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Hi-tech partnership putting Indonesian quality on global aviation's radar

Interview - December 16, 2013
Rahardjo Pratjihno, President Director of microwave design and manufacturing specialist PT CMI Teknologi, and Frank Mekker, Senior Program Manager at Lockheed Martin, spoke to United World about their win-win partnership transferring know-how and raising the capabilities of the Indonesian radar system developer
Please tell us about your professional background and how you established PT CMI Teknologi? What were the milestones in the history of the company?

I started my career in 1978 as a technician in the Microwave Laboratory of LEN, which was then under LIPI. This laboratory was part of the National Electronic Research Institute, under the Indonesian Institute of Sciences. At the same time, I was studying at the Bandung Institute of Technology, where I graduated in 1981. Six months later I became head of the Microwave Laboratory at the Institute. 
In 1987 I was appointed head of the Research Center for Strategic Electronics – the first research center for defense electronics in Indonesia. In 1988, I resigned to set up my own business under the name of PT Compact Microwave Indonesia – PT CMI. 
We started a high-tech company from nothing, which is very difficult. At the beginning we were repairing microwave and satellite equipment. Then, we expanded our business with the research of electronic modules, associated with the equipment that was used for satellite communication. We were working in a room smaller than a garage! We started to research, build and sell small modules for telecommunications companies to replace obsolete modules. 
At that time Indonesia was one of the world leaders in the field of satellite communication and the first country outside the United States to use domestic satellite communications. Back in those days, our business consisted of repairing, building and developing oscillators and analogue modems, all the modules used for satellite ground stations. In time, orders came in and our business activity increased from building modules to building larger pieces of equipment and systems. We also built single channel per carrier (SCPC) modems at that time – a satellite transmission system that uses a separate carrier for each of its channels.

In five years, we were able to purchase this facility in Bandung with all the necessary equipment, as well as a battery factory near Jakarta. We became a very unique, high-tech telecommunications company in that era. 
In these beginning years of the company we were around 20 or 30 people working. In order to expand operations I contacted the National Industrial Training Center (BLK), which belongs to the Ministry of Industry and prepares students for industry-related jobs. I contacted the ministry to contract the school, the teachers, the students and the building to work 24 hours a day. I paid for everything and within six months we were a team of 300-400 people producing 800 modems, 60 up/down converters and spreading out the 800 SCPC into all PT Telkom ground stations – something that had never been done before by other competitors. 
In 1998, we were hit by the Asian crisis and the economy collapsed. We tried to survive by doing repair activities, spares and modules. Almost all industry in the telecommunication sector collapsed during the crisis. The companies were not able to buy new equipment because the dollar exchange rate was too high, as well as not able to pay scholarships for CMI employees, who are sent for post-graduate studies in the USA. However, they needed to upgrade their old equipment with new technologies.

This was a major opportunity for us as well as the key to survive during the crisis. As an example, the microwave equipment built by a European company was installed from Bali to Sumatra, and also in Kalimantan and Sulawesi. Many of the radios were not working and I built hundreds of those modules to replace them. 
But I did not stop there with that technology. I continued to develop my abilities to build modules (mainly microwave assembly), equipment, and ground-station systems, so that they could be built locally and exported to the Middle East and India; a small number also went to the U.S. These export activities began in 2002, however, it turned out not to be very profitable.

Once we built the capabilities to export, our satellite ground-station system was already outdated, it was no longer the newest technology on the market, and thus the prices had gone down. Today, a very small proportion of my production is going outside Indonesia. 
PT CMI Teknologi became a very unique company in terms of radio transmission technology.

The field of satellite communications is very high-tech, and nobody believed that I could start this business from my small garage. But we did it, and we succeeded. However, the telecommunications sector got liberalized and it became difficult for us to do business within this new environment.
How did you enter into partnership with Lockheed Martin, a leading defense contractors from the United States?

