Industrial Relations in Korean Companies in Indonesia (by PSPD)

   I. Korean Companies in Indonesia and Their Industrial Relations: An Overview 

  Foreign investment of Korean capital in Indonesia has showed different characteristics with the change of period. From the late 1960s to the late 1970s, most investment was directed to the development of natural resources such as timber, petroleum and coal. Conflicts or disputes with local labor or local people were not serious as the number of companies in this early period was not significant. On the contrary, they were welcome by the local community for they built new roads, schools, mosques, and hospitals.

  The second period begins from the late 1970s until the late 80s. During this period construction and trade were the main field of expansion. Leading companies of construction and trade rushed to the Indonesian market and showed great performance. In this period, too, Korean capital and local labor relations were not an issue. Investment was mostly driven not to labor-intensive industries but to construction, trade and energy development. Also, the companies in Indonesia were supported by their mother firms, the Korean conglomerates. In addition, Koreans were generally perceived positively to the Indonesian people due to huge construction projects, such as Hyundai's construction of the Jagorawi Highway.

  The third period is from the late 1980s to 1993, when most direct investment was concentrated on labor-intensive industries. Major investors were small and medium capital attracted by the merits of the Indonesian labor force-obedience and low costs. However, with the rising wages of Indonesian workers, these labor-intensive industries have stopped new investment and they are now heading for other countries such as China in search of cheaper labor. However, the negative image of the Korean firms is getting worse among the Indonesian people. The reason for this seems to lie not only in the size or the nature of capital, but rather in the Korean style management and industrial culture which were "exported" at the same time. From this survey it was found that the Korean style management had already rooted in Indoncsian society.

II. What Is the Korean Style Management?

  In contrast to our predictions, the number of collective disputes due to low wages or back pay was not significant. Korean companies provided higher wages than most other foreign firms or local companies. Though threats, intimidations, insults and violent language were still a serious problem, direct and physical violence had disappeared. But the image of thc Korean companies was still very much negative, marking probably the worst among other forcign firms.

Diagram: Foreign Investment in Indonesia in Sum
1967 31 May, l 995
(permitted standard)

Countries Numbers Approved (Average Investment Quantity)
Japan 709 19,751.8 (27.86)
Hong Kong 306 14,567.8 (47.61)
England 155 12,215.4 (78.81)
U.S. 191 11,094.9 (58.09)
Tiwan 354 7,735.6 (21.85)
Singapore 389 7,619.7 (19.59)
Netherland 121 7,421.3 (61.33)
Korea 350 6,134.3 (17.53)
Australia 174 5,606.5 (32.22)
Germany 75 4,849.4 (fi4.66)
Source: BKPM (Badan Kordinasi Penanam Modal)

  To Indonesians the most rejected company for employment was the Korean ones, while the most wanted was the Japanese ones. Why does the local labor dislike "most" the Korean companies in spite of the "highest" wages in the same production field? The reason seemed to lie in the Indonesian workers' misunderstanding. They perceived that the management style adopted in the companies with industrial conflicts was all the "Korean" way. They also believed that the way the company respond to the the problems was "Korean" style though the company has nothing to do with Korea in terms of possession or management.

1. Does "Korean-style Management" Exist?

  According to workers' testimony, the Korean-style management can be defined as an inhumane way of management used by managers or supervisors to squeeze labor intensity for higher productivity. However, the Indonesian workers believed that even the ways of management in non-Korean firms were the Korean-style management. This understanding was based on the following perceptions: First, a skillful way of labor control to maximize productivity and the profits of capital, regardless of its origin, was a popular method utilized during the industrialization period in South Korea, and was first introduced to the labor-intensive industries in Indonesia by Koreans themselves.

  In addition, there was a close link between the Korean-style management and Korean managerial staffs. These people had been originally blue collar workers or engineers in Korea, but when they moved to Indonesian they stepped into the position where they had to treat the local labor with the same way they had been treated when they were in Korea. Lastly, the ongoing process of separation between Korean capital and Korean management in labor-intensive industries resulted in identifying the Korean-style management. That is in many labor-intensive industries, it was a common practice to employ factory managers, foremen or line leaders of Korean nationality. In these cases though the owner of the company was not a Korean the company was known to be Korean.

