Filling Institutional Voids in Indonesia: Jababeka's Foray into Infrastructure
(9 pages of text)
Led by CEO S.D. Darmono, Jababeka was a publicly listed real estate firm in Indonesia specializing in industrial estates. Due to infrastructure and logistics bottlenecks in Indonesia, the company had moved into various infrastructure projects, including a power plant and a port. Even though the company had identified substantial business opportunities in the form of a captive market of industrial estate tenants, both projects suffered from delays due to regulatory complexity. Darmono skillfully aligned the interests of private and public-sector partners, but was still unable to get quick returns on his considerable investments, necessitating an allocation of more funds. The case illustrates the opportunities and risks of emerging market infrastructure projects. Students are asked to evaluate the viability of Jababeka’s new infrastructure strategy and formulate an action plan.
The objective of the case is to understand the realities of operating in emerging markets, which are characterized by institutional voids — particularly in infrastructure, where governments have limited budgets and ability to provide basic public goods such as water, electricity, roads, and ports. The private sector can participate in infrastructure projects, which poses opportunities but also substantial risks. The case can be used to discuss this topic from the following angles:
- Strategy: As Jababeka pursues its industrial estate business, it sees opportunities in infrastructure development in Indonesia. Its decision implies a major strategic change, but it also faces considerable risks. The case offers an opportunity to review this strategic decision and understand the realities of emerging markets.
- Managing institutional voids in emerging markets: The case outlines a situation common to emerging markets — the economic development of a country leaves the government unable to catch up to provide public facilities to support economic growth. The resulting institutional voids provide opportunities and risks for players in emerging markets. The case helps students understand the nature of institutional voids and the challenges of public-private partnerships.
Real Estate and Rental and Leasing
Indonesia, Large, 2012
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