10th Day of the Month
1. On this day focus on the following: concentrate upon all of the objects of your outer reality that
you can apprehend at the same time during a single act of perception of these objects. You prepare
yourself to perceive in a single moment all of the objects that are
available to your perception. The result of this momentary act of perception would be the awareness
of all of these external objects.
Of course, when you just start practicing this exercise, the perception of all information about
all of the objects can only be partially
accomplished. This need not disturb you. The final goal of your work is the complete awareness of all
of the objects. With time this ability will come more and more under your control. Even when you start
working with this exercise on the momentary perception of surrounding objects, you will gathers tiny
bit of information from each object, for example, a premonition that a particular object is located
somewhere, that it exists. In order to receive information about an object, you basically only need to
find the right place to focus and to attune yourself to the task.
You will then be able to perceive any particular object and have access to all levels of
influence. And because this concentration technique teaches you to be aware of a large number of
objects all at the same time, this practice immediately allows you to regulate a large amount of
information. Here is an example of the results of this technique: let’s assume that there is a computer
in front of you. As soon as you cast a glance at its external appearance, you immediately know how
to use this computer and what one can expect to accomplish through its use.
The concentration technique given here allows you to access information from any particular
object. In the same manner, with the help of this technique. you learn to use the information from the
object. The access to the use of the information can be logical or illogical (intuitive).
2. Focus intently on the sequence of seven numbers:
Focus intently on the sequence of nine numbers:
3. The union of two numbers, the number 1 and the new number 0 has led to you at first seeing
the world as though the number 0 were contained within the number 1. By considering the number 1
and enlarging it until, through the addition of the number 0, it becomes 10, you complete an activity.
In so doing your actions must, according to this principle, be harmonious. You must realize that your
every action can expand your manifestations significantly, both in quantity and quality. You are the
manifestation of the world. Harmonize with that which you see. Pay attention to yourself and to your
You must be where you are. You must he where you are not. You must be everywhere for you are the
shaper and mover of all things. And your harmony must lead into eternity. Resurrection is an element
of eternity. Immortality is just as much an element of eternity. You must find for yourself the true
eternity where immortality and resurrection are only special cases of eternity. You must be the creator
of each and every thing. You must grasp and form a precise picture of the implications of resurrection
and immortality, of the true immortality. True immortality gives birth to the next level of eternity, the
next level of the world and the next level of the personality. You must be prepared for this and always
remember that new tasks, the tasks of eternity that were born before you were and which you have
set for yourself, give birth to new worlds that you establish in your consciousness.
And this world, just as 1 and 0 equals 10, this world is what you will always have when you
become eternal. because you are already eternal. Your immortality is contained within you. You are
eternal and immortal. It is enough just to become aware of it. If on this level you traverse the path of
accessible and understandable action, a path similar to the connecting of 1 and 0, you will attain to
immortality in all of your actions, in every manifestation and in every step you take.
Up to this point. I have given concentration exercises for the first 10 days of the month. You
could actually discover for yourself the rest of the exercises for up to the end of the month. This is
possible due to the basic logic underlying the information. You can develop what you already know
further if you consider the entire work from the perspective of the basic
10th Day of the Month
Tea in Indonesia is not just a popular drink widely enjoyed both hot and cold, but it is also one of the country’s main agricultural products and an important export commodity. The cultivation of tea in Indonesia dates back to the Dutch colonial era. The sector suffered from a lack of investment in the decades following independence, but by the mid-1980s exports had been revived. Despite falling back in recent years, Indonesia still ranks among the world’s top ten growers and exporters of tea. Rising costs are putting pressure on local producers, and some tea plantations have been converted for alternative use. Nevertheless the sector offers intriguing business opportunities, particularly with a view to selling on the home market.
Teatime in Indonesia
Despite falling back in recent years, Indonesia still ranks among the world’s top ten growers and exporters of tea
Overview of the industry
West Java, the traditional heartland of tea cultivation in Indonesia, still accounts for more than two thirds of national output. Central Java and various provinces in Sumatra contribute most of the remainder. Highland territories offer the best conditions for growing tea in Indonesia’s tropical climate, with fertile volcanic soil providing a natural advantage in many areas. The main product is black tea, followed by green tea. Indonesian oolong is less common, even though some brands fetch high prices abroad. High-grade tea is mostly exported, leaving what is generally inferior produce to be sold domestically at much lower rates. This could be about to change, however, as Indonesian consumers become more demanding and their incomes rise (See Overview of the Food & Beverage Sector).
Most of Indonesia’s large tea plantations are run by state-owned enterprises, which are the main suppliers to tea auctions in Jakarta and account for the bulk of exports. Major private growers include Kabepe Chakra and Gunung Slamat, part of the Rekso Group that manufactures various tea products. Some private firms excel at exporting premium teas and have developed renowned brands. While state-owned companies source most of their green leafs from their own plantations, private tea makers tend to buy a greater portion of their raw material from smallholder farmers, who generally have no processing facilities of their own. Consumer goods maker Unilever Indonesia acquires tea from state-owned and private plantations to produce a range of teas in Indonesia, including its Lipton brand.
National tea production has fallen over the past years in line with reduced cultivation. According to estimates from the Indonesian Tea Association, 2012 output amounted to 119,651 tonnes. Exports also declined, while imports reportedly surged by more than 400% over past 15 years, albeit at a low level. Local tea farmers and manufacturers view shipments from Vietnam and other low-cost countries as a threat to their sales and margins.
Tea production and Trade
Planting area: The decline in national tea output over the past decade can be partly blamed on the shrinking overall planting area, as other crops and sprawling industrial and residential estates compete with tea for space. The Indonesian Tea Association has been quoted as saying that that the total land for plantation had decreased to 123,500 hectares in 2011 from 124,400 hectares in 2010, continuing a longer-term downward trend. While territorial constraints may limit the industry’s options for expansion in some regions, they alone cannot explain the entire decline in output.
Productivity and quality: The widespread use of old technology and poor farming methods means overall national tea productivity is not as good as it could be. Per-hectare yields in Indonesia are lower than in other major tea exporting countries, not least because many Indonesian smallholder growers lack the capital and expertise to optimize their operations. A large proportion of Indonesian tea plants are grown from seeds rather than from clones, resulting in lower yields or inferior quality. International organizations and tea producers have undertaken some measures to boost productivity by small-scale farmers, including through the provision of training and fertilizer, but more could be done. As Indonesian consumers become more demanding with regards to the quality of tea they consume, local growers and producers will need to raise the bar to defend their home turf against imports.
Labour costs: The tea business is very labour intensive, mainly due to an intricate harvesting process. Labour is by far the biggest cost factor in Indonesia’s tea industry, and it puts a strain on the country’s competitiveness. Rapidly increasing minimum wages in Indonesia are a concern particularly for exporters in the medium quality segment. Apart from labour costs, infrastructure inadequacies in many regions of the country pose a challenge, as they drive up the cost of getting tea from fields and processing facilities to retail outlets and auctions.
Coffee culture: Last but not least, the tea industry needs to adapt to changing consumer preferences, including the threat from coffee as a competing beverage. Urbanization and office employment are shaping the lifestyles particularly of middle and upper class consumers. While coffee has been around in Indonesia for centuries, just like tea, the many coffee chain outlets spreading in major cities stand testament to a new burgeoning coffee culture. The fad sees connoisseurs spending significant amounts of money on their coffee brand of choice, while tea is but an afterthought for many customers.
