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Vol. III | April 2015
Dear Readers,
INSIDE
THIS EDITION
Distribution is the critical part of our daily life. It consists of value chain that links
producer farmers, food processors, and manufacturers to end-customers. The
efficiency of the distribution sector widely influences consumer welfare and plays
a major role in price formation, since its input costs and margin constitute a
significant portion of final prices, which can make-up up to 50% of the final price
of consumer goods.
Over the period of 2000—2007, wholesale and retail trade accounted for 40.2% in
value-added creation, making it the biggest contributor from the services sector.
In 2010, the value of wholesale and retail trade reached some US$331 billion and
in 2015 National Medium-Term Development Plan (RPJMN), Ministry of Trade
Republic of Indonesia has set target of growth of average of 7.3%.
ISD held a Dialogue Series II on Distribution Services featuring expert speakers
and policy makers. It is our hope the proceeding will be valuable input for the
Government and public at large to enhance the efficiency and growth of
distribution service sector. In addition, we present to you Servicing Indonesia
Volume III featuring various articles on Distribution Services. Happy reading!
~Sinta Sirait
Executive Director
Focus
Distribution Services: Indonesia’s Backbone to a
Stronger Economy
Distribution is a labor-intensive sector
in Indonesia. It employs around 17% of
total workforce and grows steadily over
the last decade, scoring average 7% of
annual growth, which is higher than
average
national
growth,
5.8%
(Statistics Indonesia).
The fact that Top 5 Biggest Retailers
“only” account for less than 10% of
market share (AIPEG ‘12) makes opportunity in distribution sector remained high.
In fact, this sector deals closely with almost all groups in our society—elite, middle
class, and grass-root—in term of creating jobs and enhancing entrepreneurship.
Indonesia’s distribution sector is perceived as an over-regulated sector. Not only
central government, but local government or regulator also contributes in making
distribution practices less efficient. Issues such as Indonesia National Standard
(SNI), regional minimum wage, and e-commerce trend arise along with the target
of President Jokowi-VP Jusuf Kalla Administration to reach 5.7% of economic
growth in 2015 (Ministry of Finance ‘15).
Distribution sector intertwines with other supporting components such as raw
material, logistics reliability, warehouse, policy reform, purchasing power, and
Global Value Chain. Therefore, to obtain reasonable growth of distribution sector,
Indonesia needs to create investment-friendly climate, put maximum efforts to
lower transportation and inventory cost, and also trigger “export-led” thinking. It is
only possible through continuous dialogue between private sector and policy
maker.
Notes from Indonesia
Services Dialogue
1
Focus
1
Byline
2
Coffee Talk
2
Coffee Talk
3
Snapshot
3
Global Insight
4
Event
4
DISTRIBUTION
IN NUMBER
In 2008, turnover of Modern
Retail (Hypermarket,
Supermarket, Minimarket)
was worth Rp55,4 trillion
(AC Nielsen)
In 2010, trade in Wholesale
and Retail contributed
14.34% to Indonesia’s Total
GDP (AIPEG)
There were 45 million
people shaping Indonesia’s
“Consuming Class” in 2012
(McKinsey)
A.T. Kierney’s Global Retail
Development Index 2014
placed Indonesia as the 15th
(out of 30 developing
countries) most prospective
country to expand Retail
Sectors, increased from the
19th position in 2013
Act No. 9/1995 about Small
Enterprise was the first Act
that mentioned the word
“Franchise”
Servicing Indonesia | April 2015 | 1
Byline
2015—16 Outlook for the Retail and Consumer Products Sector
in Asia: Indonesia by Economist Intelligence Unit’s Industry & Management Research Division, PwC
The Economist Intelligence Unit forecasts that retail sales in Indonesia will rise from
an estimated US$330 billion in 2014 to US$639 billion in 2018. In local-currency
terms, growth in retail sales will average 12.1% a year in 2014—18, but rapid inflation
means that average annual volume growth will be much lower, at only 4.9%. Together
with restaurants and hotels, the retail and wholesale sector employs about one-fifth
of the labour force, or around 25 million people. Supply remains highly fragmented
and is dominated by informal retailing. For example, in the grocery sector the five
largest firms have a combined market share of just 3.8%.
In rural areas the retail sector remains dominated by independent grocers and wet markets. However, shopping
centres and malls are proliferating in Jakarta. In the other major cities there has been strong growth in the
construction of “trade centres”, which offer lower prices than normal malls. As a result, urban areas, which
accommodate around 60% of the population, will remain the focus of retail activity.
Although Indonesia’s large domestic market and favourable demographic profile (28% of the population is under
the age of 15) offer long-term potential, sales growth will continue to be constrained by high levels of poverty and a
tightening monetary policy stance. Moreover, very wealthy Indonesians will continue to carry out much of their
high-end shopping abroad, with Singapore, Paris and Milan being the most popular destinations. This habit will be
further fuelled by the authorities’ decision in December 2013 to raise the tax rate on 870-odd imported non-food
consumer goods from 2.5% to 7.5% in 2014. Various government officials have also spoken in favour of increasing
the rate of the luxury goods tax.
