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Indonesian Chinese Businesses


									                    Indonesian Chinese Businesses :
                 Case Study of Oei Tiong Ham Concern

                                  Widjaja Hartono

                      UNIVERSITAS CIPUTRA - SURABAYA



Indonesia is the largest economy in Southeast Asia and a member of the G-20 major
economies. With more than 230 million inhabitants, it is the 5th most populous country in
the world and is among the most culturally rich countries. Indonesia has more than 300
ethnic with some 250 distinct languages and dialects throughout the nation. For the last
ten years, Chinese or Mandarin language has been commonly used and has become
advantage for businessmen doing business with China. As economic development and
modern education spread throughout the country, the ethnic and regional differences are
being diluted. Chinese descent constituting only 3.5 per cent of the population but they
own approximately 74.5 per cent of national assets. Much of the country's privately
owned commerce and wealth is Chinese-Indonesian-controlled, which has contributed to
considerable resentment, and even anti-Chinese violence. This is a long time and
vulnerable issue which last for decades.

Oei Tiong Ham was a Chinese businessman. He was the son of Oei Tjie Sien, the founder
of the Kian Gwan Kong Si (a multinational trading company). Later it became Oei Tiong
Ham Concern (OTHC) which was the largest conglomerate in the South East Asia. He
became one of the wealthiest and most powerful men in his time period. In 1961, during
President Sukarno rule, his business was naturalized and confiscated by the government
of Indonesia (Old Regime). The purpose of this research is to analyze the Indonesian
Chinese Role and the Indonesia Chinese Businesses in the past, present and future
challenges in learning with Oei Tiong Ham Concern Case Study.

Keywords: Oei Tiong Ham Concern, Indonesian Chinese Businesses, Indonesian
          Chinese Role

Chinese Indonesians, also called the Indonesian Chinese, are an overseas Chinese group
whose ancestors emigrated from China to Indonesia. When speaking of ‘Chinese’, it
refers to Indonesians who define themselves as ‘orang Tionghoa’ and are seen by others
as ‘Chinese’. Ethnic Chinese have been living in Indonesia for generations, if not
centuries. It is often impossible to find differences between them and the Indonesians
regarded as indigenous, the so-called pribumi. Most of the Chinese Indonesians have
Indonesian names, use the Indonesian language, are Indonesian citizens, and have never
been outside Indonesia. However, until 1998 they constituted the ‘nonpribumi’, the
counterpart of the pribumi-majority. This ‘non-asli’ (‘not original’) attribute not only
legally marked the Chinese as outsiders of the nation, but constituted the dominant social
reality in Indonesia. In many ways, be it in the institutional enactment of discriminatory
laws and unfair practices or publicly in riots, the exclusion of the Chinese took place.

This research uses descriptive method and was done by collecting data from papers,
journals, modules, and internet databases.


Pic.1: Kian Gwan Maatschappij


Oei Tiong Ham Concern (OTHC)
The OTHC originally started with the trading firm of Kian Gwan, established in 1863 by
Oei Tje Sein, Oei Tiong Ham's father. In 1890, Oei Tiong Ham took over the firm Kian
Gwan which diversified and grew into one of the largest firms in Southeast Asia. At the
time Tiong Ham took over the firm, Kian Gwan’s main activity was trade, especially
trade in rubber, kapok, gambir, tapioca and coffee. In addition, it was involved with
pawnshops, postal services, logging and the highly lucrative opium trade.

Unlike many of his Chinese contemporaries, Oei Tiong Ham relied heavily on written
contracts in conducting his business. This did not make him popular in Chinese circles
but it provided him with a legal basis to acquire the collateral for the loans he extended.
Among his main debtors were often owners of sugar factories in East Java and when
these factories were unable to repay the loans, due to the long-lasting effects of the sugar
crisis of the 1880s he used his rights as a creditor. In this way he acquired five sugar
factories. Sugar now became the backbone of the company and would remain so for the
next several decades.

In the period between the 1890s and the 1920s, OHTC grew and diversified rapidly. It
started branches in London and Singapore, created a bank, a steamship business and had
a large wholesale business. Of all the ethnic Chinese business conglomerates in pre-war
Asia, the Oei Tiong Ham concern was by far the largest.

Besides making use of written agreements and a modern accounting system, Oei Tiong
Ham also diverted from yet another Chinese business practice of the time. Instead of
relying solely on family members in running his wide ranging business enterprises, he
deliberately chooses capable outsiders, such as Dutch directors, managers, and engineers
to manage his companies. Nevertheless, the top managerial positions were held by
members of the Oei family.

After Oei's death on 1924, OTHC continued to grow. However on 10 July 1961, the
Pengadilan Ekonomi (the court for economic crimes) in Indonesia issued a confiscation
order on OTHC in Indonesia. The company and its owners were charged with economic
crimes against the country. OTHC was then nationalized and renamed on 1964 to PT
Radjawali Nusantara. However, the overseas subsidiaries remained with the Oei family.

