing and contradictory web of laws and regulations. High-profile case studies abound, such as the imprisonment of several Chevron employees for corruption, in a case that originally focused on alleged environmental violations in Sumatra, and a police investigation into allegations that Coca-Cola Bottling Indonesia’s plant in West Java accessed ground water without having the required licences in place.

Responding to such challenges is daunting and can occupy vast amounts of management time. In our experience it becomes easier if you start with the following basic framework:

1. Understand the drivers: Everything happens for a reason. You may have inadvertently offended your local partner or failed to adequately manage relationships with important stakeholders. There may be developments outside of your control in your sector that are pushing competitors or other third parties to put the squeeze on your business via their friends within rogue regulators. You may simply have left yourself vulnerable to attack by failing to file a particular document in time or overlooking a permit renewal. Whatever the root cause and motivations, you need to identify them before you can develop a strategy to resolve your situation. At the same time, you need to sift through the fog of rumours, innuendo and conspiracy theories that inevitably develops when a company gets into difficulties in Indonesia, and identify the true situation.

Control Risks frequently assists companies to do exactly this by applying our knowledge of how Indonesia’s key institutions operate, and leveraging our extensive network of sources throughout the country to gather corroborated intelligence on a specific situation. For example, in the past year we have helped several clients in Indonesia who have faced trumped-up charges pertaining to minor regulatory violations, accompanied by sustained campaigns of harassment involving intimidation of staff and difficulties obtaining work permits. In each case, understanding the motivation behind the harassment was a vital starting point in resolving the issue.

2. Profile the stakeholders: Building on point 1, you need to map out who has power and influence – for better or worse – over your situation. In doing so, you will identify who the key players are in your troubles, and consequently who may be in a position to assist you and neuter the negative influences. This process of mapping and profiling stakeholders is a key component of Control Risks’ Indonesia practice, drawing on our long history of helping companies respond to similar situations and our knowledge of the complex interplay between business and politics. As an example, in one recent case we determined that a particular police faction was instrumental in our client’s difficulties, while in another it became clear that a low-level official whom the client had dealt with seamlessly for years was actually a key protagonist in its case.

3. Develop your response: With points 1 and 2 in hand, you are well placed to develop a strategy to resolve the issue you are facing. This strategy may involve reaching out to identified stakeholders; adopting a strategy of patience in the knowledge that a particular stakeholder may soon lose their ability to influence the situation; taking a more aggressive approach to confronting the situation; or something else entirely. The key is that, without a detailed understanding of the drivers, motivations and influences at play, your strategy will fail.

4. Prepare for the long haul: Even if you do all of the above to the letter (or number), do not expect a rapid and final resolution to your regulatory challenges in Indonesia. You may put a specific issue to bed, but your business is likely to remain vulnerable to actions by the same or other stakeholders, whether immediately or in the future. At best this may involve minor regulatory harassment as discussed above and, at worst, attempts to seize your assets or kick you out of a particular project. Recognising this, accepting it and taking a long-term view to the protection of your assets and people is crucial. Consequently, stakeholder engagement, audits and risk assessments to identify additional vulnerabilities that could be exploited, monitoring of media, and revision of your crisis response protocols to ensure they are fit for purpose should all be part of your long-term Indonesia strategy. Despite all the difficulties, the rewards are there for those companies that get it right.