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What Should Companies Do During the Crisis

Johannes Simbolon,  Jakarta
 
While the financial crisis, which started in the developed world and has spread globally, has led to the bankruptcy of many companies in developed countries, the Indonesian corporate sector has yet to see its worst impact.

Many Indonesian companies are reportedly still flushed with cash thanks to prudent financial management and windfall profits from the commodity boom that lasted until the middle of the year. Still, all of them are worried over a possible severe downturn starting next year as a result of the crisis.

What do they have to do now? 

Given the uncertainty over the duration of the current crisis, many of them have reportedly scaled back or canceled expansion plans, as they consider it is safer to keep cash.

Two experts, Peter Williamson, a management professor at the Judge Business School of Cambridge University, and Cyrillius Harinowo, the rector of the Asian Banking Finance and Informatics (ABFI) Institute Perbanas, said, however, that this is the right time for the companies to expand their businesses through mergers and acquisitions. 

"There are many examples of companies who managed to multiply the value of their money in a short period of time after acquiring businesses during the previous crisis," Harinowo said. 
Farallon Capital Management of the United States, for instance, managed to substantially increase the value of its investment after acquiring a stake in Bank Central Asia in 2002. French firm Danone has also seen the value of its investment sharply increase now after buying a stake in Indonesian mineral water producer Aqua Golden Mississippi in 2001. 

According to Harinowo, taking a lesson from the previous Asian crisis that imperiled the country's economy for many years and sent many local businesses into bankruptcy, many Indonesian firms have applied a prudent financial management system in which they rely more on their internal resources rather than loans to run their businesses. As a result, many of them are now flushed with cash. 

The commodity boom until the middle of the year also gave windfall profits to many commodity producers. Some of them raised substantial funds by selling their shares to the public in the first half of the year when the prices of commodities were still high. 

These companies are now in a better position not only to weather the economic crisis but also grow faster once the crisis is over, Harinowo said. 

Williamson agreed that this is the right time for Indonesian firms to expand their business, while noting: "This is requires courage." 

He encouraged Indonesian firms to "look outward" rather than focusing on their home country. 
He noted that in most industries, Asia has yet to go through the cycles of consolidation that have occurred in the U.S. and Europe. Industry structures in Asia are still relatively fragmented with companies mostly "national champions rather than pan-Asian players". 

"Consolidation through acquisition opens up potential for greater scale economies, greater capabilities," Williamson said. 

He also called on the Indonesian firms to invest in technology and implement innovations to produce quality products at lower costs, noting that "value-for-money" segments are growing in the developed market. 
Williamson is optimistic that the current crisis will deal a heavy blow to companies that produce low value-added products, such as garment producers, but commodity producers which are dominant in Indonesia would only experience short-term pain as a result of the sharp fall of commodity prices amid the financial crisis. 

The commodity firms will, however, continue to survive as Williamson believes commodity prices will rebound in the medium term following a rise in demand. 
He noted as a result of the crisis that has devastated the economies of developed countries, the U.S. would no longer play a role as the main driver of global economic growth. Companies in developing countries such as Indonesia should find markets in other developing countries for their products. 
 
Source : The Jakarta Post