INDONESIA AS NEW EMERGING MARKET

Tuesday, February 28, 2006

USEFULL INDONESIAN WEBSITE LINKS

Friday, February 24, 2006

REVITALIZATION OF THE INDONESIAN SUGAR INDUSTRY

Sugar, economically and politically a strategic commodity in Indonesia, always gives controversy and heated public debate. A fundamental problem surrounding the sugar industry currently is recent rampant smuggling affairs of raw and refined sugar despite a series of government regulations and efforts to combat illegal imports of sugar in order to protect the domestic sugar industry and sugar cane farmers. Several reasons are given and identified as being the cause of the ailing industry such as demand is much higher than domestic supply, distortion of the sugar world market marked with high import duty imposed by sugar producing countries, retail price being much higher than export price due to heavy subsidy provided by the governments of sugar producing countries to the sugar cane farmers, the decline in the sugar production area and out put in recent years as well as low productivity of the sugar factories due to obsolete production equipments and technology. In reality, however, for the first time after nearly 8 years, the Indonesian sugar production began to rise in the year 2004, reaching a total production out put in excess of 2 million tons, a figure, which is the out put level of the pre-economic crisis year of 1997. The overall good sugar market prices and rejuvenation program implemented by several sugar cane plantations in the country as well as a much higher production capacity of the private-owned sugar factories are attributable to this positive development in the production out put, development of which is expected to continue rising in the next following years by an estimated 10% annually.

Meanwhile, the total sugar consumption in Indonesia, which consists of consumption by the private households and by the industries, has always been much higher as compared to the production output. In average, the total domestic sugar consumption in recent years has been fluctuating in the level of between 3 million tons to 3.3 million tons annually, whereby the private households consume around 70% and 30% by the manufacturing industries. The high demand for sugar and the low sugar production out put, causes a supply and demand disparity, which has so far forced the government to overcome this shortage problem by relying on imports of sugar from several world sugar producing countries such as Brazil, India, Thailand and Australia.

Considered a strategic commodity for the overall economic development, the sugar trade was until the year 1998 heavily regulated by the government; imports were the monopoly of the enterprise BULOG, a state-owned logistics company, dealing in the importation and distribution of, among others, important agricultural commodities. In late 1998, committed to trade liberalization, the Indonesian government de-regulated the sugar trade by allowing imports of sugar by any registered Indonesian trading company, abolishing the sugar subsidy but on the other side implementing a kind of domestic sugar benchmark price as well as abolishing the import duty on sugar and the sugar import monopoly enjoyed so far by the BULOG company. This new policy, however, was not acceptable and beneficial to the sugar cane farmers and the domestic sugar factories, who actually suffered under the abolishment of the sugar import duty; the sugar cane farmers and the sugar factories had to sell their sugar way above the benchmark price set by the government, with another words, they produced at losses.

Under heavy pressures from angry sugar cane farmers and sugar factories, the government re-imposed import duty on sugar in the year 2000 and accordingly, imported raw sugar and refined sugar were first of all subject to a 20% and 25% import duty respectively. Sugar cane farmers and the sugar factories were demanding an import duty percentage of 110%, as this has been set in the agreement with the WTO. In 2002, the government regulated the importation of sugar, whereby only producers/ importers and approved/registered sugar importers are allowed and licensed by the Ministry of Trade to import sugar; accordingly, imported cane and refined sugar are imposed to a tariff structure of Rupiah 500.- and 700.- per kilogram respectively. This import tariff structure is variable, i.e. the import duty percentage is adjustable and follows the domestic sugar market development. The volume of sugar allowed to be imported annually will be determined based on the recommendation made by the Indonesian Sugar Council, DGI, the Indonesian Sugar Association, AGI, the Indonesian Chamber of Commerce as well as other related business associations, and will normally be announced towards the end of the year. In order to protect domestic sugar prices, refined sugar may not be imported during the so-called crushing season, which normally runs from May to November of each year. Rampant smuggling of sugar somehow remains out of control in spite of series of government regulations issued against illegal imports of this particular commodity. Lately, a smuggling affair involving a substantial volume of some 73.000 tons of sugar and a well known local politician and business person has shaken the country; this case is currently under court proceedings, the illegally imported sugar, however, has been auctioned at a price level far below the benchmark price set by the government, which caused another heated public debate and upset.