We have always been committed to technology development. Initially we wanted to build a ground-station system and we succeeded, however this business was not profitable enough. Then we continued with the development of radio and communications equipment through digital microwave, but in this business the opportunities were not that good. We had the skills and expertise in microwave and fortunately Lockheed Martin crossed our path. 
The cooperation between the two companies started in 2006. Everything began thanks to an old friend and former partner who worked in the U.S. in telecommunications. At that time, he was the vice-president of Lockheed Martin, and in those days he was looking for the right partners in Indonesia to cooperate with. He used to work in a satellite ground-station company in Atlanta, so we started talking about satellite and then radars and a possible cooperation between both companies in various branches. However, today we ended cooperating with Lockheed Martin on radars. 
It was hard to work with them initially, because Lockheed Martin is a big company with many regulation procedures. Indonesia is not famous for being an industrial country, so the first time I presented to Lockheed Martin what we were able to do in 2008, they could not believe it. People don’t usually associate Indonesia with high technology, so it was a surprise for them.
From 2008 to 2011, PT CMI Teknologi focused on synchronizing the procedures within the company. Lockheed Martin sent some engineers here, and they evaluated us on everything: our capability, our system operation, ISO and standard operating procedures. At that time, we were not ISO certified yet, but we had been already certified for quality assurance since 1996. An ISO certificate needs to have a continuous process of workflow and more people in the organization for quality control and operating procedures. We got the ISO certification in 2012.
When we started off as a partner of Lockheed Martin in 2007, we signed an international representative agreement as a consultant, which meant that we sold Lockheed’s products for a commission. However I was not interested in being a trader – I am an engineer – so I wanted to be involved in the product somehow.  But it was not the right moment at that time yet. Subsequently, the government requested technology transfer and in February 2012 we signed a collaboration agreement to manufacture parts of radars and integrate the systems. That was the beginning of our formal partnership in the engineering field. 
Parallel to that, CMI Teknologi is still a company that repairs and builds modules to substitute the existing radars in Indonesia. At that point in time, our business in public telecommunications had decreased significantly, but we started getting orders from the Ministry of Defense.
How did you start your cooperation with the Ministry of Defense? Did they approach you, or did you offer them your products and services first?

We entered the defense industry by repairing equipment, just like we did in telecommunications. When I was still working in the telecommunications sector, the government used to send international representatives from telecommunications to visit PT CMI Teknologi. Our reputation was slowly building up, as well as the contacts with the government. Because of the uniqueness of our business and because we were successful, the word spread around and we were contacted by the Ministry of Defense. Since then, we have been repairing and substitute radar modules for various existing defense or military radars. 
How much of your business comes from the defense industry nowadays?

I have not changed my business, but my clients have changed almost 100% from public telecommunications to defense. There are many opportunities in the defense industry, especially in my discipline. Today, defense equipment is almost 100% electronic – from heavy weapons to equipment, they all contain microwaves (fighter aircraft, transport aircraft, missiles, radars, tanks etc.). 
However, despite the great opportunities in our discipline, it is very hard for competitors to get a piece of the defense market because of the barriers to get in are high, especially in the microwave technologies area. First you need at least 10 years to get the expertise in the field of microwave technology. Second, once you have gained the expertise, the components are very expensive and the potential for success is less than 50%. And third, you might have difficulties in selling your products, because first you need to build up your reputation and gain the trust of the clients. And fourth, the electronics for defense technology it self is very difficult to be reach because it is high-end technology and mostly restricted.
Mr. Mekker, could you tell us Lockheed Martin’s side of the story? From your point of view, what are the competitive advantages of doing business in Indonesia?

Indonesia has shown strong economic growth over the past years. We recognized the market here for defense revitalization and more specifically in our case, the need for additional radar coverage. The airspace in Indonesia is very vast – as large as the U.S. – but the radar coverage needs to be improved. Our goal is to see how we can provide benefits to the Ministry of Defense, the Air Force and the overall economy in Indonesia with our radar product. 
The Indonesian government signed a military sales contract with the U.S. to upgrade F-16 fighter jets, and deliver them to Indonesia. Lockheed Martin is the manufacturer for those jets, and we are working with PT DI, one of the large state-owned enterprises here in Bandung. The National Airspace Surveillance of Indonesia contract to deliver radars involves PT CMI Teknologi and Lockheed Martin working with PT DI on potential co-manufacturing or arrangements to produce radars or radar systems. With the increase of our business activity, we opened up a local office here and our regional executive moved from Singapore to Jakarta over a year now. 
The defense revitalization market in Indonesia is rather challenging. There are many stakeholders involved. For example, the Indonesian Air Force wants more radars that are able to work in a difficult environment. The Ministry of Defense wants to make sure that they do not have to rely on original equipment manufacturers to sustain those radars; they want to be able to do it themselves. The [Directorate General of] Civil Aviation wants better airspace coverage in order to be able to accommodate more aircraft landing here in Jakarta. Currently, non-Indonesian radars provide a good portion of the radar coverage for the national airspace. There is also the need from the Ministry of Industry to export, not just to Asian countries, but also throughout the world. 
We recognize all their needs, but we also recognize the challenges of doing business in Indonesia, where you are not just delivering the end-product that you manufactured in the U.S. – you are delivering a product that is co-manufactured here. Radars and airplanes are very strategic and important products for the country. There are many stakeholders who want to make sure that the contracts are awarded to the appropriate parties. 

