EMBRACING NATIONALISM TO BOOST INTERNATIONAL EXCHANGE
The Indonesian Port Corporation enters the big league
By IMD Professor Bettina Buechel - September 2014
If you are living anywhere in North America, Europe or the Middle East, chances are quite a few of your things have passed through a gigantic seaport based somewhere in Asia. And where in Asia can be pinpointed. According to statistics from the World Shipping Council, the world's top three shipping container ports, in terms of volume, are in Shanghai, Singapore and Hong Kong. The remaining ports among the top 10 are all in China, with the exception of Busan (South Korea) and Jebel Ali in the United Arab Emirates.
Yet, interestingly enough, countries like Singapore and Hong Kong do not rank among the top ten countries that export or import the most. So what's happening?
Due to heavy congestion and logistical constraints, some top exporting countries like Thailand, Indonesia or even Japan are passing goods internationally through more developed ports prior to their local import or exportations. In Indonesia, for example, so many local cargo owners had started shipping their goods through neighboring modern and well-regarded container facilities such as The Port of Singapore, that in 2008 the proportion of local cargo traveling through other countries reached as high as 60% to 65%.
But for Indonesia in particular, currently ranking only 22nd in terms of its largest port's shipping volume, things are on a course of change. With a strategic maritime position, and an import and export volume that stands as the world's 8th largest, Indonesia has the potential to emerge as a world-class player in shipping and the Indonesian Port Corporation (IPC) has put in place several steps to do just that.
Taking over the reins of the IPC in 2009, President Director R.J. "Pak" Lino has been rapidly moving the company from a state-owned, monopoly operator to a competitive, commercial player and investor. Much of the focus is on the Port of Tanjung Priok and the massive expansion and development plans around it.
Jakarta's 130-year-old Port of Tanjung Priok is the country's largest, handling more than half the goods imported and exported from Indonesia. Requiring an investment of $2.5 billion, part one of a two-phase expansion project began in March 2013. By adding seven new terminals and two product terminals, it will more than quadruple the port's container handling capacity.
In addition, as part of its 2011–2025 Master Plan for the Acceleration and Expansion of Indonesia's Economic Development (MP3EI), the government decided that the proposed new terminals at New Priok should be more than a source of extra capacity, and designated them as a standalone port. In a pioneering move, it gave IPC a 70-year concession to run the project, together with provisions for a further 25-year extension.
Yet, while progress is underway, with IPC's history as a state-owned enterprise dating back to 1960, the company's conservative culture hasn't been easy to tackle. To catapult the organization forward, Pak Lino has embraced nationalism and made some early wins to build momentum for the current development.
Under Pak Lino's lead, solely on the strength of improved productivity and efficiency (without yet constructing new terminals), Tanjung Priok's handling rate rose to 6.21 million TEUs (Twenty-foot equivalent units) per year in 2012 from 3.9 million TEUs in 2008. This was achieved by launching round-the-clock terminal services, implementing new IT systems and instituting skill upgrading programs for employees. During the same period, more and more goods that had previously transshipped through rival ports in Singapore and Malaysia arrived directly in Tanjung Priok: 82% of all trade arrived in the port as a direct destination, compared with just 38% in 2008.
Oddly enough, for a company that decentralizes from the government, one of the biggest drivers has been nationalism. The connotations of the word in Western society may often be negative, but not so in a developing country like Indonesia, with a painful history of European colonialism and Japanese wartime occupation. For the IPC, "nationalism" implies serving the people – a concept rarely associated in that part of the world with political office or other positions of privilege. In 2012, the IPC brand developed the tagline "Energizing Trade, Energizing Indonesia" to help portray this notion.
By promoting nationalism, Pak Lino was able to get around a low-trust mindset typically found in the Malay world (Malaysia, Brunei, parts of Singapore) where trust is typically invested in kinship, family ties, and relationships based on semi-feudal patronage, rather than in organizations or institutions.
To date, this style of leadership has allowed Pak Lino to manage political stakeholders and secure allies among the media, encouraging them to shape a public opinion of IPC, which in turn served to exert pressure on the country's leadership to facilitate the upgrading and expansion of the port. With president-elect Joko Widodo publicly supporting a need for better infrastructure, IPC has the support of Indonesia.
In running an international port, the concept of nationalism seems to be working out. Yet a current challenge looms as the Indonesian Finance Ministry put forth a policy for ports to do away with the use of US dollars and start charging in rupiah for all services. It's a move that Pak Lino warns will spark a reduction in foreign investors. While nationalism may boost IPC's role forward, in a global market it still must operate on a global scale.
For end consumers at the local store, however, it doesn't really matter if you pay for something in dollars, euros, rupiah, pounds or yen. The chances are, much of what you buy is likely to have passed through one of the world's top ports. And the chances are increasing that one of those ports will be IPC's Port of Tanjung Priok.
Bettina Buechel is director of IMD's Orchestrating Winning Performance program in Singapore where the IPC's Pak Lino will be a keynote speaker. The program takes place from November 17-22.