Apkindo's export monopoly is outdated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.