PETALING JAYA: When domestic growth dwindles or when a company plans for expansion, going overseas seems like a smart move. For Malaysian companies, Indonesia presents good opportunities because of its large population, low labour cost and vast natural resources.
But Indonesia is not the easiest place in the world to do business because it has a high level of regulatory risk.
Bank Negara recently revoked its approval for Malayan Banking Bhd's acquisition of PT Bank Internasional Indonesia because of changes in Indonesia's takeover regulations.
Astro All Asia Networks Plc also suffered a similar fate when doing business in Indonesia. Astro has been forking out RM20mil per month for the last few years to support the Lippo group and has so far invested about RM500mil.
An analyst from a major research firm told StarBiz that Astro's investment was motivated by the hope of forming a joint venture. However, he said, the prospect of reaching an agreement in the upcoming negotiations was not strong, as previous discussions were not successful due to regulatory changes.
Nevertheless, Indonesia's population of 240 million offers enormous potential for a satellite television business. The current satellite TV penetration rate is only 1%, which explains why Astro is determined to grab a piece of the large untapped market.
“Astro's presence in Indonesia has not only increased the awareness of subscription television services among Indonesians, but has also triggered the entry of new players into the market,” he said.
For PLUS Expressways Bhd, as the domestic business growth slowed down, it began to focus on Indonesia to expand its toll concession business. It expects a high internal rate of return (IRR) from its investment in Indonesia.
At present, PLUS is in the process of acquiring land for its Trans-Java highway, the 116km Cikampek-Palimanan highway worth about US$750mil. This project is expected to start generating revenue by 2011.
With the attractive commodity prices, Malaysian plantation companies have invested heavily in Indonesia. As land becomes scarce domestically, they are scouting for land in Indonesia, which is relatively cheap.
Certain islands such as Kalimantan provide plenty of areas for cultivation.
“Total production cost for a tonne of crude palm oil (CPO) is about RM1,000,” an analyst from RHB Research told StarBiz. “Current CPO price is about RM3,000 per tonne, which explains why many major players made hefty investments in Indonesia. “