Strategic Alliance Policy to Improve Competitiveness

Strategic Alliance Policy to Improve Competitiveness

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INTRODUCTION

The increasing number of population in Indonesian, inevitably triggering the increasing number electricity demand. Electricity becomes principal things in various sectors, ranging from the fulfillment of household needs until supply to the industrial sector. This is an interesting thing which become the trigger of the economy of Indonesia and becomes one of the factors to attract investors to invest their money in Indonesia. Indonesian economy shows increasing growth rate. Indonesia will take an advantage of economic growth to reach 6.5%. In terms of competitiveness, according to the global competitiveness index (GCI) 2012, Indonesian level scored rank 50 out of 144 countries. Even though this data shown to decrease if compared with GCI 2011, which ranked at 44.

According to the statistical report of PT. Perusahaan Listrik Negara (PLN) (owned state electricity company) 2011, the development of national electricity was affected by national economic growth. National growth reached 6.5%, and it was triggering the growth of electricity demand approximately 9.8%. The average growth of the electricity demand in the next ten years is predicted around 9.2% per year. The greatest electricity demand growth estimated to occur in the eastern Indonesia which reaches 10.6% per year, in the western Indonesia 10.2% while Java-Bali electricity system is predicted 8,97% per year. Whereas in the distribution to customers, it is estimated in the next ten years there will be an increase of customers as many as 25.9 million customers.

In addition to be good news for Indonesia, the economic growth and national stability are also the readiness signal to settle and to prepare for the growth and competition further. It takes a good strategic planning in the fulfillment of the future needs, including in terms of the fulfillment of the national electricity supply.

To get rapid increasing of installed capacity power plant in Indonesia, the Indonesian government via state owned electricity company (PLN) built 10.000 MW power plant scattered throughout Indonesia. This project is issued on Presidential Decree No 71 Year 2006. Almost of power plant is built by China contractor, using Chinese engineering standard and almost of the component is imported from China. In the other hand, the Indonesian government by Presidential Decree No 28 Year 2008 about Industrial Policy also states that the local content in industrial like Power Plant must be increased. In addition, the Ministry of Industry also issued a policy for the determination of minimum Domestic Component Contained (TKDN) for electricity project in The Ministry Regulation No.

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54 Year 2012. Using local content will improve Gross Domestic product (GDP) and give multiplier effect to other business which influenced on that sector. So, several technical approaches can be done by PLN in this case.


BEST PRACTICE IN STRATEGIC ALLIANCE BETWEEN AIRBUS MILITARY AND PT DIRGANTARA INDONESIA

PT Dirgantara Indonesia (PT DI) is one of the aircraft manufacturing companies in Indonesia. The main product of the company is aircraft, aircraft spare part and aircraft service. The tight of competition in aerospace industry needs to improve its performance to gain niche market. On November 2012, PT DI signed an agreement with Airbus Military (Spain Aircraft Producer) to build turboprop aircraft named NC 212.

In global economic, strategic alliances is one choice for achieving competitive advantage. By developing strategic alliance firm's shares their excess capacities or complementary capabilities and resources with others company/organization and create a new entity to get competitive advantages. When alliances are well and effectively managed, the participating firms can gain several benefits that ultimately bring profitability (Uddin, 2011). Strategic alliance is classified into stakeholder support, matching strategy, cross‐culture understanding, initial goals and reason, forms of cooperation, alliance initial agreement, human resource management, organizational arrangement, management control system, internal drivers, and external drivers. Strategic alliance can be defined as a relationship which will be giving mutual benefit for both parties in the future The benefits can improve performance which may be having form as a financial, technology, organizational, trust, and society performance (Indriyanto, 2013).

The benefit obtained by PT DI and Airbus Military such as ;
• Financial benefit. The financial benefit is a direct benefit which obtained by both parties. In the Airbus and PT DI side, they can expand the production of NC 212 which can improve revenue and decrease unit cost. PT DI can use their idle capacity to gain profit and help Airbus military to fulfill aircraft demand in Asia-Pasifik
• Technology transfer will improve PT. DI competencies. On the other hand, the competencies of man power in PT. DI will secure quality of NC 212.

The benefit of this agreement is felt not only by the two companies, but also by other stakeholder which get the multiplier effect of this agreement such as ; bolt supplier, metal supplier and other electronic devices to support aircraft component.

IMPLEMENTATION STRATEGIC ALLIANCE IN POWER GENERATION BUSINESS

President Director of PLN, Nur Pamudji, after opening the Indonesian Electricity Exhibition 2013 at The Grand City Surabaya, October 23, 2013 said that “At this moment, PLN spent capital expenditure issued not less than US $ 50 trillion every year. (Retrieved from http://www.ptpjb.com/info-pjb.htm 84 edition page 19). To keep the continuity supply of electricity, PLN must maintain power plant properly. It needs several resources such as ; workforce, fuel and spare part. The product in the country does not fully produced in the industry electricity in Indonesia, so that expenditure flowing out of the country, and only a small portion that into the country. If the large amount of portions produced in Indonesia and the policy is applied to the country, there will be a tremendous effect multiplier for the domestic industry.

