Labor Relations in Korean Companies in Indonesia: Focusing on the Early Period

Shin Yoon Hwan

3. The management System at Korean companies 

During the field research, the authors consistently paid attention to what is really happening at Korean companies, as has been reported in the media. Whether they control their labour and commit actions that violate laws and local rules, such as delaying payment of salaries, do not implement the regional minimum wage policy (UMR), force to work overtime, commit violence and implement corporal punishment, etc. The authors pay attention to these matters since they read the news about the cases of salary payment delays caused by companies’ bad financial conditions. The violations of labour laws is often neglected by local authorities, and acts of violence were perpetrated by Korean managers. However, it turns out these are just prejudices, and in the early stages of the field research these prejudices collapsed immediately.

First, the case of labour conflicts that arise because of delay in the payment of wages are rarely found. The Indonesian government has intensified the monitoring on the implementation of regional minimum wage policy as the result of a workers rally in Medan in April, 1994. Among Korean companies visited by the researchers, there was no company that does not pay salaries beyond the standard minimum wage. Moreover, it turns out that in the same industry sector, investment by Korean companies typically pay higher wages than other foreign companies and Indonesian companies.

Physical violence is not found anymore in the Korean corporate environment. Although the ways of threats, insults and abusive language are still in use, no workers have ever been found who reported being beaten or physically abused. Korean Management has understood very well acts of violence or other similar actions. Further they also understand that touching the head is a form of action that can be categorized as an insult to Indonesians. So when new managers, technicians and workers newly arrive from Korea, the management will always give the sense or inform on those aspects. In addition, according to the author’s observation, it will be impossible for Korean Managements that is totaling two or at most 20-30 people to dare to commit violence against hundreds of thousands of Indonesian workers, even though they are considered to be always obedient to orders from their superiors. Violence in these conditions is not possible because of the large risk of backlash from the workers.


Korean companies that conduct physical tests as part of admission requirements for workers as reported by the media were not found, and there is also no Indonesian workers who testified of getting physical punishments such as pushups, running, and being made to stand for a long time in the hot sun. Maybe such corporal punishment is not being implemented anymore or if there is, it is simply made-up news. Nevertheless, there are still practical examinations of the workers in order to prevent theft. In addition, there are still practices that oblige the workers to stand for hours because of coming late for work.

However, the Korean company’s image in the eyes of Indonesian workers is still unpleasant and the worst among foreign companies. According to Indonesian workers, the Korean firms are the most vicious and ruthless in their corporate management. For them, a Korean company is the most hated workplace while Japanese companies are the most ideal workplace.What caused the Indonesian workers reluctance to work in Korean companies that turned out to pay the highest salaries in the same industry sector? The answer can be seen in one of the interviews conducted by the authors with Indonesian workers. The research team interviewed 20 people from six companies on the night of July 15, 1995 with the help of an NGO engaged in labour issues. Among the interviewees there are several workers from factories that produce artificial flowers. Actually, the factory owners are Chinese citizens, but the managers are Koreans. Therefore, the research team could get their testimony. They said that after the arrival of a Korean manager who moved from the Reebok shoe factories, a number of conflicts occurred in the factory. They complained on the management style and the actions of the manager. However, the manager’s name does not sound like it is Korean, so the author asked again if he was truly a Korean. They said that the bottomline is this main manager was known as Korean. Given the confusing answers, the author told them that according to the name, he was certain that he was not Korean. At that time, there is a worker who threw words that were highly surprising to the research team. The worker said that although the manager was not Korean, he worked in the Reebok factory and he implemented “the Korean ways.” In other words, the Korean style is considered as a source of conflict, even if Koreans do not own and do not manage the factory. How unfair is this statement? From these interviews, the author decided to focus on research aimed at finding the facts on this Korean style and then analyse it.

1) Does Korean style management exist?

Is it true that Korean style management exist?, and if it does, what does it look like? If we summarized the testimony of the Indonesian workers, the Korean style management is a less humane management, where administrators and managers intensify the work of labour to improve productivity. However, as the information gathered from the artifitial flower factory`s workers shows, Indonesian workers consider Korean management is applied in the factory that has no relationship with Korea. What is the basis for these workers’ views?

First, there is a premise that a Korean company, compared to other foreign companies, is more familiar with the ways of controlling the workforce to maximize productivity and profits. They are experienced in export-oriented industrialization based on labour-intensive industries under an authoritarian system. Whether they learned it from Japanese companies or from multi-national companies, this experience was developed in Korea and can also be said to be very well suited to the Korean style.