Coffee may actually point the way for tea producers, both foreign and local, to boost sales to Indonesia’s expanding middle class. The growing domestic market should prompt a gradual shift in the industry away from the heavy reliance on exports. Comprehensive branding and marketing strategies, dedicated outlets and campaigns that stress the health benefits of tea could all help tea producers carve out a greater share of Indonesia’s beverage market. Better branding and marketing as well as appealing packaging can also boost the competitiveness of Indonesian premium tea vis-à-vis products from India, Sri Lanka and Kenya. Upping the game on export markets and in the nascent domestic premium market reduces the burden of rising wages and other costs.
Experienced foreign investors could utilize their know-how to develop strong Indonesian brands and marketing. Partnering with local tea producers should ease market access. Supporting smallholder farmers and processors with equipment, seeds or training could enhance the quality of local produce and secure reliable supplies at predictable prices. In conjunction with green, organic or ethical trade certification, social media campaigns or even special tourism programmes, such partnerships could go a long way to boosting the image of Indonesian brands abroad.
While the UN’s Food and Agriculture Organization (FAO) expects total world tea consumption to rise by an annual 1.8% until 2021, green tea is forecast to grow at a much faster rate of 7.2%, making this a particularly attractive segment. In Indonesia, the upper end of the market appears to harbour much potential. Premium teas, ready-to-drink tea-based beverages and flavoured teas could be attractive starting points to reinvigorate Indonesians’ taste for tea.
The palm oil industry is a significant contributor to Indonesia’s economy and a vital employer in the vast rural areas of Sumatra and Kalimantan. As one of the country’s major export commodities, palm oil is also an important foreign exchange earner. Traditionally, the bulk of Indonesia’s palm oil was exported in crude form to be further processed abroad, but that is changing as the government is nurturing downstream business activity. The industry is also under pressure to react to global concerns about its environmental credentials.
An Overview of Indonesia’s Palm Oil Industry
Apart from the differentiated tax regime, the government is also promoting the development of downstream businesses in industry clusters that facilitate vertical and horizontal integration
Palm oil is popular for its frying properties and as a low-cost option in many processed foods. Outside the kitchen, it is used in body care products from shampoo to lip balm but also in detergents such as washing powder and dishwashing liquid. Finally, palm oil is a feedstock for biodiesel. Most Indonesian exports go to India, followed by the EU and China.
Accounting for roughly half of the entire global output, Indonesia is by far the largest producer of crude palm oil (CPO). In 2012, the country’s production rose by 13% to 26.5 million tons, 18.1 million tons of which was exported either in raw or refined form (Indonesian Palm Oil Association). The government hopes to raise CPO output to 40 million tons by 2020 (Ministry of Agriculture). However, the rapid increase in volumes over the past years has contributed to a global supply glut, ironically hurting Indonesia’s export revenues in 2012. Oversupply is set to keep palm oil prices subdued in the near future.
More than half of Indonesia’s CPO is produced by private companies. Major players in the sector include Singapore-listed Wilmar Group, Sinar Mas Agro Resources and Technology (SMART), Indofood Agri Resources and Malaysia’s IOI Corp Astra Agro Lestari. Smallholding farmers account for about 35% of total output, while state-owned enterprises make up the rest.
In a bid to add value to the industry, the government is pushing for more palm oil to be processed into derivatives and finished goods within the country, rather than being exported as CPO (See Opportunities in Palm Oil Derivatives). Refining capacity in the country has increased in recent years, and the Ministry of Industry has set a 2013 target of processing 65% to 70% of its crude palm oil production at home. Regardless of whether or not this goal is achieved, investors will need to go along with the political drive to prosper in Indonesia’s new palm oil industry.
The main policy tool to entice downstream investment is a differential export tax regime introduced in October 2011, which penalizes CPO shipments to the benefit of higher-value goods. The policy brought down export taxes for refined palm oil while subjecting crude exports to a progressive rate that increases with the market price up to a maximum of 22.5%.
A punitive tax on raw exports proved quite effective in the cocoa industry, and it now appears to be yielding the desired results in the palm oil sector, with increased investment going downstream. Industry representatives have pledged to spend hundreds of millions of dollars on oleo-chemical and oleo-food plants. A 2012 survey among 30 firms by news agency Reuters found that managers planned to nearly double Indonesia’s CPO refining capacity.
Apart from the differentiated tax regime, the government is also promoting the development of downstream businesses in industry clusters that facilitate vertical and horizontal integration. Palm oil clusters are to be developed in North Sumatra and Riau, and East Kalimantan as per the The Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), although private-sector interest so far has been less than impressive. The government aims to facilitate palm oil clusters through tax breaks and by providing vital infrastructure such as ports and storage tanks.
Indonesia and Malaysia together account for almost 90% of global CPO production, and fierce rivalry for export market share has complicated tax policies in both countries. The Indonesian Palm Oil Association (Gapki) lobbied for lower CPO export taxes after Malaysia slashed its CPO duty to zero at the beginning of 2013, before raising it to a still low 4.5% in March. The low rate put Indonesian growers, who were faced with higher taxes, at a disadvantage. Yet Jakarta seems adamant to stick with its tax policy of favouring domestic refining and processing.
As long as the two countries fail to use the duopoly to their mutual advantage, either government will find itself under pressure to lower palm oil export taxes to secure global market share for domestic industries. However, Indonesia’s differentiated tax policy could become self-perpetuating as the increased refining capacity threatens to stand idle unless crude exports continue to be discouraged.
Aside from increased consumption in major export markets and in Indonesia itself, potential for further growth in palm oil demand hinges particularly on its use as a renewable source of energy. EU regulations require that at least 10% of transportation fuel be biofuel by 2020, while India and China have even more ambitious targets. Capturing these markets, however, will be challenging for Indonesian CPO producers.
The EU is under pressure from its own biofuels industry and is considering imposing import duties on the grounds that Indonesia’s CPO export tax is tantamount to a subsidy for Indonesian refiners. Meanwhile, environmental and human rights NGOs are urging an end to palm oil imports from Indonesia which they say contribute to deforestation, forced evictions and unfair labour practices. The massive markets of India and China should be less sensitive to ecological and social concerns and help secure long-term demand growth for palm oil products from Indonesia.
Following temporary boycotts and demonstrations, producers and processors of Indonesian CPO are aware of the need to maintain a positive image in terms of sustainability and corporate social responsibility (CSR). Rather than a simple PR exercise, this will increasingly put companies, both local and international ones, under pressure to obtain certificates to demonstrate that their produce meets certain standards. The most prominent body issuing certificates is the Roundtable on Sustainable Palm Oil (RSPO), which brings together plantation firms and environmental NGOs.
While criticism has been lodged at the RSPO, it is still the principal organization setting the minimum ecological standards for the global palm oil industry. The Indonesian government has come up with a competing scheme, the Indonesian Sustainable Palm Oil (ISPO), which some argue is easier to comply with but global companies should be advised to aim for the more widely recognized RSPO certification.
CSR can help palm oil firms improve their image in their plantation area and one way to do this is by supporting local palm oil farmers. Since smallholders are vulnerable to global downswings in palm oil prices they have a business interest in cooperating with corporations that can provide them with more stable pricing. Yet, smallholder integration is often found wanting as many plantations prefer to employ the locals and use their land rather than enter into harder-to-govern business relationships with them.
