Sony pullout plan rocks Indonesia
By Bill Guerin

In the past three years Japanese electronics giant Sony has shut down 16 plants across the globe and laid off thousands of its workers. Sony said last month it would stop making audio-visual products at its Indonesian subsidiary, PT Sony Electronics Indonesia, as part of its "overall, global restructuring effort".

Indonesian Manpower Minister Jacob Nuwa Wea, however, has publicly threatened to lead a campaign for a boycott of Sony products unless it "explains" the proposed closure of its Indonesian factory.

The closure, down for next March, will result in the loss of about 1,000 jobs, though Sony will keep its local sales division, PT Sony Indonesia. The Indonesian plant, in Cibitung, Bekasi, 60 kilometers west of Jakarta, brings in some 15 billion yen (US$122 million) a year in sales revenue and has operated since March 1992.

Sony also manufactures televisions and video compact disc (VCD) players in Indonesia, mainly for export.

Sony cites a need for increased efficiency as the main reason behind the planned closure, but the catalyst may have surfaced about two years ago in a dispute at the plant when Sony was accused of "serious human and labor rights violations" in Indonesia.

In July 2000, about 1,000 Sony workers went on strike when the company announced the dismissal of 1,007 workers out of its then total workforce of 1,300. The dispute began when a new work policy was introduced with no prior consultation. Sony changed the working conditions for its workers, 80 percent of them women, ordering them to stand up rather than sit down at the production line. Sony management said the method was not detrimental to workers' health.

The Indonesian Metalworkers Union, supported by the Geneva-based International Metalworkers Federation (IMF), intervened and eventually succeeded in bringing the parties to the negotiating table. Finally, an agreement was reached on September 1, 2000, to reinstate all workers from the PT Sony Employees Union and compensate those workers who did not wish to continue working for the electronics giant.

IMF, which claims a membership of 23 million worldwide, threatened in a letter to the Sony Corp chairman in Japan that it would start a public campaign "to taint the image" of Sony for its "serious human and labor rights violations" in Indonesia.

The federation also slammed Indonesia for violating the convention guaranteeing the right to strike and providing protection against dismissal during disputes. In a letter, federation general secretary Marcello Malentacchi said the decision to dismiss the 928 striking workers "appears to be based on laws adopted while president Suharto was in power" and "in no way diminishes Indonesia's responsibility to uphold the international conventions it is a party to".

Yet two years later, Trade and Industry Minister Rini Suwandi is on record as saying Indonesia's employment laws allow workers too much freedom to hold demonstrations and protests. "Industry people agree that we have to promote labor welfare but they also want clear labor legislation so that the employees do not put excessive demands on the company," she was quoted as saying.

Sony's restructuring of plant operations may have been spurred on by tighter global competition, but the reconsolidation is likely to be aimed also at getting ready for the Southeast Asia regional trade-liberalization programs.

One aspect likely to rankle with Indonesia is the transfer of production lines to Malaysia, with whom Indonesia has been at odds over a new Malaysian immigration law that caused the expulsion of thousands of Indonesian migrant workers. Sony has said it would transfer the Indonesian production capacity to a Malaysian plant and elsewhere.

Industry experts say that since 2000 Sony has been progressively transferring its product lines to Malaysia after the loss of millions of dollars in the protracted dispute when it had to cut production down to two lines from 12.

Saburo Izumi of the Japan External Trade Organization (JETRO) was quoted in the Indonesian media as saying the main reasons for the Sony closure are continuing problems with labor disputes, unfavorable government regulations and customs policies, as well as rampant smuggling. In spite of the recent imposition of a luxury tax of between 10 and 75 percent on electronic products, smuggled electronic goods dominate the Indonesian market and are sold much cheaper as they are free of such taxes.

A 30 percent hike in minimum wages in the past two years has also had a negative impact, making it difficult for manufacturers to compete with countries where labor is cheaper, such as China.

Japanese companies rank among Indonesia's biggest investors, with widespread enterprises in manufacturing and service industries as well as the infrastructure sector.

Lee Kang Hyun, chairman of the Indonesian Electronics Producers Association (GABEL), confirms the scale of the problems. He said recently that several other electronics producers had also begun to shift their production to plants abroad as they see the Indonesian electronics industry becoming unfavorable due to high luxury taxes, rampant smuggling, labor strife, and an influx of cheaper goods from China. "I don't think they want to keep their investment here where there is no benefit for producers and investors," he said.

Lee is well qualified to comment on the current situation, as he is also general manager of PT Samsung Indonesia. Lower taxes, Lee says, are the key to preventing smuggling, as this would enable local producers to cut their prices to compete with smuggled products.

The government appears to disagree on this, with the director general of taxation at the Ministry of Finance, Hadi Purnomo, claiming that the tax policy in Indonesia is more competitive than in many other countries. "I think our tax policy is competitive compared to other countries, either in terms of rate or incentive facilities for foreign investors," Hadi said.

Soy Pardede, executive director of the influential Indonesian Chamber of Commerce and Industry (Kadin), also warned that investors would prefer to invest their money in countries that have low production costs, good labor relations and sound financial systems. "The investment map is changing. There are better markets than Indonesia now, particularly China," Soy pointed out.

A day after the Sony announcement, the Jakarta Japan Club (JJC) that includes the Japan International Cooperating Agency (JICA) and JETRO met with senior government officials. There was no public comment on the deliberations other than a statement from Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti that said Indonesia's investment climate could be improved through seeking solutions together to the "technical problems" that investors often encounter.

The next day, the chairman of the Investment Coordinating Board (BKPM), Theo F Toemion, announced the establishment of a special committee or "National Investment Team" that will include all cabinet members with President Megawati Sukarnoputri as chairperson.

Theo, promising that the team would work to expedite the handling of all problems faced by foreign investors, said, "Our top priority now is to maintain the existing investors. We will hear all their complaints and provide solutions as fast as possible."

Manpower Minister Wea's confrontational stance hardly squares with this new initiative and seems likely to achieve little except exacerbating the problems for a government that desperately needs to prevent other multinational corporations from pulling out of the country. In the wake of the October 12 bomb blasts in Bali, which killed almost 200, most of them foreigners, the government is hard pressed to revive even some degree of confidence on the security issue alone.

The government has been accused of not appreciating the serious dimensions of the problem. Aburizal Bakrie, one of the country's leading businessmen, joined those urging the government to restore the investment climate in Indonesia quickly to prevent a mass exodus of foreign investors. "The government should not downplay decisions by labor-intensive companies to close their factories here and move abroad. We need them here to absorb our huge number of unemployed," he said.

Trade Minister Rini Suwandi said the government was still trying to find out why Sony's Indonesian operation was on the list of Sony subsidiaries to be axed and said she had met with Sony management to get a detailed explanation on the closure plan. However, she played down the impact of the closure on investment in Indonesia, saying: "This will not affect investment in Indonesia as Sony's operations here are not big and the closure is part of its global plan."

Vice President Hamzah Haz, however, said that if the Sony closure goes ahead, "it will be a bad advertisement for Indonesia". Haz said the pullout would hurt the economy, which has been hit hard by record unemployment figures.

"It is already hard now. We have 40 million people unemployed, so we hope that the closure won't take place. But, off course, they have made their own calculations and analysis regarding their business," Haz said in an appeal to Sony bosses.

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