Too late to shuffle cards in Indonesia game-plan

About two years ago on a visit to Jakarta, I called on a Korean manufacturer of household goods, who had set up a plant there. I wanted to see just how his sort of business operated in Indonesia.

The man on the spot was forthright about costs, labour quality and all these sorts of things and then I asked him what he thought about political risk.

'Well, I don't see any major problems,' he replied. 'Kim Young-sam won't stand for re-election and I don't expect the North to invade the South.' 'Excuse me,' I put in. 'I didn't mean Korea. I meant Indonesia.' He laughed and made what I then thought was an obvious point.

'Do you really think that whoever comes into power in this country would want to turn the clock back by ordering us out and banning foreign investment?' he said.

Well, I haven't seen him since and I don't know if he's still operating but I hear that one of Indonesia's biggest categories of exports at the moment is production machinery, unbolted from the shop floor, crated and sent back home. The risk was not what the Korean plant manager thought it was.

His mistake was to look at Indonesia not as an export processing zone but a potentially huge domestic market. He was making cheap washing machines on the reasoning that of 200 million people perhaps two million would want one and this, he reckoned, was a good-sized market.

His company set up locally because it expected to enjoy tariff protection longer than the World Trade Organisation had in mind. It would therefore have an advantage over competitors still shipping completed washing machines to Indonesia.