2. Wage System

  Recently, with the Indonesian govemment's tight control over and monitoring on the observance of the minimum wages, the wage structure in Korean-managed companies has changed a lot. This policy was introduced by the Indonesian government fearing that the deterioration of industrial relations due to the violation of the minimum wages may threaten the stability of the regime itself.
  Another reason is that Korean firms are foreign investment capital anyway, and the preferential conditions provided to the foreign firms by the Indonesian government are not a free lunch. To the gradual increase of the minimum wages the Korean managers responded in the following three ways: (1) standardization of wages to reduce the wage increase due to employed years (2) minimization of real wage increase by including the expenses of meals and transportation, once paid separately (3) the adoption of contract system and work-incentive system.

  A last problem with the wages is the unclear way of wage calculation. Questions on the wage calculation have been one of the main factors of labor disputes. Not only the issue of sincerity of the calculation but rather the fact that the employers do not fully explain the calculation method to their employees was more problematic. Korean managerial staffs were often misunderstood because of their language barrier and high-handed manner.

  These changes in wage structure in the Korean firms show that the Korean employers have adopted a strategy of a more implicit and complicated wage structure instead of clear violation of labor rights such as no minimum wages, low wages, and no extra pay for overtime work.

3. Labor Intensity and Working Hours

  The core of the Korean-style management can be summarized as a method of improving productivity through higher labor intensity. Korean companies use a number of cunning ways to lengthen the working hours. One is what is called "stealing of hours" (korupsi waktu) by Indonesians. This is to add a few minutes before or after the regular working hours of seven. For example, the managers require the workers to be present in the factory fifteen minutes before the opening hour and start to work, or do not allow them to leave on the closing hour and keep them five more minutes.

  Another way is to minimize time loss during the working hours, and the best example is the regulation on washroom-goings. The managers force the workers to use washroom cards or further lessen the number of toilettes in the factory. In some companies, the toilettes were even locked during working hours except during short breaks. As the Korean companies wanted also to reduce praying hours, they did not provide enough room and facilities for a prayer.

  The worst case was to lock the doors of the factory during the working hours, and this definitely provoked the anger of the workers. Another method adopted by the Korean companies was the forced labor for extended hours. This marked a big problem because the workers were brought up in Indonesian culture which emphasizes the importance of leasure and relaxation.

  Though the early coercive ways of violence, physical assault, and intimidation have almost disappeared, the essence to increase productivity through higher labor intensity was maintained in a more cunning ways with a little alteration in methods and forms of coerciveness.

4. Welfare and Working Environment

  Most Korean managerial staffs lack an understanding on the importance of workers' safety, welfare, and the facilities to satisfy these needs. They even believe that these facilities will be a sort of luxury to the Indonesian workers who live in low standard of living. However, with the increase of wages and the realization of minimum wages, workers' demand to improve working environment and welfare conditions such as safety facilities, occupational diseases, medical insurance, dormitories, and meals has become the major issues in the strikes.

  Exceptionally, there are Korean firms with the best welfare facilities, such as PT. Sunkyong Keris Indonesia, but in general most factories did not provide enough washrooms, commutation bus, and dormitories. Even when they had these facilities, they were just for to show not to use. For example, in a foot wear producing company of EIF, the number of commutation bus was in absolute shortage. In another jacket-making factory of SA, about 300 workers were living in a dormitory with only three washrooms.

  Most companies protected their workers hurt from industrial accidents with a medical insurance called Astek, but there were still companies which did not enlist in the insurance. This was one of the main issues raised from the labor side during the strikes. But the difficulties of the procedures and permission to be entitled to the insurance hindered workers from fully utilizing the medical system.

5. Labor Management and Unfair Dismissal

  Among several fields in the management, the most "Korean" area is labor management, which is the way with which the Korean managers control the labor, and especially their attitude towards trade unions and labor movement. Their manner is so Korean that it would be hard to deny that it is misunderstood as the Korean-style management. The Korean management uses all sorts of legal and illegal methods to the nonmilitant and unorganized Indonesian labor, the ones they used to use to the well-organized, militant and consistent Korean labor.