Second, below will clearly be decribed certain styles that were brought to Indonesia by the Koreans. Despite these styles having spread in the labour-intensive industrial sectors in Indonesia, it were the executives and managers of Korean companies who for the first time applied these styles in Indonesia. For example, what was happening in the Indonesian footwear industry was developed by Korean investors. In the early period after they entered Indonesia, almost all Korean shoe companies were involved in labour issues. Indonesian workers tend to interpret it that the labour conflict occurance is part of the nature of the Korean people, not from the logic of capital. This tendency is very fair and beneficial for the labour movement strategy.

Third, the Korean style management system has something to do with the Korean managers. Most Korean managers are former engineers and workers in Korea. Ironically, after they take up a management function in Indonesia, they repeat the management style in which they had been forced before by their managers in Korea. Through uncertainty about their position as middle managers, their obsession as foreigners, prejudice arises from their limited education, while typical Korean ethnocentrism and racist attitudes escalate towards Indonesian workers to repeat the management system implemented in their previous work in Korea.

Fourth, Symptoms of separation between the Korean capital and Korean management in labour-intensive industrial sectors. For example, in the shoe industry, garment, textile and toys in a small and medium factories, the plant manager, head of operations, andf head of division are usually Korean nationals. In this condition, the figure of the manager faced day-to-day by the workers are Korean, so the company will be considered a Korean company, even if the owner is not Korean. From this fact, the image of Korean style management is being formed.

In fact, for the Korean style management case, it is difficult to say that it only exist at companies owned and run by Koreans. Among those interviewed, especially the Koreans mentioned that the companies managed by Taiwanese, Hong Kong Chinese, and Chinese are more cruel and vicious in their labour affairs. However, this research is limited to Korean companies so we can not be sure on how far Korean style management extends to the local and foreign firms. The important fact is that there is a phenomenon where all allegations center around Korea, without thought about the origins and existence of Korean style management.

Regardless of whether the owners are Korean or only the managers are Korean, both have implications on who is held responsible for all the exploitations that have occurred being directed/blamed on Korean companies. Perhaps because of that, these Indonesian workers say that they are not stupid, but the Korean people are. This statement continued to reverberate in the authors’ ears.

Below will be presented habits that are widely implemented in various companies which are invested in and managed by Koreans. The data were drawn from interviews and media reports.

2) The Wage System

In recent years, there have been many changes in the wage system in Indonesia. The managers of Korean companies simply take advantage of this situation. The main elements that cause changes in the wage system of Korean companies are strict supervision and strict control by the state over the implementation of minimum wage policy by the companies. The Indonesian government considers the increase of labour conflict as an element that threatens political stability. The government implements soft and strict strategies in turn. Soft strategies used by the government to entertain the workers were the guarantee of Minimun Wage Policy implementation and to increase the minimun wage. Within a number of periods, each year the Indonesian government increases the minimum wage at a large scale (see Table 3), and after the year 1994 when the incident in Medan took place, the government created a blacklist of companies that do not apply the minimum wage. Companies listed in this list are monitored and controlled and punished in accordance to the rules.

 Korean investors and managers often consider that the labour policy of the government of Indonesia will be similar to the labour policy of the Park Chung Hee regime, but this assumption is too simplistic and can even endanger their own business. First, the Suharto`s government based their labour policies on Pancasila which will implement all decisions through musyawarah; peaceful consultations among labour-managers/owner-governmental institutions. This relationship is not like the supressive labour policy, which existed in Korea in the past. This relationship is more rhetorical in fact, as the Soeharto regime is more concerned with political stability than economic development.

Suharto’s regime did not want conflict to happen because if laborers were politically organized and labour problems spread to civil society in general, it would pose a threat to the government. Therefore, the Indonesian government prefers to implement a wage rise for the workers, although this policy will eventually decrease foreign investment and lower the rate of economic growth. This condition is created by Indonesia’s economic growth strategy which does not only rely on export-oriented industrialization.

Source: Fauzi Abdullah

Second, the Korean companies in Korea are domestic companies, but in Indonesia, they are foreign companies. Despite the current liberalization and rationalization of late, Indonesian economic policy is a nationalist policy. Labour conflict in the companies of foreign investors can be considered as a conflict between nations. This can be proved by anti-Japanese riots which occured in January 1974 and anti-China riots that occured in several incidents. For foreign companies, the comfortable condition provided by the Indonesian government is not an unconditional right.

Korean businessman can not simply accept the policy of the wage increase that is performed continuously. Korean firms address these policies in three ways. First, the standardization of wage rates, which eliminates or narrows down the difference in wages determined by the working period of the workers in the company in order to cover the financial burden resulting from the application of the increase in the minimum wage standard. There are companies that implement equal wage regardless of their working period/experience in the company. There are also companies that narrow down the difference in wages according to the laborers working period. Thus, the implementation of such strategies in Korean companies has created the seeds of conflict, and frequently also stimulate strikes against this policy.

