Andrew Hairs, Group managing director for executive recruitment company Monroe Consulting Group, spoke at last week’s Jakarta Foreign Correspondents Club (JFCC) panel discussion on recruitment and expatriate workers in Indonesia. Mr Hairs presented an overview about the jobs market in Indonesia, the difficulty companies operating in Indonesia have recruiting mid- to senior-level executives and the negative impacts this has on business, including the struggle to retain qualified professionals and soaring salary costs. Mr Hairs shared his opinions about bridging this skills shortage with expatriates, provided that visas are granted to individuals and compliant companies that could prove they were transferring knowledge to Indonesian workers. The following is a slightly edited transcript of his presentation.
Monroe overview
Monroe Consulting Group has been in Southeast Asia since 2002 through an office opening in Bangkok. I opened our Jakarta office in 2005 so I have lived and worked here for the last 11 years. I currently oversee offices in Indonesia, Bangkok, Thailand, the Philippines, Malaysia, China, Chile and Mexico. As a company, we are 100 percent focused on the emerging markets. We currently employ more than 160 people, 40 of whom are based in Indonesia. As a company, we focus on five key sectors, namely Industrial, Technology, Consumer Goods, Health and Professional, and within this we purely focus on mid- to senior-level appointments. To give you an idea of where that is in the Indonesian job market, we have a minimum salary requirement of jobs we will work of Rp 25 million ($1,885) per month. So we’re looking at the skilled professional market.
Two-tiered jobs market
I would like to start by taking about what I call the myths about the Indonesian job market. If you read the newspapers, you’ll see a lot of information about the economic slowdown and the layoffs that is causing in the jobs market, and increasing unemployment rates. The reality is that there are two different jobs markets in Indonesia. It is fair to say that there are a lot of layoffs and a lot of unemployment but that is at the level where there is an oversupply of unskilled labour. At the mid- to senior-level where we operate, there is still a large talent shortage in the marketplace and the job market remains very buoyant. In fact, for the first five months of this year compared to the same period last year, Monroe Consulting Group has placed 40 percent more people in middle- to senior-manager-level jobs. This is a really strong indication that that market remains very strong for skilled professionals in Indonesia.
Mind the talent gap
There are four major contributing factors to the talent or skills gap in Indonesia (an under-supply of skilled professionals and managers). First, Indonesia is losing its best and brightest overseas. Indonesian executives have a desire to go and work overseas for a number of reasons, including perceived better wages, perceived better career opportunities and a perceived better lifestyle. This is backed up by a survey JobStreet released a couple of weeks ago. One of the questions they asked, was ‘are you open to overseas opportunities?’ Eighty-seven percent of respondents said they were. This is a lot higher than you would find in a country like Thailand or Malaysia where people are quite happy in those job markets. Also, when people are studying abroad, they enjoy that experience and want to remain overseas. So Indonesia is losing a portion of its good people abroad.
Companies are also limited in the number of universities they can shop at for their talent. I speak to a lot of local and multinational companies operating in Indonesia and there is literally a handful of universities that top employers consider as credible universities. There are three universities that everyone speaks about and that everyone tries to compete in: Gadjah Mada University [UGM], University of Indonesia [UI] and ITB [the Bandung Institute of Technology]. And only two of those are considered to be in the top 500 universities in the world. One of the major issues is that the tertiary education system isn’t keeping up to a level that is required by the business community.
This problem becomes even worse because those people that do have access to university education locally or are privileged enough to be able to attend an overseas university, many are doing it through private funding, which in a lot of cases comes from a family business. So what happens is that those with a higher quality education may enter the corporate world for two to five years but then there is pressure from the family or expectations that you will return to carry on the next generation, so we lose more people from the corporate sector.
And finally, the entrepreneurial spirit is very strong in Indonesia, and those people who are ambitious or who are successful within the corporate world often have a desire to go out and start their own businesses. So the result is that you have an already small group of people who have access to the right level of tertiary education. Out of that you have some going overseas, some going the entrepreneurial route, and some going into the family business. So that small talent pool becomes even further reduced.
The talent gap is real
want to go into some of the things that highlight that this talent gap is real and that I’m not making it up. Last year, Monroe Consulting Group did its own employment survey and one of the questions we asked employers was to rank the difficulty of recruiting at the four different levels within their organisation. What we found was that companies were not having a problem sourcing fresh graduates, because the supply was sufficient. But as soon as you go up to mid-level and senior-level positions, this is where companies are starting to hurt. And it is these mid-level and senior-level positions that can have the biggest impact on a business’s results. If you don’t have top-level managers and people being productive in that area, then it is very difficult to achieve the results and good results impact on lower-level recruitment and create jobs. Thirty-nine percent of employers said they found it extremely challenging to hire senior managers, and 49 percent said it was very challenging. That is a scary figure for anyone running a company in Indonesia at the moment.
Once a company has been lucky enough to hire somebody for a position, then retaining them becomes incredibly difficult for companies. Ninety-three percent of the people we spoke to had received a head-hunting call in the last six months. That’s not just from companies like myself, but that’s from ex-colleagues who are calling them up to tell them about new opportunities at where they are, university alumni, as well as other companies, direct competitors. This only puts pressure on people – it is very difficult and it is very off-putting when you are receiving job offers from other companies all the time to focus on the work that you are already doing, when you are considering other offers.
