The Homa Files

TakeAway:  The unfortunate truth about emerging markets is that companies cannot make market entry decisions based only on traditional variables such as consumer wealth and spending. 

A country’s operating environment (i.e., the political environment) is a key decision making variable and one that often causes companies to turn away from otherwise appealing markets. 

The good news for Indonesia is that companies are forgiving and are willing to reconsider markets that they previously declined to enter. 

Indonesia’s improved political environment and booming consumer spending will likely put the country back on the radar screens of many large companies.

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Excerpted from WSJ, “Brands Bet on Indonesia as Spending Booms,” By Patrick Barta, April 8, 2010

International companies are betting Indonesia will become Asia’s next big consumer market after China and India—in part because of booming jungle outposts like this one.

Here in Samarinda, a coal-mining center on the far eastern edge of Borneo, the population has more than tripled since 2000, and incomes are rising rapidly. Ford has added its first dealership and Honda motorcycle salesmen say they can’t get motorbikes fast enough to keep up with demand.

Variations of that pattern are being repeated across this vast nation … Ford dealers are adding a new showroom nearly every six weeks … CVC Partners agreed to pay more than $770 million for a controlling stake in one of country’s largest retailers, PT Matahari Department Store, which plans to add 150 new outlets …

H.J. Heinz said that Indonesia played a major role in pushing Asia sales, including chili sauces, up 41% last year. It also recently predicted a 23% increase in packaged food spending in Indonesia between 2009 and 2011—a faster rate of growth than India and China, which were expected to grow 20% and 14%, respectively.

With 240 million people, the world’s fourth-largest population behind China, India and the U.S., Indonesia has long promised to be one of the world’s biggest consumer markets. But it has lagged behind other developing nations because of political instability and disappointing growth after the Asian financial crisis of 1997-1998.

That has started to change in the past several years … with a democratically elected government and surging sales of commodities such as coal, natural gas and palm oil to China.

Last year, Indonesia posted the second-highest personal spending growth in Asia, behind China. Private consumption climbed 5.1% compared with 0.4% growth in Asia excluding China …

Unilever’s Indonesian arm, which sells soaps, ice cream and other consumer goods, said in March that 2009 sales shot up 17%—well above previous years and among the fastest rates in the world for Unilever …

Indonesia’s resurgence as a consumer market is the latest evidence that developing Asia, which for years relied primarily on exports for growth, is becoming more self-reliant as it develops a bigger middle class and its own domestic demand.

Indonesia still rates poorly in international indexes measuring corruption and ease of doing business, and many foreign companies remain wary. Income levels are low compared with other emerging markets, with GDP per capita of just $4,000, less than half the level of Brazil—though more than India.

The country also isn’t industrializing as rapidly as China and other emerging markets, which could limit its growth in future years … Even so, “it’s a very strong market” for consumer-spending gains

Powering the rebound, analysts say, is surprising strength in once-ignored second-tier cities, which in some cases are posting growth rates approaching 10% a year, on par with China …

These areas are also benefiting from political reforms after the fall of former dictator Suharto in the late 1990s aimed at decentralizing the country. Such “regional autonomy” reforms, which return more tax revenue to local governments and give them more authority …

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Full Article
http://online.wsj.com/article/SB20001424052702303591204575169704072987766.html#mod=todays_us_marketplace

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This entry was posted on April 16, 2010 at 7:38 am and is filed under Mktg - Global - BoP. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.