The Batam Electronics Factory
Professor H. Michael Boyd, Ph.D.
©
In the early 1990s a major computer
manufacturing and services company
headquartered in the United States began
implementing a plan to build an electronic
component assembly factory in Batam, Indonesia.
These fully-assembled components would be
shipped to a factory in the U.S where they would
be a part of an electronic device sub-component.
Those sub-components were then shipped to a
manufacturing company in Japan where they
became part of a complete electronic device used
in computers.
This is the final stage of the plan: Startup (1st year of
operation) and Operation.
The previous stages of the plan included the business justification; the FDI
analysis and plan; the factory plan and design; the capital plan; and the
physical plant and logistics plan.
•The factory was situated on the Indonesian island of Batam, an old small
island historically used by pirates who would rob passing ships and then
retreat into the mountains of the island where they couldn’t be found. The
island is about 22 km across the bay from Singapore. While there is a small
airport and city on the island, the mail access is by boat and water taxi. This
factory is located in a very large industrial area at one end of the island.
•There were about 75 large factories in the industrial complex.
List of participants
•The industrial complex includes factories owned and operated by global
companies from numerous industrial countries.
•The common purpose of all of the companies was to take advantage of
extremely low labor costs.
•List of companies located in the Batam Industrial Park
(as of 2009)
Here is the list of Companies/Tenants in Batamindo Industrial Park and their field of business:
1. Alteco Chemical Indonesia,PT — business : Aluminum Tubes, Packaging Adhesives, Fire & Paint Marker
2. Birotika Semesta (DHL Express),PT —business : Courier Services
3. Casio Electronics Indonesia,PT —business : Telecommunication Products & LCM
4. Ciba Vision Batam,PT — business : Contact Lenses
5. Daihan Labtech,PT —business : Laboratory Instrument
6. Eminent Plastics Batam Indonesia,PT — business : Plastic Manufacturing
7. E-Tech Manufacturing Indonesia,PT —business : Metal Stamping
8. Epson Batam,PT —business : Scanner Assembly, LCD Module & PCBA
9. Epson Toyocom Indonesia — business : Crystal Oscillator
10.ESG Panatec,PT —business : Circuit Breaker, Energy Saving Lamps and Air Dispenser
11.Esqarada/BSW,PT —business : Shipping & Logistic
12.Evox Rifa Indonesia,PT —business : Passive Component-Capacitor
13.Exas Batam,PT — business : Metal Stamping
14.EX Batam Indonesia,PT — business : Jack Sockets, Boards, Battery Case & Antenna
15.Fluid Sciences Batam,PT — business : Metal Seals / Bellows
16.Foster Electric Indonesia,PT —business : Audio Speaker Manufacturing
17.Fujitec Indonesia,PT — business : Elevators
18.Heng Huat Plastic Industries Ind,PT —business : Plastic Injection Moulding
19.HLN Batam,PT —business : Processing of Rubber Material, Manufacturing of Precision Rubber Parts
20.Hymold Batam,PT —business : Plastic Injection Moulding, Include Secondary Processes & Assy.Works
21.Honfoong Plastic Industries,PT — business : Plastic Injection Moulding
22.Infineon Technologies Batam,PT — business : IC Chips Testing & Packaging
23.JMS Batam,PT —business : Disposable Medical Devices
24.Japan Servo Batam,PT —business : Stepping Motors and Ice Makers,DC & AC Fant
25.Leo Industries Batam,PT —business : Plastic Injection Moulding & Electronics, Box-Build Assembly
26.Minamoto Indonesia,PT — business : Lead Frames & Fuse Holder
27.Nactec Batam,PT —business : Oil Seal
28.Nagano Drilube Indonesia,PT —business : Coating of Metal & Plastic Parts
29.Nissin Kogyo Batam,PT —business : Picture Tube Part for TV & Magnetron
30.Nobble Batam,PT —business : Variable Resistors, Potentiometers & Rotary Switch
31.NOK Asia Batam,PT — business : Sealing Products (Oil Seal) & Vibration Control Product
32.NOK Precision Component,PT —business : Rubber & Plastic Molded Product for Hard Disk Drive & Electronic Ind
