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A Sea Change for Risk Management in Indonesia

By Craig Foster
Country Manager
PT. Hill Konsultan Indonesia

If the events of Sept. 11, 2001 had not already done so, the Oct. 12, 2002 Bali bombing provided the catalyst for multinational companies operating in Indonesia to place a greater emphasis on asset protection - both people and facilities.

Issues surrounding terrorism are likely to be core features of many corporate risk management strategies in Indonesia for some time to come. Facilities, plans, and procedures developed in Indonesia at key installations in the past have not been designed with the latest threats in mind. There is a pressing need to design effective security risk management strategies that address these new threats both in the immediate and foreseeable future.

Certain Indonesian provinces have traditionally been assessed as “lower risk” in comparison to the Central Java environment. The focus of risk management and security planning has, up until recently, been primarily on Jakarta. The terrorist attacks in Bali have forced a radical revision of this practice with potential threats now switching to perceived “soft targets” nation-wide to include provincial operational centers, popular western gathering places and most recently the Jakarta Intercultural Schools.

The traditional “relationship-based” security models with heavy reliance on the Police/ Military often employed in Indonesia by the mineral extraction industries in remote areas are being hastily up-graded to a more self-reliant and internationally benchmarked design. In today's Indonesia, “official” resources are increasingly deployed in restive provinces or stretched by rising levels of urban crime. Those responsible for security management should seek to maintain key relationships where appropriate but provide a comprehensive set of integrated contingency plans and operating procedures catering for the new challenges presented by terrorism, rising crime, labor unrest and a need for better community relations. In short, self-help and sustainability are key factors.

The world's markets are becoming increasingly inter-related and interdependent. Strategic investment and operating considerations of ten extend beyond national borders. Critical decisions for domestic and international corporations are affected by the larger issues of national economies and political trends, as well as global financial and capital markets. Accordingly, the threats faced by multinational corporations at home and internationally derive from a combination of internal and external sources. The country executive is often challenged by an overseas head office at times ill informed or whose views on the local security situation can be heavily influenced by the domestic media. This “perception-versus-reality” struggle is an almost daily survival battle for many Jakarta based executives.

Terrorist incidents are believed to have increased more than tenfold over the last decade, and 67 percent of those incidents are focused on attacks on business. Fraud, in its various forms, is estimated to amount to losses totaling US$400 billion. Some 82 percent of major fraud cases are found to involve the company's own employees. The American Society for Industrial Security estimates that intellectual property theft costs the U.S. economy $250 billion per annum.

Historically, the security industry has enjoyed an over-all annual growth of between 7 percent and 9 percent with certain sub-sectors, such as investigation and IT security, experiencing higher growth rates.

This growth has been fueled by the impact of globalization and the trend of outsourcing in manufacturing and services. At the same time the proliferation of modern technology (e-commerce networking and data sharing) is continuing to increase the exposure of corporations to threats against their facilities, people and assets.

Indonesia has certainly seen its own spikes in demand for security services, which have largely been reactive and event driven. However, medium to long term prospects for the industry will ironically depend upon issues, such as lasting improvement in the security situation, better law and order and the integrity of the judicial system to attract new investments, which are likely to require risk management and security support.

The recent international incidents such as the Sept. 11 attacks and the Bali bombings have forced governments, corporations and individuals to revise substantially their approach to security.

There corporate and personal behavioral changes are still unfolding amongst Jakarta's expatriate community, many of whom are accustomed to the more a familiar risks of political instability and social unrest but did not sign up for the risks of terrorism.

Worldwide, and lately Indonesia included, executive and facilities protection has been scaled up and programs to screen employees, vendors and sources of goods implemented. A survey carried out by the International Security Management Association on trends and challenges after Sept. 11 showed that the number of respondents with plans addressing biological, chemical and nuclear contamination more than doubled to 70 percent of respondents. Additionally more than 67 percent of the respondents predicted additional funding for the corporate security department in 2002-2003.

Unlike the past, short term or cosmetic security improvements are not likely to be sustainable in addressing the prevailing risks in Indonesia. A paradigm shift in operating those and everyday security awareness is required to reflect the reality of the current operating environment.

This article was contributed by Craig Foster of Hill & Associates.

Other interesting articles on Risk Management in Indonesia:

Ramadan 2016 Special Advisory Report
Mitigating the Risks of Doing Business in Indonesia