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Analysis of the Case of Rothchild’s Investment in Indonesia’s Bakrie Group

1. Introduction

Conducting business in an international context may be challenging, especially if the right strategies are put in place. Political and legal factors are some challenges linked to the international business environment. Some countries have political instabilities that limit the ability of foreign businesses to operate effectively. The other issue is cultural differences, where some of the values and beliefs of one country may only be accepted in one country. Such instances mean that operating in foreign markets may need businesses and investors to understand the situation and develop strategies that can help open up new ventures in the target region.

The focus of this work is to employ the case of Rothschild’s investment in Indonesia’s Bakrie Group to understand the current situation, point out alternatives and recommend a strategy to help the investors and the companies recover from the current problems. The work will also highlight some lessons from the case study and how they can be applied in future scenarios.

2. Current situation

2.1 The Merger

Nathaniel Rothschild, a child from the Rothschild family, decided to invest in Indonesia through Bumi PLC, aiming to create a London Stock Exchange-listed enterprise focused on Indonesian mining resources (Bennedsen et al., 2013). The first step taken by Nat is to engage in a merger between Bumi PLC with the Bakrie Group’s mining assets in Indonesia. Rothschild believed he would use his capabilities and knowledge to create an LSE-listed company with UK-style corporate governance, as evident in En+ Group. The new company would be ideal because it would help acquire family and private-owned enterprises in the mining sector of Indonesia. Nat also ensured that he recruited well-known non-executive directors and Credit Suisse, who would use their experience to boost the growth of the new venture.

2.2 Challenges emerging from the merger

Even so, the merger led to more challenges, especially from the context of corporate governance issues, financial irregularities, and disputes among critical stakeholders. More specifically, the corporate governance issues emerged from the board disputes where some of the members of the board were angry with Nathaniel for engaging in public criticism through the letter that he drafted questioning the actions of the corporate governance of PT Bumi Resources (Bennedsen et al., 2013). Financial irregularities have also been an issue of concern for Nathaniel, which promoted him to commission the London law firm Macfarlanes to investigate the misappropriation of $637 million that was to be invested in Yemen. Nathaniel later resigned due to the opposition he was receiving from some of the board members, such as Sam Tan.

2.3 Institutional voids and weak institutions in Indonesia

The case also reveals that there are institutional voids and weak institutions in Indonesia, which further affected the ability of the new company to operate. One of the issues mentioned is the high level of corruption, as Indonesia was ranked 118th on the Corruption Perception Index (Bennedsen et al., 2013). As mentioned, corruption has further led to high uncertainty among investors. It is also evident that Indonesia depicts a lack of transparency in the corporate environment, which is, in turn, affecting the ability of businesses to operate genuinely based on the stipulated guidelines.

3. Alternatives

Based on the challenges from the merger and institutional voids that have been identified, there are various approaches and alternatives that Nathaniel can consider in handling the current situation.

3.1 Alternative 1: Adapt to local practices

Nathaniel is advocating for a UK style of corporate governance, which seems not to be working well in the Indonesian market. For instance, the fact that Nat is experiencing disputes with the leaders of the Bakrie Group means that they need to be more comfortable with his method of governing. To avoid such disagreements, Nathaniel must consider adapting to local governance practices often employed in Indonesian business environments. This might include providing a chance for the local leaders to share their ideas based on how they understand Indonesia. One of the main advantages of employing local practices is enhanced company operations by increasing local acceptance. As Zhao et al. (2014) assert, MNCs that adapt to local customs and practices often increase their penetration rate due to high relatability from the target audience. The same idea will work if Nathaniel considers adjusting the mode of leadership to resonate with that of the Indonesian business context. Nevertheless, the step might be risky because it will lead to limited control. In most cases, adapting to local practices often reduces the ability of foreign businesses to employ the home country’s strategies (Song, 2022). Nathaniel will not be able to do this if he chooses to adjust to local practices.

