Indonesia: Poised for Rapid Growth?

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The company's 2500 employees, virtually all women in their twenties, thread each pair of lashes by hand for about $57 per month.

Chief Operating Officer Cheung Shu Fong says Korinda tries to avoid direct competition with Chinese rivals by "emphasizing the highest quality fancy styles" such as special order Shu Uemura Diamond-studded lashes for the Material Girl. Sales have doubled in the past five years, to about $5 million, and the company expects 20% growth in 2008 once a new factory that will increase capacity by 20% comes on stream.

Another area the government is pushing to promote is the animation and film industry. One promising example is Castle Production, a Jakarta-based studio that has been doing animation since 2000. With 100 artists, 20 of whom do 3D computer animation, Castle got its first overseas contract for a 13-part animated series called Carlos Caterpillar commissioned by Dallas-based Sunny-side Entertainment. The show has aired in the U.S. and Spain. Castle is now working on a 26-part series subcontracted by an Indian company on behalf of a French client. "Our business is going really well and growing," says Maria Tjhin, Castle's general manager.

Flexing Its Muscles in Animation

That said, even Tjhin admits that it's tough convincing prospective clients that Indonesia's animation industry is up to global standards. And it doesn't help that Castle is competing with bigger rivals throughout the region. From India to Vietnam to Hong Kong, animation studios across Asia (BusinessWeek, 10/15/07) are trying to produce TV shows and movies for Western audiences.

Not all of Indonesia's problems come from competition. The country's labor codes make it more costly to lay off workers than to keep them. That is a big turn-off for foreign companies. "You can't sack anyone without paying a lot of money and going to court," says a foreign lawyer with a local firm, who requested anonymity." Indonesia's legal framework is also a huge obstacle to foreign companies. The slow pace of reform of the legal system continues to deter investors, large and small, from coming to Indonesia. "It may continue to be the country's Achilles' heel" says Rajiv Louis, head of investment banking for UBS (UBS) in Jakarta.

Another problem for investors comes from the decentralization of government in the past decade. "Everything used to be very top-down, but now with decentralization it is difficult for central government to coordinate with provincial governors and difficult for the governors to coordinate with subprovinces," says Mirza Adityaswara, director of equity research at Credit Suisse in Jakarta. "The situation has become investment-unfriendly, but this is a long-term learning process for Indonesia."

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong .