Pulling Back the Curtain

Because you are reading this blog post, I will assume that you have been introduced to delicious Java Bite dried mangos.  Moreover, I will assume that you know that Java Bite dried mangos result from REI's effort to build into the lives of rural communities in Indonesia.  If you landed here without that background knowledge, you can get up to speed in two minutes by watching this video.

So, now that you know the basics, let me pull back the curtain a bit so that you can see what few people recognize.  To be honest, when REI allowed me to begin the development of these rural enterprises, I had know idea what was behind the curtain.  But now that Java Bite dried mangos are in production and finding their way to consumers in both Indonesia and the United States, it's time to dispel the notion that it's been a piece of cake!  Consider these rankings out of 189 countries in the world, which were recently published by the World Bank.*

114   
- This is the ranking for the country of Indonesia for it's "ease of doing business".

But hey, I'm a "cup is half full" sort of guy.  At least we are not drying mangos in Haiti, which ranks 180 out of 189.

155 
- Indonesia's ranking for the "ease of starting a business".

I will spare you the stories, but it took us a full two years to gain the legal permits necessary to carry out business transactions.

153 
- Indonesia's ranking for "obtaining construction permits".

Recently, a friend warned me to expect two years to elapse before our plans to build and operate a new production facility are realized.

117 
- Indonesia's ranking for "registering property".

The piece of land that we selected for a new production facility was negotiated in May.  Twelve months later, the owner finally had the land fully registered.  Regarding the next steps, including declaring the transaction, paying taxes, etc., it was estimated that final transfer is still months away.

172 
- Indonesia's ranking for "enforcing contracts".  

A little lesson in economics: Transaction costs increase when contracts are not enforced.  In such an environment the ability to manage transaction costs is an important business skill to learn.  I'm still learning!

71, 75, 78 
- Indonesia's ranking for "getting credit", "resolving insolvency" and "getting electricity", respectively.  

Finance and utilities are notable bright spots.  I don't expect to have any personal experiences with the first or the second.  But as we build a new village production facility I will soon make first-hand observations about the third matter.  Stay tuned!

160 
- Indonesia's ranking for "paying taxes".  

Yeah.  That's about right, . . . which is why I pay someone else to figure out and execute the payment of taxes for me.  Among the two certainties of life - death and taxes -, the former is much easier in Indonesia.

43 
- Indonesia's ranking for "protecting minority investors".

This is the best ranking Indonesia earned in the report.  Unfortunately, I'm not considered a minority investor.  I am a foreign investor, the protection of which was not evaluated for Indonesia.  I hope my personal circumstances never test the extent to which protection exists for me.

62 
- Indonesia's ranking for "trading across borders".

Having executed three shipments to the U.S., I can affirm that the third shipment was fairly straightforward.  But the first one represented months of confusion.  If you know what you're doing, exporting is relatively simple in Indonesia.  If you don't, . . . well, there's a learning curve to go up.

Now that you have peered behind the curtain, I hope that you recognize just how special are Java Bite dried mangos!

They are delicious.
They are healthy.
They create jobs.
They incentivize care for the environment.

AND THEY DEMONSTRATE WHAT PERSEVERANCE CAN ACCOMPLISH!




*Note:  Data for all 189 countries is available at http://www.doingbusiness.org/rankings

Building People Who Are Financially Vulnerable

Resource Exchange International, Inc. (REI) takes the matter of "Building People to Build a Nation" very seriously, mobilizing resources so that professionals in several countries can strengthen the strategic sectors of their country.  In Indonesia we direct our attention toward those whose income prospects are limited.  Specifically, we work among low-income families in rural villages, creating jobs that can equip them with skills and abilities they need to improve their lives.

In order to grasp the economics of this group of low-income households, consider data about their saving and borrowing practices.  Figure 1 presents some stark contrasts between the group representing the lowest 40% of household income and the group representing the upper 60% of household income.

Figure 1.  Contrasting practices of saving and borrowing.

Note that saving practices are noticeably less frequent among low-income individuals,

presenting a picture of financial vulnerability. In addition, over 70% of

low-income respondents reported that it would be difficult or impossible

to obtain funds in the event of an emergency.  Low savings behavior combined with limited prospects to fund emergency situations paint a picture of very fragile finances for those who are helped by REI in Indonesia.

In contrast, Figure 2 presents similarities between the two income groups, leading some to conclude that perhaps Indonesia has achieved a degree of equality between low- and high-income groups.  After all, the incidence of borrowing among the poor is quite similar to the incidence of borrowing among the high income families.  On the surface it appears that capital flows just as well toward low-income clients as to high-income clients.