The extension of a moratorium on forest clearance in May 2013 poses challenges for the further expansion of the country’s palm oil sector. The presidential decree means the government will issue no new permits for the use of primary forests and peat lands until 2015; though loopholes blunt its effectiveness. Also in May 2013, the Constitutional Court decided that so-called customary forests are no longer state forests. The ruling effectively gives communities with traditional land claims ownership rights rather than use rights to the lands they inhabit or cultivate. While the specific consequences of the ruling remain unclear pending implementing regulations, they are likely to complicate land use by palm oil corporations.
Despite obstacles to acreage expansion, growth potential is said to be substantial. For a start, the government is keen to develop plantations on millions of hectares of so-called degraded land rather than by converting natural forest. More importantly, productivity gains can be unlocked in existing cultivation areas. Per-hectare yields in Indonesia are considerably lower than in Malaysia, highlighting room for improvement through more advanced technology, knowhow, and better seeds. The government has expressed hope to more than double productivity from 3.57 tons per hectare in 2012 by 2025 (Ministry of Agriculture). Substantial gains can be made with fairly little effort on smallholder lands. Closer cooperation with smallholders, including by providing financing, could help corporations and investors tap into this growth potential.
Should plantations adhere to good governance and environmental standards and explore new ways of engaging with smallholders, ample growth potential exists in Indonesia’s upstream palm oil sector. Indonesia is not only the largest and a very cost effective CPO producer; but it is also a major consumer and strategically located close to growing export markets. Rising labour costs over the coming years should be offset to some extent by lower logistics costs on the back of improving infrastructure. The downstream sector offers bright investment prospects, though the risk of overcapacities in the region must be taken into consideration. Foreign investors can therefore capitalise on opportunities in CPO refining and processing in joint ventures with local companies.
As personal incomes in Indonesia are rising quickly thanks to the country’s rapid economic development, the market for cosmetics is definitely one to watch. Beauty and skincare products, even more than many other fast moving consumer goods (FMCG), are set to benefit from consumers’ increasing ability to afford everyday luxuries. While sales of cosmetics have grown fast over the past years already, there is a lot of untapped potential as Indonesia’s population grows in numbers and in affluence. Male consumers feature increasingly on the radar of cosmetic firms worldwide, and in Indonesia this segment of the market is just beginning to take off.
Indonesia’s Cosmetics Market
The allure of the domestic market notwithstanding, Indonesia is also a significant exporter of cosmetics
Nationwide sales of cosmetics increased by almost 15% from 8.5 trillion RP in 2011 to 9.76 trillion RP in 2012, according to figures from the Ministry of Industry. Based on estimates, Indonesian consumers continued to increase their spending on cosmetics at a similar pace in 2013, despite a depreciating Rupiah and accelerating inflation raising concerns about the national economy. With both personal incomes and consumer aspirations on the rise, the market holds ample potential for long-term growth (See Indonesia’s Fast Moving Consumer Goods (FMCG) Sector). Strong demand is attracting increasing imports of cosmetics from abroad, especially for premium products. Imports rose steeply from 1.87 trillion RP in 2011 to 2.44 trillion RP in 2012 and increased further to an estimated 3.17 trillion RP in 2013, the ministry’s data shows.
Beauty trends and new consumers
Apart from Indonesia’s robust economic growth, current beauty trends encourage the use of skincare products. As in other Asian countries, having flawless and bright skin is seen as a particularly important hallmark of beauty in Indonesia, both in men and women. Promulgated though advertising campaigns, the fair-skin beauty ideal reflects in TV shows and on magazine covers and resonates through social media among the country’s young and internet-savvy population.
Rural areas lag far behind urban centres in terms of per-capita consumption of cosmetics, but they are catching up quickly as retail networks expand beyond major cities and as new consumers enter the market. Improving infrastructure and logistics are also helping companies penetrate rural areas (See Indonesia’s Logistics Sector). An extensive survey by market research firm Nielsen found that sales of cosmetics in urban areas increased by 9.4% year-on-year in the first half of 2013, while in rural regions, sales boomed by 27.5%. The difference in growth can be partly attributed to the fact that many inhabitants of rural areas have yet to become regular consumers of basic skincare and make-up products, which have long become everyday essentials for more affluent urban dwellers. Cosmetic makers will want to focus their urban marketing effort on higher-end and specialist products.
The other major untapped market segment is that of Indonesian men. Cosmetics companies have reported sales growth in their male product lines at a multiple of the growth rates seen for female products. Facial cleansers and moisturizers as well as anti-ageing solutions are becoming increasingly popular among men in Indonesia, as targeted advertising campaigns featuring bikers and male celebrities seek to dispel the notion that using them is effeminate.
Local players in a global market
Global cosmetic firms are expanding their presence in Indonesia, where consumer goods giant Unilever has used its longstanding local presence to assume a leading position in the skincare segment. In addition to marketing its Pond’s-branded skincare products, Unilever Indonesia has established a local brand around the Indonesian word Citra (Image). France-based L’Oréal sees so much potential in Indonesia that it picked West Java as the location for its largest factory worldwide. The opening of the plant in November 2012 followed annual sales growth of 30% in Indonesia for several years running.
Local companies are keen to defend their own share of the home market with a number of highly successful brands. Leading Indonesian cosmetic producers are PT Mustika Ratu and the Martha Tilaar Group, which sells a range of brands under its subsidiary PT Martina Berto. There is no apparent bias towards local brands – quite the opposite, in fact. A 2013 consumer survey by Credit Suisse found that while Indonesians “prefer local brands for essential items, […] appetite for foreign brands is higher for discretionary items such as fashion apparel and cosmetics, especially among high income earners.”
The allure of the domestic market notwithstanding, Indonesia is also a significant exporter of cosmetics. In promoting their products abroad, major brands highlight their use of indigenous natural ingredients and their roots in traditional herbal treatment and make a selling point of their claimed expertise on ‘eastern skin’.
ASEAN integration ups pressure on local producers
Indonesia is home to hundreds of cosmetics producers, many of which are family-run small businesses. More and more of these firms are looking to ship their goods beyond national borders, and falling trade barriers across the region are making it easier for them to do so. The ASEAN Harmonized Cosmetic Regulatory Scheme, implemented in 2008, standardizes rules on the safety and quality of cosmetics across the ten countries in the Association of Southeast Asian Nations. Notably, it requires national authorities to accept products that have been registered in any other member country, thereby tearing down non-tariff trade barriers that would in the past be misused to shield domestic producers from foreign competition. In addition, free trade agreements mandate a gradual reduction of import tariffs.
Indonesia’s Food and Drug Monitoring Agency (BPOM) reserves the right to monitor imported products for their safety and quality credentials, but cannot prevent increasingly tight integration in the regional cosmetics market even if it wanted to. Rising cross-border trade makes for a more competitive environment, which entails both challenges and opportunities for local producers. It certaintly ups the pressure to make cosmetics of high quality at low cost. This should set the stage for market consolidation in Indonesia, with the aim to produce some strong players that can compete at the regional and eventually the global level. It should also inspire increased strategic or equity investment from abroad and cooperation between Indonesian and foreign cosmetic companies.
