http://www.atimes.com/atimes/Southeast_Asia/FG27Ae01.html
Asia Indonesia: Unilever washes investment woes away By Bill Guerin JAKARTA - Though foreign investors are still reluctant to invest in Indonesia or to expand their existing businesses in the country, publicly listed PT Unilever Indonesia, a subsidiary of the Anglo-Dutch global consumer-products giant Unilever Plc, last week announced plans to increase its investment. Indonesia's "most admired company in 2003" in the toiletries and cosmetics category said it would invest another Rp4.5 trillion (US$500 million) in the country over the next 10 years. The company claims that almost 99% of Indonesian households use at least one of its brands of soap, detergent, shampoo, cosmetics, toothpaste and food and beverage products, which include margarine, milk, ketchup and ice cream. Indonesians get Unilever's highest-quality Lux soap at the lowest price in the world because, according to Unilever Indonesia's former president, Nihal Vijaya Devadas Kaviratne, the raw material is available in the country and the labor is productive and low-cost. With household names such as Pepsodent, Sunsilk, Rinso, Surf, Lux and Lifebuoy, and the best-selling tea, Sariwangi, Unilever has cashed in on most, if not all, of several positive business factors in the world's fourth-biggest nation. Net profits increased fivefold in the three years leading up to 2003, and sales are now more than before the 1997 Asian financial crisis. Audited net profit surged by 33% last year on higher sales and amid strong consumer purchasing power. The company booked sales of Rp8.12 trillion against Rp7.01 trillion in 2002. Meanwhile, profit rose last year to Rp1.29 trillion ($151 million), or Rp170 per share, from Rp978 billion, or Rp128 per share, in 2002. Dividend payments were Rp1.53 trillion ($162 million), or Rp200 per share, equivalent to 118% of Unilever's net profits for 2003. Unilever made the gesture to celebrate the company's 70th anniversary this year, but shareholders may have cause to be happy for some time to come as the company's strengths continue to grow. Unilever takes off amid crisis Though the company has operated in Indonesia for seven decades, it was not until the 1997 regional financial crisis that it really got into top gear. Unilever and other multinationals quickly wired into the liberal investment regime in Indonesia in the wake of a change in the law in January 1999 that removed the 49% limit on foreign shareholding in Indonesian companies. A ban on foreign investment in the distribution business was also removed, making it easier for foreign companies to manufacture and distribute their own consumer goods. The protracted weakness of the rupiah in the years following the crisis and the consequent bargain brands for personal and household-care products also aided the company's expansion. The company has made six acquisitions and joint ventures since 1999, including five local ones, the first of which was Yuhan. This deal gave Unilever the rights to the best-selling Moltos fabric conditioner and Superpell, a popular floor cleaner. Unilever then paid $120 million for Kecap Bango, the country's top-selling soy sauce. A portfolio of more than 65 brands was slashed in half to enable the company to focus on its strongest brands. Private consumption has driven economic growth in Indonesia since the crisis, accounting for about 60% of the growth recorded. This, coupled with strong levels of household savings, a low-interest-rate environment and a predominantly young population, has helped lift the company's sales to new highs. Though labor issues remain a problem in Indonesia, cheaper wage levels have been an added incentive for Unilever Indonesia to increase exports, particularly to other countries in the region. Lower tariffs due to the ASEAN (Association of Southeast Asian Nations) Free Trade Agreement are another positive factor. AFTA prompted the corporate decision to make Indonesia the regional sourcing center for a number of Unilever's products. Tea factories in Australia and Singapore were closed down and relocated to Indonesia, as were Lux and Lifebuoy soap factories previously located in Malaysia. The AFTA agreement allows most products manufactured in one of the 10 ASEAN member states to be shipped to any other state at a 5% duty or less. In addition to these factors, Unilever's expansion was also encouraged by the availability of raw material locally. The special taste of Kecap Bango, for example, derives from black soybeans, which grow only in Indonesia. To ensure continuity of supply, the company has struck deals with some 800 farmers who grow about 200 tons of black soybeans every year for Unilever. Indonesia is also one of the world's major producers of palm oil, a primary raw material for many of the company's products. Industries under the Unilever group need about 1.7 million tons of crude palm oil (CPO) every year, equivalent to 5% of the world's CPO production, which is about 22 million tons. Globally, about 56% of Unilever's business is in food, while some 44% is in household and personal care products. In Indonesia, the household and personal-care business is growing at about 14-15%, but this rate is dwarfed by its food business. Food currently accounts for about 18% of the company's total business in Indonesia, but Unilever expects this to increase to about 25% by 2010. A prime export position Exports account for nearly 6% of turnover, though this is expected to increase to about 15%, approximately $150 million, within the next three to five years. Products for export include toothpaste, which is manufactured in Indonesia and supplied to the Philippines and other countries in the region. In addition, all the tea and soap for the Asia-Pacific region are now supplied from Indonesia. Tea is also exported to Japan and Australia. Ice cream made in Indonesia is also a large export item and margarine will follow soon. Economies of scale make production costs very competitive, compared with players with a small market share and ensuing high costs. Even the poor can afford at least some of their basic needs, with the widely available single-use packs of Rinso detergent and Sunsilk shampoo priced at Rp500 (5.5 cents). With more than 20,000 distributors and at least 2 million retailers, there is little chance of major hiccups in getting the goods to the customers. Of course, it's not all plain sailing for businesses in Indonesia. Labor-intensive factories have shut down because of competition from China. Sony decided more than a year ago that it was not worth the hassles and risks and left the country. Many other businesses chose to relocate their factories out of the country at the same time that Unilever was doing the opposite and relocating several factories from elsewhere in the region to Indonesia. But Unilever is a classic example of how savvy companies that have long-running exposure to a country and understand the risks are prepared to invest further and also to reach out to other committed multinationals. A 50-50 joint venture with Kimberly-Clark, for instance, now produces Huggies diapers and Kotex feminine napkins in Indonesia. In the Asia-Pacific region, stretching from Australia to India, and to China and Japan, Unilever's Indonesia business is bigger than that in Japan or Australia, and second in size only to India's. Unilever's strong position in the Indonesian market and economies of scale explain its full-blooded commitment to go forward and also why it may be around for another seven decades to come. (Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact [EMAIL PROTECTED] for information on our sales and syndication policies.) ------------------------ Yahoo! Groups Sponsor --------------------~--> Make a clean sweep of pop-up ads. Yahoo! Companion Toolbar. Now with Pop-Up Blocker. Get it for free! http://us.click.yahoo.com/L5YrjA/eSIIAA/yQLSAA/BRUplB/TM --------------------------------------------------------------------~-> *************************************************************************** Berdikusi dg Santun & Elegan, dg Semangat Persahabatan. 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