Assessment 3- Group Assignment PDF

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Student Details Name and Student Numbers

Zhen Siong Yap (10497759) Chin Tong Yap (10478807) Chin Tatt Yap (14078781)

Unit Details Unit Code

INB3600

Name of Lecturer

Business in Asia

Danny NG

Assessment 3: Group Assignment Bachelor of Commerce

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30/05/2019

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Group Campus

JOONDALUP

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29/05/2019

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Assessment 3: Group Assignment

Lippo Group - 力宝集团 Prepared by: Zhen Siong Yap 10497759 Chin Tong Yap 10478807 Chin Tatt Yap 10478781

Prepared for: Danny Ng

Edith Cowan University 1|Page

Table of Contents Table of Contents.......................................................................................................................2 INTRODUCTION....................................................................................................................3 2.0 COMPANY BACKGROUND...........................................................................................3 Image 1: Lippo Group’s Subsidiaries.....................................................................................4 3.0 BUSINESS TRADITION AND CULTURE.....................................................................4 Image 2: Riady’s Family Hierarchical Control in Lippo Group.............................................5 4.0 Hofstede Cultural Framework applied to China and Indonesia...................................6 Image 3: Hofstede’s Cultural Framework applied to China and Indonesia............................6 5.0 FUTURE CHALLENGES.................................................................................................9 6.0 POSSIBLE SOLUTIONS................................................................................................10 7.0 Conclusion.........................................................................................................................11 References................................................................................................................................12

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INTRODUCTION This report outlines the strategy development of Lippo Group as well as its how its business structure was shaped by the existent culture and mindset of their environment. Lippo Group was founded by Mochtar Riady, a Chinese Indonesian. Lippo Group is one of the largest conglomerates in Indonesia and its business mainly focuses on real estate, media, telecommunications and healthcare. Due to its Chinese origin, the business is deeply influenced by Chinese culture such as Confucianism. Also, the report will the business’s culture and its operations. It will also include the future challenges the business might face due to several reasons such as the changing geopolitical situation and recommendations will be discussed.

2.0 COMPANY BACKGROUND Lippo Group also known as ‘力宝集团’ in traditional Chinese, is a conglomerate organisation located in Jakarta, Indonesia, founded in 1950, 69 years ago. Lippo Group operates globally providing financial services, commercial and residential property developments. The founder and chairman of this organisation is Mochtar Riady, a Chinese Indonesian. Mochtar Riady started from a small bicycle shop in the 1950s and became one of the largest real estate developers in Indonesia by using Lippo Bank as a platform for local property development projects. This organisation has a communal presence across Asia and North America as their humble beginnings to their achievement on larger scale (Lippo Group, n.d). Mochtar Riady, now at the age of 90, has began his retirement life by only supervising overall operations of the Lippo Group. James Riady and Stephen Riady, the sons of Mochtar, has taken over the company’s operations. In addition, John Riady, the son of James, has been appointed as the heir of the Indonesia’s biggest family empires, and the son of Stephen, Brian Riady, to assist John in all operations. Lippo Group stated that the organisation has two core businesses which are property development and providing information and communication services. It is enhanced that the company not just only striving for profits but to give values to the society as well. Property development of Lippo Group involves more than simply selling or obtaining lands and buildings, it aims to add numerous values to the land by providing amenities and services that the societies prerequisite to live a more contented life. Moreover, Lippo Group also probed into the education market by providing international trainings to the younger generations. Lippo Group has grown into one of the five largest Chinese conglomerates in Indonesia, having subsidiaries business industries in real estate, media, telecommunications, electronics, property, finance, health and education across Asia and United States. Lippo Group now controls in excess of $15 billion in assets with significant investments of the business industries (Tani, 2019). Below are the subsidiaries under Lippo Group:

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Image 1: Lippo Group’s Subsidiaries

(Sourced from: https://www.lippohomes.com/About)

3.0 BUSINESS TRADITION AND CULTURE As stated above, Lippo Group operations are control by the Riady family, Chinese Indonesian also known as Overseas Chinese. Most of the Chinese is Confucian, no exception for Riady family, who follows in the traditions of the Chinese philosopher Confucius. Mochtar Riady believes in positive affect of the Feng Shui elements such as every characters of Chinese have a hidden meaning. Chinese believes that the names of characters are very important as it must be combined in such a way that it may bring prosperity and good luck to the person or even a company. Lippo Group ‘力宝集团’, the word Lippo is converted of two Chinese characters, “strength” and “treasure” where Mochtar believes that these characters would help the company to become a more influential organisation as well as making good fortunes (Nikkei Asian Review, 2018a). The Riady family asserts more control over management in Lippo Group as it is the tradition and culture of Chinese, called as Chinese Family Business (CFB). The CFB is decorated like a policy or practice of treating or controlling people in a fatherly manner. Autocratic leadership are often to be seen in a CFB and the power and authority of the organisation are closely connected to the owner. Lippo Group is hierarchical where all top management positions are mainly core family members and feeding down to close relatives. Other than that, it is typical to see the concept of male superiority over woman in Chinese Family Business. In CFB, it is the family norms that males are in responsibility of taking care of the family’s financial income and females’ role as housekeeper. It can be seen at the following image where Lippo Group are rule by the males dominant and son preference will be chosen to carry on the family business (Nikkei Asian Review, 2018b).