Second, by including the money for meals and transportation into the salary to prevent a high increase of salary. Steps like this have become a serious problem of law interpretation. According to the minimun standard wage policy established after 1990, the scheme could be included in the minimum wage allowances amounting to 25% of the minimum wage. If there are companies that count the meal and transportation money as allowances and later include them as part of the minimun wage, although the total of such payment exceeds the nominal of the minimum wage, the policy can not immediately be categorized as a violation of minimum wage. Therefore, many companies include the money for food and transportation allowances as part of the fixed wages, they may increase the total wages and reduce the food and transport allowances or even eliminate them. This action invited a lot of disputes between workers and employers in the 1990s. The labour organizations certainly interpreted and claimed that the meal and transportation allowances must be separate from the calculation of these benefits and are paid as an addition.

Third is the adoption of a wholesale system and a working system that depends on how much of the results are produced. In an effort to increase productivity in the conditions of high wages, a Korean company creates and chooses a variety of ways. One is the implementations is that of the system of wholesale. Korean companies began to apply the principles of competition and the logic of a market system to the worker that requires the implementation of a wholesale system in which the workers are paid according to production regardless of the working hours.

Workers paid according to working hours only get an average of two hundred thousand rupiah per month, this includes the minimum wage and overtime, meanwhile workers who work with the wholesale system receive an average of three hundred thousand rupiah per month. In the wholesale system, the workers of course must work harder. Nevertheless, there is no case of organized resistance found against this exploitative contract system. In fact, the company that does not allow the wholesale system is followed by unfavorable workers, for example, workers who engage in the labour movement, and companies take advantage of this system as a way of punishing the workers.

There is another way of determining the level of productivity, which is by using a working plan and the achievement of results as a measure for workers in providing cash incentives or penalties. In that case, it can incur the possibility of labour exploitation without paying for the work incentives. For example, the productivity plan level is too heavy to be achieved so that even if productivity increases, the worker still does not receive any incentive money at all. Apparently there are also companies that implement this policy. However, this approach does not necessarily guarantee the productivity effects, and in addition, there is a possibility of opposition from the workers. It seems that lately the implementation of penalties has been removed. Thus, this method can support the working plan benchmarks and productivity can be increased more effectively.

Old calculator on white background showing text "wage" in perspe

Finally, The wage calculation is not clear. The Indonesian workers receive their salaries based on various counts such as the wholesale system, based on the work result system, overtime pay, meal allowance, transportation allowance, holliday allowance or THR, vacation period and others. The unclear character of calculating the salary is the main cause for problems. The complexity in how to calculate the salary is also added to by dishonesty of the businessmen who exploit the unaware workers and this might exacerbate the occurence of conflict. During this research, such a thing has never been recognized by the employers. In addition to the dishonesty of companies, the Korean managers do not take seriously the explaining and communicating on the calculation of salaries. This is also acting as the trigger to the problem. The company`s assurances on honesty and accuracy are less convincing to make the workers believe the foreigners. Sensitivity about money, the complexity of the salary elements, overtime payment applications being different to the wages, and mistrust with the Korean workers, demand a detailed explanation on how the salary is calculated. However, the rigid attitude and language limitations of the Korean managers and supervisors often invite misunderstanding. Linked with the changes in wage systems, the implementation of the wholesale system has important implications. For example, the author witnessed a case occurring in the CJ garment companies in the region KBN, where disputes between the workers and the company firms are often occuring. Frequent labour problems have forced the management to leave the suppesive labour system and try new ways, such as by changing the managers and the intermediate level employees with native workers, except the chief executive position that is also the manager of the factory and the two director positions.

This company is proudly implementing a wholesale system. The wholesale system pays the wages according to the results of the work and not based on the hours of work, so the more work they do the more workers earn. However, the wholesale work at this CJ company could be assessed as less humane. In the same working room, two groups are working together: most of the laborers hold a working contract and only a small portion of laborers hold a contract on the basis of working hours. Female workers who work on a wholesale contract stand sweating operating the knitter machines manually, which is actually work for a male worker in Korea (according to the narrative of the main director); next to them day to day workers are knitting sweaters by hand and finishing the knitting as slow as a sleepy person. The difference in wage between the wholesale workers and the day to day workers is about one hundred thousand Indonesian rupiah. From these company workers, the research team can not see the friendly attitudes and smiles that is usually a feature of the Indonesian people, and can be found at other companies.

