Apkindo's export monopoly is outdated

Apkindo's export monopoly is outdated

By Vincent Lingga

JAKARTA (JP): Apkindo's Chairman Bob Hasan is unquestionably the man
most responsible for bailing Indonesia's plywood industry out of an
almost billion-dollar bubble in the late 1980s.

He was also the man who single-handedly built up Apkindo into a
financially powerful exporter organization which is dreaded by most
importers overseas.

Bob, who himself owns one of the country's largest wood business
groups, was the creator of the marketing strategy through the
association that has brought Indonesia to dominate almost 80 percent of
the world's hardwood plywood market.

Most Indonesian wood companies encountered severe cash-flow problems
in the second half of the 1980s because forest concessionaires, faced
with a total log export ban beginning in 1985, rushed to build plywood
mills in the first half of the 1980s.

Indonesia's plywood capacity expanded phenomenally from a mere 19,000
m3 in 1983 to more than six million m3 in 1986 and to more than 10
million m3 today.

But since the massive capacity expansion was much faster than the
market could absorb, producers simply could not sell. Most mills,
including the big ones, faced severe liquidity problems. Banks were
forced to reschedule or restructure their loans.

The problems were exacerbated by extreme lack of export experience
because they previously exported only logs and sawntimber and by the
unusually high capital costs of mills as investors should build almost
all the basic infrastructures.

Moreover, the major export markets such as Japan, Taiwan and South
Korea understandably tried to put up strong resistance to plywood
exports from Indonesia because their own plywood mills previously
procured most of their logs from Indonesia which has the world's second
largest tropical forest resources.

Each of the plywood companies tried to market its products in its own
way and found itself at the mercy of buyers overseas. A price war
between Indonesian mills ensued.

Then Bob Hasan entered the scene. As soon as he took over the
leadership of the Indonesian Wood Panel Association in the second half
of the 1980s he stopped the price war and, with the full support of the
government, set up an export quota system and price guidelines that
should be honored by exporters.

Not a single company could export without Apkindo's approval. Apkindo
took harsh disciplinary action against companies which exceeded their
export quotas and undercut Apkindo's price guidelines.

Bob set up seven joint marketing boards made up of the executives of
major companies. Each marketing board was assigned to attack a
designated market.

He practically declared war against hardwood plywood mills in Japan,
South Korea, Taiwan and many other countries.

Backed up with strong financing derived from the fee collected from
exporters, Apkindo subsidized plywood companies which were willing to
attack a new market.

Subsidies were not given to companies which sold to export markets
already dominated by Indonesian plywood.

Indonesian plywood exports rose steadily from 4.5 million m3 in 1986
to top at 9.7 million m3 in 1992. The export volume remained stagnant at
the 1992 same level in 1993.

But not satisfied with the market domination, Apkindo further
tightened up its export mechanism by setting up marketing arms overseas.
That new policy was considered unnecessary by most Apkindo members as it
virtually set up a cartel-like organization. But Bob Hasan went ahead
with the new strategy.

First, Nippindo was set up in a joint venture with Masaki corporation
in Tokyo as the gateway of exports to Japan. Importers in Japan can no
longer buy directly from Indonesian mills, which in turn cannot sell
directly to the Japanese market, but only through Nippindo.

Similar marketing arms followed in the early 1990s, each responsible
for a designated market.

Celandine Co. Ltd. was set up in Hong Kong to handle exports to China
and Taiwan, PT Fendi Indah in Jakarta to handle the market in the Middle
East, Fendi Wood in Singapore to cover Singapore and Europe and Indo Kor
Panels Ltd. in Hong Kong for the Korean market.

Each marketing arm obviously charges a fee of exporters which,
according to plywood company executives, ranges from $5 to $6 per m3 of
plywood exported. This fee is in addition to the $10/m3 collected by
Apkindo for financing its operations.

The new policy, as the executive of a major plywood company in
Jakarta said, made the marketing managers in Apkindo's more than 100
company members inactive as they now act simply as clerks who notify the
marketing arms how much plywood and which quality standards their
companies have for export for a certain period of time. The marketing
arms then match the export orders with the import orders they receive
from importers overseas.

The executives of many plywood companies seem in the dark about the
ownership of the marketing arms.

Some of them even suspect that the marketing arms mark up the prices
when the market is strong.

The problems caused by the marketing-arm system and the bad name
Indonesia has gained in major export markets has raised the question as
to whether Apkindo's heavy-handed marketing system has outlived its
usefulness.