State-owned Enterprises as Global Players

The government believes the holding strategy is the best option to push state-owned enterprises into the global market. This strategy requires commitment and consistency on the part of the government, as well as the support of other stakeholders and the House of Representatives.

KOMPAS/DIDIE SW

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The government believes the holding strategy is the best option to push state-owned enterprises (SOEs) into the global market. This strategy requires commitment and consistency on the part of the government, as well as the support of other stakeholders and the House of Representatives (DPR).

Why is the sectoral holding (parent company) needed? According to the SOEs Ministry, there are four reasons. First, rightsizing SOEs sectorally through synergy. Second, the transformation of SOEs as agents of development. Third, increasing competitiveness in global markets. Fourth, accelerated growth of SOEs through inorganic growth. According to Article 1 of Law No. 19/2003, SOEs are business entities that are entirely or partly owned by the state through direct participation derived from separated state assets. The position of the government as a regulator and shareholder through the SOEs Ministry as well as the assignment of SOEs as development agents confirms the government\'s mission to make SOEs play a big role in the national economy.

Map of global competition

The rating of SOEs compared to a number of other corporations in each sector illustrates the size of SOEs’ contribution to the economic growth. With all of their opportunities and advantages SOEs have not contributed optimally and even 13 out of 143 SOEs (2017) were still losing with the amount and the nominal value decreasing from the previous year. If in 2014 there were 27 SOEs being at a loss of Rp 10.18 trillion, in the first quarter of 2018 only 4 SOEs were experiencing losses (Rp 263 billion).

In the banking sector, BRI, the largest asset owner in Indonesia (US$81.74 billion) was ranked the 10th in ASEAN and 87th in Asia in 2017. At Forbes Global 2000, BRI, Mandiri, Telkom and BNI were respectively ranked the 386th, 494th, 654th, and 924th.

Referring to management expert Michael E Porter in The Competitive Advantage of Nations, the power of a state lies in its corporations, in global competition, Indonesian SOEs still like a bonsai among multinational corporate giants (MNCs). With the right policies and strategies and the role of development agents, SOEs should be able to compete in the global market. This mission must begin by strengthening the position in the country itself.

The effectiveness of competitiveness through the holding

The competitiveness of the corporations is influenced by the capital strength and corporate size based on appropriate business policies, leadership effectiveness, cost efficiency, and market share. The uniformity of corporate culture and inorganic growth strategies are an important key to successful supporters.

To create competitiveness, a number of MNCs conduct mergers and acquisitions that in a discipline way apply uniformity of their vision and mission. The merger or the holding of the four state-owned banks (Mandiri, BNI, BRI, and BTN), if done, would rank them the 4th (2017) in ASEAN from 10th, 11th, 16th and 37^th, respectively, after DBS, OCBC, and UOB, a promising indication of the creation of strength  through the accumulation of capital and market which will provide various benefits of competitiveness.

ANTARA FOTO/INDRIANTO EKO SUWARSO

State-owned Enterprises Minister Rini Soemarno gives a scientific oration titled "The Role of State-Owned Enterprises in Improving the Quality of Vocational Education" at the 10th Anniversary of the University of Indonesia Vocational Program, at an auditorium in Depok, West Java, on Thursday (28/6/2018).

The government has established a holding company in the fertilizer sector (2012), cement (initiated since 1998, strategic holding was formed in 2012), and plantation (state-owned plantation company PTPN, starting in 2002, formed in 2014) to be followed by the holding in the financial, oil and gas and mining sectors. The government considers that SOEs have to be big and competitive. Can this policy create the foundation for the formation of competitiveness, which will bring them to the main business, both domestically and at least at the regional level?

In accordance with its position, the holding company can direct the strategic policy (market expansion, appointment of the board, and investment), which will be the guideline of each of its subsidiaries and has the authority, which is owned by the common shareholder. In other words, the holding company may be none other than an extension of or replacement of the role of the Minister of SOEs. Daily  operations are entirely in the hand of the management of each subsidiary.

The holding policy is not a step backward. Synergy among SOEs can likely be carried out, such as in the division of marketing areas, purchasing policies, research and development, training and education, and even shared resources. The examples are the "SOEs Present for the State" program: the construction of the Jakarta-Surabaya toll road (Waskita Karya, Jasa Marga and IIF), farmer entrepreneur program, Mekar program, SOEs Creative House.

In the context of the holding, the selection of appropriate leaders in the board and supervisory system of each holding company will be crucial. If not, the expected changes are impossible to achieve and all will run business as usual. An early independent assessment of the effectiveness of an existing holding strategy will be very helpful and can serve as a lesson for the creation of the next SOE holding.

Supervision changes

Governance is a key factor. If so far, the SOEs are believed to be the object of the interests of political parties or groups, the formation of the holding may reduce this pressure. This amendment will make the DPR lose its direct "supervisory" rights to the holding subsidiaries.

To provide legal certainty, for example when the SOEs need approval and when consultation is done, harmonization is needed between the Law on SOEs and the Law on State Finance. It is also necessary to assess the implications and solutions of whether or not the role of the Supreme Audit Agency (BPK) is needed. Ownership of 90 percent shares of subsidiaries in holding and only 10 percent by the government (through the Ministry of SOEs), as occurring in the PTPN Holding (PTPN I-PTPN XIV), gives the mandate and authority to manage more widely to directors of the holding, while reducing the direct "role" of the Ministry of SOEs.

ANTARA FOTO/RIVAN AWAL LINGGA

Director of PT Danareksa Capital Uriep Budhi Prasetyo signs a letter of cooperation for the establishment of the State-Owned Enterprises (SOEs) Fund, as witnessed by SOE Minister Rini Soemarno (left), director of PT Bahana Kapital Investa Syahruddin Ikhsan (third left), deputy chairman of financial services, survey services and consultancy at the SOEs Ministry Gatot Trihargo (second right) and commissioner of PT Bahana Kapital Investa Marciano Herman (right) in Jakarta, Thursday (28/6/2018). The ministry established a company that focuses on private investment called PT Bandha Investasi Indonesia, which caters to the infrastructure funding needs of potential investors from both state-owned and private companies.

The government must continue to rely on in the vision that holdings are not only aimed at accumulating capital and efficiency but also a means to accelerate SOEs to become global business actors. The consequence of this ambition is the readiness and willingness of all stakeholders to replicate the key to MNCs’ success, namely the application of the best business practices.

Private sector as a partner

The competitive advantage of Indonesian corporations and national economic growth are the result of the performance of SOEs and the private sector, in term of both national and foreign ownership. To strengthen the competitiveness of SOEs, the government is required to provide equal opportunities to the private sector, especially in national companies. A balanced opportunity on the private sector will accelerate the birth of centers of national excellence, either through clusters, regions, business sectors and supporting businesses.

If for certain sectors the opportunity to win regional and global competition is in the private sector, the government should be encouraged to accept it. The private sector must be positioned as a competitor as well as collaborating partner of the SOEs.

Competition is inseparable from innovation. Joint ventures with the private sector will also open up new dimensions that may drive innovation. If SOEs have bigger opportunities, assign them as development agents that play the role of locomotives for national economic growth. Sustainable change lies in clear institutional change and legal basis. Independence, leadership, clear targets, operational system, supervision system, staff engagement, rewards and sanctions, asset recovery and clean corporate culture are part of the techniques. With regard to the successful transformation of corporations in PT KAI, Semen Indonesia, Bank Mandiri, PTPN Holding, and several other state-owned companies, all of them have proven that changes in attitudes in Indonesia can also take place quickly.

Junaedy Ganie, Public Policy Observer, Legal Expert, and Business Practitioner