Growth prospects a strong case for investment
Increasing competition cannot take the shine off Indonesia’s cosmetic sector. Strong demand growth from first-time users among the male and rural population as well as increasingly expensive tastes and rising affluence in urban centres make the country a highly attractive market, while the prospects of expanding into ASEAN afford local producers the opportunity to reach millions of additional consumers.
Indonesian consumers keenly spend their rising personal earnings on electronics and home appliances, striving for the personal comfort and entertainment that characterize a middle-class lifestyle in many parts of the world. The driving force behind this consumer trend, aside from the general increase in living standards, is urbanisation and the booming residential property market in Indonesia’s emerging economy. Setting up shop in Southeast Asia’s largest economy offers global manufacturers of consumer electronics the chance to tap rising demand in Indonesia and the wider region.
Electronics and Home Appliances Manufacturing in Indonesia; Finding its Edge
At a time when rising wages make labour in China increasingly costly, Indonesia has a window of opportunity to establish itself as the regional production hub for the manufacture of electronics
The peaceful political transition following parliamentary and presidential elections in 2014 underscored Indonesia’s reputation for political stability, while the lower exchange rate of the Rupiah enhances domestic competitiveness. At a time when rising wages make labour in China increasingly costly, Indonesia has a window of opportunity to establish itself as the regional production hub for the manufacture of electronics and home appliances – for both domestic and global brands. To use it, the country needs to implement structural reforms and tackle issues of infrastructure and education.
A growing market for global and local business
Like other consumer markets in Indonesia, that for electronics and home appliances has seen rapid growth in the wake of the 2008/2009 global financial crisis. According to the Indonesian Electronics Producers Association (Gabel), domestic sales rose by around 11% to 38.5 trillion RP in 2013. While this marks a significant slowdown on the preceding two years, it nevertheless far exceeds that year’s GDP growth of 5.8%. Gabel predicted a further 10% increase for 2014. Televisions contribute most to total sales, accounting for around a third of the market, followed by refrigerators and other electrical appliances, such as air conditioners and washing machines. Market penetration for electronics and household appliances is still relatively low in large areas of the country, but the ongoing expansion of general and specialized retail outlets across the country sets the stage for future growth (See Indonesia’s Retail Boom is Far From Over). Currently, private individual stores sell the bulk of consumer electronics and appliances in Indonesia.
According to the Ministry of Trade, Indonesia is home to 235 companies in the electronics and home appliance manufacturing business (including component makers) as of 2014. Local brands have a dominant share of the market for small appliances, such as rice cookers and blenders. The higher end digital electronics sector is mainly in the hands of international brands, often through joint ventures with local manufacturers, which mainly import the components and then assemble the products in Indonesia for both the local market and exports. Brands such as Toshiba Consumer Products, LG Electronics, Sony, Panasonic Indonesia and Samsung Indonesia are well established throughout the country with distribution networks via both modern and traditional retail networks. In February 2014, Sharp from Japan (through PT Sharp Electronics Indonesia) opened a new factory in Karawang, West Java, which is the company’s largest factory for washing machines and refrigerators.
Second chance for Indonesia’s manufacturing sector
The government is keen to position Indonesia as a manufacturing base for international electronics producers seeking a foothold in the ASEAN region. The success of this policy, however, hinges on the general conditions affecting the country’s manufacturing sector, some of which are less than ideal.
A lack of transportation and energy infrastructure burdens manufacturers with logistics costs that are higher than in neighbouring countries, creating a competitive disadvantage (See Indonesia’s Logistics Sector). The much-hyped demographic dividend, meanwhile, will be of little use unless an improved education system makes the country’s large cohort of future job seekers more employable for professions that require medium to high skill sets. Perhaps the biggest threat to the country’s manufacturing sector is a mismatch of labour productivity and the cost of production, including rising unit labour costs. Amid strong political pressure from trade unions, minimum wages in Indonesia have increased sharply in recent years, far exceeding productivity gains. This, coupled with rigid employment policies that make it costly to lay off staff, has prompted some companies to move production out of western Java to Central Java, East Java or other Islands, where minimum wages are lower and land is cheaper (See Indonesia’s Industrial Property Market). Employers have warned that if continued unabated, this trend could see labour-intensive companies turn their back on Indonesia altogether.
However, the manufacturing sector still accounts for 24% of Indonesia’s economy, registered growing exports in 2014 and remains the most attractive sector in terms of foreign direct investment (See Indonesia in 2015: Economic & Political Renewal Shifts Investment Focus). The World Bank believes Indonesia may have a “second chance” in the manufacturing sector, after the first manufacturing sector boom collapsed in the Asian Crisis and after productivity growth in recent years lagged behind that of other countries in the region. “Indonesia could potentially boost its global market share in manufacturing, create millions of new jobs and facilitate structural transformation,” the World Bank says on its website, but to improve competitiveness and sustain growth, the government and private sector “need to overcome the main challenges facing the manufacturing sector.”
Need for investment
Reforms that have been promised and already begun by the new government (such as slashing petrol subsidies), along with rising investment in infrastructure, promise to reinvigorate Indonesia’s manufacturing sector. In addition, higher qualifications are crucial to develop innovative electronic products. But educational reforms take time (See Indonesia; Investing in Education). In the meantime, the devaluation of Indonesia’s currency makes export goods more competitive abroad while making imported electronics more expensive on the local market. That is good news for locally-based producers, whether they represent Indonesian or foreign brands. The lower rupiah does, however, also raise the price of imported components, which local industries still rely on.
In the long run, greater investment in research and development to generate innovation and move to more sophisticated technologies is a necessity for the manufacturing sector. Local production of electronics and home appliances will not thrive without sufficient capital, including foreign capital. This is particularly true at a time of high interest rates and in a country where banks have shown reluctance to lend money to labour-intensive manufacturing businesses (See Indonesian Banking Sector Outlook: In Need of a New Growth Strategy). President Joko Widodo, in office since October 2014, has stressed the need for investment in manufacturing and said Indonesia was open for foreign investors.
Direct investors looking to capitalize on the market potential in the world’s fourth-most populous country will want to focus on products suited to local needs or tastes. Those wanting to create local brands need significant marketing efforts (and, of course, quality standards) to overcome consumers’ common preference for foreign brands. New market entrants should carefully consider the location of their operations after the industrial estates in and around the capital have lost some of their appeal due to high costs and slower growth in the area. The government is promoting the formation of industry clusters across the country to spread development more widely and help regions outside of Java catch up.
All manufacturers of electronics and home appliances in Indonesia, whether they represent foreign or local brands, stand to benefit from buoyant consumer spending at home and an increasingly open export market in the fast-growing ASEAN region.
Indonesia is among the top 20 furniture exporters worldwide with an established reputation particularly within the field of outdoor furniture from teak, bamboo and rattan as well as carved furnishings. With abundant natural resources including numerous varieties of timber, the country has attracted global attention as a furniture manufacturing base for international brands. However, the country’s population of over 250 million people and rising consumer purchasing power is now being perceived as its greatest attraction and pull for furniture makers. Local furniture manufacturers have flourished over the past decade and are on course to further reap the benefits of Indonesia’s growing prominence as a furniture producer following the implementation of a legal verification system for timber sourcing.