  First, the management utilizes carrot-and-stick method to those who are suspected to be union activist. If the person does not accept the carrot s/he is automatically but unfairly dismissed. During this survey a number of testimonies were collected that the management blocked up the establishment of a new trade union itself through intimidations and threats, or after the setup of the union they tried to prohibit workers from joining the union and further bribed the union leaders. According to the newspaper articles on the strikes in the Korean firms since 1993, in most cases the labor demanded the management to allow the establishment of trade union. Here, trade union means a branch organization of the SPSI, the only organization representing the labor, recognized and thus patronized by the Indonesian government. In case the company is forced into the situation to recognize the union, it tries to patronize and to house-train the union.

  The way of how the Korean companies treat trade unions is so similar to that in Korea in the 1970s and 80s. First, they build good relations with the local police and the military, and then they search out the leaders of labor movements in cooperation with them, and finally lay them off. Moreover, the companies even bring in the preman (probably derived from an English word, free man, meaning gangsters in the street), very similar to "ku-sa-de"(company-hired gangs) in Korea, to break the unions or strikes.

  Recently, Korean firms began to "localize" labor management by employing Indonesians to the positions in charge of industrial relations. However, this does not mean that Indonesians are now given an opportunity to really participate in the decision-making process of the company. This kind of "localization" could only be a temporary measure to silence the labor for a very short period of time.

6. The Attitudes of Korean Managerial Staffs

  If only Korean companies are problematic and if the problems are more serious than in other foreign firms with similar ways of management, it would not be difficult to conclude that the Korean managerial staffs are responsible for these troubles, those who run the company itself. Here, the most criticized character of Korean managers is a kind of ethnic eliticism, distorted nationalism, and racist attitudes. These perceptions and behaviors well explain why the inhumane and antihumanitarian management in small and medium industries are misunderstood as the Korean-style management.

  Korean staffs in middle rank management, directly dealing with the local labor are more brutal than foreign staffs in other firms. Though direct violence has disappeared, their intimidating behaviors and bad-wording provoking the inferiority of the Indonesian workers have nor disappeared yet. In the field survey the Indonesian workers first pointed out violent language and bad-wording as the problems of the Korean staffs. In addition, shouting, loud voice, and expressions hastening the workers were pointed out to go against the Indonesian culture, in particular the Javan culture. The first Indonesian words that Koreans learn were "cepat cepat," meaning "quickly quickly.''

  Koreans' perception on Indonesians, their culture and workers seemed to be based on racism. An opinion poll taken from the Koreans in Indonesia well shows this point by revealing that 90% of the surveyed Koreans answered that they think Indonesians are lazy and dirty.

  Sexual harrassment and violence by Korean male managers was also frequent. A number of Korean managerial staffs, known as married, cohabited with or married Indonesian female workers. In addition, cases of sexual harrassment to Korean female staffs by Indonesian male workers were reported which was an expression of revenge to the behavior of the Korean men managers.


  Indonesian workers resisted to these human rights abuses and inhumanities in Korean firms through "words", a weapon of the weak. That is to spread the bad image of Korean companies and Koreans to every comer of their country, sometimes even with exaggeration and distortion. This was evident in the wide gap between the testimonies of the Korean managers and those of the Indonesian workers themselves regarding workers rights abuses in the factory. This could be interpreted as indirect and unorganized resistance against the Korean firms and Koreans in general, behind their back, instead of direct and opell criticism toward them.

  This tactic was proved to a success as the following testimonies show: Most of the workers replied that Korean companies were the most disliked companies to be employed. Even ordinary people, not workers, thought that the same companies are the most exploitative than any other foreign firms. They also expressed dissatisfaction to the distorted and exaggerated news reports on industrial disputes. In general, Indonesians had a very bad impression on the Korean people.

  It took decades for the Japanese people to erase their image of "economic animal". But it may take longer to correct the impression of "ugly Koreans" and to heal the pains left to the Indonesian workers by Korean companies.