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Tips on working in a developing country and an Asian culture.

With many U.S. companies owning production plants in foreign countries, and others planning to do so in a now-global economy, what does it take to run a metal fabricating plant overseas, especially in a developing country and an Asian culture?

An excellent example is a boiler components plant located on Indonesia's main island of Java and run in a joint venture by ABB Combustion Engineering Systems (ABB/CE), a leading supplier of fossil-fueled utility steam generation equipment. A subsidiary of Asea Brown Boveri, of Switzerland, ABB/CE Inc. is headquartered in Stamford, Conn.

Indonesia, at the heart of Southeast Asia, is the world's fifth most populous nation (180 million people), and consists of almost 14,000 islands that extend from the tip of the Asian mainland to Australia. Electrification is one of its highest-priority objectives. Power stations that use steam to turn turbines require large utility boilers and other components, the impetus for the ABB/CE plant. The intent of PLN, Indonesia's state electricity company, was to gain a dependable local supply source, inrease the country's technology base, and avoid cash outflow for some of the costs of power generation.

One of the prime success factors of geographical diversification is the proper choice of location. Given Indonesia's strong electrification growth rate, we targeted it as a strategic market for steam generating equipment parts. Besides Java, Indonesia has five other fast-industrializing islands that give it huge potential--Sumatra, Bali, Kalimantan, Sulawesi and Irian Jaya. And nearby are Singapore, Malaysia, Thailand, Bangladesh and the Philippines.

Indonesia was also chose as its Southeast Asian manufacturing base for other criteria such as a well-manage economy, a growing financial sector, fast rate of deregulation and flow labor costs.

The boiler components plant, located in East Java, commenced operating in 1989 in the port city of Surabaya. It is a joint venture of ABB/CE who has 60 percent ownership; P.T. Barata, a metal fabricating firm with 20 percent; and P.T. Pal, a shipyard with the other 20 percent. (P.T. is the Indonesian equivalent of "Incorporated," and the plant is actually located in the shipyard.)

Called P.T. Energy System Indonesia (P.T. ESI), the joint venture has a management and sales office in Jakarta, the capital city, for ABB/CE believes it important to have some organization near the government center.

According to William L Grupp, the company's senior consulting engineer for manufacturing services, P.T. ESI works under a "Partnering" concept with its joint venture partners. This arrangement results in utilization of the best of facilities, equipment and personnel from each organization. It allows P.T. ESI to benefit from a $100 million (US) capital investment made by its partners in modern manufacturing equipment. In this arrangement, P.T. ESI is chartered to fabricate the key tubular pressure part components for boilers and has supplied equipment for this purpose. With its partners, P.T. ESI has a total area available for boiler work of 30,245 square meters. While substantially more manufacturing space is available if required, only a small fraction of the designed boiler space is being utilized for this work.

In total, P.T. ESI and its partners employ almost 10,000 people at the Surabaya manufacturing locations. Under partnering arrangement, P.T. ESI employes a core pressure parts manufacturing work force, which is augmented by its partners to accommodate increases in workload.

The key labor skill required in boiler fabrication is in the welding area. P.T. ESI and its partners have a total pool of 2,854 welders to draw from, of which 10 percent are already involved in pressure type welding. All pressure welding is done in strict accordance with the ASME code.


What has ABB/CE learned form its plant-operating experience in Indonesia? First and foremost is the crucial need for training, and it chose to emphasize on-the-job training of a core of managers/supervisors to add to their existing skills and indoctrinate them in quality control and productivity.

Accordingly, for its current Indonesian plant, ABB/CE brought over those who would supervise metalworking, welding, quality assurance, production, etc. for a three-month program conducted in its four U.S. boiler components plants: in Chattanooga, Tenn.; Wellsville. N.Y.; and Concordia and Enterprise, Kansas. They were exposed to documentation and design standards, instructed in all the fabricating sequences, taught the welding techniques, drilled in proper purchasing and quality control procedures. Hands-on training right on the plants' shop floors--on the equipment that would be used in Indonesia--was emphasized. Weekly review sessions were also instituted, so the Indonesian supervisors could ask questions. The objective, of course, was to develop a group of fully-trained plant supervisors who could then pass their knowledge and skills down to all levels of plant employees.

Beyond this, there was training on-site. ABB/CE sent its U.S. plants' personnel to help the Indonesians at start-up time with equipment installation and operation. Even now, if a problem arises, the company flies qualified personnel from U.S. plants to Surabaya.

