Good morning! Thank you for taking the time for an interview about Batam.
Good morning!
You are an engineer, come from Baden-Württemberg and have a second home in Batam, Indonesia. May I ask how that came about? What does an engineer from Baden-Württemberg do with a second home in Indonesia?
It came about - like so many things - through my wife, who already had a residence there. She works as a managing director in electronics assembly production and can contact potential customers from Batam. Batam is an attractive city, not least because of its location in the Malay Archipelago directly opposite Singapore. It is an exceptional city that has grown extremely quickly: from less than 7,000 souls to over 1.3 million in just 50 years.
This also has to do with government support, in particular the electronics industry, which is already strongly represented in Asia.
The electronics industry dominates the city: almost 90 percent of employees work in this sector. On the other hand, the neighboring island of Bintan is a recreational area for Singaporeans. You can be there in 30 minutes by speedboat. These are great contrasts. How do you experience the city?
Yes, it is a very lively and vibrant city. The infrastructure is very well developed. Transport, internet, services - everything works very well. Nevertheless, investments are still being made in the transport infrastructure. The retail trade is also highly developed. This is reflected in the ultra-modern department stores. In general, an entrepreneurial mindset is widespread. There are many small businesses, especially in the service sector: service is very important and you can get almost anything you need at any time of the day or night.
Can we talk about a wave of start-ups or a start-up boom? One reason for this is the very low VAT rate of just ten percent. Government services are therefore lower than in Germany. That's why things tend to be organized privately in Indonesia. On the one hand, this applies to social benefits. The family takes the place of state benefits - which doesn't always work. This forces people to provide for their income somehow. Another disadvantage is certainly the rather weak school system. You can't simply recruit skilled workers, you have to train them first.
Yet you still like being in Batam?
Of course! In my opinion, Batam has everything you could wish for. There are a lot of young people, who are dynamic and hungry and also boost consumption. In particular, electronic goods of all kinds are available - sometimes tax-free. And the town is right next door to a local recreation area, as you mentioned. Batam is a very beautiful and attractive city. I like being there.
Indonesia has declared the electronics industry to be a key industry as part of the "Making Indonesia 4.0" strategy. As a result, foreign investments are promoted with extremely high tax concessions in some cases: Up to 100 percent for up to 25 years, depending on the industry and investment volume. In 2020, the German Electrical and Electronic Manufacturers' Association (ZVEI) spoke of "great potential that will ... continue to increase" and a "strategic market". How do you perceive the Indonesian electronics industry?
Strongly growing. One example: Infineon currently employs around 2,000 people at a back-end production site in Batam. in 2022, the company invested - I believe - 2.4 billion euros there to double the production area. Infineon wouldn't be doing that if there were any obstacles to growth there.
A study sponsored by the German Federal Ministry of Economics has confirmed that Indonesia has a high level of political stability. Frankly, that surprised me. After all, Indonesia was a dictatorship until 1998. The country only democratized in 1998.
Yes, after Haji Mohamed Suharto, who seized power and ruled as a dictator for 30 years, Jusuf Habibie came to power in 1998. Habibie, who incidentally had studied at RWTH Aachen University, democratized the country. This does not mean that Suharto's family no longer had any influence. A son-in-law, Prabowo Subiantor, ran for president in 2014 and 2019 - but without success. The shadows of the past are there.
But when I talk to people on the ground, I get the impression that the country is now more stable. The study I mentioned confirms this.
To come back to Batam's geographical location: What role does it play in the development of the electronics industry?
Of course, it plays a major role. Singapore has a thriving electronics industry. However, labor costs are many times higher than in the rest of Southeast Asia. In this respect, it makes sense to move to Batam, which can be reached from Singapore in half an hour to three quarters of an hour - especially if you produce uncomplicated high-tech products.
Batam is also located on the Singapore Strait. Together with the Strait of Malacca, it connects the Indian Ocean with the South China Sea. This is one of the busiest waterways in the world. If I remember correctly, almost a quarter of the world's shipping freight is transported through it.
What advice would you give to companies thinking about setting up a production facility in Batam? How would you proceed?
I would say: step by step. First, I would get an idea of the situation on the ground. Simply a round trip to various production sites to make initial contacts, more or less without obligation. I can organize something like this very well in an individual setting.
The next step would be a thorough examination of the legal form that the company should have. This is because companies are structured differently in Indonesia than in Germany. For example, the role of the Direktur Utama - i.e. the managing director - and the Komisaris Utama - which roughly corresponds to the chairman of the board - must always be filled by locals. For such an audit, I would get the support of a consulting firm that specializes in Indonesian law.
And then you have to go beyond pure legal advice and get in touch with the people with whom you then set up the whole thing. I can establish these contacts.
So it's not about relocating production to Batam, but also not about a takeover.
The Indonesian state must have an interest in supporting a foreign investor. It's a bit like marriage: if you only rely on paragraphs, you won't get very far. It depends on the "We'll do it!", on the common will to achieve something. The employees of the authorities then interpret the legal text more favorably.
I'm just saying that personal relationships on the ground play a very important role. You can't replace them with emails or video calls. Meeting on site has a similar function for business as business lunches used to have in Germany. And if you will allow me to say so: The fact that the institution of "business lunches" has lost its significance was not a good development.
One topic we haven't talked about yet is working conditions in the electronics industry.
Workers in the electronics industry are relatively well protected. "Hire and fire" is not possible under Indonesian labor law. From my point of view, it is rather difficult to retain employees. It is quite common for them to leave the company after just one or two years if they get a more attractive offer. This is comparable to the dynamics of other industries. In the hotel industry, the best employees are always in the newest hotel. This is mainly due to the lack of qualified specialists.
In order to retain employees, you have to establish an appropriate corporate culture so that employees enjoy working for the company and stay - even if they would get five percent more elsewhere.
You briefly mentioned earlier what you can do for companies that want to produce in Batam. Can you be more specific? Why should a German company approach you of all people?
Because I am an engineer who knows the local conditions very well. That means I can carry out feasibility studies. I can also check your processes and systems as an auditor. But I can also establish contacts with the people you need for your company. And I can be your local contact person who supports the development of your production site and keeps in touch.
And finally, I know the local customs: which days to do business around the breaking of fast and which not, how to extend invitations and many other cultural sensitivities.
So the Indonesian working world is very different from the German one.
Yes, certainly. But you can't generalize that either. In my opinion, Indonesia is very open and permeable, including in religious matters. The country is huge: it is an archipelago with 17,000 islands and, with a quarter of a billion inhabitants, has the fourth largest population after the USA.
So you shouldn't rely so much on the anecdotes of people who have been to some island and allegedly encountered cannibals there. That's like concluding from a stabbing somewhere in northern Germany that all Germans are knifemen. In other words, Indonesia is very different from Germany, but the differences within the country are also very, very big.
And finally, the most important thing: Where is the best place to eat in Batam? Your insider tip?
Oh, there are lots of good fish restaurants, all located on the coast, with a wonderful view of the sunset or a neighboring island. You choose the fish from the aquarium yourself and then get it hot on the table. Highly recommended!
Thank you for your time!
Very much.
