In mid-2005 Gunawan Wiboto (Gunawan), an ethnic Chinese Indonesian entrepreneur and founder of the Ramayana Group, decided to build a steel mill incorporated as a new company: PT Hanuman Steel. His team began the search for an experienced engineering consultant for the project. The company approached several consulting firms reputed for their engineering services. The difficulty, as they quickly discovered, was finding a consultant who believed they could do it their way and be successful.

The required services fell into four stages: basic design, detailed engineering, procurement and construction. Representatives from four selected reputable international consultants submitted their proposals. On 3 January 2006, the John Smith Engineering Consultant Corp., headquartered in Melbourne, was awarded the contract for the basic design development phase.

John Smith and the basic design – development phase The John Smith team began work quickly and efficiently. According to Hanuman Steel’s Chief Engineer, ‘The rapport was excellent. They treated us as personal guests, and we did the same when they came to Surabaya.’

The first ripples of disturbance appeared when a team of specialists from John Smith travelled to Indonesia for an on-the-spot investigation. On matters related to engineering work, the relationship between the two firms remained good. It was the financial side, and specifically the construction budget and the overall cost of the project, that caused the first rifts to appear. When Hanuman Steel looked at Smith’s costing, they found they were ‘way out – they were engineers, not commercial people’.

If the design side went well, the commercial side proved far more contentious; the relationship finally foundered over budget disagreements concerning the three remaining phases. Smith’s estimated cost for the procurement and the construction of the mill was $100 million. Hanuman Steel estimated it at

$50 million. Smith’s schedule for completion of the project was thirty-six months, Hanuman Steel’s was eighteen months.

At this stage, Gunawan concluded that his interests were no longer being served, and, as the basic design phase of the project was coming to an end, he decided to opt for a different consultant for the following phases.

A failed attempt: Lars Corp Gunawan and his Chief Engineer visited Stockholm to sound out Lars Corp, a Swedish firm that had already worked on the preliminary blueprint of the project. Lars was selected for the phases of detailed engineering, procurement and construction. At the end of November 2006, draft contract in hand, Hanuman Steel negotiators went to Stockholm to finalize the agreement. Negotiations were difficult because Lars adopted a very legalistic approach.

But finally an agreement was reached and Gunawan flew to Stockholm to sign the contract. A celebration dinner was held. The next morning, Gunawan discovered that Lars’ president had left for the USA. However, before leaving he had drawn up a letter of understanding, signed it and sent it to the hotel. Inserted in this document, Gunawan found a clause concerning performance guarantees that was ‘totally against the spirit of everything we had discussed’. The clause, which had not been previously seen or discussed by the Hanuman Steel people, had ‘turned a fixed price contract into an open contract’. Other clauses, already agreed, had also been changed. To Gunawan, the message was clear – it indicated a lack of trust in him and his company. Utterly frustrated by this development, Gunawan refused to sign the document and flew directly to Pittsburgh to meet Tom Brown, a shortlisted US consultant.

Another try: Tom Brown Shortly after Gunawan’s visit to Brown, a meeting was held between the staff of the two companies.

On Hanuman Steel’s side, concern centred on the juxtaposition of low costs and high quality, and achieving the right balance. The director of engineering at Brown’s was ‘a polished, very polite and persuasive gentleman’. He and the Hanuman Steel team discussed the project in Pittsburgh for two weeks, aided by visits from Gunawan and the Brown director’s boss. Between them, they covered all the ground in deciding who should do what; what should be Hanuman Steel’s responsibility and what Brown’s, and what they should do jointly. Shortly after, Brown’s president, Tom Brown, accompanied by the man who would be in charge of the project, flew to Surabaya to sign a letter of understanding.

In February 2007, a cross-cultural seminar organized by Hanuman Steel’s two European consultants took place in Pittsburgh, attended by people from Hanuman Steel and Brown’s. The practical outcome, it was hoped, would be to resolve problems before they arose and forge a team spirit.

Despite these efforts, a feeling of uneasiness began to surface on the Hanuman Steel side during the early meetings to prepare for the supplier negotiations. Hanuman Steel found that Brown’s was ‘building in safety feature after safety feature, which gave us serious doubts about the eventual cost of the project’. The breaking point came over a much more important issue. Brown’s had agreed to give Hanuman Steel two almost unconditional bank bonds which it could cash if the project failed. However, Brown’s appeared to have second thoughts about the bank bonds, and its failure to issue them turned into a serious problem.

Hanuman Steel then withdrew its team and sent Brown’s a letter noting that ‘under the circumstances, we feel we cannot work together. Thank you very much.’

Gunawan had learnt his most important lesson:

‘Even when you have everything in a written contract, it doesn’t mean you will get it.’ These problems had been exacerbated by the cultural gulf between the two sides. Gunawan’s entrepreneurial approach and determination to keep his budget adjusted for local conditions, coupled with the Indonesian preference for keeping their financial plans flexible and in shades of grey, was diametrically opposed to the European and North American desire to play it safe – to have everything set in concrete down to the finest detail, with every guarantee possible and every contingency allowed for. As Hanuman Steel eventually discovered, what they were asking for was outside the experience of the conservative Western consultants. It created a clash of two very different cultures.

Questions:

1 How do you assess the situation?

2 Do you think Gunawan was being unreasonable?

3 Do you think the Western consultants did not understand the Indonesian context and culture?

4 How much were the clashes caused by cultural differences as opposed to commercial ones?