After reading the case (The Evolving Strategy of IBM), write:
1. Key Summary and Problems
2. Applications of Key Themes
3. Answers the Questions
– 2 or 3 pages.
– Please follow the provided example.
Key Summary and Problems
Indonesia is composed of over 220 million people spread out over some 17,000 islands. It is also
the world’s most populous Muslim nation, and more than 500 languages are spoken in the
country. Indonesia was once under the control of an oppressive dictator, President Suharto, who
largely held the country together. Under his command, he repressed internal dissent and used the
political system to favor the business enterprises of his supporters and family members. His rule
ultimately crippled Indonesia’s economy, as the country accumulated massive debt during the
In 1997, Indonesia faced grave economic problems, and had to be “rescued” by the International
Monetary Fund. Although Indonesia replaced Suharto’s regime with a democratic government,
the country’s economic growth lagged behind that of China, Malaysia, and Thailand. As such,
Indonesia is still plagued with various economic, social, and political problems. First,
unemployment rates are high, and growth in labor productivity has been sluggish. Second,
significant foreign investment, for the most part, has left the country. For example, Sony and
several major apparel companies shut down their respective plants in favor of China and
Vietnam. Third, Indonesia is saddled by the problem of a poor infrastructure, as many people are
without access to safe roads, clean water, and reliable electricity. Fourth, business activity is
stifled in the country due to enormous amounts of red tape, or unnecessarily complicated
bureaucratic procedures. This makes it immensely difficult for startup businesses to get their feet
off the ground and encourage entrepreneurship in the country.
Most significantly, Indonesia faces a grave problem of corruption throughout all levels of
government. Politicians and business executives frequently give and take bribes to further their
personal interests. Additionally, the legal system faces further corruption, as jail time is often
reduced based on the bribing of enforcement officers and associated officials.
Applications of Key Themes
Collectivism v. Individualism
During the 1990s, Indonesia faced enormous debt due to the collectivist ideology of President
Suharto. This case serves as an example of how Collectivism represses the needs of individuals
in pursuit of collective societal goals. However, it also demonstrates the risks associated with the
ideology. For example, by oppressing members of the public who did not support Suharto’s
regime, much of Indonesian society was ultimately hurt economically.
Political Ideology and Economic Systems Are Connected
The regime change of Susilo Bambang Yudhoyono introduced democracy into the region. This
new democratic ideology went hand-in-hand with the Indonesian economy’s period of growth
from 2001 to 2010. This serves as a great example of the reading, which states that politics and
economic systems are interdependent of one another, and not separate or distinct.
Legal Systems and Corruption
This case also serves to illustrate the need for a legal system that effectively regulates behavior
and the processes by which laws are enforced. Here, Indonesia is plagued by severe corruption
that has gone so far as to infect the nation’s legal system. As such, both judicial and executive
officials’ behavior is largely dictated by bribery and other crimes. Perhaps the most imminent
problem that Indonesia faces, the corruption must cease in order for the country to regain similar
economic growth as seen in the early 2000s.
Answers to Questions
1) What political factors explain Indonesia’s poor economic performance? What economic
factors? Are these two related?
Political and economic factors are certainly interrelated. Indonesia was initially governed by
President Suharto, who implemented either a communist-like or generally oppressive political
regime. He favored his family members and supporters over the general welfare of individual
citizens. As such, the economy stifled and the country accumulated massive debt.
When Indonesia experienced a regime change that shifted the country’s ideology to a more
democratic one, the economic front began to see some progress. This is likely due to granting
more freedom to individuals such that they could more easily develop businesses and participate
in the market without reprimand.
For example, public debt fell to 27 percent in 2010. Inflation also declined in 2010. Generally,
following the regime change, the economy grew almost 6 percent and hit its peak of 6.9 percent
2) Why do you think foreign firms exited Indonesia in the early 2000s? What are the
implications for the country? What is required to reverse this trend?
I believe firms began to leave the country due to the political and economic unrest that plagued
the country in the early 2000s. The early 2000s involved a governmental change from an
oppressive regime toward a newly formed democracy. This shift must have inevitably involved a
period of uncertainty concerning the stability of the country, and many big firms could have
plausibly viewed this as unattractive for business and profit.
The implications for the country include less foreign investment, sharp declines in foreign direct
investment, and an overall slowing of the economy. Further, unemployment and inflation rates
could also rise.
In order to reverse this trend, Indonesia will first likely have to resolve many of the issues that
are plaguing the countries growth internally. For example, the infrastructure will have to be
improved for businesses to find the nation attractive, and the corruption problem must be
addressed in an effective and swift manner.
3) Why is corruption so endemic in Indonesia? What are its consequences?
Corruption may be a big problem due to the lack of enforcement mechanisms in the country.
Perhaps because it is so difficult to start a business in the country (due to enormous amounts of
red tape), individuals find it hard to make a living or maintain stable investments for their
families and future. As such, many people may turn to bribery or corruption as an alternative.
The issue of corruption is undoubtedly connected to the other problems associated with the
country’s economic, political, and social structure.
4) What are the risks facing foreign firms that do business in Indonesia? What is required
to reduce those risks?
The issue of corruption threatens the stability of firms that do business in Indonesia. It likely
creates risks ranging from the improper protection of Intellectual Property, to the encouraging of
criminal behavior within and associated with firms and organizations.
In order to reduce these risks, international organizations should consider stepping in as ad-hoc
enforcers to get the country back on the right track. This should be done if it is determined that
the country cannot address these problems internally.