So, to increase local content, and support Presidential Decree No 28 Year 2008 PLN can adopt an alliance strategy which established by Airbus Military and PT DI. Moreover, now in Indonesia has several industrial factories which can produce power plant and electrical spare part such as PT. Pindad, PT Nusantara Turbine Propulsi (NTP) (http://www.tempo.co.id).

Then for replacement spare parts, encouraged to use domestic products. Next, implement the use of domestic products for private power plant. If the government set as a percentage, for example 41 percent of domestic products for IPP (private power plant) capacity up to 600 MW, PLN will set the private power to include, in the explicit use of the product. But, now the specific amount of local content has not been stated in Presidential Decree No 28 year 2008. PLN can also use reverse engineering technology to replace or modified spare part which not produced in Indonesia. Reverse engineering is a technology to extracting knowledge or design blue print from anything man made (Eilam et all, 2007). Then, by that blue print the factory rebuild again the product.

Indonesia has many natural resources and human potentially making the developed world
and taken into account in the arena of the social world. This potential resources can be achieved quickly if all stakeholders managed synergize well to reduce import dependence. Synergy can conducted by governments and own initiative and from industry domestic strategic. PLN must attempt to empower workshops and local industry to fulfill several component of power plant. Including there the needs of reverse engineering, repair and supply of spare specially modified parts.

By doing those thing, PLN apply strength requirements for each companies or investors who will perform investment in the electricity sector, both of which made in developing the project and PLN conducted private power developers. Therefore, it caught what components used , whether the use of domestic products or not. PLN can verify how much domestic product in the private power. In addition to encouraging the growth of domestic industry, the use of local products has an impact on increasing customer PLN industrial sector or at least , the use of electricity to the industrial sector increases. Because one of way to increase efficiency in electricity business is by increasing industrial customers.

As a one of strategic corporate in Indonesia, PLN has many external interventions especially from their stakeholder. For the consequent, every single board of management of PLN’s decision has public interest and responsibility. Regarding these factors, business situation analysis from strategic alliance of PLN and the Spare Part Supplier will be elaborated from Political Economic Social and Technological (PEST) Analysis.

Political factor as a government intervention and regulation, considering the supply spare part to PLN is coming from China before, and PLN want to developing strategic alliance with local supplier. Of course, the Chinese investor will try to keep PLN as their consumer, so need regulation to make sure the alliance process are not intervention with other side. Economical factor defined as financial factor which influenced the business. According to GCI 2012 Indonesia get rank no 50, however China get rank no 29. It is mean that China is more competitive than Indonesia. So, need incentive from Indonesian government to boost Indonesian competitiveness ; such as improve infrastructure facilities, ease bureuctratic or new tax policy. Social factor also one of factor that can influenced businesses. Share value, tradition and attitude are including in this factor.

The rapid improvement of technology may exceed the human competencies and capabilities, and for this reason the company must be emphasized on their core competencies. Company should allow to develop multiple and overlapping technologies and skills into future generations of every new product. According the mutual trust and commitment, both PLN and their strategic alliance should have a compatible person in each position which is shared knowledge and technological. In addition, the information technology bring the rapidly changing information database, which the competitor information will be update. So, PLN and their strategic alliance as strategic partner should be anticipated with any kind of competitor’s movement.

To ensure the strategic alliance successfully implemented, there are several process must be controlled. The main goal of strategic alliance with local content is improve certainty and developing independence spare part supply for power plant. The critical point that can be suggested in developing strategic alliances in PLN side such as ;
• Developing Long Term Service/ Purchase Agreement with alliance/company partner, to ensure continuity supply and get competitive cost
• Developing Independent Inspection Part and Vendor Audits. Especially, in reverse engineering product, the spare part are not produced by Original Equipment Manufacturer (OEM). So the checking of material and vendor selection must be more comprehensive. Guarantee of spare parts before goods arrive at the unit examination, should be performed before the goods are delivered to Power Plant.


Reference

President Decree No 71 Year 2006, Fast Track Project Coal Fired Steam Power Plant-1
President Decree No 28 Tahun 2008, Industrial National Policy
The Ministry of Industry Regulation No. 54/2012 about a policy for the determination of minimum Domestic Component Contained (TKDN) for electricity project
Global Competitiveness Index 2012, World Bank
Uddin, M.B. and Akhter, B., 2011. Strategic Alliance And Competitiveness: Theoritical Framework. Researchers World, 2(1), pp. 43-54.
Indriyanto R.H., Wandebori, H. and Astuti N,C., 2013. A Strategy Alliance Between PT. Dirgantara Indonesis and Airbus (Case Study PT Dirgantara Indonesia). The Indonesian Journal Of Business Administration, Vol 2 (6), pp. 699-709.
http://www.thejakartapost.com/news/2012/11/09/dirgantara-airbus-military-make-new-aircraft-bandung.html
http://www.indonesian-aerospace.com/view.php?m=release&t=release-detil&id=58
(http://www.tempo.co/read/news/2012/05/16/090404312/Siemens-dan-NTP-Pasok-Turbin-Pembangkit-Listrik).
Eilam, Eldad & Chikofsky, Elliot J. (2007). Reversing: secrets of reverse engineering. John Wiley & Sons. p. 3. ISBN 978-0-7645-7481-8.

http://www.pln.co.id/dataweb/STAT/STAT2011ENG.pdf
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