Figure 2.  Apparent "equality" among the rich and poor in Indonesia.

However, it’s important to note that a low incidence of saving for the low-income population, which was observed in Figure 1, should imply a high incidence of borrowing. After all, the households who have no surplus cash reserves are the ones who need to borrow when they meet unexpected financial problems. The financial vulnerability of the low-income group makes borrowing more likely compared to the high-income group. The fact that a higher incidence of borrowing does not appear in Figure 2 provides evidence of a capital market failure.

In order to accomplish the aim of REI- building low-income individuals to build a community- finances must be addressed.  But rather than loan money to the low-income segment, REI in Indonesia has implemented a strategy involving income-generation, which strengthens household finances before emergencies arise.  Indeed, participating households typically double their annual income during periods of production.

The additional income obtained by the families who participate with REI allows those families to respond to emergencies and increases the likelihood for others that resources will be available when needs arise.

REI in Indonesia recognizes the financial vulnerability of those in the lowest income segments.  Believing that building into such people can lift the community, REI has devised a job-creation strategy that can develop those who are financially vulnerable to become productive members of society.

Check out the Java Bite online store to learn more about the products that result from REI's efforts.  In fact, take advantage of this special offer (the Family Bundle : $9.99 for 8 packs of delicious Java Bite dried mangos, shipped for FREE to any US address!) while it's available!

Can it happen in Indonesia?

Can Indonesia accomplish what happened in the Philippines?

The composition of mango exports from the Philippines changed dramatically during the last 10 years, shifting from low-value exports (fresh mangos) to increasing quantities of high-value exports, like mango puree and dried mangos.

The graph below shows that the value of mango exports (which represents most of what is captured in commodity code 80450) nearly tripled in the span of a few years.  During the same period, Indonesia maintained it's position as a trader of raw materials, which have relatively low export value.

What does this mean?  It means that the Philippine mango industry is way ahead of the rest of Southeast Asia.

Processing, instead of exporting, the raw mangos, adds jobs and income for the Philippines. Exporting those value-added, processed goods means that more people are working and earning money than if the raw mangos were exported.

Can Indonesia do this?  More importantly, can Indonesia do this in a way that allows more poor people to work and earn money?

Resource Exchange International, Inc. (REI) has devised a path for this to happen in Indonesia.

1.  Develop rural-based technology and processes that can produce exportable dried mangos.

Done.  You can find these delicious dried mangos in the US.

2.  Educate local residents to carry out the procedures under REI supervision.

Done.  You can view a short video to see what this looks like..

3.  Create a training and production facility which can expand a competent workforce able to operate and manage rural-based fruit processing enterprises.

REI will seek donors to fund a $250,000 project which establishes a training and production facility.  Without such a facility poverty alleviation goals may be sacrificed as the industry develops.  To join REI in their efforts to champion opportunities for the poor in Indonesia, select "Boaz Project" on this page and then complete the rest of the form.

Together, we can build people to build the nation of Indonesia.

Java Bite wants to go to America!

The island of Java is home to a lot of tropical fruit - mangos, pineapples, papaya, bananas, etc.  The continent of North America?  Not so much.

It's no surprise that the US doesn't produce a whole lot of tropical fruit products.  American farmers busy themselves with crops like corn, soybeans, wheat, etc.  So, America looks to the rest of the world to provide products made with exotic fruit.

Figure 2 shows that US imports of mangos, guavas and mangosteen have increased dramatically.  Countries like the Philippines and Thailand export a lot of these products to the US.  Indonesia hasn't been a very prominent player.  But that hasn't stopped us from being the first to ship dried mangos from Indonesia to the US.  Java Bite dried mangos from Indonesia are available right now in the US.  In fact, you can get them RIGHT HERE!

But why stop with dried mangos?  Java Bite wants to send pineapple products, too!  Figure 3 shows the substantial increase of US pineapple imports, mainly from Thailand.

Although Java Bite dried pineapple has been marketed in Indonesia for several years, those products have yet to make an appearance in the US.  But perhaps that may change in the near future.

And what about dried papaya?  And dried bananas?  Like dried pineapple, those Java Bite products have never made it out of Indonesia.  Java Bite wants to live in America and bring the whole family, too!

Create an account and sign up for our newsletter to find out when will be the next shipment to the US and which Java Bite products will be included in the shipment.  We will let you know when the other family members arrive.

