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.