Between labor strikes and low tar and nicotine requirements

SURABAYA (JP): A labor strike is not considered a major obstacle for the operation of cigarette companies in East Java. At least that is what HM Sampoerna feels. There are, however, differing opinions among other East Java companies who have experienced numerous labor strikes this year. It was said by some that the scale and the nature of the strikes scared investors away from East Java.

HM Sampoerna Corporate Communications Manager Yudhi Rizard said: "I don't think labor strikes become an obstacle." HM Sampoerna produces the A Mild and Dji Sam Soe brands among many other famous brands. Maybe they are just lucky. During 2000, HM Sampoerna, which operates six factories in East Java with a total labor force of 27,455, experienced one strike, in January. And according to the company, the strike had no base; the laborers failed in their case.

HM Sampoerna said it had a smart strategy in dealing with labor strikes. "We always follow the rules. We operate according to the laws and regulations. If their demands are outside the regulations, we do not give in to them." Indeed, most labor demonstrations nowadays are for demands which are not regulated. At Sampoerna for instance, employees' wages are already higher than the average minimum wage decided by the government, basic facilities are fulfilled, and yet, the company said, they still demand other things. So, in Sampoerna's case, "In that January strike, we didn't give in to what they demanded. We were on the right track. They finally gave up," said Yudhi.

However, other cigarette companies would not give any comments on this matter. They even refused to meet or talk with The Jakarta Post. Gudang Garam, the biggest cigarette company in Indonesia, and the one which seems to experience the most strikes, refused to comment. "Our director is very busy right now," said a secretary, after the Post tried to approach the executives through telephone calls and faxes.

However, there is a legendary love story between the company Gudang Garam and the city of Kediri, the site of Gudang Garam's works. The physical development of the city, located about 140 km south of Surabaya, has the Gudang Garam touch on it. Gudang Garam not only helped the local government by providing jobs for the local people, but it also built the infrastructure necessary for the city. It was recognized as a dream place to work.

But this changed dramatically when a labor strike started almost four years ago. It was the beginning of many strikes until today. An elderly woman who lives beside one of the factory once told the Post that the Gudang Garam owners were very generous people. At Idul Fitri, almost everybody in the neighborhood received a parcel from them. So, nonworkers would never understand why the laborers go on strike with such a generous employers!

Toward healthier products

What has become a concern among cigarette company owners is the PP38, a government regulation on the obligation to reduce the nicotine and tar level in cigarettes. This regulation will affect many cigarette companies, especially those producing Sigaret Kretek Tangan (SKT -- hand-rolled clove-flavored cigarettes). The process of reducing tar and nicotine levels is not a simple one. It needs sophisticated technology, which is not owned by middle- to lower-level companies producing only SKT cigarettes.

"Sampoerna began producing such low-tar cigarette 10 years ago," said Yudhi Rizard, referring to its A Mild brand. "But to put the regulation in effect, it will take some time. Cigarette companies need to carry out technological adjustments on equipment." Even though this regulation threatens the existence of many cigarette companies, Yudhi admitted that it was good for healthier cigarette products.

Filtrona, a British-based company producing cigarette filters, can see a bright future because of the strict government regulation. Filtrona Indonesia President Director Hamish A.M. Pitt said, "Filtrona's key ability, which is famous in the world, is in the low tar and low nicotine cigarette processing business. We are very experienced in this matter."

But he understands why it is difficult to implement the requirement of PP38. "To reach a certain degree of tar in a cigarette, it needs a long process. It starts from the way the tobacco grows, how long the tobacco leaves are stored and dried, the way they blend with other materials, and other things. It changes the way cigarette production is usually run, and it takes a sophisticated production technology," explained Hamish.

The 50-year-old Filtrona company is now spread throughout 10 countries, operating 12 factories. One of the companies was established in Surabaya, Indonesia, in 1988. They produce a large range of cigarette filters as their core business, self-adhesive tear tape (used for/as cigarette packing seals), and other products such as fiber for air fresheners and ink reservoirs for pens. The company also functions as the agent for cigarette- measuring instruments.

There are two kinds of cigarette-measuring instruments: the physical and the chemical. The physical instrument measures length, hardness, roundness, weight, resistance, etc., of cigarette products. The chemical instrument measures tar and nicotine levels in a cigarette and analyzes how a cigarette affects the health of a human being.

Among the several kinds of measuring instruments that Filtrona supplies to cigarette companies is a smoking machine. "It is a machine which mimics a human's reaction after a cigarette is smoked by it. If the machine is coughing badly, the product needs to be improved. It does not fulfill the health standard required," said Hamish. These kinds of machinery are used to provide the best products for consumers, especially in protecting them from unnecessary damage.

Asked about its customers, Hamish said that almost all cigarette companies in Indonesia buy filters, self-adhesive tear tape and measuring instruments from them. "Some big companies have their own machines. They are able to produce what they need themselves. But still, for their exports, they buy the necessary elements from us. Even though it is only a small purchase."

If bigger companies buy small amounts from Filtrona, middle- to lower-level companies depend entirely on them for such additional elements.

Bright future

Cigarette companies seem to have a bright future, especially if the low tar and low nicotine requirement is implemented. Sampoerna has just opened a branch in Brazil in October, adding to its international branches which are spread throughout Myanmar, Vietnam, the Philippines and Malaysia.

Budi Handoyo, one of the directors of Bentoel, which is based in Malang, refused to comment on the company's future plans. "We are very busy right now. We experienced many problems this year. We are concerned in dealing with our internal problems," Budi explained.

Hamish is optimistic that the future of East Java cigarette companies is good. "East Java is the center for cigarette production in Indonesia. It has the raw materials and it has the human resources. On top of that, it has the biggest market." It was for this reason that Filtrona, which was first established in Medan in 1977, moved to Surabaya 11 years later. It has proven that the monetary crisis did not affect people's habit of smoking.

Hamish, as well as Yudhi Rizard, gave a similar observation, that in time of crises, people still smoked, or even smoked more. They might change their brand of cigarette -- to a lower priced ones -- but they still smoke. "To keep away the stress," said Yudhi jokingly.

If the changing of brands affects big companies like Sampoerna, it does not affect a filter producer like Filtrona. "Middle- to lower-level cigarette companies demand filters. And when their sales go up, their purchase of our products go up accordingly. The worst is when people change their brand to a lowest priced one -- the sigaret kretek, which does not require filters."

But according to Hamish, with the PP38 regulation, eventually all cigarette companies in Indonesia should obey the tar and nicotine level requirements. "Sooner or later, all companies will demand filters to fulfill that requirement." (Sirikit Syah)