INDONESIA-P
The Indonesia Times Times Opinions
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Times Opinions
The New Information Technology Age (I) - Its Implication to Asia
Tourism as a Development Strategy (II)
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The New Information Technology Age (I) - Its Implication to Asia
EDITOR's Note: Stan Shih is Chairman and CEO of the Acer Group, the
world's seventh largest PC company. Established in 1976, Acer has
earned the number two position in the PC consumer electronics market
in the US. Sales in 1995 reached $5 billion, from only $25,000 in
1976.
Mr. Stan Shih spoke about IT trends with AIM students on the same day
he opened Acer's Subic Bay operations. Acer will produce motherboards
and plans to use Subic as a worldwide serive hub.
Vertical integration yields cost-saving benefits for companies.
Companies, however, are moved to disintegrate, not to integrate.
Vertical integration started after World War II when industries tried
to control the market and reduce cost. Major corporations in the US
were downsizing in the past five to ten years. Employment is by
small-and-medium-size companies. Most, not only PC, industries are
moved toward disintegration
Just making computers has low value added or none at all
In vertical integration, industry giants are usually the winners.
Product life cycles, due to control by few giants, are long, like
automobiles -- every six years, there is a change of model; and every
year, a little bit of change. In the disintegration model, many
competitors can introduce new technology anytime; newcomers always try
to find ways to compete against big companies. In the PC industry, IBM
introduced the XT/AT; Compaq led with the 386; other companies, the
486; Pentium? Compaq, IBM are behind by six to nine months.
Customer value in the integration mode is provided by the so- called
vertical, final solutions. In the disintegration mode, the segment
leader, not necessarily the big companies, is the winner. Product life
cycles are short and customers require fresh technology (See Figure 1)
This fundamental change in computers basically apply to banking and
other industries as well. We call these shifts new paradigms. This
change requires fresh ideas, a different management style, and a
decentralized approach.
In the past, the centralized approach was structured in a hierarchy.
Vertical integration, is easier because competitors are few' companies
enjoy higher margins. But today, one has to adopt the network
structure and operate efficiently. Furthermore, customers have become
smarter; always looking for the best buy. Only enterprise delivery and
highly efficient operations can give this best buy. Acer was fortunate
that it started to decentralize in 1976.
Figure 2 talks about a value added curve, from component to assembly
to the distribution of computers. The x-axis is the traditional
vertical integration mode of the industry. Acer started with designing
a computer and providing a value added good. But today, making
computers has low value added or none at all. Value added has shifted
to the component side and to the distribution side.
The component side requires new technology, manufacturing capability,
and, most of all, economies of scale to reduce cost.
Components consist of software, CPUs, memory, chip sets, storage,
monitor, motherboard, etc. To most people, computers are synonymous
with the motherboard but, actually, just like the PC system, the
mother- board is not of much value added because most key components,
like the chip sets and the CPU, are not necessarily monopolized.
The component side has many segments. Competition is global and,
therefore, global leadership is necessary for survival. Some companies
control the worldwide requirement of some component segment with few
engineers. Software and CPU components invest more money, have more
entry barriers, and therefore have more margins.
In Taiwan, making monitors has more margin than making motherboards.
Unless a company has large scale, it can survive in motherboards for
only three to six months, and only two years in monitors. The entry
barriers are different.
The distribution side requires brand, channel, and logistics. Since
technology is like a commodity, logistic plays the most important role
in the business today. Brand is not so necessary; otherwise, IBM could
have controlled the market.
In 1994, IBM lost $1 billion in PCs, $700 of which were materials
inventory write offs. Why? IBM's logistics were too slow. In this
business, speed is critical, even more critical than cost. This is the
disintegration mode.
To demonstrate this shift from integration to disintegration let me
show what my colleagues call Stan Shih's "Smiling" Curve. After we
realized this curve we turned our business into a profitable and
"smiling" business. Actually, it can change from an "upset" (dashed
line in Figure 2) to a smiling curve. How? Technology can change the
curve. Infrastructure can change the curve.
Infrastructure in the computer business used to be provided by the
industry giants. Today, infrastructure is built by third parties. Do
Intel and Microsoft lead the industry? No. End- users lead the
industry because they involve knowledge on how to use the computers
and are in a position to select the best technology products. Their
involvement in infrastructure makes the business totally different
from before.
If a company does not realize this change, its corporate structure
will never meet customer requirements. We are expecting it in consumer
electronics. Consumer electronics is dominated by Japanese and Korean
companies but the PC is going to be the core technology. All PC
components will become the key component for consumer electronics. We
believe that, in three to five years, the consumer electronics
industry will shift to the smiling curve, to the disintegration mode.
All consumer electronics will be digital. The key technology will be
components; software, semi-conductor, CD- ROM, etc.