The core problem faced by the Indonesian sugar industry is actually multi-faceted; first of all is the fact, that a decline in the sugar plantation area has been noted in the past decades due to land conversion for other purposes especially on the island of Java, where 80% of the Indonesian sugar industry is concentrated. Secondly, low efficiency and productivity of the sugar cane plantations and the sugar factories are the cause for low sugar production out put in general. Thirdly, disincentive government policies in developing the domestic sugar industry causes that the sugar cane farmers are felt being treated unfairly and, therefore, lost interest in growing sugar cane, which, during the period of between 1994 to 1998 was the cause for a number of sugar factories having to close down their factories in view of shortage in supply of raw sugar cane.

Aware of the multi-faceted problems encountered by the industry, the government haslaunched a revitalization program for the sugar industry with the objective of getting self-sufficient in sugar by the year 2008. The basic requirements for Indonesia to become a potential sugar-exporting nation are given in the country; climate and soil are suitable for sugar cane plantations, vast regions in the eastern part of the country are available and so far, not been adequately exploited.

Favorable government policies are needed in order to provide incentives to the farmers and sugar factories as well as to guarantee market stability and eliminate rampant smuggling activities. Without a good coordination from all parties involved in the industry, the potential of Indonesia and targeted aim to be self-sufficient in sugar will remain an empty slogan.

THE BUSINESS OPPORTUNITY OF AGENCY, LICENSING AND FRANCHISING IN INDONESIA

A new phenomenon during the last couple of years that attracts special attention is the rapid development and growth of the franchising, agency and licensing businesses in Indonesia. A market with 220 million people is definitely a potential and attractive market with great opportunity to market various products and services. Many new businesses have been established and the market has opened up new horizon with regard to new or foreign products or brands, which have so far not been present and introduced in Indonesia. At the beginning, agency and licensing arrangements have made the introduction of new products or brands into this particular market possible, primarily during the period of the 70’s and 80’s, where generally premium products such as food and beverage, automotive, pharmaceutical and electronic goods were manufactured and distributed by a sole agent or distributor. Conducive business and market climate later on has shifted the manufacturing and distribution of products and services from the agency to licensing arrangements. When foreign companies were then allowed to operate directly in the Indonesian market, in many cases agency has become somewhat redundant. Particularly the automotive sector in Indonesia has undergone this process, where agencies have been taken over or cancelled to enable the foreign mother company to be established directly in this market. This development process is considered a necessity, since market development competence must be considered as an integral and recognized part of the entire organization. Franchising became popular in Indonesia especially during the period of the late 80’s and the beginning 90’s, heavily influenced by the modern Western way of life. Franchising, which is nothing else but a marketing strategy and a distribution concept for goods and services, is flourishing rapidly. Apparently, franchising business is understood and considered as a duplication of success; indeed, franchised goods and services are already proven in the country of origin and the brand has already a brand equity and competence. Therefore, the major attraction and consideration for having a franchising business is the opinion that the business has not to start from zero or scratch, which, in a way is true; one would not necessarily have to put extra efforts in establishing the market or developing a business system. With another words, the business would automatically run smoothly and be a success. This opinion is not completely wrong when considering that a franchising business provides a number of facilities and assistance, for which other businesses would otherwise have to spend some time, efforts and money to get these matters established primarily at the beginning stage of the business operation. The major task of a franchising business, however, remains how to work on the products or services correctly and intelligently market these to the consumers. Either agency, licensing or franchising, these business agreements remain a stake, financially and a reputation. Therefore, as if the case with other businesses, whoever is going to be involved in this kind of business agreements will have to work hard, have the necessary perseverance, have to plan business activities carefully and implement a focused and solid management system. The market penetration will only be a success, if basic criteria and requirements are fulfilled, e.g. identifying consumer needs, behavior and habit, the culture of the people, market development trend and the right choice of business location.
Indonesia, the fourth most populous country in the world, offers plenty of opportunity to market various products and services, be it through agency, licensing or franchising agreement. Many kinds of food and beverage products and service-based business activities would find potential customers in this market and currently Indonesia has become the heaven not only for foreign but also for domestic franchising companies. Young business people, professionals, housewives even retired people have entered into this new venture; a local magazine has conducted a research and identified that more than new 1000 franchisees have been established, whereby 54 foreign franchising companies have created 300 new franchisees. In total, according to the Indonesian Franchise Association, AFI, 280 franchising companies are registered in Indonesia in 2004, out of which 235 are foreign with more than 320.000 outlets so far in full operation. 52 local Indonesian companies have already developed their own franchising business. This very promising development points at a bright future for business establishments in Indonesia, be it arranged under agency, licensing or franchising cooperation.