Indonesia’s Furniture Sector; Sitting Comfortably
While the domestic market remains primarily price sensitive, Indonesian middle-high and upper class consumers are demonstrating the same sensitivities as their global counterparts in seeking out ‘green’ classified products
How the market stands
In 2013, the total value of Indonesian furniture and related products exports reached $1.8 billion USD from $1.4 billion USD in 2012, with the main recipient markets being Western Europe, USA, Japan, China, Malaysia and Australia (Ministry of Trade). Wooden furniture comprises the lion’s share of Indonesia’s furniture exports at 58% (ASMINDO). Today, Indonesia’s furniture industry accounts for just under 2% of worldwide furniture sales valued at $122 billion USD (Centre for Industrial Studies) with China and Vietnam dominating the industry with more than 50% of global market share combined. Global demand for furniture is forecast to increase by 4.2% in 2014 and continue on a steady expansion pattern with Asian markets as the main growth engines.
The Indonesian government has been forthcoming in supporting the local furniture industry through training workshops and financial sponsorship to attend international exhibitions in order to enhance global market penetration and increase the value of exports to $5 billion USD by 2019. However, leveraging the advantages of Indonesia’s young population and readily available labour force as well as raw material accountability and environmental sustainability in furniture production will be the keys to boosting exports by 20% year on year.
The issue of timber source traceability in furniture products for the export market has been a priority issue for the Ministry of Forestry, much to the benefit of Indonesian furniture manufacturers. The Timber Legality Assurance System (TLAS) provides a legal certification for responsibly sourced timber used in furnishings since September 2009 with the aim of promoting good forest governance and combatting illegal logging. This was further enhanced in September 2013 by the signing of a Voluntary Partnership Agreement (VPA) between Indonesia and the European Union and a host of measures to ensure compliance with EU timber regulations (See Trading Timber: Business Insights into the Indonesia-EU VPA). Indonesian timber and furniture exports to the European Union have strengthened in response to this agreement and are projected to grow by 50% in the next two years according to the Ministry of Trade.
Environmental sustainability in raw material sourcing and production methods are now the order of the day for Indonesian furniture manufacturers as consumers both at home and abroad seek out environmentally friendly products. Numerous local Indonesian companies are utilising reclaimed wood to make a variety of furniture types ranging from sofas, tables and chairs and often complement their efforts with local reforestation programs. Large scale furniture manufacturers are also thinking ‘green’ when it comes to appealing to local consumers and international customers through investing in environmentally efficient production methods and obtaining internationally recognised certifications in environmental management. This approach has served to secure Indonesia’s foothold in the international export market and will safeguard further expansion as mature markets including the European Union, USA and Japan continue to apply increasingly stringent environmental standards on imported products.
The home front
While the domestic market remains primarily price sensitive, Indonesian middle-high and upper class consumers are demonstrating the same sensitivities as their global counterparts in seeking out ‘green’ classified products. The domestic furniture market value reached 9 trillion RP in 2013, dominated by Indonesian local furniture brands who enjoy extensive local consumer appreciation over foreign brands. Chinese made furniture imports have risen following the introduction of the ASEAN – China free trade agreement which has created tight price competition at the lower end of the market.
The year 2014 witnessed a major milestone in Indonesia’s furniture retail sector with the opening of Swedish furniture giant IKEA’s first store in the archipelago. The entrance of IKEA into the market is illustrative of not only the importance of Indonesian middle class consumers to multinational brands having now surpassed the significant threshold of $5,000 USD income per capita (at PPP), but of a broader shift towards modern tastes and habits (See Indonesia’s Retail Boom is Far From Over). Indonesian consumers are moving away from traditional hand carved wooden furniture to products that offer greater functionality, comfort, minimalist designs and do not necessarily represent long term investments thereby allowing them to update their home décor on a regular basis to reflect the latest trends.
A new generation of young professionals and first time property buyers are a key target market for furniture in Indonesia whose concerns centre on style and durability as well as budget and suitability to smaller scale urban dwellings. Local furniture producers are thus seeking to move up the value chain in terms of product development and design in order to compete effectively in the local as well as regional market. This represents an opportunity for international brands to collaborate with local players in developing home furnishings that can be manufactured locally to meet domestic market demand as well as markets with similar consumer behaviour in the ASEAN and other emerging economies such as India and further afield in Latin America.
Indonesia’s booming property sector is impacting not only the residential real estate sector (See Mass Housing Spells Massive Opportunity) but also that of the commercial and public segment. High rise office towers in Jakarta and fast emerging secondary cities are being constructed at a rapid pace to meet demand from expanding local businesses as well as the entry of foreign companies. The office furniture sector is set to benefit from this trend in supplying furniture that offers functionality and ergonomic design as employee comfort becomes more of a priority in light of longer working hours and extended periods of sitting.
The new administration has also placed education and healthcare as essential sectors for investment and expansion to cater to the country’s growing population. The introduction of a universal health care system in 2014 (See Indonesia’s Healthcare Sector) has served to highlight Indonesia’s lack of hospitals after decades of under investment, particularly outside of the main cities of Java. The Ministry of Health has announced plans to add 100,000 new hospital beds over the next 2 years while private sector players such as Siloam Hospitals, part of Lippo Group, are building 5 new hospitals every year. Equipping these hospitals and upgrading the facilities of the existing 2,100 hospitals in Indonesia means that hospital furniture holds highly lucrative potential for the future.
Future scope for expansion in these sectors is underlined by the listing of Chitose Internasional Tbk in June 2014 which specialises in furniture for offices with a 51% market share as well as schools, hospitals and the hospitality industry. Indonesia’s burgeoning tourism industry is a further area of growth for the future as international hotel brands continue to invest in the country’s underserved beauty spots as the country targets 10 million tourists by 2015.
Indonesia’s furniture sector in both the local domestic market and the global export market holds ample room for future growth and expansion. Capitalising on the country’s strengths in raw material availability as well as qualified labour will enable the country to focus on providing high quality furnishings to mature markets while paying attention to environmental sustainability and functional design can enhance local brands’ competitiveness among emerging markets. While the sector remains highly competitive, large scale manufacturers in addition to hundreds of SMEs who are undergoing certification for the TLAS system, are well positioned to work with international partners for know-how transfer as well as furniture product development to capitalise on local and international furniture demand.
As the world’s fourth-most populous country with a fast growing economy, Indonesia is turning into an important market for pharmaceuticals. A major expansion of public healthcare is set to lift nationwide spending on medical treatment, but the budget pressure that accompanies government procurement means benefitting from the programme will not be easy for drug companies. The local pharmaceutical industry has a long way to go in terms of quality, efficiency and innovation. Global players are drawn to Indonesia for its large potential, but they need to navigate rules and market conditions that are not always stacked in their favour.
Overview of Indonesia’s Pharmaceutical Sector
Global players are drawn to Indonesia for its large potential, but they need to navigate rules and market conditions that are not always stacked in their favour
Led by PT Kalbe Farma, PT Sanbe Farma, and the Soho Group, Indonesian companies dominate local pharmaceutical production. Numerous multinationals also maintain facilities in the country, including Pfizer, Bayer, Novartis and Merck. Regulations have been labelled protectionist for allowing imports of drugs only in limited circumstances, while generally requiring foreign drug makers to open factories in Indonesia or team up with domestic companies in order to sell to the local market.