Reversing the Trend

In 1776 Adam Smith stated what everyone believed at the time to be an irrefutable fact.

"Rich and civilized nations can always exchange to a much greater value with one another, than with savages and barbarians."

It made sense.  And it implied that trade would happen almost exclusively among the rich.

Indeed fifteen years of liberalized trade policies in Indonesia reinforce the notion that low-income, remote households are excluded from international trade.  Figure 1 shows that the exports from small- and medium-sized enterprises have diminished.  Specifically, the share of exports in the gross domestic product of Indonesia's small and medium enterprises have trended from low (9%) to lower (3.5%).

This matter motivated the President of Indonesia, Joko Widodo, to implore the diplomatic corps to promote abroad products made by small enterprises in Indonesia.  Apparently, the President would like to reverse the trend.

So, when the Indonesian embassy in Washington, DC wanted to include Java Bite products in their pavilion at the Summer Fancy Food Show, we accepted their invitation to participate!

If you happen to be in New York City, June 28-30, please visit our booth!

Java Bite products began with the motivation to train and equip village residents to produce export-quality dried fruit products.  Village-made products will find their way into the hands of folks in New York City.  Resource Exchange International, Inc. is proud to have created opportunities where none existed before.   I think Adam Smith would be proud too.

Democracy and Poverty Reduction in Indonesia

For the last ten years Indonesia's poor have had the right and the opportunity to vote for the country's president, as well as their local leaders.  Apparently, not everyone is pleased with that development.

At first, democracy didn't appear that threatening.  The first presidential election in Indonesia was held in 2004.  Susilo Bambang Yudhoyono (SBY) was elected president by nationwide popular vote, which had never before taken place in Indonesia.  Then, he was re-elected in 2009, when national elections were held the second time.  So far, so good.  After all, SBY was a former general and part of the political elite.

But recently, Indonesia elected Joko Widodo (Jokowi) in the third nationwide election for president.  Importantly, Jokowi had himself grown up in the slums of Central Java, demonstrating that under democracy anyone could become president.  Apparently, democracy had gained momentum to such an extent that it emboldened those outside the political elite to embrace expanded aspirations of leadership. Perhaps the political elite should feel a bit threatened.

But what about the rest of the 30 million people who are not electable?  Do they have a better future under democracy?  As democratic institutions have developed, the incidence of poverty has noticeably diminished, demonstrating that the country is much better off under democracy.

Percent of Population with Income Below the National Poverty Line.

"Not so fast", say the detractors, "Let's take a look at how poverty diminished before all of these expensive, contentious elections."

Prior to democratic reforms, presidents were determined in a very streamlined fashion by the national congress, which consisted of members who were determined by regional congresses, which consisted of members who were determined by local elections.  During the 80's and 90's government employees, and especially the military, were expected and often required to vote for candidates who represented a political party called Golkar.  Under that system Golkar's presidential candidate, Suharto, remained in office for decades, establishing himself as the longest serving leader of a Southeast Asian country.

Casual inspection of Suharto's poverty alleviation accomplishments leads one to the conclusion that indeed the incidence of poverty dropped dramatically from 1976 to 1996.  These were the years of "guided democracy", during which the population who lived under the poverty line diminished from 40% to 17% (after the measurement adjustment).

From "Indonesia: Poverty Reduction Program" by Nona Iriana, Ahmad Avenzora and Jainal Abidin
http://www.adbi.org/files/2012.10.23.cpp.sess2.4.indonesia.poverty.reduction.prog.pdf

Some in Indonesia would have you believe that the years of dictatorship saw more social improvement than the current years of democratic reforms.  In fact, those voices are even now trying to roll back democratic reforms by reverting to the practice of electing local leaders by those in a governing body, rather than by popular vote.  They seem to be saying, "Those of us who are the political elite know how to improve the country and we certainly don't need elections!"

While it is true that poverty diminished dramatically over the course of two decades during the Suharto era, few people have drawn attention to the toll that was taken on the government budget.  Specifically, when Suharto left office in 1998 government debt had reached $171 billion, which was nearly twice the level of Indonesia's GDP in 1998.  Yes, poverty dropped, along with the country's economic prospects.

Under the democratic reforms of the last ten years, the incidence of poverty continued a downward trend.  Notably, in 2012 government debt had reached about $200 billion, amounting to approximately  27% of Indonesia's GDP in 2012.  Yes, poverty dropped, along with the burden of debt.