Small Asian companies will play important roles. I do not think that
Japan or Korea can control the markets in the future. I see a change
in the software industry: Today, the software industry talks about
integration; in ten to 15 years, the software would also consist of
components, software modules. Today, people talk about system
integration and knowhow complexity; in ten to 15 years, system
integration will become simple. It will become so easy -- if you
understand applications, then you can put standard software components
together; you can produce effective solutions. The most valuable
function of software that system integration is now will become less
important ten to 15 years later. Why? Because disintegration is more
effective and more welcome among end-users and to the industry as it
involves more players. In the past, company giants also require many
people but the problem lies in centralized operations and
decision-making. Human nature is geared towards democracy --
individual employees want to participate in the process and own the
decision themselves, considering their training and education .Change
will happen with reengineering, which requires fresh ideas and
longterm, consistent implementation. Acer has undergone a big
transition as a result of reengineering. Before the 1990s, Acer was
profitable; its gross income doubled every year. Due to changes in the
industry, however, we experienced many difficulties -- an upset curve
structure. Acer had to reengineer, to deal with disintegration. One
can talk about restructuring or processes but Acer started by
reegineering its strategy .
From a revenue of $1 billion (we have $5 billion this year), there was
a big change in profit. Return on equity jumped to more than 34%.
Revenue per headcount doubled in three years -- Acer moved more than
$400,000 per head -- one of the highest in the industry in 1995. (Some
units are $2 million revenue per headcount).
Our personal expense went down from 10% to less than 6% of our revenue
-- low overhead, efficient operations. Inventory is even more
critical: Before reengineering, we had 100 days to cover our global
requirements; right now, we have only 50 day, including transit items.
This business is so dynamic. This momentum keeps going -- Acer had
more than 70% growth in revenue from 1994 by mid-1995.
What caused this change? Fresh ideas, and new ways of thinking based
on disintegration under a decentralized management and with three
major strategies: fastfood business model, client-server organization
structure, and global brand, local touch approach.
(To be continued)
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Tourism as a Development Strategy (II)
By Andi Mappi Sammeng
Director General of Tourism
The Bali TDC concept of co-ordinated and planned development is being
used by us as a model for sixteen other TDCs being put forward in
provinces throughout Indonesia -- in Lombok, Lampung, Biak, and others
places. It is clear to us that the government must still take an
active role to ensure that tourism grows in destinations throughout
the archipelago.
Tourism trends in the nineties indicate that many travellers are
seeking alternatives to large-scale, beach- oriented resort
development and are searching out smaller- scale development favouring
eco-tourism and cultural tourism. We feel that Indonesia has room for
a range of tourism scales to cater to both large and small numbers of
tourists as long as the development is suitable for the site and
region concerned. So as well as large- scale projects modelled on the
Nusa Dua experience and sited in appropriate areas -- for example,
Bintan Island near Singapore -- we are encouraging small- scale
projects, especially in the outer islands where the infrastructure and
supporting services are still underdeveloped. Sustainable village
tourism development in Bali and Lombok; marine tourism near Manado and
the Spice Islands (Maluku); jungle-trekking in Irian Jaya; eco-
tourism in Kalimantan; and heritage tourism in Central Java are all
examples of environmentally- friendly, small-scale tourism that more
and more visitors are seeking.
Of course, this dual trend -- consumers demanding more varied tourism
products that are environmentally and culturally- sensitive, along
with increasing numbers of tourism arrivals -- brings special
challenfes to the responsible government agencies as well as for the
private sector which packages and markets the tourism offerings. While
welcoming the foreign exchange and job creation that tourism brings,
Indonesians feel strongly that the natural environment and culture
have intrinsic values which outweight their categorization simply as
tourist assets.
Tourism experts often talk about the "destination" but who, after all,
actually "owns" the destination? We feel that it is the local
community and that they have a right to live their lives in
tranquility, to keep their traditions and customs, and not to see
their community disrupted but to enjoy the economic opportunity
tourism presents. There is growing consensus that the enjoyment of our
natural resources by future generations must not be prejudiced by
short-term considerations. As all agree, the relationship between
tourism and the host environment - - with all its rich social,
cultural, and physical aspects -- must be managed so it is sustainable
in the long term. Easy to say, but how to put this noble goal into
practice?
What then is the future of tourism in Indonesia for the coming
decades? As we see it, the following trends will become more and more
important into the next millennium:
1. Increase in Asian markets: Already business and leisure visitors
from the booming economies of our ASEAN partners and the rest of Asia
make up almost two-thirds of Indonesia's total visitors. For example,
in 1993, the top four countries by visitors numbers were Singapore,
Japan, Taiwan and Malaysia who collectively were responsible for 61%
of the total number of our foreign visitors. We anticipate that this
ASEAN/Asian share of visitors to our country will continue to grow.
2. More outbound Indonesian tourist. As the Indonesian economy
continues to grow at over 7% a year, the increased availability of
discretionary income will mean that more and more Indonesians will be
joining the middle classes from other Asian "tigers" in pursuing
travel options. We will have to be increasingly imaginative in our
domestic attractions to tempt these growing segment to travel at home
rather than to go overseas.