An emerging market
Indonesia’s pharmaceutical sector has grown at 12.5% annually over the past several years expanding by 85% from 2007-2013 (Pacific Bridge Medical) and is expected to receive another boost from the rollout of general national health insurance beginning in 2014 (See Indonesia’s Healthcare Sector). The Indonesian Pharmaceutical Association forecast nationwide sales to rise by at least 13% to 54 trillion in 2014 RP. Prescription drugs, over-the-counter drugs and food supplements (nutritional and vitamins) have all experienced increasing sales. Consulting firm IMS Health sees Asia’s pharmaceutical market outpacing every other region of the world with CAGR of 11.4%-14.4% in the period 2012-2017.
Healthcare spending per capita increased from $61 USD in 2008 to $108 in 2012 at average annual exchange rates, according to figures from the World Health Organization (WHO), yet remains below the Philippines ($119), Thailand ($215) and far below Malaysia ($410). Vietnam came in below Indonesia at $102 USD per capita. Indonesia’s spending on healthcare also lags behind regional peers when measured against the countries’ respective GDP. Total expenditure in Indonesia increased from 2.8% of GDP in 2008 to 3.0% in 2012, which compares to 3.9% in both Thailand and Malaysia, 4.6% in the Philippines and 6.6% in Vietnam.
Ample growth potential
The allure of Indonesia’s pharmaceutical market rests not on its current size, but on its potential size. Low current penetration leaves ample room for volume growth. The country’s expanding middle class, its growing and ageing population, and the overhaul of public health insurance all contribute to rising demand for healthcare services in general and pharmaceuticals in particular. Market research firm Frost & Sullivan in March 2013 predicted that the nation’s healthcare market would more than double from 2012 to 2018. Demand for drugs to treat lifestyle-related diseases, such as diabetes, cardiovascular illnesses and gastric conditions, is set to rise rapidly with increasing urbanization in Indonesia and in neighbouring emerging economies.
Aside from rising spending power and increasing demand for quality healthcare from Indonesia’s middle and upper class consumers, pharmaceutical companies are banking on the National Health Insurance (JKN) programme to boost sales to the tens of millions who hitherto were unable to afford modern drugs. In a country of a quarter of a billion people, universal health insurance could massively widen the market for medicaments.
National health insurance
But it is also a very ambitious undertaking, so some cautionary notes are in order. Scheduled to be rolled out across the entire archipelago within five years, JKN aims to replace limited health safety nets for civil servants, military personnel, private sector employees and the poor with a unified system. JKN will be financed by income-based premiums. The government will pay a fixed premium for the poor, but defining this group is difficult because of the large informal work sector. Hence some abuse of the system will be inevitable.
Questions have been raised with regards to funding, particularly, whether the subsidized premium for the poor will suffice to cover even basic needs. The Economist Intelligence Unit in a January 2014 analysis claimed that the proposed 19,225 RP per month was too low, considering the increasing prevalence of expensive to treat non-communicable diseases like cancer and heart conditions. The 5% premium levied on regular incomes was also considered to be on the low side. Premiums could, however, increase if there is enough political pressure. JKN, for all its flaws, should significantly improve access to healthcare in rural areas and affordability of healthcare for the poor.
The state as an overbearing buyer?
The agency to run JKN, Badan Penyelenggara Jaminan Sosial (BPJS), will take over existing public health schemes. As such, it will become the dominant buyer of pharmaceuticals. Striving to keep the programme’s costs within budget limits, BPJS will restrict medication to be covered by JKN. As a result, manufacturers will have to contend with significant price pressure as they seek to supply bulk quantities of pharmaceuticals for public procurement. It must also be noted that generic pharmaceutical pricing is regulated by the government. Pharmaceuticals included in the Essential Drugs List, 92% of which are generic and 2.5% of which are innovator drugs cannot be sold for more than a 50% margin.
Even though consumers might prefer patented drugs to generic ones or well-known brands to lesser-known ones, price and quantity will be the order of the day when it comes to supplying millions of new market entrants. State-owned hospitals are already required to use non-branded generic drugs whenever possible.
What might look like a threat to makers of patent-protected drugs, many of which happen to be multinational players, may not be that threatening, after all. The main effect of JKN should be to create additional demand for drugs in the lower end of the market rather than cause large-scale substitution of premium products.
Premium medical care
In the upper end of the market, many will prefer to stick with their trusted brands in a country where public healthcare is seen as a means of last resort. Also, rather than rely on what will be very basic coverage, at best, in the national scheme, Indonesians who can afford it will continue to opt for private insurers that place fewer restrictions on the choice of drugs. Finally, growing health awareness and rising personal incomes is likely to see Indonesians spend more money out of pocket on non-essential medication and food supplements.
Premium healthcare holds a lot of potential in Indonesia. Currently, hundreds of thousands of Indonesians fly overseas, especially to Singapore, for what they believe is better treatment than they can get in their home country. However, private hospitals promising world-class service are being built across Indonesia, their investors hoping to attract well-heeled patients and to reverse the medical tourism outflow. The growing premium healthcare segment will drive demand for premium pharmaceuticals in Indonesia.
A number of impediments for Indonesia’s pharmaceutical industry must not be overlooked. Due to the lack of domestic raw materials, manufacturers need to import almost all ingredients from abroad, which not only drives up input prices but also entails currency risks, as the 2012-2013 rupiah depreciation demonstrated. Another cost factor is the daunting task of distributing drugs across the country’s thousands of islands using underdeveloped infrastructure.
The local pharmaceutical industry is dominated by manufacturers of generic drugs and characterized by low spending on research and development. A shortage of qualified scientists, concerns over patent enforcement and the still low spending power of the local population are blamed for a lack of innovation. A related issue is that of counterfeiting; the International Pharmaceutical Manufacturers Group estimated the circulation of fake drugs at 15-20% of the total market.
Product registration is a further hurdle to contend with. New products must be registered with the National Agency of Drug and Food Control (NADFC) as well as comply with ASEAN Common Technical Documents; a process which can take up to three years. Indonesia also became the centre of vaccine production for the Organization of Islamic Cooperation (OIC) in 2013 which may also see the introduction of obligatory halal certification for pharmaceutical producers in the future.
Protectionist regulations have been blamed for less than ideal investment conditions. The Negative Investment List limits foreign companies to a maximum 75% stake in local pharmaceutical firms and generally excludes them from the important distribution business. A 2013 revision to the list is in progress, however, and should see the ownership cap lifted to 85% once implemented.
The outlook for Indonesia’s pharmaceutical industry is positive because the enormous growth potential of the local market outweighs regulatory, legal, logistical and capacity constraints. Despite facing competition from hundreds of local generic drug makers, foreign-based companies are clearly finding Indonesia worth investing in, as evidenced by a number of recently reported expansions. Building recognized generic brands of their own should allow foreign firms to claim their share in national healthcare.
Aside from cooperation with local drug makers and distributors, acquisitions provide a quick way into the market. Established manufacturers of generic drugs stand to benefit from technology and knowhow of global players in a cost competitive marketplace.
Currently, almost all locally produced pharmaceuticals go to the domestic market. However, sales to other ASEAN countries become an increasingly interesting proposition for higher-value brands, where the sourcing of raw materials has less impact on total costs. Turning Indonesia into a regional pharmaceutical hub, however, will depend on supportive regulations and infrastructure.
Indonesia’s economy is largely driven by rising household consumption, and one industry that thrives on this like no other is that of food and beverages. Sales growth is fuelled by rising personal incomes and increased spending on food and drink, especially from the growing number of middle class consumers. Consequently, this is also an industry where local companies have been particularly ambitious – and several of them have evolved into successful global exporters. At the same time, the internationalisation of local cuisine represents a prime opportunity for foreign companies to sell their products to Indonesian consumers, who are more and more open to new foods and flavours.
