Strategic management concepts and frameworks

Rodamas Group

Core Competencies of Rodamas Group

The Business Environment Before and After the 2008 Economic Crisis

Strategic Alternatives for Rodamas Group

Recommended Strategy for Rodamas Group

Implementation of this Strategy

The Rodamas Group was founded in 1951 as Ho Hoa Trading Company. Its original focus was what other Indonesian companies focused on -- trade. As the country didn't have manufacturing capabilities or industry, this trade was primarily import items through multinational partnerships. In the 1960s, Rodamas Group diversified their core competencies into manufacturing. The company's partners quickly saw with the changes taking place, that Indonesia held many opportunities for manufacturing.

Prior to the economic crisis, which began in 2008, the business environment in Indonesia was changing. President Sukarno's socialistic approach closed off foreign business opportunities, and made it impossible for Chinese descendants to do business in the country. The economy plummeted and the rate of inflation skyrocketted. When Suharto took over, he understood that the country needed a more open economy and a focus on manufacturing was needed. In 1998, the Asian economic crisis came about and another political change would lead to more turmoil in Indonesia. However, recently, the country has become one of the largest democracies in the world.

Increased competition, due to new economic policies, and challenges due to the economic crisis beginning in 2008, has meant Rodamas Group needs to change their business strategy. Instead of partnering with multinational manufacturers, the organization needs to take a consultancy role, doing what they do best -- establishing businesses in Indonesia. Developing one of their strongest assets, their office space real estate, can help provide long-term, steady income. Lastly, pursuing existing business acquisition internationally will help the organization acquire new core competencies, while also giving them geographic diversification.

Introduction

With approximately 240 million people, the growing country of Indonesia is a strong, emerging economy. Rodamas Group, an import trading company based in Jakarta, has seen a country that was once stifled by imperialism and then socialism, begin to bloom under increased capitalism. However, with these new economic opportunities, coupled with increasing globalization, the traditional local partnership role Rodamas Group played, with foreign multinationals, was in question. The increasing use of outsourcing, as well as Indonesia's recent policy allowing some businesses to operate within the country, with 100% foreign ownership was a concern, for the organization. To add to the challenges Rodamas Group was facing, the economic turmoil which began in 2008, not only has brought new opportunities to Rodamas Group, but also new challenges as well. Deputy Chairman and primary shareholder, Mucki Tan, wondered if the business model developed by his father, at the founding of the organization was still effective in the modern economy. Mucki Tan reorganized and streamlined Rodamas Group, and sold off some of the smaller business units. However, he needed a new plan of action to take his organization into the 21st century.

To determine what Mucki Tan's best course of action is for Rodamas Group, it's important to first understand the organization's core competencies. Knowing what the main characteristics of the business environment before and after the beginning of economic problems in 2008, will also help in determining which plan will ensure Rodamas Group is most successful. This will also help determine if Rodamas Group has the capabilities needed to manage the environment post-2008's economic crisis. Once these facets of Rodamas Group and the environment are explored, the different strategic alternatives can be given, with their benefits and disadvantages. From these alternatives, one strategy will be chosen as the recommended strategy, and the requirements to implement this strategy will be presented.

Core Competencies of Rodamas Group

Rodamas Group began in 1951 as Ho Hoa Trading Company Limited. It was founded by Tan Siong Kie -- Mucki Tan's father. Eight years later, the organization was renamed Rodamas Company Limited, with Tam Siong Kie and his wife, as the founders. Indonesia had won its independence in 1949; however, under the rule of President Sukarno's plan of socialism, the country's economic growth declined and inflation skyrocketted, despite the overwhelming support initially for socialism in the country (Pye, 1974). Sukarno nationalized most foreign businesses forcing many foreign managerial and technical experts to leave the country. Tan Siong Kie took advantage of the gaps that were left with the foreign business closures (Dieleman & Kamal, 2009).

Rodamas focused on what many other Indonesian businesses focused on at the time -- trade. The country had very little industrial activity and no capabilities to produce even the most basic products domestically. As such, Rodamas developed partnerships and became the agent of a variety of foreign manufacturers. Their primary area of competitiveness was the organization's ability to be an efficient and trustworthy partner, for those wishing to sell their products in the Indonesian market. During these early years, Rodamas served primarily as an importer, as the multinational companies they had partnered with were only concerned with exporting. These were most often Japanese products. Japanese products performed better than American or European products as they were more suitable to the Indonesian consumer and also more competitively priced (Dieleman & Kamal, 2009). For this reason, most of Rodamas Group's partners were Japanese firms, during these early years.