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Image 2: Riady’s Family Hierarchical Control in Lippo Group

(Sourced from: https://asia.nikkei.com/Spotlight/Asian-Family-Conglomerates/Lippo-tycoonlooks-to-young-gun-grandson-to-build-digital-empire) The Riady family and Lippo Group uses their proficiencies in network formation and exploitation as their business strategy to gain competitive advantages. This strategy is known as the Chinese’s concept of networking, ‘guanxi’ (关系). Lippo Group practices networking in developing and using guanxi to open doors, joining forces and engrossing knowledge from more experienced associates. Lippo Group came out with a few principles to support their networking strategies and grew into the biggest and most diverse conglomerates in Indonesia. The first principle that Lippo implement is to be desirable partners to other companies. Lippo begins with enhancing friendship with their partners by constantly providing supports that they could to support their partners and they would expect the same from them when they need help in the future. Second principle is strengthening the networks with each other by investing on each other such as joint venture that indicate their commitments for future longterm relationship. The third principle is spreading the network to as many places as possible in the markets as having only single connection is overdependence. Fourth principle of networking of Lippo is cultural assets. Connections with other companies may have natural ties of affiliation or shared background and opposing economic assets in business networks. Lastly, Lippo believes that every connection consists the potential for future connections such as creating and building relationship with other parties from the referral of another person where both parties will be benefited. Lippo Group followed these networking principles as their business strategy and grown into one of the largest and most diverse conglomerates in Indonesia (Kanter, n.d.).

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4.0 Hofstede Cultural Framework applied to China and Indonesia Hofstede’s framework is a measurement to access the impact of cross-cultural communication, cultural values on the workplace behaviour and measure how much the cultural mores and attitudes influence the people at their work. This framework was developed by Dr, Gerry Hofstede who was a psychologist. His famous framework and his research was based on a study of more than 100,000 individuals in 50 countries across the world while he works at IBM (International Business Machines Corporation). These dimensions will apply to China and Indonesia because the owner of Lippo Group is overseas Chinese from Indonesia (Management Study Guide, n.d.).

Image 3: Hofstede’s Cultural Framework applied to China and Indonesia

(Sourced from: https://www.hofstede-insights.com/country-comparison/china,indonesia/) Small vs Large Power Distance This dimension relates that all individuals in societies are not equal. It measures the prevalence of hierarchy, existence of class divides and the notion of power equations. Defined as the lower power people accept the order from higher power people. China – Large Power Distance At 80, China sits in the higher ranking of the chart. Chinese culture is characterised by paternalistic mindset as well as gap between the lower and upper rank not only in terms of the rank divide but culturally as well. Inequalities among people are acceptable in the Chinese society. The subordinate-superior relationship tends to be polarised and power abuse by superior is defenceless. It is common that lower rank position is to be more obsequious with those who are in higher position of power in the business environment in China (MarketMeChina, 2014). Indonesia – Large Power Distance Indonesia score 78 in the chart which slightly lower than China. Business environment in 6|Page

Indonesia is also belongs to large power distance. Indonesian being dependent on hierarchy, unequal rights between higher position of power and lower position of power, superiors inaccessible, leaders are directive and management controls and delegates. Indonesian employee expects to be told what and when to do. Managers are respected for their position and expect to control. Indonesian employee will expect direct order from the boss or manager this would mean High Power Distance (Hofstede Insights, 2019).

Individualism vs Collectivism This dimension relates to the way in which specific situation they will be, individually or as a group. It also defined in terms of ‘I’ or ‘WE’. People who look after themselves and their direct family only belongs to the side of Individualist. Collectivist are the people who work in a group and take care of everyone in exchange for loyalty. China - Collectivism Business in China tends to be working a in group then individually. Business environment in China is characterised as low individualism. In-group considerations affect hiring and promotions with closer in-groups such as family are getting priority treatment (MarketMeChina, 2014). Indonesia - Collectivism With a low score of 14, Indonesia belongs to collectivist society. Individuals are expected to conform to the ideals of the society and the in-groups which they belong. There is a high preference for a strongly defined social framework which they are expected to work in a group than individually (Hofstede Insights, 2019).