Thirst Quenching: Indonesia’s Food & Beverage Industry
More expedient is finding ways to strengthen the quality and especially the branding of local products both in Indonesia and the wider region
Lifestyle changes in Indonesia’s urban centres largely follow the trends of established markets, with office workers having less time for cooking, or less interest in doing so, yet demanding health-boosting food. Importantly, shoppers are gaining access to a wider range of products thanks to the country’s developing retail infrastructure, with hypermarkets and mini-markets moving deeper into the regions (See Indonesia’s Retail Boom is Far From Over). Improving logistics facilitate the distribution of perishable goods, such as frozen foods, across the archipelago (See Indonesia’s Logistics Sector).
A growing market for local and foreign brands
Rising steadily over the past years, domestic food and beverage sales totalled 900 trillion RP in 2013. The Indonesian Food and Beverage Producers Association (GAPMMI) predicted the market to grow by at least 11% to 1000 trillion RP in 2014. The market outperformed overall economic growth in recent years, and analysts expect this trend to last. Indonesian food consumption is forecasted to grow by 9.1% in 2014 and achieve a compound annual growth rate (CAGR) from 2014 to 2018 of +7.6% (BMI). Drink sales are expected to be even stronger, with alcoholic beverages to grow at 13.9% in 2014 and at 9.0% CAGR from 2014 to 2018, while soft drink sales are estimated to increase by 11.7% in 2014 and CAGR 2014 to 2018 of 9.3%. Mass grocery retail sales in 2014 are seen at +14.2%, with CAGR 2014 to 2018 of +10.7%.
Food and beverage processing is one of the most mature industries in Indonesia, with a large number of businesses competing for sales. The vast majority are small or micro-sized enterprises, though a fairly small number of large companies dominate the market, including Indofood Sukses Makmur, the world’s largest instant noodle maker with sales of 57.73 trillion RP in 2013, Wings Group, Mayora Indah and Garuda Food, a subsidiary of Tudung Group. Such companies have embarked on strategies to not only entice customers by price, but innovating to produce tailored, value-added products that appeal to the Indonesian consumer’s preference for traditional food in an instant form such as Mayora’s instant congee. Since the large businesses are better equipped to cope with cost increases or sudden policy changes and are in a stronger position to take advantage of an increasingly open export market in the Southeast Asian region, Indonesia’s food and beverage industry can be expected to see significant consolidation over the coming years. Foreign companies and brands are also well integrated into the market, including Nestle, Kraft Foods and Unilever. The internationalisation of Indonesia’s cuisine suggests that traditionally western foods, such as those based on milk or wheat, will increasingly suite the local palate (See Indonesia’s Growing Appetite for Wheat).
The food and beverage industry plays a vital role in Indonesian exports and the government actively promotes its companies abroad, as reflected in the visit of an Indonesian business delegation to the US and Canada in March/April 2014. The trade mission, led by Deputy Trade Minister Bayu Krisnamurthi, was aimed at exploring opportunities to sell more Indonesian products in the North American market. Major export products include snacks, special beverages, sauces, condiments, pickles, processed fruit and vegetables and shellfish in the form of crab meat or shrimp paste. In 2013, processed food and beverage goods worth $4.83 billion USD were shipped abroad (Indonesian Statistics Agency), and GAPMMI targeted export growth of around 11% in 2014 (similar to 2013). The United States ranked as the top export destination for Indonesian food and beverage products in 2013 with a value of $602 million USD.
While exports of processed and semi-processed food and beverage products grew faster than imports in 2013, a trade gap of more than $1.6 billion USD remained. There is continued popular and political pressure to stem what is sometimes decried as a flood of imports, either by giving greater support to local producers or by implementing measures to keep imports out. Nevertheless, Indonesia remains quite open to imports. Foreign exporters are advised to collaborate with local partners to facilitate both the import process and distribution of their products, especially if the partner has an established sales network across the country.
Foreign investment still dominates
According to GAPMMI estimates, investment in the food and beverage industry could surge to a record 50 trillion RP in 2014, up more than 42% from 35 trillion RP in 2013. While roughly 60% of the total 2013 investment was foreign direct investment (FDI), domestic direct investment is forecast to grow faster than FDI in the coming years. A number of foreign players have recently announced investment plans, including Coca-Cola Amatil and Danone Group, while 20 Japanese companies were assessing investment prospects as of June 2014. GAPMMI Chairman Adhi S. Lukman told media that most of the Japanese businesses were looking to enter the market in 2015, preferably by partnering with local enterprises. Companies from China are also reportedly mulling investment.
Aside from the large population and rapid economic development, what makes Indonesia attractive for investors in the food and beverage industry is the domestic availability of numerous agricultural commodities, such as coffee, cocoa and palm oil. That said, farmers have in many cases become the weak link in the national food production chain to the extent that even cocoa is now imported from abroad to meet demand for processing industries (See Indonesia’s Booming Cocoa Industry Puts Farmers to the Test).
The reliance on the domestic market means that food and beverage businesses are less exposed to fickle global markets than many other industries. Local producers are sill, however, vulnerable to fluctuating global prices for ingredients they need to import from abroad. This became very obvious in the first half of 2012, when droughts in the US and Brazil led to a spike in global soybean prices and drove up the cost for Indonesian producers of tofu and tempeh, two popular soy-based staples in local cuisine. The Rupiah depreciation in 2012 and 2013 also dealt a serious blow to Indonesian businesses that rely on imports of wheat, sugar, milk or other ingredients.
Imports of processed foodstuffs will continue to make up a substantial part of total sales, since some of them cannot be viably produced in Indonesia. Locally-based food processors need to find other ways to keep their costs in check and improve their competitiveness amid intensifying regional trade. SMEs are under the greatest pressure from rising wages, electricity tariffs and lending rates. Improving operational efficiency and energy consumption with new equipment and optimized processes is one way for these businesses to alleviate cost pressure, but more expedient, perhaps, is finding ways to strengthen the quality and especially the branding of local products both in Indonesia and the wider region. Justified or not, many Indonesians still associate higher quality with foreign brands and prefer them to local ones, particularly with regards to food for babies and children. In the case of small producers, even enhancing just the packaging can often go a long way to boost the appeal of local products.
Healthy eating and frozen foods
Adapting to trends will be crucial as Indonesia’s eating culture remains in flux. One of the major trends is a growing health consciousness among Indonesia’s young population, which creates opportunities for products such as nutritional drinks or cereals enhanced with vitamins and minerals. Fortified milk products target weight-losers, body-builders and breastfeeding mothers. Convenience foods are also benefitting from urbanisation and the growing office workforce. Ready-to-drink coffee and tea is seeing particularly fast growth (See Teatime in Indonesia), while fruit/vegetable juices as well as sports/energy drinks are also outperforming.
By and large, consumers are looking for fast and convenient food without significantly compromising on healthy eating. One product category that fits the bill is frozen foods, which reduces cooking time, but maintains much of the ‘goodness’ contained in vegetable or animal products. Frozen food sales are mainly driven by the expansion of modern retail outlets across the archipelago. Equipped with freezers and modern storage facilities, hypermarkets and supermarkets help to supply frozen goods even to formerly underserved regions such as eastern Indonesia. A December 2013 report from market research firm Euromonitor estimated growth in frozen processed food in Indonesia at 18% in current value terms and forecast continued robust sales growth with a constant value CAGR of 10%.
