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Mercer bdb doing_business_in_indonesia_mar_2011
- 1. Breaking Down Borders Doingbusiness in Indonesia Su-Yen Wong, Senior Partner and ASEAN Managing Director Ake Ayawongs, ASEAN Head of M&A Consulting Services www.mercer.com
- 2. Speakers Su-Yen Wong Senior Partner and ASEAN Managing Director, Mercer Ake Ayawongs ASEAN Head of M&A Consulting Services, Mercer Mercer 1 1 Mercer
- 3. Agenda 1. Background andContext 2. Remuneration trends 3. Benefits practices 4. Staffing issues 5. Expatriate issues 6. Acquiring in Indonesia 7. Conclusion 8. Q&A Mercer 2 2 Mercer
- 4. 1. Background andContext 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 5. Outlook in theregion has improved further Asia Pacific regional GDP forecast Regional: GDP Forecasts, % real growth, 2009-2011 2009 2010 2011 (forecast) 20 15 10 5 0 -5 -10 CN IN VN ID AU PH SK NZ SG MY TW TH HK JP US Source: IMA Asia Pacific Executive Brief, March 2011 Mercer 4 4 Mercer
- 6. Inflation is increasingagain Potential impact on compensation increases Regional Inflation Forecasts, % CPI 2009 2010 2011 (forecast) 15 13 11 9 7 5 3 1 -1 -3 IN VN ID PH SK NZ AU HK MY SG CN TW TH JP US Source: IMA Asia Pacific Executive Brief, March 2011 Mercer 5 5 Mercer
- 7. Organizations need toplan on the basis of… Upward inflationary pressures – Potential impact on salary growth – Need to target compensation spending High fuel prices to continue into the foreseeable future – Review operating models – Renew focus on efficiency gains Mercer 6 6 Mercer
- 8. 2. Remuneration Trends 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 9. Compensation: Basics Minimum wage – Varied by province, district, and sector – Multinational companies tend to have a higher compensation standard Frequency of payments – 13 months; the 13th month is a statutory requirement – Market practice indicates that employees who work less than a year receive pro-rated amount of the 13th month salary Mercer 8 8 Mercer
- 10. Average Industries SalaryIncrease vs. Inflation Salary increases continue to outstrip inflation Current inflation rate is usually considered for budget increase planning in the following year Inflation rate All Industries Base Salary Increase 13.1% 10.7% 10.9% 8.4% 13.0% 7.5% 8.2% 6.4% 9.8% 9.2% 4.8% 5.1% 2006 2007 2008 2009 2010 2011 (forecast) Source: IMA Asia Pacific Executive Brief, Mercer Total Remuneration Survey Mercer 9 9 Mercer
- 11. Factors Determining SalaryIncrease Percentage of companies Individual Performance 96 Company Performance 81 Inflation 79 Position in Salary Range 72 Job Level 46 26 Market Competitiveness 14 Length of Service All Industries Mercer 10 10 Mercer
- 12. Variable Pay Trends(% of Annual Base Salary) Average Overall 24.00 22.3 22.6 22.2 22.00 21.5 20.00 18.00 (%) 16.00 14.00 12.00 10.00 All Industries 2008 2009 2010 2011 (forecast) Source: Mercer 2010 Total Remuneration Survey APCBF Report and Preliminary Mercer 2010 Total Remuneration Survey (All Industries) Mercer 11 11 Mercer
- 13. 3. Benefits Practices 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 14. Benefits: Social Insurance(1 of 2) JAMSOSTEK (Jaminan Sosial Tenaga Kerja) is a social security scheme in Indonesia that prescribes the minimum coverage for retirement, accident, death and health benefits Implemented in 1993 as a replacement for ASTEK, which in turn had been in place since 1978 Membership is compulsory for companies with over 10 employees, or with a monthly payroll of at least IDR 1 million JAMSOSTEK policies for personal accident, life insurance and old-age security benefits are compulsory – But companies can opt out of JAMSOSTEK’s health benefit as long as they provide an equal or better program Mercer 13 13 Mercer
- 15. Benefits: Social Insurance(2 of 2) Employers contribute to JAMSOSTEK’s four elements – occupational accident, death, health maintenance and old age. The employer’s contribution rate for occupational accident varies depending on the company’s industrial risk classification The contribution rates applied to base salary are as follows: – 0.24% to 1.74% of the monthly wage for the occupational accidents plan (depending on the nature of business); – 5.7% of monthly wage for the old-age saving plan, of which employees contribute 2.0% and the company contributes 3.7%; – 0.30% of monthly wage for the death benefits plan; and – 3% (single) and 6% (married) for the health benefit plan – optional if the company provides an equal or better plan Total JAMSOSTEK contribution is in the range of 9.24% - 13.74% of basic salary Mercer 14 14 Mercer
- 16. Typical Benefits % Companies Provide (All Industries) Health care* 97% Training & Education 95% Vehicle benefits 82% Life Insurance* 57% ADD* 51% Travel Insurance 47% Retirements 46% Loans 37% Company products Discount 21% *On top of statutory requirements Mercer 15 15 Mercer
- 17. Health Benefits andInsurance Outpatient Benefits - Clinical • Typically outpatient covered clinical and dental. The cap including dependants • If reimbursement is only partially given, then the typical percentage reimbursed is 90% Inpatient Benefits • Most of companies provide inpatient benefit for employees and dependants • Typical inpatient clinical is capped at maximum daily room and board rate Life Insurance Trends • 55% of companies provide Life Insurance benefits • Around 71% of companies who have Life Insurance benefits provide in terms of months’ salaries, on average 23MBS for Executive, Professional Sales, Professional Non-Sales, Para Professional level and 35MBS for Management level Accidental Death & Disability (AD&D) Trends • 42% of companies provide ADD benefits • Around 69% of companies who have ADD benefits provide in terms of months’ salaries, on average 34MBS for Executive, Management, Professional Sales level; 33MBS for Professional Non-Sales level and 37MBS for Para Professional level Mercer 16 16 Mercer
- 18. Labour Law 13/2003 Service Year (Y) Severance Gratuity (months) (months) Severance and Gratuity Pay Y<1 1 0 Payable to all employees who 1 Y<2 2 0 have been terminated from the 2 Y<3 3 0 company due to the attainment 3 Y<4 4 2 of retirement age and also pre- retirement age termination 4 Y<5 5 2 – Severance pay is calculated at a 5 Y<6 6 2 base rate of one month’s wages for each year of service, up to a 6 Y<7 7 3 maximum of nine months pay 7 Y<8 8 3 – Payment for reward of service 8 Y<9 9 3 consists of adding one month’s pay for every three years of 9 Y < 12 9 4 employment, starting with two 12 Y < 15 9 5 month’s pay for 3 years, up to a maximum of 10-months wages 15 Y < 18 9 6 for 24 years of service 18 Y < 21 9 7 Fully sponsored by Employer 21 Y < 24 9 8 24 Y 9 10 Mercer 17 17 Mercer
- 19. Employment System: Hiringand Firing Index: ASEAN Comparison Country / Difficulty of Rigidity of Difficulty of Rigidity of Firing Costs Region Hiring Index Hours index Firing Index Employment (Weeks) Index East Asia & 20 30 22 24 52 Pacific Indonesia 61 40 70 57 157 Malaysia 0 0 10 3 74 Singapore 0 0 0 0 4 Philippines 22 60 40 41 90 Thailand 67 40 20 42 47 Source: Doing Business 2004, World Bank 18 Mercer 18 18 Mercer
- 20. 4. Staffing Issues 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 21. Hiring Intention –Next 12 months More companies plan to recruit/add headcount in 2010 Percentage of companies (All Industries) 8 3 37 49 60 44 2009 2010 Recruiting/Adding No Change Reducing Mercer 20 20 Mercer
- 22. Hiring Intentions Asia Pacific2010 90 Hiring Intentions - Next 12 Months Increase headcount (%) No change (%) Reduce headcount (%) 80 70 60% 60 50 40 30 20 10 0 IN CN VN ID KR MY SG TH PH JP TW HK NZ AU Source: Mercer 2010 Total Remuneration Survey Mercer 21 21 Mercer
- 23. Turnover rate byIndustry Industry 2007 2008 2009 All Industries 8.1% 7.4% 7.3% Consumer Goods 7.7% 4.7% 6.9% Automotive 7.4% 7.6% 4.6% Chemical 4.8% 6.6% 3.8% Hi-Tech 1.3% 10.4% 13.9% Life Insurance 13.9% 17.2% 16.9% Manufacturing 5.7% 4.0% 5.1% Mining 3.6% 2.6% 9.1% Mining Services 5.8% 8.7% Pharmaceutical 13.5% 12.0% 13.0% Shipping & Logistics 15.0% 7.5% 6.4% Telecommunication 8.1% 8.3% 7.8% Source: Mercer Total Remuneration Survey Mercer 22 22 Mercer
- 24. 5. Expatriate Issues 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 25. Cost of Living– Asia Pacific cities Cost of Living - Base City Singapore 140 118 120 98 100 94 96 96 100 89 86 76 77 77 78 79 Ranking 80 70 67 67 68 60 40 20 0 Hong Kong Kuala Lumpur Shanghai Wellington Hanoi Jakarta Singapore Bangkok Mumbai Dhaka Seoul Taipei Manila Sydney Tokyo Beijing Colombo Source: Mercer Cost of Living Calculator, Mar 2010 Mercer 24 24 Mercer
- 26. Quality of Living– Asia Pacific cities Sydney 103 Wellington 102 Base City Singapore 100 Tokyo 98 Hong Kong 92 Kuala Lumpur 87 Seoul 85 Taipei 84 Shanghai 79 Bangkok 72 Beijing 72 Manila 68 Jakarta 63 Colombo 62 Mumbai 62 Hanoi 60 Islamabad 50 0 20 40 60 80 100 120 Rank Source: Mercer Quality of Living Calculator, Mar 2010 Mercer 25 25 Mercer
- 27. Expatriates: Common issues When executives are relocated from one country to another, companies need clear, objective information that establishes the quality-of-living differences between cities The differences in the quality of living are other important factors that affect employees’ willingness to relocate Cost of living has a direct impact on employees’ living standards Mercer 26 26 Mercer