The main growth prospects will remain the sale of relatively low-cost staple goods. Sharp inequalities in income
distribution will mean that there is also a market for higher-cost, luxury items, especially in the capital, Jakarta,
although the weakness of the rupiah in 2014—15 will make many of these imported goods more expensive.
To read complete version of this topic, please click HERE
Coffee Talk
“Export-Led” Thinking to Lift up Local Suppliers to the Next Level
Operating 365 stores in 47 countries,
the Swedish giant retailer, IKEA,
decided to open the first store in
Alam Sutera, Tangerang, Indonesia,
last 2014. But, the English proverb,
“When in Rome, do as the Romans”,
sounds very relevant with the
situation—each country has its own
policy and regulation. Mark Magee,
General Manager IKEA Indonesia, reveals IKEA’s journey
from the opening up until today.
led” thinking because with a very large local market,
their focuses are only on local demands.
What do you mean by “export-led” thinking?
I am from England, country with less than 1% of world
population. So, the mentality I was taught is that we
have 99% of market outside England. With “export-led”
thinking, Indonesian will not think to produce as many
products as possible for one IKEA store, but how about
producing 10% of total products for the global IKEA?
Indonesia is gifted with raw materials and high
availability of labors. IKEA has technology, technician,
and access to global market. We need partners who are
willing enough to see this big picture.
Why did IKEA decide to enter Indonesia?
If you look at the economy of Jabodetabek (Jakarta,
Bogor, Depok, Tangerang, and Bekasi), it has GDP and
population greater than Malaysia. There are 28 million Do you find any policy that is causing inefficiency in
people and around one-third of them have disposable IKEA operation in Indonesia?
income. In the next ten years, we believe
I wouldn’t say there is only one Bill that
“No company will make causes inefficiency since all businesses
it will increase to two-third.
significant investment if are facing changes in policy or
How did IKEA embrace Indonesian the future is not certain.” regulation. When Ministry of Trade
suppliers?
introduced policy of 80% of local
IKEA has actually sourced products in Indonesia and I sourcing, IKEA was able to build the case for exemption.
am very much in favor of Indonesian suppliers because But, it took a year to get the “exemption” status. In that
it will save our cost from importing. I encourage them year, if we had plan to expand into other area, the plan
to not only supply for IKEA Indonesia, but also to 365 would be delayed. No company will make significant
IKEA stores around the world. They must have “export- investment if the future is not certain. The current
Servicing Indonesia | April 2015 | 2
status is, that 80% of local sourcing policy will never be
applied to the first and the second store of IKEA. It aims
to make the opening of second IKEA store easier. For
the third store, we have agreed that volume of export
will be greater than volume of import. So, if the third
IKEA sells more, Indonesia will export more. Besides
that, we cannot import any ceramic because no foreign
suppliers met Indonesian standard (SNI). Finally, we
source ceramic locally. We also face the problem for
children toys since its checking procedure is very tough.
It took 29 weeks to import our first container of
children toys. This long process is translated into prices.
Do you have advice for Indonesian Government?
We need regulation that is not regularly changed and
that the implementation of the regulation avoids the
law of unintended consequences, which means that you
create a regulation for good reason, but not fully seeing
the impact. The Government should make Indonesian
suppliers easier to invest in production capability to
meet global demands and not only ASEAN. It could be
tax incentive on capital investment or something else.
Growth in Distribution Services is not Beyond the Reach
Turning
family-structure business into an integrated functional business with 17 subsidiaries,
Shinta W. Kamdani, CEO Sintesa Group & ISD Board of Founders, is acknowledged as one of
“Asia’s 50 Powerful Businesswomen” by Forbes (2012—2013). In this edition, she shares her view
about the future of Indonesia’s distribution sector.
What is the biggest challenge in current distribution services?
The biggest challenge we face is fluctuation of oil price because it is linked with delivery cost. In
the National Medium-Term Development Plan (RPJMN) 2015—2019, the Goverment aims to reduce logistics cost
from 23.5% (2014) to 19.2% in 2019 by commencing the construction of 3,650 roads and toll road, dozens of
seaports and airports, and more than 3,000 km of railways. These efforts will shorten delivery time and thus
increase efficiency in distribution services.
How could Indonesia’s distribution sector benefits from ASEAN Economic Community (AEC) 2015?
AEC 2015 is a good opportunity because distribution services is comprised in 12 sectors that will be liberalized. We
should put our eyes on Small Medium Enterprise (SME) since 53% of GDP is contributed by SME. With sustainable
cooperation between SME and distribution services provider, we can provide the best price of goods to customers.