33.NXP Semiconductors,PT — business : Subcontractor of RF Modules
34.Panasonic Battery Batam (PBB),PT — business : Rechargeable Battery Assembly
35.Panasonic Shikoku Electronics Batam (PSECB),PT — business : Motor of Head Disk Drives
36.Patlite Indonesia,PT —business : Emergency Lights & Warning Signals
37.PCI Electronic International,PT —business : PCB Assemblies
38.Perkin Elmer Batam,PT — business : Flash Lamps, Specially Lightings,Sensors,UV Germicidal,Scientifie Camera
39.Petrolog Harapan Abadi Semesta,PT — business : Logistics
40.Philips Industries Batam,PT —business : TV Channel Selector & Domestic Appliances Product (DAP)
41.Polestar Plastic Batam,PT —business : Plastic Injection Molding
42.Primo Microphones Indonesia,PT —business : Manufacturing Microphones
43.Risis Indonesia,PT —business : Manufacturing Gifts & Souvenirs
44.Rubycon Indonesia,PT —business : Capacitors
45.Sanipak Indonesia,PT —business : Disposable Plastic Bags
46.Sanmina-SCI Batam,PT —business : PCBA
47.Sansyu Precision Batam,PT — business : Plastic Part Injection Moulding
48.Sanwa Engineering Batam,PT — business : Engineered Plastic Product
49.Sanyo Energy Batam,PT — business : Rechargeable Battery Assembly & Battery Appliances
50.Sanyo Precision Batam,PT —business : Manufacturing Micro Motors/CD Brashless Motor
51.Schneider Electric Manufacturing Batam,PT —business : Industrial Control Equipment
52.Shimano Batam,PT — business : Bicycle Component and Fishing Rode
53.Shin-Etsu Magnetics Indonesia,PT —business : Manufacturing of Permanent Magnet & Voice Coil Motors for Hard Disk Drive
54.Siemens Hearing Instruments Batam,PT — business : Hearing Aid Instruments
55.SIIX Electronics Indonesia,PT — business : PCB Assembly
56.Solectron Technology Indonesia,PT —business : PCB & Computer Peripheral Assemblies
57.Sony Chemicals Indonesia,PT — business : Flexible Flat Cables & Thermal Ribbon
58.Soxal Batamindo Industries Gases,PT —business : Manufactures & Supplier of Pipe Nitrogen Gas
59.Sumitomo Wiring Systems Batam Indonesia,PT —business : Wire Harness for Automobile
60.Sunbird,PT — business : Warehousing
61.Surya Teknology Batam,PT — business : PCB Assemblies
62.Takamori Indonesia,PT —business : Metal Stamping Parts
63.TEAC Electronics Indonesia,PT — business : Optical Drives & Components,PUA
64.TEC Indonesia,PT — business : DOT Printers Head, Electronic Scale, Printer & PCBA Assembly
65.Teckwah Paper Product Indonesia,PT —business : Corrugated Carton Boxes & Offset Printing Boxes
66.Thomson Batam,PT —business : Television Tuners / Modules / Remote Controls
67.Top Foam,PT —business : Manufacturing of Expanded Polystyrene Packaging Products & Vacuum Formed
68.Tunas Karya Indoswasta,PT — business : Agent of Recruitment & Consultant of Human Resources
69.Unisem,PT —business : Integrated Circuit Packaging & Testing Services
70.Uwatec Batam,PT —business : Diving Equipment
71.Varta Microbattery Indonesia,PT —business : Rechargeable Batteries Assembly
72.Wireforms Batam Indonesia,PT — business : Springs, Laminated, Stamping & Multi Slide
73.Yeakin Plastic Industry,PT — business : Plastic Injection Moulding
74.Yokogawa Manufacturing Batam,PT —business : Electrical Measuring Instrumentation Component & PCBA Cards
Source: “Batam Industrial Estate Profile” booklet, published BIFZA and BIDA in 2009
This case is about the treatment of the
employees of the factory.
•There were 350 assembly employees (They were full-time legal employees.).
•The assembly employees were all recruited and contracted for by an independent staffing company
that provides staffing services for most of the companies in the complex.
•The recruiting process is for the recruiters to travel to cities and villages throughout Indonesia and
effect contractual agreements with fathers or eldest brothers of impending / recent high school
graduate girls. The agreement was for the girl to be transported to Batam and work and live there in
the factory for a period of two years. The girls did not have any choice.