- 28. 6. Acquiring inIndonesia 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 29. The M&A landscape A look at some recent examples What’s driving this activity Mercer 28 28 Mercer
- 30. Deals in Indonesiahave largely been Out-In and In-In transactions and in the Resource, Financial Services and Consumer Retail sectors Note: Deal Volume chart includes deals with unannounced deal values, which may not be reflected in the Deal Value chart; Data only for deals with at least 30% stake; Deals denote either target/seller OR bidder (as opposed to target/seller AND bidder) within each specified geography; by announcement date Source: MergerMarket; Mercer Analysis Mercer 29 29 Mercer
- 31. M&A checklist forHR A summary of key things to keep in mind SEVERANCE and RETENTION • Union plans, if any • Retention plans • Restructuring costs COMPENSATION • Incentive plan cash flows • At-risk compensation • High level of benefit costs RETIREMENT • Defined benefit plan liabilities and projected costs • Increasing pension plan governance HEALTH & BENEFITS • Retiree medical liabilities and projected costs • Cost escalation • Many plans and vendors Mercer 30 30 Mercer
- 32. Indicative characteristics ofIndonesian national culture Collectivism – Individualism Collective Individual Power Distance Small Large Time Orientation Short-term Long-term Femininity – Masculinity Collaboration & Competition & Strength Consensus Uncertainty Avoidance Uncertainty is a given Uncertainty is avoided Source: Hofstede, R. M. (2001). Culture's Consequences: Comparing Values, Behaviours, Institutions and Organizations Across Nations, Thousand Oaks, California: Sage Publications, Mercer Analysis Mercer 31 31 Mercer
- 33. Key actions andissues – Culture and communication Culture – Indonesians tend to obey their leaders without questioning authority – However, they like to be informed well in advance if there is a change – In general, seniority is valued and confrontation, especially to those who are older, should be avoided Effective Change Communication in M&As – Communicate culture, history, philosophies, visions, goals, core values, practices and achievements of the acquiring company to remove uncertainty and give employees a level of comfort, to understand the effectiveness of both formal and informal communication channels and utilize these channels, and to treat those leaving with the same respect and attention as those staying – English language might be a problem for direct labor level staff. Higher level staff usually have higher educational levels and English language proficiencies Mercer 32 32 Mercer
- 34. 7. Conclusion 1 Background and Context 2 Remuneration Trends 3 Benefits Practices 4 Staffing Issues 5 Expatriate Issues 6 Acquiring in Indonesia 7 Conclusion
- 35. In Summary Labour costs in Indonesia remain comparatively low – However, higher salary increases estimated in 2011 as compared to 2010, and getting closer to pre crisis levels – With clear signs of economic recovery and organisations starting to hire again, attrition rates starting to trend upwards – Inflation could create bigger mismatch between employer/employee expectations Six in every 10 companies looking to add headcount in the next 12 months – Employers need to keep pace with market practice in order to attract and retain talent – Organisations would need to focus on: Focused talent management, including segmentation Leadership development Compelling employee value proposition Employers will need holistic human capital approach to drive increased productivity. Expatriate managers can facilitate this process, but employers need to be mindful of cost and quality of living issues to ensure success Also need to monitor legislative changes to ensure compliance with the law Indonesia is a hot market for M&A, with a number of recent deals in the Resource, Financial Services and Consumer Retail sectors Attention to communication and culture is critical for success Mercer 34 34 Mercer
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- 37. For more informationon regional strategies, risks and opportunities Visit our Breaking Down Borders website to access articles, points of view, podcasts and more information on investing in Indonesia. www.mercer.com/breakingdownborders Su-Yen Wong Senior Partner and ASEAN Managing Director, Mercer su-yen.wong@mercer.com Ake Ayawongs ASEAN Head of M&A Consulting Services, Mercer ake.ayawongs@mercer.com Mercer 36 36 Mercer
- 38. Next in theBreaking Down Borders webcast series Doing business in Australia 27 April 2011 Access recordings of past webcasts on www.mercer.com/breakingdownborders - Doing business in India - Doing business in Japan - Doing business in China - Doing business in Korea Mercer 37 37 Mercer
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