Dieleman and Kamal (2009) note that Rodamas Group would expand their core competencies into manufacturing in the 1960s. Following a bloody military coup in 1965 and the replacement of Sukarno and his socialist policies with Suharto and more forwarding looking economic plan, the economic landscape for Indonesia began to change. With Suharto's commitment to expanding manufacturing opening the borders to foreign investment, Rodamas Group seized the opportunity to use their connections with foreign manufacturers, to profit from this economic policy shift.

As noted earlier, Rodamas Group's partners were primarily interested in exporting, in the past. However, with the changes taking place in Indonesia, they quickly saw the opportunities that would come with manufacturing in Indonesia. At the time, the limits on foreign ownership meant that multinational organizations needed a local partner. Rodamas Group extended their trading partnerships to include joint manufacturing ventures. Rodamas Group's prospered due to their reliability, as well as their ability to obtain licensing and land, local management hiring, and also the distribution of the manufactured goods they produced locally. It's focus, for many years, is non-labor intensive manufacturing as well as local distribution. Their success has been built on their core competencies of importing as well as manufacturing and distribution, which has benefited from the company's "in-depth knowledge of the market, consumers, regulators, the regulations, the opportunities, and local challenges" (cited in Dieleman & Kamal, 2009, p. 3).

The Business Environment Before and After the 2008 Economic Crisis

Prior to the beginning of the economic crisis in 2008, the business environment Rodamas Group had to work within varied greatly. Originally, under the leadership of President Sukarno, Indonesia's business environment was challenging at best. As mentioned, Sukarno put in place policies to promote socialism. Economic growth became stagnant. According to Dieleman and Kamal (2009) inflation rose dramatically. Sukarno implemented policies that restricted the economic activities of the ethnic Chinese. Although this demographic was a minority in the country, it had a great effect within the private sector, as many, large, family-owned, sprawling conglomerates were owned by descendants of Chinese migrants. Sukarno also nationalized many foreign companies driving out many foreigners who held invaluable managerial and technical expertise. However, there were opportunities available.

Despite these challenges, this environment opened up new opportunities for Rodamas Group. The organization was able to step into the spaces left by the foreign companies that had been closed down. However, it wasn't until military leader Suharto came into power that Rodamas and the Indonesian economy would begin to really prosper. Despite the militaristic style of Suharto, this president understood that his first order of business was to fix the flagging Indonesian economy, complete with a 600% inflation rate. Suharto focused on promoting national manufacturing and opening up Indonesia's borders to foreign investment (Dieleman & Kamal, 2009). Both of these had a significant economic impact, until 1998.

The Asian Crisis of 1998 ushered in the demise of Suharto, while halting Indonesia's economic growth. The country adopted a more democratic political system, in response; however, many companies faced severe economic challenges as the rupiah, the local currency, plummeted from 2,500 to a dollar to 10,000 to a dollar. Most of Indonesia's banks failed and the government had to bail out the financial sector. Another change in presidential leadership and the country moved to a more open economy, with tariffs and trade barriers coming down, and became one of the world's largest democracies. Included in these recent changes was the new regulation allowing 100% foreign ownership of companies in most sectors, other than public infrastructure (Dieleman & Kamal, 2009).

Today's business environment is even more complex. In the past, the multinationals involved in Indonesian business were primarily from the United States, Europe and Japan. Now, there is an increasing number of multinationals coming from emerging economies, like India and China. Adding to this challenge was the economic crisis that began in 2008. It is anticipated that this crisis will lead to lower demand for a variety of products, Dieleman and Kamal (2009) surmised. This means the environment Rodamas must now operate in is one that is increasingly competitive.

Strategic Alternatives for Rodamas Group

There are a variety of strategic alternatives Rodamas Group can consider to address the emerging threats and take advantage of the upcoming opportunities with the new business environment within which the organization must operate. Of course, one possible alternative is that Rodamas Group simply keeps their current business model. They continue to look to partner with multinational companies for the manufacture and distribution of Indonesian made goods. Although now foreign organizations can entirely own a business in Indonesia, Rodamas offers unique benefits with their skills and experience that could still be of benefit to multinational organizations.

However, as Mucki Tan has realized, the organization does not own any proprietary competencies. Rodamas Group had sold off many of their smaller business units. This would facilitate one possible strategic option of focusing on a single business line he already had in place. However, Mucki Tan decided that this would not be a viable option since all of Rodamas Group's businesses had natural limits to growth. In addition, he was concerned about the instability of the Indonesian economy, and the need to diversify to minimize this risk ("Dieleman & Kamal, 2009). Putting all of Rodamas Group's eggs in one basket could spell disaster for the company, should the chosen industry fail.

