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Jordan Wiener 20014223

Multistrada Agro International: Case Analysis Template

1. Summary of key decision: What should Kartika Antono do regarding the


Malaysian-owned palm oil plantation on Multistrada Ago’s licensed land in Indonesia?

2. Background Context and Issues:

The shortage of rubber being produced globally has placed the burden on tire
manufactures to open their own rubber plantations to keep up with market tire demand.
MASA, Indonesia’s second-largest tire manufacture currently has licenses to plant 128,000
hectares of rubber, 372,000-hectares short of their goal of 500,000. MASA is currently using a
47,000-hectare plot of land in East Kalimantan as a pilot project, so learnings from the pilot
project will be used to develop the rest of their licenses; the learning experience will be a very
important factor of MASA’s decision criteria. The local community also plays a large role in
MASA’s successful operations as aggravated local groups can become violent towards
plantations, and despite there being armed military providing protection, “The best guards are
the villagers”; keeping this large stakeholder pleased is another important factor of MASA’s
decision criteria. The financial state of MASA is also critical for understanding the context of the
case; MASA has had a fast decline in sales and profit, and a high relative increase of COGS, over
the period of 2013 – 2015. Considering that COGS is decreasing slower than sales, (See
Appendix A) one can conclude that tires are becoming more expensive to manufacture, which is
also exemplified by their net loss in 2015. It should be the top priority of the company to start
making profits again.

There are currently several barriers preventing MASA from starting their harvest. Firstly,
there is a difficult political situation to navigate in Indonesia; there are discrepancies between
the regulations of central and local governments, and laws can be clear but enforcing them
proves to be more difficult. Secondly, MASA needs to staff the 10,000-employee farm; the local
workers’ productivity is six times lower than those from mainland Indonesia, and bringing in
employees from the mainland will greatly upset the locals. Thirdly, MASA’s land plot is not
licensed for producing palm oil, and its current operating state is not permitted.

3. Analysis of Options:

In an effort to help MASA analyze their options, three business criteria have been
chosen at the following weights; financial benefit (45%), learning outcome (25%), and
relationship with the locals (30%). All the following options have been rated on a scale from 0-
10 and weighted accordingly (See Appendix B).
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Go To Court (6.5)
Going to court would close the final step required for the local authorities to comply and give
MASA the land. This would allow for full utilization of the 47,000 hectares and allow MASA to
bring in much more productive workers from mainland Indonesia. The financial downsides are
the hefty court fees and the lost production time from the court dates. MASA would learn a
great deal about enforcing legal decisions and would have a model to replicate learnings to the
rest of their future plantations. The court action would cause tension with the locals as the
company would be firmly planted on the opposing camp (severed ties do allow for non-locals
working in the plant).

Wait Until the Bupati Leaves (3.2)


Waiting for the Bupati to leave office would result in a full year of lost production, with the
caveat of potentially having to reconsider this decision again should the Bupati or a relative get
re-elected back into position. The waiting time would also allow for the Malaysian company to
further develop their strategy, which could potentially change the entire climate of this
decision. No learnings would be taken out of this strategy as no proactive measures are being
taken, and it would only offer a solution unique to this case. Lastly, it would leave a rather
neutral impression with the locals.

Make a Direct Deal (7.2)


Making a deal directly with Malaysian company would allow for a potential extra stream of
income which could help propel expansion into new plantations. However, the financial viability
of the palm oil plant is uncertain as four of the directors had been placed under a ‘red’ notice
from the Indonesian government for breaking the law and there have been recent changes in
ownership. Making a direct deal would not yield much learning experience as the terms of the
agreement would be unique to this deal. This would allow for both firms to continue to operate
in harmony and would mitigate any tensions with locals as a result.

Lobbying to Neutralize (4.3)


Lobbying at the national level would limit the Bupati’s authority to renew the palm oil license,
which could potentially lead to full utilization of the 47,000-hectares a year from now. The
uncertainty of the success along with the lost production time from the lobbying make this an
unattractive option from a financial perspective. MASA would be able to learn a great deal from
lobbying which could be scaled to other conflicts. A successful implementation of this plan
would spoil relationships with the local politicians and villagers.

Preman Approach (4.95)


Jordan Wiener 20014223

The preman approach would allow for MASA to quickly start utilizing 100% of their licensed
land and would be of relativity low cost to do so. Due to its highly illegal nature, financial
repercussions might be faced down the line, which would hurt MASA’s financials along with
their goodwill. Due to its illegal nature, it shouldn’t be replicated, so MASA wouldn’t be able to
extract any valuable learnings from this opportunity. Their international goodwill wouldn’t only
be damaged should they get caught, but their goodwill amongst the locals would certainly be
damaged.

Live and Let Live (6.3)


Allowing the palm oil plant to continue its operations without interfering their operations
would yield very similar results to making a direct deal with the Malaysian company, except it
would lack the financial gain from that alternative.

4. Decision and further recommendations:

After evaluating the six different alternatives, it became clear that making a deal directly
with the Malaysian company would be the best decision given the three criteria that were laid
out.

It allows MASA to accomplish two major milestones financially; they get to start
producing on their land immediately, and they receive an extra stream of recurring income. A
majority of the other alternatives require delays in production as MASA continues to ‘fight’ for
their rights over the land. This alternative provides no barriers to starting immediate production
as the final negotiations of their contract can be occurring as MASA begins to plant and harvest
their licensed land. Given the rising COGS and decreasing profits of the company, it is important
they have access to the raw materials as immediately as possible. In addition, having a recurring
stream of revenue will not only provide stability to the farm in the period between planting and
harvesting, but it will also financially compensate for the opportunity cost of not producing
rubber on that plot of land. A caveat to this decision is that the prosperity of the firm is
uncertain due to the red notice on four of their directors and that the plot of land is not
licensed for palm oil, so legal action could be taken against MASA. To mitigate these two
potential threats, MASA will immediately stop pursuing legal action against the palm oil
plantation; these threats were only created after MASA started putting pressure on the
plantation to leave, and since the Bupati is currently in support of the palm oil farm, there
should be no reason for the two threats to realize. Taking all of these factors into consideration,
this option proves to be the best financially for MASA, the most critical factor in their decision-
making process.
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As MASA will now be on better terms with the palm oil plantation and the Bupati, this
will smooth over tensions that had been created with the locals. This option demonstrates to
the local communities that MASA is not a ‘big corporate bully’ and gives the firm a much
friendlier face. Staying on good terms allows the locals to become advocates of the farm, and
allows for easier access to labour without the need of having to source as many employees
from mainland Indonesia. Despite the local employees being much less effective than the
mainland workers, in order to maintain a strong relationship with them, they need to be
employed. As MASA requires 10,000 labourers to operate at full capacity, and there only 7,000
locals living in the surrounding areas, it will be required to hire the majority of their workforce
from the mainland regardless. This means that MASA will stay on good terms with the locals
while offering them employment, while still achieving the efficiency from mainland workers,
and with time, it’s predicted that the good working habits of the mainland labourers will
transfer to the locals.

Despite lacking a learning opportunity, the financial gain and strong relationship with the locals
outweigh the benefits of having practical experience dealing with the legal and lobbying
system. There is something to be said about knowing when to pick your battles, and this case is
a perfect demonstration of that.

Appendix
Appendix A

Appendix B
Jordan Wiener 20014223