Between labor strikes and low tar and nicotine requirements

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)