So, let's connect the dots.  Democracy in Indonesia has birthed SUSTAINABLE poverty reduction, not the kind that cultivates dependency.

Do you think that those 30 million people under the poverty line should have an opportunity to vote for their leaders?

7 Tips for the Newbie: How to Manage the Costs of Collaboration

So, you want to be a manager.  Wonderful.  It's a fine work that you desire to do.  I have some tips for you but first let me introduce you to my world.

The leader of the farmer group says he will tile the floor, but instead he puts tile on the wall.  A woman says that she will come in at 7am, but instead she arrives at 8am.  Another woman has a wedding to attend and leaves three hours early, despite making a commitment to work until 5pm.  The woman who is in charge of distributing payment to other women retains a "commission" because of her position as the leader of the women.  Another village leader refuses access to the dehydrator when the next mango season arrives, effectively taking hostage an asset that he did not purchase.

In my world, the manager must learn to deal with these sorts of matters with dignity and persuasiveness.  Think of it as just one more set of costs that must be managed carefully.  A business cannot grow without managers who have the ability to identify unnecessary costs and find ways to reduce or eliminate costs.  Costs of collaboration are no different.  They represent transaction costs and they exist when one party in a transaction is willing to abandon commitments or manipulate the other party.  Because my world is characterized by high transaction costs, business success requires acumen to recognize and manage these costs.

So, if you want to be a manager, here are seven tips that can give you a good start.

1.  Cultivate a relationship with individuals.

The more personal is the relationship, the more you will be able to manage transaction costs.  Trust reduces transaction costs since it "is critical for the viability of most transactions and for the efficiency of conducting transactions" (Rao:2003, page 92).  In environments where collaboration is costly, you must view relationship-building as part of your job description.

2.  Project elevated values.

In group settings, you should take advantage of opportunities to give short lessons on morality.  It's true that staff meetings should largely be devoted to operational matters.  However, such meetings also present opportunities for you to speak briefly about honesty, diligence, faithfulness, service, personal sacrifice, courage, etc.  Reminders of values can realign people's attitudes and motivations.

3.  Communicate standards early and often.

Reminders about standards are just as important as reminders about values.  Among people who abandon commitments, you should be prepared to make frequent references to job expectations.  For instance, delineate the Standard Operating Procedures on a wall poster during the training period.  So that it doesn't get ignored over time (which usually happens with wall posters), refer to one or two of the items on the poster each day.

4.  Keep your cool.

In fact, smile.  A lot.  Even when others are abandoning commitments or attempting to manipulate.  Regard their behavior as normal.  Because in this environment of costly collaboration, such behavior is indeed quite normal.  Don't let manipulative behavior distract you from what really matters.

5.  Identify what really matters.

Suppose you have a problem employee who consistently under performs.  (This happens all the time in my world.)  Rather than just stew in frustration, identify the particular way in which the employee's behavior is undermining business viability.  Then, illustrate how that behavioral problem threatens what really matters to both of you - ongoing collaboration that benefits both parties.  Let the employee know that, as the manager, you want to see the collaboration continue so that the business can grow and the individual can succeed (i.e. not get replaced).

6.  Identify patterns.

The problem employee who has consistently under performed has accumulated a track record.  Any single infraction is merely an example of an established pattern.  Focus on the pattern, not the instance, and the way in which it undermines what really matters.  When an example emerges, be ready to refer again to the pattern.  "It's happening again, isn't it?" may be all the comment that is needed at the time.

7.  Reiterate overarching goals that matter to the individual.

Where collaborations are costly, individuals tend to abandon commitments for a reason.  They want to pursue goals that matter to them.  As a manager who has a personal relationship with the individual, you will want to probe the employee's motivations.  Why does he want to work with you?  To put his children through school?  Buy a new cell phone?  Please his nagging wife?  His response will give you insight into his motivations.  More importantly, you can offer gentle reminders about his goals and the way in which his work with you helps him to accomplish his goals.

Although this is not a complete list, it does give you a glimpse into the world of costly collaborations.  In order to become a manager in this environment you must master yourself and master interactions with others.  Management tasks in high transaction cost environments present plenty of challenges.  But remember that those numerous challenges also represent constant prompting to refine interpersonal skills.  If you aspire to be a manager of costly collaborations, it is a fine work that you desire to do.

References:

Rao, P.K. (2009). The Economics of Transaction Costs: Theory, Methods and Applications. Palgrave Macmillan: New York.  197 pp.