The document discusses the challenges and opportunities that the ASEAN Economic Community (AEC) presents for HR practices in Indonesia. Some key points: 1) The AEC aims to create a single market by 2020, expediting integration to 2015, which allows free flow of capital and skilled labor. This poses threats to current HR practices in Indonesia and challenges HR practitioners to stabilize practices. 2) HR departments will be affected by AEC and free flow of labor. Practitioners must ensure stability in areas like employee satisfaction, turnover, and engagement. 3) Possible affected HR areas include managing the workforce amid increased mobility, cultural diversity with foreign investment/expatriates, and developing skills for a integrated market.

1. By: Balu Rama Chandra
21/10/2014 Page 1
HR ESSAY COMPETITION 2014
Title: The Future of Indonesian HR Practices in ASEAN Economic Community
The ASEAN Economic Community (AEC) was initiated by the members of ASEAN in
2003, to create an economic community in the region by 2020. But in 2007, there was a
consensus among the members to expedite the establishment of the economic community by
2015, which is in 1 year time from now.
This economic integration may bring myriad benefits and opportunities to the members in
region; like in the case of European Union (EU), especially to the current businesses and the
society inside it. But, putting aside the opportunities given, referring to the impediment in early
stage of European Economic Community implementation (Katarzyna, 2013; Dyner and Ryabova,
2013), AEC would also bring challenges or obstacles or threats to the businesses and all of its
functions (Chia, 2013), especially to the Human Resource (HR) Department and its Practitioners
in Indonesia.
HR Department or function is one of the supporting business functions that would be
affected by the introduction of AEC. Referring to the AEC Blueprint, one of the objectives of
AEC is to have a single market and production base which enables free flow of capital and skilled
labor in the ASEAN region. As the name implies, the HR department’s job revolve around the
employees or human resources the organization has. The objective of having free flow of skilled
labor would pose threats to current HR practices in Indonesia and at the same time challenge the
Indonesian HR Practitioners to, if not remodel, thinking of methods to stabilize the HR practices
for and in the future and fully prepare the organization readiness for the upcoming AEC.
One of the essential tasks for the HR Practitioners in the era of AEC is to ensure the
stability of current and future HR practices in some HR related areas; employee satisfaction,
turnover and retention, employee engagement etc. They need to maintain stability of the above
mentioned areas to ensure the productivity and survival of the organization in the AEC market.
Failure would not be an option for the HR Practitioners, and this is not only for the Indonesian

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HR Practitioners but also for other HR Practitioners in other countries in ASEAN region
(Suwannaset, 2013).
Free flow of capital and skilled labor brings challenges for Indonesian HR Practitioners in
many HR related areas. The followings are the possible areas in HR that might be affected by the
introduction of AEC and subsequently shape the future Indonesian HR practices.
1. Managing the workforce, turnover, and retention.
2. Managing cross-cultural diversity and differences.
3. Learning and development – skill enhancement.
1. Managing the workforce, turnover, and retention
A recent study by International labor Organization (ILO) forecasted that by 2020 there would
be 31 million of jobs created with the integration of AEC. The study also suggests that labor
movement between the countries in ASEAN region would not only for the skilled professional
but also for medium-skilled professional. Referring to ILO study, Indonesian HR Practitioners
have a big task ahead of them to cope with the inflow and outflow of employees in the economic
community. Strategic human resource management should be put in place to ensure the
workforce planning completed accordingly, minimize employee turnover, and last but not least
retaining the talents of the organization.
At the beginning of its implementation in 2015, AEC would introduce Mutual Recognition
Agreements (MRAs) that would enable 8 professional services to move freely and effortlessly in
the ASEAN region. These 8 professional services are the practitioners in dental, medical, tourism,
engineering, nursing, surveyor, accounting, and architectural area. In Indonesia, there are a lot of
Practitioners in these 8 fields and HR Practitioners task would be ever harder since the risk of
losing a critical talent in an organization will adversely affect the productivity of the organization
and the business it runs.
 Precise and thorough workforce planning needs to be done accordingly with the
Organization needs. To have enough manpower on time, HR Practitioners should have
effective recruitment strategies in place to replace exit employee (turnover) caused by
AEC. Since the competition of attracting workforce in the age of AEC would be very
high, Indonesian HR Practitioners should find different methods in recruiting. They
should utilize any recruitment media available and identity unusual recruitment strategies

3. By: Balu Rama Chandra
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like recruiting through social networking sites, employee referral reward & scheme, etc.
Cooperating with educational institutes and giving scholarship to the excellent students in
the institutes are some other recruitment strategies that can be implemented for
encountering HR recruitment challenges in the age of AEC.
 To minimize the employee turnover, it is suggested the HR Practitioners to create new
HR initiatives that might enhance employees’ loyalty, engagement, and ownership to the
organization. Some of the initiatives to consider are; offering competitive and appealing
compensation and benefits, fast track career program, career grow, etc.
 The strategy of retaining top talents and minimizing employee turnover usually go hand
in hand. In retaining the top talents of the organization, HR Practitioners need to;
establish a clear and fair Reward and Recognition program (RnR), create competitive
compensation package, unusual benefits like health savings accounts or pet insurance or
job-sharing days, provide clear career path and growth, and last but not least having an
established talent management system (fast track career program) in the organization.