In order to qualify personnel in the manufacture of carbon and alloy steel pressure parts, Indonesian managers/supervisors were brought to the Chattanooga plant where these parts are made. Not only was training provided that corresponded to that previously described, but attention was paid to writing a quality control manual and explaining how and why the plant is organized as it is.

As a result, P.T. ESI has, after making demonstration parts and in the very first inspection, met the stringent code of the American Society of Mechanical Engineers (ASME) and is authorized to produce high-pressure components.

Language has not proven to be a problem. Everyone in the Jakarta office, from the president-director to the secretaries, speaks English. In the plant, the entire manufacturing staff down to the floor supervisors speaks either fluent or passable English. The hourly workers only speak Indonesian, but communicate through the supervisors.

Overseas plant guidelines

Although it stresses the need for training, ABB/CE has other suggestions for effectively operating a developing country plant, especially one in an Eastern culture. The following are guidelines passed along by Glyn Dowden, the company's director of joint ventures and associated companies ofr its fossil systems business.

* Accept the fact that, in Asia, things are accomplished at a slower pace. It should take time to set up successful operations in a developing Asian land. ABB/CE spent years positioning itself favorably in the Indonesian marketplace before opening its Surabaya plant. Sowden feels that it is imperative to initially develop personal relationships, especially to gain access to top government people who can clear away problems, red tape, etc. It is also wise to gain the experience of working with Indonesians at commercial and technical levels before embarking on specific ventures.

* It is often a good policy to first initiate a smaller manufacturing presence in order to gain credibility for favorable consideration of larger bids. ABB/CE set up and ran the P.T. EST plant before it sought and won a contract, with other partners, to manufacture two 400-megawatt utility steam generating units.

* Do not go it alone. In many instances, a joint venture with Indonesian and/or other foreign partners is the way to go, especially if the customer is a government agency. Developing nations are also interested in gaining technological competence and a project has a far better chance of approval if technology transfer--your commitment to help the nation develop--is a part of it. ABB/CE not only brought in machinery from its successful U.S. plants, but it trained Indonesians in using it. Its joint venture partners proved valuable in suppling personnel for the plant and in establishing suppler relationships for locally-purchased products.

* In making an investment in a developing country, ideally pick a product or service that the country urgently needs. With electrification a top Indonesian goal, a plant producing steam generating components for power stations encountered little opposition.

* Industrial labor costs in Indonesia are substantially lower than in the U.S. Conversely, however, an employer may get a lesser-skilled person or one who needs training to enhance skills. At first, doing the job properly may require a longer time or even employment of two people rather than one. ABB/CE solved this, to a large extent, with its painstaking training programs, which also helped overcome a developing country's typical dearth of middle management.

* Make a ceremony of a plant's opening. ABB/CE invited government and industrial leaders, the American ambassador, local dignitaries, the press, and executives of the joint venture companies, and had an impressive, official agenda. A local Muslim religious leader was present to bless the new facility, and the entire work force participated in the opening, its ceremonies and the accompanying feast.

* Everyone knows that "face" is very important in Asia. Confrontation, especially publicly, is not in the culture. Indonesians, a warm and friendly people, can be offended without your realizing it, such as by openly-negative appraisal of performance. It is best to delicately and obliquely broach a problem issue and permit the Indonesians themselves to study and resolve it.

* Often, employment of "go-betweens" or intermediaries can help provide solutions to problems. They can be useful in interpreting Indonesians' indirect language signals that may not be easily discerned by Western businessmen. For example, in a contract discussion, does "yes" simply mean they heard a question, or does it mean "we have a deal" o does it mean they are willing to talk further about it? Sometimes, it takes experience or experienced people to interpret what is really meant.

* U.S. companies that have overseas plants should be interested in new university programs that permit foreign students studying there to work at company facilities here and/or in their home area. The concept -- particularly applicable to firms with business interests in Third World countries -- entails alternating periods of academic and practical work related to the students' major field of study. ABB/CE participates in such a program, inviting engineering students at Northeastern University, Boston, to train at its facilities for several months. By participating, U.S. firms get a source of future overseas managerial talent familiar with American ways of doing business, plus ingratiate themselves further into a foreign country's scene.

Ron Konopacki is director of manufacturing services for ABB Combustion Engineering, Windsor, Conn. He is also a member of the board of directors for the joint venture company that oversees the boiler components plant in Indonesia. He received his B.S in mechanical engineering and his MBA at Western New England College, Springfield, Mass.
COPYRIGHT 1992 Institute of Industrial Engineers, Inc. (IIE)
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Author:Konopacki, Ron
Publication:Industrial Management
Date:Mar 1, 1992
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