Monday, February 20, 2006

THE MARKET POTENTIAL FOR AGRICULTURAL MACHINERIES, TOOLS AND EQUIPMENTS IN INDONESIA

Despite the fact that the industrialization process has rapidly proceeded in Indonesia during the last three decades, agriculture remains the country’s leading economic sector and will remain one of its major economic pillars and contributors to the overall growth. In 2003, the agricultural sector contributed nearly 16% to the country’s GDP and involved 37 million people out of a total number of 98 million labor force. With a total population of 215 million, the fourth most populous country in the world, the objective and focus of the government in agricultural policy is to maintain food security and promote efficient production, processing and marketing of agricultural products.

Out of the country’s 190 million hectares territory, around 130 million may be considered potential for agricultural development and out of which nearly 10% or 13 million hectares are agricultural land cultivated and concentrated on the main islands of Java, Madura and Bali, which are domiciled by around 80 million people, approximately 60% from Indonesia’s total population. Meanwhile, only 22% of the potential agricultural areas outside Java, Madura and Bali have been utilized and cultivated, which shows that on one side there has always been an imbalance in the development of the potential agricultural areas within the country and on the other side the potential to develop agricultural projects in the other outer islands are still widely open.

The national agricultural system involves many small-scale even micro economic undertakings, especially those in the process of cultivation and production of food crops and horticulture. This system constitutes the weakest link of the country’s economic chain. Marking such condition are low agricultural and food crops productivity, high percentage of poor farmers and under employment and low added-value of agricultural and food crops enjoyed by farmers. Efforts have been made to establish an integrated agricultural and food crops development program by including supporting economic sectors and activities such as credit schemes, technology and information development and institutionalization of farmers’ community as well as efforts related to programs of food diversification and genetic engineering.

The agricultural sector development in Indonesia covers food crops, horticulture, plantation estates and animal husbandry. Food crops cover the cultivation, production and processing of paddy or rice, cassava, sweet potato, corn or maize, soybean and ground nut. Rice, the major food crop produced and consumed in the country, is mainly cultivated in Java. Although decline of productive paddy fields on the island of Java has been registered in recent years due to land conversion and for other purposes, the production of rice has increased steadily despite the import necessity; the increase in the rice production is attributable to higher productivity and extensive harvest area. With few exceptions such as for soybean and corn, other food crops production has registered an increase in the production similar to the rice production figure.

Horticulture consists mainly of the cultivation, production, processing and marketing of various vegetable and fruit products such as onions, shallots, cabbage, carrot, potato, oranges, mango, papaya, banana, avocado, cashew nut, pineapple, and guava. The horticultural development, however, is very weak especially in the field of research and development of biotechnology, the overall management obstacles as well as financing problem. Following the lifting of import restriction, this agricultural sub-sector is now facing serious competition especially from imported fresh fruits such as apples and oranges.