In the habits of Indonesian people who love working together, mutual assistance and poverty to be divided among themselves, what does it mean to work in this wholesale contract? Rather than mutual cooperation, it will create competition; and they will work to earn 50% more than the next fellow. This contrasts feels much less humane. The workers’ faces are as Indonesian faces that lost their traditions and culture from the high flow of egalitarianism as a result of capitalism, represented by bulk production.

The Korean response to the change of the wage market and government policy, as illustrated above, is represented in the form of changes in the wage systems. This transformation prefers the complex and deceptive wage system and taking the risk by abusing or violating the governement minimum wage policy, paying low wages, no overtime payment, and delaying the payment of the salaries. However, it is not wise if the management thinks that the workers do not understand what is going on and what the actual wage system adopted by the management is. The workers have understood very well what the new wage system means, which is only for covering financial burdens caused by the increase in minimun wage standards in the midst of the desire to increase the level of intensity and productivity.

A Korean factory in Indonesia
A Korean factory in Indonesia

3) The Intensity of work and the working hours

The essence of Korean style management lies in the efforts to improve the productivity by increasing work intensity. In the labour-intensive manufacturing sectors which only require a simple skill and use less mechanical tools actually need quantity rather than quality of work. Therefore, a shortcut to improve the productivity is by maximizing the quantity of work in a short time. Almost all the Korean management models apply this method. The efforts to increase the work intensity is seen in various efforts such as by extending the working hours. For example, first, there is a practice referred to by Indonesian workers as “the corruption of time.” Workers were forced to increase the hours before and after the actual working hours, in addition to the seven hours of work. Laborers are told to come to work 15 minutes early and leave five minutes later than the actual working hours and the lunch break is being shortened. There are also companies that steal the overtime by not acknowledging overtime under 30 minutes and that means the company do not need to pay for the overtime.

Second, there are rules to prevent the loss of working hours. Among these, the most commonly found is that workers are not allowed to go to the toilet. To prevent the workers going to the toilet, a Korean company applies a card system to go to the toilet. With this card system, only workers who carry cards are allowed to use the toilet. The problem is that there are a very limited number of cards available. If all cards are in use, it means that if workers need to go to the restroom they have to wait for another colleague to be out of the toilet first. To limit the frequency of workers using the toilet, the number of toilets in the company is limited. K1 Company is a joint venture company of Korean leading tycoons that employs more than five hundred workers and does not implement the card system for the toilet use, but this company only provides six toilet cubicles. Among the six, three chambers are always locked on the pretext of being repaired, so three chambers can be used. Among these three chambers, two are for male and one is for female. As a result, female workers, which account for 90% of the total workers use the men’s room, while the male workers pee on the wall of the building.

An inhumane approach to prevent the workers to go to the toilet is by restricting the using hours of the toilet facilities. After the opening hours, the toilet`s doors are locked. In the K1 factory, toilets are only opened 30 minutes in the early morning, an hour during lunch time and 30 minutes in the afternoon. Other that those hours, the toilets are locked. Not only the time for going to toilet is being limited, the time for praying is even less. The easiest way is by not expanding the prayer room facilities. It seems that it is rare to find a Korean company which is equipped with satisfactory praying facilities.

There were cruel and even dangerous approaches imposed to minimize the loss of working hours, such as locking the door of the factory buildings while working hours are in progress. This policy is said to be very inhuman because it can trap workers in with the danger of fire, high temperatures, dust and toxic substances. Here, it is fair if the Indonesian workers show anger against the practice of this policy.

There are still many Korean factories forcing overtime, causing disputes. Forcing overtime was the main cause of conflict in Korean companies in the early period in Indonesia. Indonesian and Southeast Asian people believe in the great importance of rest and a relaxing life. Therefore, they will show hostility toward working overtime and the corruption of time. Before the 18th century, when the population began to grow, the culture of Southeast Asia was strongly influenced by the abundance of natural resources and limited manpower, this condition has formed a culture that emphasizes leisure time, time to play and conduct religious rituals. The relaxing life gives meaning to the work. In the early stages of the overseas investment, many Koreans were surprised to find an increased number of worker absences after the date of salary payment. Because the Korean people do not understand what it means to live at ease. It will be wrong if the Korean managers and supervisors are forcing working overtime and the corruption of time because they feel the Indonesians are unfamiliar with the concept of being on time, and the Koreans are more concerned with money rather than the leisure life.

In conclusion, the supressing style of management that relies on violence, physical punishment, and threat indeed has disappeared, but the general Korean management that needs to increase productivity by intensifying work remains valid. The changes are only in the implementation style and the outline of the management.