The Indonesian Chinese History

For around 250 years the majority of what is now Indonesia was ruled by one of the
biggest, most long lasting and least socially responsible of the colonial trading companies.
Such companies were in their own way prototypes of the modern TNC. The legacy left
by the colonial regime and the Dutch East India Company in Indonesia was a complex
mélange of patronage, monopolies (the so-called conglomerates) and the commensurate
concentration of wealth and power. Tan (2008) reports that, as a result of that early
history, capitalism is inextricably linked with colonialism and imperialism in the
Indonesian consciousness.

By the time the Dutch arrived in the early 17th century, major Chinese settlements were
already in existence along the northern coast of Java. Most were traders and merchants,
but they also practiced agriculture in some inland areas. The Dutch contracted many of
them as skilled artisans in the construction of Batavia on the northwestern coast of Java.
The new harbor was selected as the new headquarters of the Dutch East India Company
(Vereenigde Oost-Indische Compagnie, VOC) in 1609 by Jan Pieterszoon Coen. It soon
grew into a major hub for trade with China and India. Batavia became home to the largest
Chinese community in the archipelago and remains so today, though the city has been
renamed as Jakarta.

Chinese settlement in the archipelago was not limited to Java. In western Borneo the
Chinese established their first major mining settlement in 1760 and ousted Dutch settlers
and the local Malay princes, including establishing their own republic. By 1819 they
came into conflict with the new Dutch government and were seen as "incompatible" with
its objectives. On the other hand, the local government considered the Chinese population
indispensable for the development of the region.

Most of those who settled in the archipelago had already severed their ties with the
mainland and welcomed favorable treatment and protection under the Dutch. Some
became "revenue farmers", middlemen within the corporate structure of the VOC, tasked
with collecting export–import duties, managing land sales, and managing the harvest of
natural resources.

Chinese Indonesians; Roles and Treatments

The position of the ethnic Chinese in Indonesian society has for decades been ambivalent.
Resentment against the Chinese for their business success and dominance has led to
frequent outbursts of anti Chinese sentiment and riots both after independence as well as
during colonial times. Conversely, the Chinese have also received considerable
appreciation for their introduction of business techniques. Moreover, during the Dutch
and Japanese occupations of Indonesia, it was the ethnic Chinese who contributed most
heavily to the independence movement of the nation.

Indonesian law affecting Chinese-Indonesians were conducted through a series of laws,
directives, or constitutions enacted by the Government of Indonesia that affected the lives
of Chinese Indonesians or Chinese nationals living in Indonesia since the nation's
independence. The laws were considered discriminatory by some, who view them as laws
made against Chinese Indonesians. Most of these laws are revoked following
Reformation era under President Abdurrahman Wahid (Gus Dur).

Right after the Indonesian Independence on 1945, the Indonesian people were
overwhelmed by the euphoria of "freedom" and took over a lot of foreign companies: this
action was referred to as "Anti-Dutch sentiment". Among others, were a Dutch
companies and Chinese Indonesian companies like OTHC. After a while, the
Government of Indonesia realized that unskilled and inexperienced Indonesians were
unable to run the company. They also did not have enough capital, and it was almost
impossible to compete with foreign investment and the Chinese capital (before
independence, the ethnic Chinese had more chances to do business from colonialist ruler).
These companies suffer losses after the seizure. As a solution, the Government of
Indonesia signed an agreement during Dutch-Indonesian Round Table Conference in Den
Haag, Netherlands, which stated that the government of Indonesia would return all seized
foreign investment assets to its previous owner. In return, to strengthen up the weak
Indonesians (pribumi), the Government of Indonesia had the right to issue a law or
directive to protect the national interest and those who were "economically feeble".

 In the beginning of 1950 the Government of Indonesia (GoI) issued "benteng" (fortress),
stating that only indigenous Indonesians (pribumi) were allowed to have licenses to
import certain items classified as "fortress" items. During its implementation, this rule
gave birth to the term "Ali Baba", meaning that underground trade activities with the
combine cooperation between Chinese businessmen and Indonesians who have access in
the bureaucracy were going on.

Presidential Regulation 10 of 1959 (Peraturan Presiden Nomor 10 tahun 1959) was a
law directive issued by Indonesian government and signed by Minister of Trade. The law
prohibited foreign nationals from doing retail business outside urban areas (including
rural areas) and required them to transfer their businesses to Indonesian nationals by 1
January 1960 or relocate to urban areas. This directive was approved by former President
Sukarno. The rule triggered a huge exodus of Chinese Indonesians back to China.
Although the regulation merely mentioned that only "foreign citizens" were required to
do the relocation and closure of business, the law affected many Chinese nationals and
Chinese Indonesians. At that time, almost all retail stores in Indonesia were owned by
Chinese or Chinese-Indonesians from grocery stores, hardware stores and even
restaurants. The law was meant to strengthen the national economy in Indonesia, yet this
law resulted in a tense diplomatic relation between Republic of Indonesia and the
People's Republic of China (PRC).