The plantation estate in Indonesia is divided into large-scale plantations and smallholdings. Major crops are coffee, tea, cocoa, coconut, oil palm, clove, pepper, which are also called perennial crops and seasonal crops such as tobacco, sugarcane, ginger and jute. Oil palm and cocoa plantations have emerged as Indonesia’s major export commodities and replaced “traditional” plantation export commodities such as rubber, coffee, tea coconut and tobacco. Cattle and poultry industry compose the animal husbandry sub-sector in the country; standard of living and purchasing power determine pretty much the consumption pattern of the consumers and poultry meat for the Indonesian people is much preferred and more affordable as compared to the cattle products. The poultry industry is categorized into two major groups, e.g. the integrated, large modern poultry industry, mostly foreign-owned and related to animal-feeding, breeding and processing activities and the traditional poultry industry, utilizing traditional, local methods in poultry farming.

During the last decade, however, Indonesia has become a large importer for quite a substantial number of agricultural products, starting from rice, soybean, sugar, corn to fresh fruits. This has partly been a result of shrinkage in productive agricultural areas, low productivity and efficiency and partly also due to failure to modernize or revitalize agricultural undertakings; for instance, not only are the machineries and equipments of the Indonesian sugar industry, obsolete, since these factories have been set up during the Dutch colonial time and never been up-graded or modernized ever since, the sugarcane plantations have also never been revitalized in respect of re-planting with new seedlings, harvesting techniques and plantation management, which consequently have resulted in low productivity and efficiency. Soybean is another example of how an agricultural commodity, used to be produced sufficiently in the country, becomes an import commodity for Indonesia. Drastic shrinkage of soybean plantation acreage has caused a disparity in the supply-demand relation; soybean production output drastically decreased because of drastic decrease of soybean plantation acreage and simultaneously, the increase in population growth demanding soybean as “cheap” agricultural commodity can no longer be balanced; additionally, the soybean farmers have less interest to grow this agricultural commodity, since there is no incentive available apart from the fact that in many cases they will have to produce soybean at a loss price, a situation caused by the structure of how they grow this commodity, e.g. small-scale, causing lack of economies of scale and low productivity and efficiency.

By understanding the profile of the Indonesian agricultural industry, it is obvious that the development of the Indonesian agricultural tools, machineries, and equipments are heavily oriented towards the development of the existing cultivation, production and processing methods and techniques of major food crops and horticulture sub-sectors. The level of technology and know-how of such machineries and equipments are of middle-level technology and indeed, the machineries and equipments produced domestically are relatively simple and not sophisticated such as shovels, picks, hoes and rakes, ploughs as well as tractors and various types of pumps. There is no doubt that by improving the standard of technology level of such machineries and equipments, the result of cultivating, producing and processing such agricultural products will also improve and be more efficient and productive.

Is cartoon uproar about defending free speech or bad journalism?