4. By: Balu Rama Chandra
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2. Cultural Differences Implication on Indonesian Future HR Practices in AEC
Cultural differences might affect and shape the future HR Practices in 2 contexts. The first
context is under Merger and Acquisition (M&A) and Foreign Direct Investment (FDI) and the
second, by the influx of foreign employees or Expatriates to Indonesia.
One of the objectives and opportunities obtained from AEC is the free flow of capital in the
region. This is seen as a great opportunity for both investors and investees to develop and
maximize the assets and business they currently have. The number of M&As and FDIs in
Indonesia are forecasted to rise in years to come and the foreign investors are expected to bring
their organizational culture to the Indonesian organization they merged and acquired (M&A) and
to the organization to they invested in. It is another critical task for the HR Practitioners in this
AEC context, to successfully integrate the culture between the two parties. Organizational
cultural integration is a crucial and its importance cannot be underestimated as it may affect the
overall employee morale, behavior, and satisfaction and subsequently impact the organization
productivity (Chia, 2013).
As discussed above, the free flow of skilled professionals in AEC would include the inflow of
Expatriates to Indonesia. According to Indonesia Ministry of Manpower statistic, there are 45.981
Expatriated working in Indonesia and the numbers are expected to grow with the start of AEC
next year. The Expatriates surely has different background, culture, way of doing things,
characters, and behavior than Indonesian and this would become an issue when they start their
career in Indonesia. The Indonesian HR Practitioners must define ways to integrate the
Expatriates to Indonesian working culture/environment and help their adaptation, anticipate
cultural class or conflict between employees, and try to minimize and eliminate the disparities
between the Expatriates and locals.
To address the above issues, HR Practitioners should promote fairness and transparency in
the working environment, like providing fair reward and recognition, bonus, and also try to
minimalize disparities between them. There is a need for the HR Practitioners also to create a
specific initiative that would help the Expatriates blend easily and quickly during their early days
in Indonesia. A few soft training programs on cross-cultural training and understanding diversity
would be a good starting point. Encouraging the employees to work diverse groups would even a
better option for the HR Practitioners to expedite the cultural transition and adaptation of both the
Expatriates and local employees.

5. By: Balu Rama Chandra
21/10/2014 Page 5
3. Learning and Development Challenges in AEC
The competency, skill, and knowledge of employees are varied and unbalance in the ASEAN
region. Singapore is by far seen as the forefront of having competent and skilled employees in the
region and that infers there is still a big gap in terms of employees’ skill and competency in the
region, especially in English language skill.
In Indonesia, most employees still use Bahasa as the language of instruction in the working
place, only some which speak limited and proficient English when working. Even in most MNCs
in Indonesia, when at work, the employees are still communication in Bahasa. In the Age of AEC
where the capital and skilled labor can move freely, the need to understand and interact in English
is more important than ever (Chia, 2013).
 To encounter this issue, HR Practitioners need to come up with a solution to improve the
English language proficiency of the employees. There is a need to have a decent English
language training skill for the employees in the organization. An English language
training class should be initiated for this purpose.
 However, the job of HR Practitioners in this area is still not over yet. HR Practitioners
also need to initiate a Bahasa language training program for the expatriates. This can be
seen as one of methods to support the cultural integration between the Indonesian and
Expatriate employees and enhance their engagement to the organization.
 But, language is not the only skill gap that exists in the ASEAN region. There are other
skill gaps in the region that HR Practitioners in Indonesia should aware of, like
technological know-how, working practices, etc. The organization needs to invest in its
employees and it is the job of HR Practitioners to find ways in enhancing employees’
skill. Learning and development (L&D)initiatives such as assigning employees to work in
the organization’s branch overseas for benchmark purpose and cooperating with overseas
organization for cross-knowledge sharing and transfer are some of the strategies in L&D
that should be considered by Indonesia HR Practitioners.

6. By: Balu Rama Chandra
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The importance of learning and development for an organization should not be neglected as it
may affect the overall organizational performance. Therefore, in the age of AEC, HR
Practitioners should always seek for ways to improve the employees’ productivity through valued
added training so that the employees can convincingly facilitate the organization to achieve its
goals.
4. New HR department roles in the age of AEC
The above discussion has highlighted solution and strategies that Indonesian HR Practitioners
need implement to encounter the challenges they might face and their roles in the age of AEC. To
add, there are some other suggested roles that HR department can play in improving the overall
efficiency, productivity, and performance of the organization. They are;
- Being Corporate Ambassador, to create an employee of choice brand which can help the
organization in attracting talented and skilled candidates.
- Being Employee Champion, to create lively and happy workplace, enhance employees’
satisfaction and engagement, and retaining them.
- Being the Agent of Change, to prepare the readiness of the employees and organization
for change, facilitate the change process, and evaluate the results of the change.

7. By: Balu Rama Chandra
21/10/2014 Page 7
References
Suwannaset, W. (2013). ‘The Perspective of HR Managers regarding Organizational Readiness
for the AEC 2015: The Study of Private Hospitals in Chonburi’, HRD Journal.
Chia, S.Y. (2013). ‘The ASEAN Economic Community: Progress, Challenges, and Prospects’,
ADBI Working Paper.
Katarzyna, S. (2013) [Online] Available from:
http://coin.wne.uw.edu.pl/sledziewska/wyklady/tei1.pdf. Accessed: 18th
October 2014.
Dyner, A. M. & Ryabova, N. (2013) “Belarus in the CES: Advantages and Disadvantages of
Economic Integration”, Policy Paper, 24(72), p.1-7.