A third strategic option Rodamas Group may consider is developing their own core competencies. These core competencies could then be used in a variety of businesses. Although Mucki Tan felt this would be a good solution, he was not sure his organization had core competencies that could be used in this option. It did not have technical research and development expertise, needed to be a competitive independent manufacturing unit. There was also the added complication of the non-competition clauses Rodamas Group had with its current partners that prohibit it from doing business in segments it was already operating in. Instead, Rodamas Group was only well-suited to producing simple products. Dieleman and Kamal (2009) note that this is a highly competitive market; however many other Indonesian firms had been successful producing products as diverse as clove cigarettes to basic toiletries. However, as noted, this is already a highly competitive market and the low barriers to entry mean that this competition is likely to increase.

Focusing on property development and management is another option Rodamas Group may consider. In this way, the organization could focus on an industry that was low-tech. Specifically, Mucki Tan considered the office rental sector. The office building the organization owned had transformed from being located in the middle of paddy rice fields to the center of a rapidly growing Jakarta. The property could be converted into office towers and the company could generate revenues through office rentals in the buildings they've built, as opposed to simply building buildings to sell directly upon completion . A past real estate project was conducted jointly between Rodamas Group and Sumitomo, one of the company's Japanese partners, and this venture was successful. However, again with the unstable Indonesian economy this could be risky. In addition, there are many larger players already in the real estate segment that Rodamas Group would have to compete against. Obviously, Mucki Tan's lack of experience in the sector would be a weakness for the organization, and the brand name of Rodamas Group was not established. Not to mention the current tax system in Indonesia which makes this strategy unfavorable. There is an expected tax structure, which could be a factor in the future (

Dieleman & Kamal, 2009).

Of course, Rodamas Group could transition into labor-intensive manufacturing, according to Dieleman and Kamal (2009). One disadvantage to this strategy is China's strong presence in the industry already. However, many multinational companies prefer to spread their suppliers out from different countries, to minimize risk. If Rodamas Group could meet the price and quality aspects to be competitive, it could receive a percentage of the industry. Much like the real estate option, Rodamas Group did not have much experience with this sector. There was concern that the company wouldn't be able to handle the varied requirements needed for the industry.

Rodamas Group could adopt a strategy of internationalization, undertaking foreign direct investment. This would help protect Rodamas Group from economic challenges that were specific to one country or region. However, the organization does not have the human resources capacity to effectively establish itself on foreign soil and successfully compete. Yet, there are new opportunities available globally, thanks to the current economic challenges, that may still make this an attractive option. To help mitigate risk, and to enhance available human resources capacities, Rodamas Group could internationalize through a partnership, with someone with whom they already have a relationship. Helping current partners, such as Japanese Asahi, set up manufacturing outside of their home country could help the organization develop regional manufacturing facilities. The primary drawback to this strategy would be the heavy reliance on Rodamas Group's partner in making the venture a success. Rodamas Group's experience with some Japanese managers made them doubt that regional decisions could be made effectively and that the company would be bogged down in bureaucracy (Dieleman & Kamal, 2009).

A last strategic option Rodamas Group could consider, Dieleman and Kamal (2009) put forth, would be to purchase existing manufacturing organizations that already of developed or licensed a technology. Business acquisition could be the perfect way to expand and acquire core competencies. However, Mucki Tan did not find an appropriate business, at the right price, in Indonesia. One small manufacturer the organization tried to purchase saw Rodamas Group's offer rejected, because it was perceived to be too low. Instead, the company remained in the control of the bank.

Recommended Strategy for Rodamas Group

The recommended business strategy for Rodamas Group is based on the organization's current core competencies, their current strengths, and opportunities to expand their core competencies. First, to date there is one set of skills at which Rodamas Group is truly good. The organization's current success is due to this reason, as it is what sets them apart from other competitors in the industry. Their primary competency lies in helping foreign countries establish themselves in Indonesia. Although Rodamas Group may consider itself an importer, manufacturer and distributor, what it truly is a facilitator of business. The company's primary role has been to handle local management personnel, as well as manage the interactions with the Indonesian government and other local players. Mucki Tan has developed a strong, personal network in Indonesia. As many multinational organizations understand, these connections can be critical to the successful establishment of a business in a foreign country. It's not necessarily what you know always, but instead it's oftentimes who you know.