The Jakarta Post
February 13, 2006
Endy M. Bayuni, Jakarta

Here is a question we should pose to the editors of the Jyllands-Posten in Denmark: If someone was to draw satirical cartoons depicting Queen Margrethe II in various compromising sexual positions, would they publish them?
I am not familiar with Denmark's laws, but I know that Britain has a law that bans insulting the queen. In Britain, also a bastion of free press, the press has largely observed the law.
But even if there is no such law in Denmark, I doubt that the Danish press would publish such cartoons, not because it is afraid of the largely docile royalty or fears public recriminations, but largely out of respect.
And because it knows that publishing such poor-taste cartoons is simply bad journalism.
But if the Danish editors were consistent with their belief in freedom of the press, and the right to print, the right to insult and everything else that comes with the package, then perhaps they should publish such cartoons of their own queen. That would certainly be consistent with their decision to publish, and then defend, the satirical cartoons of Prophet Muhammad in September: In the name of free speech.
If they refuse (as they likely would), they are applying a double standard on the question of free speech: they are prepared to insult one section (minority) of their own community, but not the larger community; they are prepared to insult the holy symbol of a major world religion, but not the symbol of their own state.
Given this double standard, can upholding freedom of the press still be used in defense of their decision to publish the cartoons?
Sadly, some European editors also think so, and they have reprinted the offensive cartoons just to make a point about free speech.
They are not defending free speech, because we know that such freedom in Europe was never in any danger, even in the wake of the massive protests in the Islamic world.
They are essentially defending bad journalism. And that is bad news for the profession and for the industry.
Bad journalism has now been given dignity and respect because the cartoons have created a debate about freedom of the press and its limitations, and about Western and Islamic values and civilizations, as well as the violent reactions in the Islamic world and the condemnation by the West.
Here in Indonesia, the issue has also unnecessarily strained relations between Indonesia and Denmark, with Copenhagen citing security concerns in recalling all its diplomats from Jakarta.
It has all come to this when the issue should have been contained to a debate over freedom of the press and what constitutes bad journalism.

Editors, even in countries with the freest press laws, are faced with difficult decisions every day on what they should publish. The limits to their freedom are determined, if not by laws, then by questions of propriety, ethics and taste.
From time to time, editors make mistakes. They make bad judgment calls and run articles, photos and cartoons that are seen to be in poor taste.
Rather than defending their decisions, the Danish editors would have done a great service to their colleagues in the journalistic profession worldwide if they were to admit that it was poor judgment on their part to have published the cartoons in the first place.
Editors around the world seldom openly admit mistakes because that would reflect on their judgment and affect their credibility. But this is the one time that the editors should be honest enough to come forward and own up to their mistakes.
Please spare us from more debate about free press, thereby dragging other publications into the effort to defend your poor judgments.
The only alternative explanation to bad judgment is that the Danish editors made a conscious decision to provoke the Muslim community. That makes them politicians rather than journalists. If it were the case, they should resign from the profession and become politicians for one of the neo-Nazi political parties in Denmark.
Firing them from their jobs would be too good for them. It would only make press-freedom martyrs out of them in the same way that the 9/11 suicide bombers have become fallen heroes for some in the Muslim world. Just as the hijackers have given a bad name to the religion, these editors have besmirched the name of journalism.
Editors in Britain and the United States, two nations that have been among the staunchest defenders of free press, have shown much greater common sense than their counterparts in continental Europe by deciding not to reprint the cartoons.
Tellingly, they have noted that freedom of the press guarantees the right to print as well as the right not to print. They decided not to reprint them because, they said, the cartoons were in poor taste. Their decision has nothing to do with the fear of a backlash from the Muslim minority in their countries.
No self-respecting editors anywhere around the world would publish the cartoons of the Prophet Muhammad, just as they would also refuse to run offensive cartoons of Queen Margrethe II or any other leaders who people hold in high esteem. It comes down to the matter of editorial judgment and decisions, and has nothing to do with having the freedom to do so or not.
In a free press country, it is inevitable that we get both the good press as well as the worst kind of press. The challenge for those of us who are really concerned about defending this freedom is to recognize the good from the bad. Let's defend the free press, but do not delude ourselves by blindly coming to the defense of bad journalism in the name of free press.

INDONESIA AS NEW EMERGING MARKET

Tuesday, February 28, 2006

USEFULL INDONESIAN WEBSITE LINKS

Friday, February 24, 2006

REVITALIZATION OF THE INDONESIAN SUGAR INDUSTRY

THE BUSINESS OPPORTUNITY OF AGENCY, LICENSING AND FRANCHISING IN INDONESIA

Monday, February 20, 2006

THE MARKET POTENTIAL FOR AGRICULTURAL MACHINERIES, TOOLS AND EQUIPMENTS IN INDONESIA

Is cartoon uproar about defending free speech or bad journalism?

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