•There were 30 Production Supervisor employees. All of the supervisors were Indonesian men
ranging in age from 25 to 50 years of age.
•There were 20 Management and Staff employees. These employees included American, Indonesian,
Singapore, and Japanese professionals and administrative staff.
•The food service in the company cafeteria was provided by an external contractor. The menu, prices,
schedules, etc. were specified by the company. Employees paid for their meals out of their pay.
•The dormitories where the assembly employees lived were part of each individual factory’s’
complex. Each room contained two to three bunk (two-level) beds along with enough room for a desk
and several chests of drawers. Each room would house four to six girls. There was, on each floor, a
central cooking area.
•The entire industrial complex was secured by barbed-wire fencing and security personnel.
•The industrial complex included a bazaar with shops and food stores along with entertainment and
other resources for complex inhabitants.
BATAMINDO
Views from the complex…………………..
It all started in Shrewsbury,
Massachusetts
You had to use the water shuttle to get
to the island – 22 KM from Singapore
Doesn’t look too awful:
SO…..
What are the ISSUES??
The issue being addressed is the treatment of the assembly
workers in the factory.
The considerations:
•They were all young Indonesian women, the majority from
the area of Jakarta, Indonesia.
•The girls were all 18-year old teenage recent high school
graduates.
•The girls had very little knowledge of self-hygiene or health.
Their lifestyle was unhealthy and they practiced very poor
hygiene.
•Most of the girls did not know how to cook. This resulted in
unhealthy meals and poor nutrition.
•The employees were all paid weekly in cash. All of the girls
sent most of their pay home to their fathers or eldest
brothers. Some sent their entire pay home.
•Some of the girls became malnourished and weak.
The business issues:
•The factory had experienced a high defect rate – poor quality.
•The factory productivity was not improving as the startup stage progressed.
•Unhealthy employees would not be as productive as needed. Factory
productivity could suffer.
•Hungary employees would not be as productive as needed; and would
become unhealthy.
•Most of the other companies in the complex were against higher wages or
any employee benefit that would add to the operating cost of their factory.
•Factories were interdependent inasmuch as they shared many services such
as utilities, transportation, and staffing. The norm was to not create
competition for these resources by differentiating. That insured that
everyone got the lowest cost possible.
•Fathers of recruits could contract for the factory that paid the highest wages,
had the best environment, etc.
•Any action to improve employee welfare would increase per-unit cost which
could cause the factory business goals to be negatively impacted.
The Ethical and Moral Issues:
•The owner and management of the factory is an American
company. This company particularly prides itself on a very
strong culture of employee welfare and care.
•These assembly workers were all teenage girls far away from
their home for the first time in their lives.
•The behavior of the girls is entirely consistent with the culture,
laws, and norms of Indonesia and their families.
•The company, by building the factory there, had tacitly agreed
to abide by the norms of the 40-factory complex. There was a
factory practices committee made up of all the companies
owning / operating factories in the complex. The areas covered
included staffing.
•The factory management feels responsible for the health of the
girls.
The Resolution ?:
1. Should the company allow the factory in
Batam to take actions that would improve the
health and welfare of the assembly workers?
2. What are the positive results and negative
results of either strategy (action or no action)?
3. If the decision is to take action, what are
some possible actions?
Each group will prepare its answers and present
them (5 minute presentation)
What Happened??
The Reality (What did happen)
What the Company did.
• The company decided that it would take actions that would improve the health and welfare
of its assembly employees.
• The factory hired two full-time nurses who ran classes on health and feminine hygiene, and
instructed and counseled the girls on proper hygiene and nutrition.
• The factory initiated a mandatory (time-paid) midday company-paid (free) large healthy meal
for all assembly employees.
•
The result:
•
•
•
•
•
The physical and psychological health of the assembly employees (girls) improved
dramatically.
The number of girls terminating was reduced to a very low level – much lower than other
companies.
The number of operations and production problems (The factory had experienced a high
defect rate – poor quality.) was reduced to an acceptable level and improving.
Relations with other companies in the factory complex were strained because their
employees were becoming dissatisfied which could impact on productivity.
Five cents (USD) was added to the per-unit (fully assembled component) cost.