One of the priorities of the Ministry of Defense is to boost technology transfer through strategic partnerships. How is Lockheed Martin contributing to the exchange of know-how through its partnership with PT CMI Teknologi?

Technology transfer is the correct approach when it comes to developing the local industry. However, even though in many countries (Indonesia included) technology transfer is a requirement to getting the contract, we have seen that in the end the foreign companies did not really provide that knowledge to the local manpower. Maybe it was written or verbalized, but at the end of the contract, the Indonesian people were not really left with a lot of technology transferred. 
At Lockheed Martin we have experience in doing technology transfer on radars and on our airplanes. We know that this will benefit Indonesia, it will provide economic growth, and enable not only the local industry to maintain our radars, but also the Indonesian Air Force to maintain their equipment. We already have a proven track record of doing local manufacturing in Asia. This is a market where we have been successful in, and we are happy that we are working with the Ministry of Defense and the Air Force in Indonesia, along with PT CMI Teknologi.
Why did you choose PT CMI Teknologi as your partner of choice in Indonesia?

Choosing PT CMI Teknologi was a long process. When we start looking at a market in a country, especially in a rising industry like this in Indonesia, we look for consultants with the ability to understand the different stakeholders in order to be able to provide a product that meets their needs. In this case for example, we have the Ministry of Industry, the Ministry of Defense, the Indonesian Air Force, etc.
We selected PT CMI Teknologi because of their experience in working with the Air Force. At the beginning, PT CMI Teknologi was helping us to identify the right people we needed to speak with, so we could understand what they valued in order to provide a product that meets their needs. We also recognized at the time that PT CMI Teknologi had microwave experience. They were developing and delivering satellite ground-stations, which is a technology that takes years to be established. 
At Lockheed Martin we deliver and produce many different types of world-class radars. The radars that we are looking to deliver to Indonesia are called long-range radars and they are designed to detect aircraft out to over 250 nautical miles. We have been manufacturing these types of radars for over 50 years. It takes a lot of engineering and know-how to deliver radars that rarely fail and operate 24/7 in different environments across the world, whether it is a dry or a humid climate. Our radars are very reliable radars. It is very critical that the radar remains on-line as long as possible, because of the safety of the aircraft and because the military is depending on it.
We recognized CMI’s capabilities early on in developing and designing technology in the satellite business that is similar to what is needed for radars. So the idea of utilizing PT CMI Teknologi more than just as a consultant and understanding how we can best market ourselves, grew into how we can utilize them as our partner in co-manufacturing a radar product. We also looked at other companies within Bandung and Indonesia; we did our assessment and we selected PT CMI Teknologi.
When you talk about co-manufacturing a product, how much of the product is actually produced by PT CMI Teknologi?

We have a phased approach with PT CMI Teknologi, and in the end most of the antenna electronics will be manufactured at PT CMI Teknologi (all the receivers, transmitters, power supplies, etc.) One of the things the Air Force values is that they do not want quality to be compromised. We have observed the level of quality at PT CMI Teknologi and Mr. Rahardjo Pratjihno mentioned that over a year ago they received ISO certification as well. 
We certainly want to deliver quality radars, whether they are co-manufactured or solely manufactured. We have a staged approach into how we grow the capability at PT CMI Teknologi to take the very good foundation they currently have and grow it into a world-class radar co-developer, which will perhaps design and manufacture their own radar some day. That is the road map that Mr. Rahardjo has laid out for the defense industry.
It is important to stress out the support that the Indonesian government is providing to the local industry in order to empower us to produce equipment for our own needs in the future. Naturally, PT CMI Teknologi wants to get more business. So when we work with Lockheed Martin, we will try hard to supply what Lockheed Martin needs, such as microwave modules and so on. Lockheed Martin can qualify our modules quickly, which facilitates the delivery of our products in Indonesia.
Of course, Lockheed Martin has a gradual approach with us because they have to ensure that our products meet their quality requirements. If we deliver good products and get good qualifications, then the orders will increase. 
How many radars do you expect to produce for the government under the National Airspace Surveillance Program for the defense industry?

