Science

How Western companies escape Indonesia’s corrupt network

When President Suharto’s 32-year blackmail on Indonesia in 1998 fell into trouble, Western multinationals faced a cruel choice: pay bribes to an expanding army of corrupt officials, or find another way to survive.

A groundbreaking study published in the Journal of Business Ethics reveals how four European companies navigate this dangerous transition and ultimately find that they can combat corruption by becoming essential partners rather than fragile targets.

The study exposed one of the most dramatic political turmoil in modern Southeast Asian history, a hidden mechanism for corporate survival, and businesses around the world offer courses as democratic institutions face increasing pressure.

From one boss to hundreds

Under Suharto’s dictatorship, corruption follows simple rules. Payment strongman’s inner circle, business goes smoothly. “Before you paid a sum in Jakarta, you can be sure you’ve solved the problem,” explains the Wall Street Journal account cited in the study.

But the sudden democratization of Indonesia undermined the system. The electricity is spread to 34 provincial governments and over 400 regional governments, and everyone is eager to cut it. “Now, you’re paying a lot of locally, and you’re not sure it’s going to be smooth,” the study notes. “It’s a continuous, confusing and frustrating process.”

The team analyzed four major European subsidiaries in Europe that have been operating in Indonesia for decades, which have analyzed these companies in alcohol, dairy, consumer goods and electronics, and witnessed a complete shift in the political landscape.

Survival script

The study identified three different survival strategies as companies adapt to Indonesia’s changing corruption landscape:

  • Suharto era (1967-1998): Direct relationships with regime insiders and local partners who deal with “dirty work”
  • Transition period (1998-2014): Outsourcing corruption to third parties while building alliances of competitors
  • The Age of Democracy (2014-2024): Embed the community through sustainability partnerships and national development goals

During the chaotic transition period, the company developed desperate solutions. An alcohol manufacturer relies on local competitors to arrange government meetings: “They asked for a meeting with the government and we showed up. They just sat in the back and were quiet during the meeting. We had a conversation.”

An electronics company uses installers and consulting agencies as intermediaries to acknowledge: “There are third parties for you. This is the only way. These things are made by installers or by the agency, but directly we cannot do it.”

Moral evolution

This study is not just the documents of corruption in its companies, it is how these companies end up completely escaping the cycle. Faced with stricter family anti-bribery laws and enforcement, multinational corporations have found something unexpected: They can gain greater influence than paying bribes by solving problems in Indonesia.

The company began working with Indonesian government agencies on sustainable development projects, supporting national export goals, and recruiting from local communities around its factories. A dairy executive explained their transformation: “We have entered into intersectoral partnerships with many government departments; our CSR team supports government sustainability goals. By doing so, we have direct access to senior government officials.”

Instead of permanently targeting vulnerable outsiders, these companies become essential partners in Indonesia’s development, a status that protects them from the demands of corruption more effectively than any bribery.

Global Impact

As democratic institutions face pressure on a global scale, the Indonesian case offers urgent lessons. The study shows that corruption is not fixed, it evolves with the political system, posing dangers and opportunities for multinational corporations.

Most importantly, the study challenges the assumption that companies operating in a corrupt environment must inevitably be corrupt. Instead, this suggests that the embedding of strategic communities and aligning with national development goals can provide sustainable alternatives to bribery.

As one company executive pointed out: “Obviously, there is still a lot of corruption in Indonesia. And it’s much better to keep a healthy distance from some government officials because of the opportunity for corruption.” The key is to find ways to support the government while avoiding the corruption factor.

For multinational corporations facing political turmoil in emerging markets (sliding backward from democracy in Eastern Europe to the changes in the African regime across the country), Indonesian experience shows that the most sustainable survival strategies may become too valuable to blackmail.

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