3. An increase in the number of small businesses specializing in
"special interests" tourist needs. As small-scale and special interest
tourism spreads to the outer islands and Eastern Indonesia, more and
more businesses will be established -- sometimes in partnership with
larger firms in Java and Bali -- to cater to visitor needs. We see
women especially playing an increasingly important entrepreneurial
role in managing small businesses for accommodation, catering, arts
and handicraft sales, and tour operation in these new areas.
4. An rapid expansion in the number of regional destinations within
Indonesia. As both the transportation and accommodation tourism
infrastructure in Eastern Indonesia continues to improve through a
mixture of government support and private investment, more and more
air links from within and from outside Indonesia will be established
to what are now secondary destinations. In a decade of deregulation
and "open skies" throughout Asia, we are already seeing
recently-established as well as newly privatized airlines from
Australia, Taiwan, Singapore, Malaysia, the Philippines and Korea who
are eager for new regional markets. These new destinations in
Indonesia will include Balikpapan (Kalimantan), Batam, Padang
(Sumatra), Manado (Sulawesi) and Lombok. "There is more to Indonesia
than Bali" and "Bali and Beyond" will become more than slogans as
increasing numbers of visitors discover the attractions these areas
offer.
5. Continual investment in Indonesia's human resources. As Indonesia
integrates more fully into the ASEAN regional and global economies
through its AFTA and GATT agreements, we will have to ensure we stay
competitive with our main regional tourism competitors such as
Malaysia and Thailand. Only a continual improvement in the quality of
the human resources working in our tourism industry will enable us to
keep pace with the ever-changing technological and service needs.
6. Cooperation inside "Growth Triangles". It may seem paradoxical but
while we are competing for our share of both the regional and
jong-haul tourist markets against otehr Southeast Asian countries, we
are at the same time cooperating on a wide number of fronts with our
ASEAN partners. Much of this cooperation is structured inside growth
triangles that link together various provinces in adjoining countries
to develop cooperative manufacturing and service industries, improve
regional transportation links, and encourage mutual tourism
development and growth.
with the success of the SIJORI growth triangle (Singapore, Johore Baru
(Malaysia), and Riau Province comprising Batam and Bintan in
Indonesia), other growth triangles have been established involving
provinces in both Western and Eastern Indonesia with appropriate
counterpart partner provinces in Thailand, Malaysia, the Philippines,
and Brunei. I foresee these growth areas increasing importance over
the coming years. They will strengthen the informal trade
relationships that already exist.
Role of the Public and Private Sectors
If we review the partnership between the public and private sector
over the decades in the building of the tourism industry in Indonesia
we can see there has been a distinct evolution in the government's
role in recent years. In the first twenty-five years of sustained
development effort -- called PJP I (First National Long-Term
Development Plan) -- the Indonesian government took a proactive and
coordinating role in both the public and private domains typically
needed in a developing country.
In the 1970, as the private sector was weak with little experience in
tourism, the government had to do more than build the infrastructure
and encourage investment, fundamental and essential though these tasks
were. The public sector through a variety of Ministries also took on
additional roles of product development as well as marketing and
promotional role overseas. Moreover, through state-owned corporations,
the government had to ensure that the necessary hotel and supporting
services were in place to attract other international investors as
well as to encourage a more upmarket tourism customer. An example of
this was the Tourism Development Corporation established in Bali where
the government took a lead role.
As we look ahead to PJP II -- the Second Long-Term Development Plan --
we envisage that the government's role will evolve to a more
supportive and regulatory role in the tourism industry, more typical
of the government role found in a developed country. The private
tourism sector in Indonesia has greatly strengthened over the past
decades and the lowering of non-tariff barriers within AFTA means they
are learning to compete within an international market and to have
cooperative ventures with international partners. As well, the
government is taking more of a back seat even in traditional
infrastructure projects. For example, we have begun a program to
improve regional transportation links -- for instance, the improvement
of the regional airport in Lombok -- in partnership with, or by wholly
turning over the work to, the private sector rather than the
government assuming the entire burden as we would have done in earlier
years.
Then if we look at the Bali TDC as a model for the sixteen other TDCs
in designated priority areas for tourism we see that in contrast to
the original Bali TDC -- which was state-controlled by central
government -- these TDCs being formed today are in a partnership
arrangement with the private sector and the provincial governments.
In closing, allow me to cite you a specific example of how private
industry is now leading tourism development in Indonesia and how the
government is supporting this effort.
Those of you familiar with Bali may have eaten at Warung Made in Kuta,
or Cafe Wayan in Ubud, or perhaps have stayed at Oka Kartini's
bungalows in Ubud. A story in last month's Jakarta Post described the
common ingredients for achievement behind each of these well-known,
successful small businesses. All of them were founded by hard-working,
entrepreneurial women who learned from talking to the early visitors
to Bali what tourists preferred and tried through trial-and-error to
cater to their tastes. These entrepreneurs often had to struggle
against their own.
(The End)
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