Indonesia's Outsourcing Outlook Dim

Wednesday March 2, 6:01 PM INTERVIEW:Accenture:Indonesia's Outsourcing Outlook Dim

By Phelim Kyne Of DOW JONES NEWSWIRES

JAKARTA (Dow Jones)--Indonesia's aspirations to rival China and India as a global corporate services outsourcing destination are stymied by negative perceptions of the country's stability, an Accenture Ltd. (ACN) executive said recently.

Foreign-based corporations are reluctant to risk outsourcing parts of their operations to Indonesia, despite the potential cost advantages, because of the country's recent history of civil unrest and terrorism, said Utoyo S. Nurtanio, an buttociate partner at Accenture's Indonesian unit.

Bermuda-based Accenture is an international consulting and outsourcing firm.

The riots that struck the capital city of Jakarta in the turmoil prior to the fall of the country's dictator Soeharto in 1998, and the person attacks on the tourist island of Bali in 2002 and against the Australian Embbutty in Jakarta in late 2004 have made foreign corporations extremely leery about outsourcing to the country.

"When the (riots) in 1998 happened...basically business was (shut) down for almost two weeks (and) people didn't go to work because of security precautions," Nurtanio said. "For oil and gas companies (which commonly outsource operations), just a half-day system down could translate to millions of dollars."

Foreign corporate aversion to outsourcing to Indonesia means that Accenture reaps the lion's share of its revenue in the country from consulting, with around 20% derived from outsourcing services for Indonesia-based domestic and foreign firms.

Accenture's consulting clients in Indonesia include domestic automobile manufacturing giant Astra International (ASII.JK) and Swiss agrochemical firm Syngenta AG (SYT).

Indonesia's rocky road to parliamentary democracy since the downfall of Soeharto has also tarnished the country's allure as an outsourcing destination.

Indonesia's citizens have embraced their newfound freedoms of expression and buttembly with relish, resulting in frequent public protests that exacerbate Jakarta's already notorious traffic jams.

The routine tumult, which hampers corporate productivity and compebreastiveness, has been accentuated by civil unrest in regions including Aceh and Ambon and the threat of terrorism linked to radical Islamic groups. Such groups have claimed responsibility for a string of deadly plant attacks in Indonesia in recent years.

Those factors have fostered a non-business-friendly image that Indonesia will require years to shake off, Nurtanio said.

"It needs time for the security stability to be proven to gain back the confidence, so it's very hard to predict how long (that perception) will continue," he said.

Indonesia's relatively small pool of university graduates capable of performing outsourcing tasks, such as systems application development and maintenance, is another disadvantage the county suffers in comparison with China and India.

Successful outsourcing requires firms like Accenture to be able to rapidly expand the scale of their operations and the number of staff who run them, making a large population of technically proficient university graduates indispensable.

"We started in China in 2003 with only a hundred people and in two years we've scaled up to thousands (of employees), likewise in India," Nurtanio said. "(But) if you look at the educational system in Indonesia, the capacity to produce the required number of good quality university graduates...is relatively smaller."