The ASEAN Economic Community (AEC) will further open trade within the region and provide growing export opportunities for companies operating in ASEAN or in countries that have bilateral free trade agreements with the ASEAN block. As a very significant market in its own right, Indonesia is an attractive investment base from which to supply to local customers and neighbouring countries.
Despite fast growth in recent years, the market’s potential is far from exhausted. Personal incomes remain on the rise and the spread of modern retail continually improves access to remote areas of the country, with major cities such as Makassar, Medan and Manado developing into new growth centres. Opportunities also abound for providers of machinery that can help manufacturers increase the quality and quantity of production or decrease energy consumption.
Inhabiting a country of exceptional biodiversity, Indonesians have a long history of harnessing the goodness of plants. Herbs and spices have been used for centuries in and around the archipelago to flavour food and drinks, strengthen vitality and treat a wide range of ailments, among other purposes. Today, much of the inherited knowledge on the benefits of plant matter is backed up by scientific research, while a lot more remains to be discovered and applied to industrial processes.
From Plants to Products: Turning Indonesia’s Botanical Extracts into Consumer Goods
Identifying and marketing the health properties of indigenous ingredients or creating entirely new botanical extracts promises significant business opportunities, but it also requires substantial efforts in research
Consumers increasingly prefer natural substances over synthetic ones in functional foods, nutritional beverages, cosmetics and medicine. This creates a growing export market for botanical extracts from Indonesia. At the same time, the Indonesian government is pushing for the development of downstream processing industries, and one way for domestic producers to create distinct brands is by employing native botanical resources in the goods they sell.
There is a widening range of applications for natural extracts, which are typically converted into a liquid or dry form and then further processed. A key driver is the increasing global popularity of nutraceuticals (a term derived from the words nutrition and pharmaceuticals), which are dietary products enriched with additional nutrients to achieve specific health benefits. This encompasses so-called functional food and beverages (ready-to-drink and concentrate) as well as dietary supplements (commonly sold in capsules). Beyond general health concerns, nutraceuticals often have specific selling points, for example providing energy for the day, vitality for old age or supporting a slimming or body-building regime. The global nutraceutical market is expected to grow at 7% CAGR in the 2013 to 2017 period to $225 billion USD, driven by increased interest from the developing world (Frost & Sullivan). Growth in the Asia Pacific market is especially strong. Additional demand for botanical extracts comes from manufacturers of personal care products and cosmetics, with organic ingredients becoming increasingly popular among consumers around the world (See Indonesia’s Cosmetics Market).
The same products are seeing rising demand in Indonesia amid growing awareness about nutritional requirements for a healthy lifestyle. Sales of native herbal products, in particular, are projected to see rapid growth. Increasing spending power especially in the urban centres allows for rising sales of health and wellness foods. Strong and growing business activity in Indonesia, particularly in the food and beverage industry, is set to drive local demand for botanical inputs, which creates an attractive market for domestically cultivated and processed extracts.
A strategic location for producers
Several aspects make Indonesia an attractive country for the production of botanical extracts:
Indonesia is one of the leading countries in terms of biodiversity, with more than 28,000 unique plant species. The archipelago’s vast tropical forests and marine territory remain under-explored, offering the potential to discover new plants or new benefits of known plants.
In addition to native plants, Indonesia’s crude palm oil (CPO) industry provides an almost inexhaustible supply of oleochemical feedstock for soap and other products. Downstream industries have yet to take full advantage of this abundant resource (See An Overview of Indonesia’s Palm Oil Industry).
Indonesia has an ancient tradition of herbal medicine, known locally as jamu. Trusted for centuries to cure all sorts of ailments, jamu remains popular to this day and is increasingly finding its way into industrial over-the-counter drugs.
Indonesia boasts the largest economy in Southeast Asia with a growing population, rising personal incomes and increasing awareness about the benefits of natural versus synthetic ingredients. Trade integration in the ASEAN Economic Community (AEC) makes Indonesia a strategic hub for producers looking to supply to markets in this fast-developing part of the world.
Indonesia’s emerging economy has a large and low-cost farming workforce that has proven keen to engage in long-term cooperation with processing industries.
The appeal of native ingredients
Thanks to the use of native herbs and spices in Indonesian cuisine and traditional medicine, locally sourced botanical extracts should be particularly trustworthy in the eyes of local consumers. Manufacturers of fortified beverages such as ready-to-drink cold tea products are already using this to their advantage (See Teatime in Indonesia). Given the wide range of possible applications, the market potential for using domestic ingredients in novel functional foods and industrialised jamu, in all likelihood, is far from exhausted.
Mr Junius Rahardjo
Mr Junius Rahardjo
Indonesia has a lot of raw materials that are well-known on the global stage by many industry players such as turmeric, ginger, and curcuma.
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With respect to plants that originate from or are most commonly found in Indonesia, such as mangosteen and cubeb, the local heritage of domestic extracts lends itself to branding in export markets, as well. Indonesian companies selling consumer goods abroad can highlight the unique properties of such ingredients in their marketing campaigns.
Industrialisation and certification
Achieving and maintaining a high level of quality and purity is crucial for domestic producers of botanical extracts as they seek to increase the use of their products in consumer goods. The food and beverage, cosmetics and pharmaceutical industries also rely on a constant flow of supplies, which means botanical extract makers need to ensure they themselves have dependable upstream access to the plants from which they derive their product. They also need sufficient storage capacity to cover times of shortages.
With regards to export markets, and for medicinal uses in particular, adhering to foreign standards and attaining the necessary certification is a daunting task, but it promises commensurate sales opportunities. Going the extra mile in terms of standardisation, compliance and quality control will help Indonesian producers of natural extracts and final products gain the trust of foreign consumers.
An opportunity arises here for foreign-based manufacturers or consultants who can help local enterprises leverage modern technology and know-how, meet global standards and acquire international certification. Joint ventures with existing established players in the botanical extracts industry is a further avenue to explore as local companies seek to improve their technological capacity as well as undertake research. Alliances between Indonesian and foreign-based manufacturers of fast moving consumer goods (FMCGs) could bring forth new brands for both the Indonesian and global market. For Indonesia’s botanical extract businesses this is an opportune time to expand their activity on the downstream processing side and push their products up the value chain all the way to the end user.
Identifying and marketing the health properties of indigenous ingredients or creating entirely new botanical extracts promises significant business opportunities, but it also requires substantial efforts in research and in the development of new extraction methods. The healing effects ascribed to jamu products, for example, are based on experience and personal perception. To gain approval beyond Indonesian borders, more research is needed to scientifically establish the safety and effectiveness of such products. Moreover, natural extracts are harder to handle in industrial environments than synthetic additives, necessitating new processing techniques. Ensuring stability, consistent properties and interaction with other ingredients as well as sufficient shelf life requires advanced know-how along the entire production chain.
R&D offers investment opportunities for foreign research firms and sales opportunities for companies that build equipment, such as homogenisers, rotary evaporators and vacuum dryers. However, R&D activities in Indonesia are frequently hampered by a lack of qualified researchers and engineers. Collaboration with local and foreign-based universities may offer a way out, but setting up cooperation schemes requires time and tenacity.