This is not clear yet. Initially, the government was talking about 20 radars, but we know there is a need for more. The budget that is currently available is only for four radars, so we will see what happens further on.
If we get a very small order from the government, businesswise it is not going to be very profitable for us, because we would have to set up a new factory to satisfy government conditions. But if we could secure a contract for 20 or 30 radars, that would allow us to have a long-term perspective. Many things can be done in a long-term period. 
In 2012, Lockheed Martin put a subcontract in place with PT CMI Teknologi for a pilot production of the row receiver for the same radar that we want to co-manufacture here in Indonesia. We wanted to start early in order to qualify PT CMI Teknologi to build these parts for our radar, so when the contract is awarded, the timeframe to deliver the first radar would be reduced. We do not want to rush delivering radars and impact the quality. That is why we decided to mitigate that risk by issuing a small subcontract. 
Under this subcontract, PT CMI Teknologi built three row receivers for Lockheed Martin. We had a production readiness review and we brought in quality and manufacturing engineers to review PT CMI’s plan. We delivered the technology and all the schematics and diagrams for the row receivers. Once PT CMI Teknologi studied these, they presented to us how they would manufacture the row receivers to our requirements, specifications and quality standards. PT CMI Teknologi then produced three row receivers, which were exported back to Lockheed Martin to be installed in radars that we sell to other countries.
Indonesia has yet to put us on a contract to deliver radars. Lockheed Martin is serious about this and we have shown that we can do local content and local manufacturing in Indonesia. We are always looking for suppliers that help benefit not just Lockheed Martin, but also our other customers. In the future, we may ask PT CMI Teknologi to deliver more row receivers for markets outside of Indonesia. It was a very successful subcontract with PT CMI Teknologi, and we are hoping that we will shortly be awarded a contract to build radars for Indonesia. 
Mr. Rahardjo, from your experience, how has the business environment in Indonesia evolved over the past decade? 

Ten years ago, things were very different. At that time, I was not yet involved in the defense business. I was in telecommunications and before the industry was liberalized, it was very easy to get contracts. We just received instruction from the government and produced the products locally. 
The defense industry is different and everything depends on the item and the subject of the contract, as well as the situation. In the defense sector it is easy for me to get a contract without promoting anything because PT CMI Teknologi has a very unique capability in this field. We are the only local company with the expertise in this area. The Army, the Navy and the Air Force in Indonesia come to PT CMI Teknologi and ask me if I am able to deliver something, and then I can get the contract.
Lockheed Martin and PT CMI Teknologi are making an effort to take a slot and shift out the incumbent players from Europe that have already been here for more than 30 years. We want to convince the users that PT CMI Teknologi really has the capability to support them if they buy Lockheed’s radars. 
Regarding defense contracts, the regulation No. 16 – which was issued on October 5 2012 and should be implemented in 18 months – will become the guideline for the acquisition of any defense goods.
These radar products may be the first project that will be affected by that new law, so that draws out decision-making and delays things. But it looks like the government will consolidate all the state-owned companies that have competences in the field of radars into one company, and they will work together based on their competences. We are being led by KKIP (Committee for Defense Industry Policy of the Republic of Indonesia), which is an organization under the Defense Industry Committee Policy. This organization has set up a policy to see if this project will go into direct negotiations, an open tender or limited tender etc. It is not clear yet, but it is under investigation.
There are different radars in the world. The radars we are working on with Lockheed Martin are ground-based, long-range GCI radars. Several radars need to be purchased by the Indonesian Government, and PT CMI Teknologi is getting involved in radar development to build its own radar, separate from Lockheed Martin. PT CMI Teknologi is building various radars step by step, starting from making modules, like in the case of the ground-station. I hope that (this) CMI-Lockheed Martin cooperation and Indonesia government order will become the best accelerator for CMI. We can learn from Lockheed Martin, they have inspired us.