Masculinity vs Femininity This dimension relates to the way in which society reinforces or does not reinforces the masculine model of work. This dimension indicates that the society will measure by competition, achievement and success with a high score of Masculine. A low score of Femininity means that the dominant values in society are caring for others and quality of life. Standing out from the crowd is not admirable than the success quality of life. China - Masculinity China as the society though paternalistic in nature does not subscribe to the out and out traditional model of work and life. Chinese will sacrifice family and leisure priorities to work to ensure to be success. For example, like hairdressers, they will provide service until very late at night. Leisure time is not that important for them (MarketMeChina, 2014). Indonesia - Femininity Indonesia scores 45 on this dimension and it is considered as low masculine. Compare to other Asian countries like Japan, China and India, Indonesia is much lower in Masculinity. In Indonesia status, visible symbols of success are important, but it is not always material gain that raise motivation (Hofstede Insights, 2019). 7|Page

Weak vs Strong Uncertainty Avoidance This dimension refers to if they have to deals with the fact that future can never be known. In other word, should they try to control the future or prepare a contingency plan for the problem that not yet happen or just let it happen. China – Weak Uncertainty Avoidance China where despite the economy opening up is not in the case where people are controlled to a large extent. Strong cultural acceptance of conformity and hence though one might not be thrown in jail for breaking a law. People tend to obey laws and rules means that the cultural aspect of ‘losing face’ (MarketMeChina, 2014). Indonesia – Weak Uncertainty Avoidance Indonesia has a low preference for avoiding uncertainty and a strong preference in Indonesia toward the Japanese culture of separation of internal self from external self. Conflict resolution is also another aspect that can be seen in this dimension. By method of direct communication to solve conflict is often to be a threatening situation and one that the Indonesian is uncomfortable in (Hofstede Insights, 2019).

Long vs Short Term Orientation This dimension relate to will the organisation think over a longer term rather than a shortterm basis. It describes how the society maintain some links with their own past while solving the present and future problems. China – Long Term Orientation Chinese typically will have a longer-term orientation rather than short term basis. China have tendency to think big and think of future because they aspire to be the next superpower. While Western business have to budget accordingly yet doing business in China will take longer time to complete. A longer-term perspective will allow them to surmount the obstacles and future challenges over a period instead of being in a hurry to get things done. This can be stated as Chinese business culture (MarketMeChina, 2014). Indonesia – Long Term Orientation Indonesia is more of a pragmatically culture and it has a score of 62. People believe that truth depends very much on situation, context and time in a society with a pragmatic orientation. By showing to adapt traditions easily to changed conditions, thriftiness, a strong propensity to save and invest, and perseverance in achieving results (Hofstede Insights, 2019).

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Indulgence vs Restraint The challenge to confronts humanity, now and in the past, is the degree to which small children are socialised it defined as which people try to control their desires and impulses based on the way they were raised. Weaker control is called ‘Indulgence’ and strong control is called ‘Restraint’. China - Restraint China has a low score of 24 in this dimension therefore China is a restrained society. The tendency of cynics should, and pessimism will happen to a society with a low score in this dimension. Chinese do not exhibit the typical gender gap or the difference in men and women to the extent which other Asian countries tend to display (MarketMeChina, 2014). Indonesia - Restraint Same thing goes to Indonesia, it is a restrained society. Restrained society do not put much emphasis on leisure time and control the gratification or their desires. The actions are restrained by social norms and feel that indulging themselves which area they are wrong are the perception to the people who have this orientation (Hofstede Insights, 2019).

5.0 FUTURE CHALLENGES One of the challenges that Lippo Group may face is their involvement in a bribery scandal in 2018. The anti-graft agency of Indonesia stated that they have raided 10 locations including the home of Lippo Group Deputy Chairman James Riady as a part of investigation linked to the organisation’s $21 billion project- Meikarta real estate project. The project is Lippo’s current largest investment costing around $21 billion. The project when done will also be labelled the ‘’Shenzhen of Indonesia’’ which will be a centre for automotive and electronic industries, five-star hotels, shopping malls, hospitals and universities. The raids were carried out by the Corruption Eradication Commission, known as KPK. Two Lippo Group consultants and an employee who were accused of trying to bribe city officials to gain property permits for Meikarta has been arrested. The home of Riady were targeted along with the office of local government official, Neneng Hasanah Yasin, one of the nine suspects arrested by the KPK. The investigators have confiscated 513 million rupiah ($33,772) and S$90,000 ($65,378) that were intended as bribe money and other instances of co...