By Melissa Daniels | PA Independent
HARRISBURG — Pennsylvania is positioned to play a key role in growing trade relations between the United States and Indonesia.
The state is opening a new trade office in Jakarta, bolstered by federal funding. Though plenty of states operate international business offices and trade missions to boost exports, Pennsylvania will be the first to have an official trade presence in the fast-growing, far-away southeastern Asia archipelago.
The offices are designed to introduce state business owners to clients overseas.
The Indonesia office will be funded using a portion of a $2.3 million federal grant the state received this year from the U.S. Small Business Administration.
The amount was the largest any state received, said Wilfred Muskens, deputy secretary for the Office of International Business Development in the Department of Community and Economic Development.
“We’re ready to take a risk and go out and be the first in a new market,” said Muskens, who has worked for the state since Gov. Tom Ridge’s administration.
Pennsylvania has a history of pioneering new markets. It was the first state to open an office in India about 15 years ago.
Indonesia, Muskens said, has a fast-growing economy and a fast-growing population. Because of this, it needs imports Pennsylvania businesses could help provide, including food, like soybeans, and energy-related infrastructure.
“We try to identify markets where we see a lot of potential for Pennsylvania companies to go and sell more products and services,” he said.
The federal grant money will be used for contracts with Indonesian business officials who help connect Pennsylvanian businesses with new clients.
Muskens said the only state money used to run the Jakarta program will be the compensation for existing employees who manage the programs.
There typically aren’t rent payments associated with these types of trade offices. Though they do travel to meet with foreign officers, these employees do not usually maintain a physical office in their trade markets, Muskens said.
There are eight people in the department’s trade team, Muskens said, one of whom will manage the Indonesia program part-time.
Such operations start very small “to make sure we made the right choice,” Muskens said.
“For the first year, it’s really the interest of the businesses,” that determines success, Muskens said.
Since the Indonesia announcement was made, six companies have approached the state. If there’s still only six interested come next budget year, the program may be time to re-evaluate, Muskens said.
But maintaining a presence in a country largely depends on the return on investment Pennsylvania sees, in terms of export sales as well as tax revenue generated back to the state.
Pennsylvania’s Office of International Business Development, funded with about $6.1 million, is the largest state-sponsored export assistance program in the country. It has a presence in more than 60 international markets.
The department brought in $800 million in export sales last year, Muskens said, and generated $160 for every dollar it spent.
Looking ahead, the Indonesia announcement is a sign that Pennsylvania businesses may play an even bigger role in international trade. Pennsylvania companies like Zippo, Heinz and Hershey already sell products in Indonesia.
Indonesia, with a population of more than 238 million people, is the world’s fourth most populous country — and a hot topic for global investments.
The federal government plans to double U.S. merchandise exports to Indonesia by $10.2 billion by 2015. It’s one of six “National Export Initiative” focus countries, according to the White House.
Derek Scissors, a senior research fellow with the Heritage Foundation, authored a paper on U.S. and Indonesian trade relations in March of this year.
Scissors said there’s plenty of opportunity in Indonesia, and that the country’s “sustained progress” should see more U.S. attention. But, his analysis was not without noted challenges.
“The World Bank ranks Indonesia 129th of 183 countries in its ‘Doing Business’ survey, a drop from the previous year,” Scissors wrote. “The combination of corruption, regulatory change, difficulty in starting a business, and contract enforcement makes for a highly uncertain commercial environment.”
This October, Indonesia posted its largest-ever monthly trade deficit, The Wall Street Journal reported, while its own exports suffer.
Muskens said this is linked to the country’s need to import.
“Because they are growing fast, they have to import a lot of products and services,” he said. “The result is their trade deficit becomes larger.”
Contact Melissa Daniels at [email protected]
— Edited by Kelly Carson, [email protected]