It also makes it incredibly difficult for a company to sustain a stable management structure. If you are losing managers every 12 to 18 months then it is very difficult to progress your company. We can see this in terms of the tenures served. More than 50 percent of respondents surveyed had changed jobs in the last two years. If I looked at this graph for fresh graduates, it would make sense. You would expect to find this because people are still trying to find their way in the corporate world and find out what sort of job is right for them. However, this poll was taken from people who are earning Rp25 million and above and are currently in middle- to senior-management positions. It is very difficult to progress your company when you have such a new management team in place and you are losing team members all the time. This is a very strong factor in saying that there is currently a talent shortage in Indonesia, and that is affecting a Company’s ability to achieve success.
One of the ways companies are attempting to get around this pressure of having their talent poached all the time is to offer promotions, but they are being forced to offer these promotions to retain people: they are not promoting people for the right reasons. They don’t have the necessary skills or experience to succeed in those jobs. Thirty-one percent of people we spoke to had been promoted by their employers in the past 12 months. That is compared to other comparable Southeast Asian nations of Thailand, Philippines and Malaysia where that was 21 percent. So they are all emerging markets and you would expect to find slightly higher promotion rates but even here, Indonesia is still 10 percent above its neighbours. That’s a shortage in the marketplace.
This next slide is really an indication that proves companies are promoting to retain people, not because they have the skills necessary. Of the people being promoted, more than 60 percent of respondents said they received a salary increase that was less than 20 percent, and 23 percent of those said they only received increases of between 6 percent and 10 percent, which is about what you would expect to find in an annual salary increase anyway, given the rate of inflation. Compare that to salary increases when you change jobs. Even for a horizontal move to a new employer, you will get a 20 percent salary increase. For a person to change jobs and go to a competitor doing exactly the same level or work, you are going to get more money than if you stay and get promoted with your new company. So people are getting the promotions, but they are not being rewarded for those promotions.
Impacts on Indonesian businesses
How does this talent gap affect businesses in Indonesia? Number one, employee salary costs are going up at an alarming rate. They are having to offer salary increases to attract people and they are having to offer salary increases to retain people. Unfortunately, the productivity is not going up in relation to the salaries. So the costs of businesses are going up but the bottom line is not growing. Employers are promoting people without the skills or experience to succeed and again this impacts on companies. If the results are not there, a company is not going to grow its staff numbers, and this is where Indonesia needs this stimulus.
Employers are starting to buy talent instead of investing in that talent. Companies are now concerned about spending money on training, spending money on development, sending people for training abroad, because when they come back, another company will come in, offer 20 percent more and then they’ve lost all the value of that training. So that’s a negative impact on the people of Indonesia because companies are stopping or slowing down on the training as it is easier to simply buy that talent in the marketplace.
And also, delayed hiring times. It is very difficult to hire at the top level. You can’t expect that if your sales director leaves with four weeks’ notice to have a new sales director in place within four weeks. To find a person could take up to 8 weeks. That person could then have anything from four to 12 weeks’ notice periods. So you are running your company without a sales director for months. That will not only impact your sales figures but also the sales team below that, because they become demotivated and they look for other opportunities as well, and then you are losing good people from your organisation. This is an unhealthy state.
To bridge this gap, some companies are going down the road of using third-party consultants, which is a short-term fix but is actually of no benefit to anybody other than the consultants. They have no desire to transfer the knowledge and skills because that is how they make their money. They will come in and do the job, sure. But will they explain about how to do it in future? Probably not.
Foreign workers
I think what we can do is look at how Indonesia can use foreign workers for the benefit of the country. We are not saying to the government, ‘look, open up work visas to foreigners, and bring in as many as you can.’ But I think more effort has to be made looking at what jobs need protecting, and where foreigners can be used to create jobs and fill that talent gap. And then make sure that the foreign companies and workers that are having access to those work visas, are adding value to Indonesia and are contributing something back to the country.
So I want to discuss what I mean by foreign workers and where I think the country could benefit in terms of targeting these foreign workers. At the top of my list are Indonesians who live and work abroad. These are Indonesian passport holders living in Hong Kong, Singapore, Europe, the United States, and they are not coming home. The reason that they are not coming home is because although they are overseas and gaining overseas’ experience, is that Indonesian employees are not paying them to a level of an expatriate. They are still treating them like a local. They won’t come back if they are not paid a premium rate in the marketplace, not necessarily an expat package, but a premium rate. Indonesia and its international community needs to make more effort to talk to these people and tell them what’s happening in Indonesia and to entice them back home.
And Indonesians with foreign citizenship. And it happens a lot: Either they’ve gone overseas and they’ve taken another citizenship, or they were born in Indonesia and been forced to choose a citizenship when they turned 18. A lot of these young men and women who have chosen foreign citizenship have had access to really good overseas education and currently can’t work in Indonesia. Even though they were born here. I understand that this was their choice, but these are people who speak fluent Indonesian, they are young, they’re talented and they have a desire to work. Personally I’ve come across five cases like this in the last year, none of whom I can hire.