New Order Regime
During this regime, capital has been concentrated in the hands of President Soeharto, his
family and selected clients and cronies. Suharto was a strong advocate for Chinese
assimilation rather than integration. As part of 1967's 'Basic Policy for the Solution of the
Chinese Problem' and other measures, only one Chinese-language newspaper was
allowed to continue, all Chinese religious expressions had to be confined to their homes,
Chinese-language schools were phased out, Chinese script in public places was banned,
and Chinese were encouraged to take on Indonesian-sounding names.

Large business in Indonesia is marked by the presence of what have been labeled
conglomerates, it is a well-connected groups of businesses linked to Indonesian political
elites. The other is large State Owned Enterprises (SOEs), which are bureaucratic
corporations protected by the power of government and patronage. Increasingly they
operate as limited companies (PT) and possess the same flexibility as private enterprises.

In later years, FDI was continuing led and dominated by Japan, a nation that had
occupied Indonesia during the Second World War. The strengthening of economic ties
with Japan and other Asian economies, such as Taiwan (Republic of China) and the
Republic of Korea, has continued until the present. During the 1970s and 1980s Suharto
and his government brought in Chinese Indonesian businesses to participate in the
economic development programs of the New Order, while keeping them highly
vulnerable in order to strengthen the central authority and restrict political freedoms.
Patron-client relationships, mainly through the exchange of money for security, became
an accepted norm among the ethnic Chinese as they maintained a social contract through
which they could claim a sense of belonging in the country. A minority of the economic
elite of Indonesian society, who may or may not be ethnic Chinese, secured relationships
with Suharto's family members and members of the military for protection, while small
business owners relied on local law enforcement officials for protection. Stereotypes of
the wealthy minority became accepted as generalized facts, but they failed to
acknowledge that these businessmen are small in number compared to the small traders
and shop owners.

After the May riot 1998 which targeted ethnic Chinese businesses in Jakarta and some
big cities, New Order regime was ended. The situation of the ethnic-Chinese Indonesians
seems unlikely to improve soon. While to some degree the violent persecutions have
abated since the resignation of President Suharto, his successor, President Habibie, has
only added to the troubles of the ethnic Chinese. In one of his first acts as president,
Habibie joined in the scapegoating of the Chinese community. Instead of attempting to
encourage the ethnic-Chinese Indonesian citizens who fled the country to return,
President Habibie instructed the government to give their trading licenses to what he
called "indigenous Indonesians" (pribumi). On the other hand, Habibie began a campaign
to rebuild the confidence of Chinese Indonesians who had fled the country, particularly
businessmen. Habibie appealed to Chinese Indonesians seeking refuge throughout many
developed countries to return and promised security from various government ministries.
Despite Habibie's efforts he was met with skepticism because of remarks he made, which
suggested that the message was insincere.

Family Business

The economic achievement of the Overseas Chinese in Southeast Asia and Indonesia
particularly has attracted the attention of many economists, social scientists and
management researchers from all parts of the world. One of the key characteristics of the
Overseas Chinese business practices is its remarkable high entrepreneurship. This
extraordinary high business sense of the Chinese leader is very much shaped by the
Chinese cultural values that strongly emphasize the value of familism and the importance
of glorifying the family-name. This has explained why most of the Overseas Chinese
businesses are family-oriented, like OTHC.

In addition, the unique organizational and managerial practices of the Chinese enterprises
have also partially contributed towards their economic successes. Chinese cultural values
are often seen as important factors in determining and shaping Chinese business
organizational and managerial practices. The influence of Chinese cultural values on
managerial practices is so significant that it distinguishes Chinese managerial practices
from Western practices (Redding, 1982). These distinct Chinese cultural values have
created the distinguishing characteristics of the Chinese managerial system (Limlingan,
The unique characteristics in Chinese organizations include a low level of structuring
activities, highly-centralized decision making, exhibiting nepotism and family ownership
control, as well as demonstrating a paternalistic style of leadership with strong emphasis
on group behavior.

However, the uniqueness of the Chinese organizational and managerial practices has its
limitations, especially when the size of the family business grows from small-medium
size to large. In fact, this is the time when the weaknesses of Chinese family business
organizational practices start to reveal themselves and even overtake the strengths. Some
of the major and common weaknesses are no succession plan, lack of operational systems
and controls, lack of ability to develop long-term strategic plans, one-man show
authoritative management style and family conflict among the family members (splitting
of family business and wealth among brothers). That could be used to partially explain
why a Chinese family normally would not last for more than three generations. In order
to enable the continuity of the family business, it is of paramount importance for the
Chinese leaders to gradually move toward modern management and professionalism in
place of the conventional style of management.

Pic. 2: Book “Family Business” Nyonya Meneer


Jamu Nyonya Meneer Company - Semarang (Indonesian traditional medicine
manufacturer ) is one of sustainable Chinese Indonesian family businesses which last
more than a century.

None of Indonesia's ethnic groups are as important relative to their size as the ethnic
Chinese. The Chinese are not considered an indigenous group to the nation, although they
have been present in varying degrees for centuries. The Chinese are few in number but
dominate Indonesia's business sector.


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