Despite problems, LG vows to stay in Indonesia, CEO says

Despite problems, LG vows to stay in Indonesia, CEO says

The subsidiary of South Korean electronics giant LG Electronics
started operations in Indonesia in 1989 under the name of PT
Goldstar Astra. The firm was renamed PT LG Electronics Indonesia
in 1999. Now, the firm has around 1,500 workers at its plants in
the country producing TVs, VCRs, refrigerators, air conditioners,
cellular phones and DVD players. It leads the country's TV market
with a 35 percent market share. The company's President Director
Young H. Kim recently talked with The Jakarta Post's reporter
Abdul Khalik about the firm's business outlook.

Question: Among the items the company produces and sells, which
one contributes the most in terms of sales?

Answer: Out of our US$ 230 million yearly sales, around 50
percent is generated from TVs and refrigerators. Around $100
million of this total revenue comes from exports, while the rest
from the domestic market.

How much has LG invested here?

We made an initial investment of $50 million. Every year, we have
to invest another $10 million to build new plants and develop new
products.

How do you see the prospects for LG operations here?

There two aspects involved if we talk about business prospects in
the country. On one side, we should see the local market
potential compared to that of the foreign market; and on the
other side, the competitiveness of the locally produced items
compared with foreign products. Compared to other countries'
markets, Indonesia's is not yet mature, meaning that it could
grow faster, reaching a 20 percent increase per year. We also
predict that the income per capita of its people will reach
$2,000 in two to three years from now. This will be a huge market
for us. However, Indonesia still lags behind (other countries) in
terms of product competitiveness.

Could you describe the lack of competitiveness?

I will give you some examples concerning this issue. First, the
material cost is higher here compared to other countries, such as
China, because of higher transportation costs. There is also no
benefits given to foreign companies. For example, the Korean
government will help a foreign company if it employs more than 20
people by paying some of these employees' wages. We have no such
benefits here. The next is poor infrastructure, which is not
adequate enough to support industry expansion. The customs
clearance is also very long here in Indonesia. It can take up to
one month before we can get something released from the customs
area, compared to only a week in Korea. Ocean freight is also
higher here because for almost a similar price, the volume of a
container is smaller here than in other countries, such as China
and Vietnam.

Given such problems, will LG still make new investments?

Yes, we still have plans to increase our capacity in every
product line. We will raise our capacity in TV production from
the current 1.5 million units to 3 million units per year. We
also want to increase the capacity of our refrigerator production
from the current 900,000 units to 1 million. In total, we want to
expand 50 percent of our current capacity in the next three
years.

Some people complain about the low productivity of Indonesian
workers. Do you share that feeling?

I think the Indonesian workers have more or less the same
productivity with Korean workers, with their level of
productivity reaching 92 to 95 percent compared to that of their
Korean counterparts.

We've never heard labor strikes at your plants in recent years.
What is your human resource management secret?

We continue to campaign for one culture for one company. There is
no Indonesian or Korean culture because only the company culture
exists. So, we don't differentiate between Indonesian and Korean
workers. For example, we have closed a dining room for Koreans in
our factories, and instead, we demand that our Korean employees
eat together with other workers.

How do you see the upcoming presidential election affecting LG?

We are very optimistic about whomever the newly elected
government consists of, I think they will support the business
sector. That's why we keep on planning to invest in the new
plants even though it is not clear who will win the election. And
based on the (recent) legislative election, we are sure that the
upcoming presidential election will be peaceful also.