Foreigners with permanent residence in Indonesia, or Kitap holders. That is foreigners who have a reason to be in Indonesia besides just earning money. We have family, we have children and we have a personal relationship with Indonesia. These people are desirable for the country.
I think also that some preference needs to be given to foreigners who are coming here to open new businesses. That’s really where we need to attract foreigners. It is those that are associated with a new business start-up, because there they are creating jobs, they are not taking away jobs. They are job creators. I am a very good example of that. I came here 11 years ago. I sat in a small room and have now taken the company to employing 40 Indonesians alone. Beyond that, there are another 100 people who have all been trained and developed out of Monroe Consulting Group who are sitting in Indonesian companies, multinational companies; we’ve got five people who’ve gone on and opened up their own businesses and they’ve gone on to employ new people. So you can look at the market, look at the types of people you want to bring in and ask whether they can create opportunities in Indonesia. The final category is simply foreigners who have a skill that is desperately needed in Indonesia and come in and do their two-year cycles, transfer their knowledge and leave.
‘Issue visas to deserving people and companies’
I think it is wrong to just look at foreigners as just one batch. Indonesia needs to measure them to see who is going to be of greatest benefit to the country. So, rather than restrict the number of foreign workers, we should ensure that the work visas are being issued to the right companies and the right people. I know this is going to sound a little strange, but to do this Indonesia must have a much stronger oversight on those companies receiving visas to ensure they are proving that they are developing local talent, that they are creating jobs, that they are contributing to Indonesia.
So, here are some ideas for linking good practice to access of work visas. First. have an onus on companies to prove its commitment to employee development. At the moment, the system requires foreigners to develop local talent but there is no system in place to measure this. So what you get is someone coming in, doing the job and maybe not transferring that knowledge. So let us incentivise companies to prove that they are doing what is required and it’s really easy to do that. If you ask me as an employer, ‘what do you do to develop your people,’ I can point to the fact that all of my second-tier management started as trainees and have been developed as managers. I can point to the fact that my current Managing Director in Indonesia started as a trainee in Indonesia and now runs the biggest office of the group and is a shareholder of the business. I can point to the fact that we have an in-house trainer. I can point to the fact that we have developed more than 100 training modules for our company and everyone is expected to go through each of those training modules. So I can provide evidence that we are doing what is required. It’s not difficult for good companies to prove that.
We could also look at compliance. Are you paying the right amount of tax in Indonesia? Are you paying your tax on time? Are all your licenses up-to-date? Are you operating within the guidelines of those licenses? Are you a good company? If you are, then that is the type of country that we want to encourage in Indonesia and we want to give you access to expatriates if you need to grow your business. Lower the Indonesian to foreign workers for new businesses, which is currently 10:1. If you are a new business and you want to come to Indonesia to do business and you are going to invest your money in Indonesia, you actually want to being your own people to the country because you want your business processes and culture to be transferred to the new office. To do that, you need to have a ratio of 2:1, 3:1 in the early stages so that you can build a company here. You can limit that to two years, and show that at the end of that two years that you have transferred that knowledge and your ratios go up again. You’re encouraging new business to come in, you’re encouraging them to grow and develop their new team because they know there is an end date to that benefit.
And then preferential treatment for companies that have regional head offices in Indonesia. It is very difficult if you want to create a regional head office in Indonesia to do that at the moment because a regional head office requires new people from different countries to come in with the necessary skills from your group, who know the group processes. Well, if you can’t get a Kitas, or a work visa for that person, you aren’t going to put your regional offices in Indonesia. At the moment there is an opportunity because Singapore is reaching a level whereby the market is just too expensive and so at the moment those companies that are tired of Singapore costs are currently going to Kuala Lumpur and Malaysia is getting that business. If there was preferential treatment for regional head offices then possibly some would chose Jakarta as their regional head offices.
And then you could look to implement a social responsibility programme check on companies. Are they giving something back to the Indonesian nation? And again, this is really easy for Indonesian companies to prove. This is how much money I have donated, and these are the charities that we support. These are the services I have donated in Indonesia, this is the time I have donated to these charities. It’s really easy to prove but again it is about making sure that the work visas for foreigners are going to right types of companies that are giving back to Indonesia. Not just treating all companies the same, because you want to encourage good practise, you want to encourage foreign companies and foreign workers to fulfil their obligations to train and develop people. I think that is what is being missed at the moment. Let’s solve that problem of that talent shortage and fill it with foreigners temporarily, but let’s make sure that while we are doing this the right things are being done and that local talent is being developed.
Bringing benefits to all
To finish, if we bring in the right sorts of people, they are not taking away Indonesian jobs. Mid- to senior-level appointments have the ability to bring much-needed positive results to an organisation. And with any company, if productivity is going up, if sales figures are going up, the revenue is going up, guess what they do? They hire more people and the volume of people they hire is going to be at that lower level and that is exactly where Indonesia’s unemployment problem is at the moment.