Through AEC 2015, exporting distribution services would be much easier. But, there are three things to consider
before we decide to export: improving our competitiveness, examining distribution system of a country we wish to
export, and calculating the risk.
What should the Government do to accelerate growth in Indonesia’s distribution sectors?
People are keen to imported goods for daily necessities whereas local products provided by local SME are actually
not less adequate compared to the imported. The Government should reinforce SME to participate in retail sector
by accomodating wide range of facilities to increase their competitiveness. Distribution services is an economic
catalyst that connects producers and consumers. Therefore, the Government should improve transportation
infrastructure to build inter-island connectivity and in the same time accelerate the growth of SME.
What is your “secret recipe” to build a successful distribution company?
The biggest portion in distribution services are transportation and inventory cost. In this sense, the company needs
to arrange right schedule in storage and transportation management. We also need to restructure working
environment, urging more productivity whilst giving more incentives to those who perform better. Besides physical
investment in distribution center, warehouse and transportation, investment in qualified human capital, standard
of quality, and information technology should be carried out since it will result on future success.
Snapshot
“What should private sector do to increase efficiency in Distribution Services?”
“To reduce logistic costs, improve high standard in distribution services, and solve problems arising from
infrastructure bottlenecks, it would be good to have engagement at all levels of government with private sector.
In the end, this will benefit both private sector and society as a whole.”
-Catharina Widjaja, Director PT. Gajah Tunggal Tbk.
“Distribution sector depends on other services such as logistics and transporation as well as better regulatory
framework. However, improvement can be achieved with the adoption of technology and modern management,
which ensure lower cost of inventory and selling. Better and more direct arrangement with producers, which
cuts supply chain of products, would also increase the efficiency.”
-Yose Rizal Damuri, Head of the Department of Economics, CSIS
Servicing Indonesia | April 2015 | 3
Global Insight
“SERVICES are tradeable”
In his visit to Jakarta last March, John Goyer, former Vice President
of U.S. Coalition of Services Industries (2003—2011) who is
currently serves as Senior Director, Southeast Asia, at U.S. Chamber
of Commerce, emphasized the importance of services sectors for
national economic growth. He came with representatives from Walt
Disney, Universal Music, ESPN Sport, and also conducted dialogue
with various local Indonesian film, music, and entertainment
sectors leaders.
Left-Right: Sherly Susilo, Sinta Sirait, Tami Overby,
Hariyadi BS. Sukamdani, A. Lin Neumann, John Goyer
“Indonesia has large number of young population. There are so
many talents in Indonesia that can work together with Walt Disney
or Universal Music. Services are tradeable in cross-border context because Indonesian talents can work from
Indonesia and do not necessarily need to go to Walt Disney’s Headquarter in California,” said Goyer.
According to Goyer, services sectors generate around 80% of GDP in USA. And, the rule of thumb is that the greater
per-capita income, the greater portion of GDP generated by services sectors.
Therefore, increment of Indonesia’s per-capita income, which result in emerging number of middle class, should
claim services sectors as “golden child” as it will strengthen economic fundamental and create numerous jobs for
Indonesian. Opportunity for export in services is widely open since services are tradeable in cross-border context.
The growth of one services sector might influence the others. For example, when we talk about music in online
market, it helps driving the development of broadband services. The greater demand of downloaded online music,
the greater the needs of internet broadband. In the end, it will also strengthen another business like e-commerce.
“The change in one services sector will bring knock-on effect to many other sectors,” added Goyer.
Event
On
March 25th 2015, Indonesia Services Dialogue held Dialogue Series II on Distribution Services “Enhancing
Domestic Efficiency, Identifying Trade Opportunity”. For complete review, please click HERE
1. Noke Kiroyan from ISD Board of Founders
gives opening remarks.
2. Mark Magee, GM IKEA Indonesia.
3. Jimmy Bella, Secretary of Directorate
General of Domestic Trade Ministry of
Trade RI.
4. Question & Answer Session.
5. Ahmad Junaidi, the Director of Case and
Decision Proceeding Commission for the
Supervision of Business Competition.
6. Anthony Cottan, COO PT. Mitra Adiperkasa
Tbk.
7. Participants of Dialogue Series II.
8. Speakers, Panelists, and Moderator.
SAVE THE DATE
Date
Time
Venue
: May 7th 2015
: 14.00—17.00 WIB
: Mitra Building (HO of
PT. Indika Energy Tbk.)
Jl. Gatot Subroto Kav. 21
Jakarta
Agenda : Dialogue Series III on Energy
Services “Services Role in the
Energy Sector”
Permata Kuningan Building, 20th Floor.
Jalan Kuningan Mulia Kav. 9C. Setiabudi, South Jakarta, Indonesia 12980
Phone: +6221-8378 0594. Fax: +6221-8378 0594.
Website: http://www.isd-indonesia.org. Email: [email protected]
Servicing Indonesia | April 2015 | 4