3.2 Alternative 2: Collaborate with different local partners

Since the merger is creating more losses and not working for Nathaniel, the investor needs to consider collaborating with different local partners. In this context, Nat needs to seek reputable partners who are ready to accept the UK-style mode of corporate governance. The process will entail removing his shares from the current merger and investing them in the new partners who are understanding. The local partners selected also need to know the Indonesian market and the preferences of the local consumers. The step will generally generate a set of benefits for Rothschild. According to Doh (2000), partnering with local businesses is ideal since they help act as intermediaries with consumers and navigate the local regulatory landscape. This is what Nathaniel needs in Indonesia at the moment because he has found it challenging to work closely with the local businesses and adapt to the political environment due to differences in the context of corporate governance. However, partnering with local firms will also have some issues, such as the potential for conflicts and disagreements due to cultural differences.

3.3 Alternative 3: Exit the market

The last alternative that Nat can implement is exiting the Indonesian market. This step should be taken if the current challenges are difficult to tackle. Looking at the dispute on the board, it is clear that Nat will not be able to have a voice in matters affecting the company now that he also resigned. One benefit of this approach is that it will help minimize the risks that may arise from more disagreements in the future. Even so, the step may be challenging since it will have downsides for foreign investors. For instance, an existing market is often associated with financial losses and a high risk of missed opportunities in the host country (Ozkan, 2020). This may lead to more losses for Nat and his businesses.

4. Chosen strategy

Looking at the current challenge’s intensity, Nathaniel’s best strategy is to adapt to the local practices. What is clear is that most of the disputes are emerging from the fact that Rothschild wants to operate with UK-style corporate governance. This is not working well in Indonesia. For these reasons, Nat must consider adjusting his governance style and integrating the local leadership styles and any other forms of operations. This step will be better than partnering with new local businesses with different operating cultures, which may also lead to the reoccurrence of the same disputes witnessed in the merger between Bumi PLC and the Bakrie Group. The step will also be more effective than exiting the market, which may increase the risk of lost opportunities.

5. Lessons learned

The first lesson is that investors should always conduct due diligence to understand the local context. This mainly applies to multinational businesses targeting to operate in regions like Indonesia that have differing cultural practices. Knowledge of the local context is ideal since it helps international businesses understand the target market’s political, legal and cultural aspects before deciding to invest in it. Such instances will make it easy to determine if a business can expand to such markets or target other regions with favourable conditions.

The other takeaway is that business owners must embrace flexibility and adaptability, primarily when expanding their activities to foreign countries. What is evident in this context is that it is the responsibility of business leaders to be ready to adapt to various business environments. The step will allow foreign companies to adjust to various local practices while maintaining the ethical principles of the business. This will help prevent disagreements due to cultural differences among the business partners, as evident in the case of Nathaniel.

The last lesson is that there is always a need for risk analysis, a critical element that needs to be employed by multinational companies. In this context, there is a need to constantly analyze the potential market risks before deciding to invest. Assessing the risks requires looking at the institutional voids and weaknesses and any other governance issues that may emerge in the foreign markets.

6. References

Bennedsen, M., Hrnjic, E., & Wiwattanakantang, Y. (2013). East meets West. Rothschild’s Investment in Indonesia’s Bakrie Group. INSEAD Case12(2013), 6030.

Doh, J. P. (2000). Entrepreneurial privatization strategies: Order of entry and local partner collaboration as sources of competitive advantage. Academy of Management Review25(3), 551-571.

Ozkan, K. S. (2020). International market exit by firms: Misalignment of strategy with the foreign market risk environment. International Business Review29(6), 101741.

Song, S. (2022). Locational boundness of resource, compatibility of production, and downside risks of multinationality. Global Strategy Journal12(2), 334-358.

Zhao, M., Park, S. H., & Zhou, N. (2014). MNC strategy and social adaptation in emerging markets. Journal of International Business Studies45, 842-861.


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