Geared up for free trade
Geared up for free trade
President Soeharto was not exaggerating when he cautioned at the opening of a bazaar in the National Monument park on Monday that the national economy will be in great danger if the people continue to prefer foreign-made goods. He is right because it is consumer demand that fuels the growth of the manufacturing sector, thereby creating jobs and providing earnings for the people to buy more goods.
The President was obviously hinting at a possible impact of trade liberalization in the ASEAN region in the year 2003 and in the Asia-Pacific region by 2020 when foreign goods may flood the domestic market as import tariffs will be cut to a maximum of 5 percent and almost all non-tariff barriers will be abolished.
Indonesia, with an estimated population of 195 million people, is at present one of the most attractive target markets for foreign companies, notably those in the seven-country ASEAN Free Trade Area (AFTA). The purchasing power of the people will steadily increase as the annual economic growth target is at least 6 percent for the next two decades, and the country will become a huge market for all categories of goods and services.
The huge market, instead of creating opportunities for the domestic manufacturing sector, might most benefit the producers from the other six countries of ASEAN if, as the President forewarned, people continue to prefer foreign-made products.
The biggest challenge, therefore, is to make the people buy domestic products. Simply appealing to consumers' sense of nationalism by reminding them of the devastating impact of the domestic market being dominated by foreign products, will not be sufficient to promote local products. The President himself, though stressing the need to educate consumers to appreciate their own products, also urged industrial firms to improve quality and distribution networks. In fact, the educational campaign to inculcate a high sense of appreciation among the people towards home products should be conducted simultaneously with marketing promotions by domestic producers.
Marketing promotions, in their broadest sense, require industrial firms to keep themselves appraised of consumer preferences, to maintain steady supplies, through efficient distribution networks, with consistent quality and reasonable prices, and to provide reliable after-sales services.
The seven years remaining before AFTA becomes fully operational are still adequate for our industrial firms to gear up for the fiercer market competition they will face. But they must start their preparations right now. They should realize that after the year 2003 the Indonesian market will become an ASEAN market in terms of competition. The intensity of the market competition will further increase in the year 2020 with the start up of the Asia Pacific free trade area.
We think common business sense will prompt consumers to prefer local products provided they are on a par with foreign goods in terms of quality and price and as long as the domestic suppliers consistently provide all the basic services needed to maintain loyal customers. Simply in terms of distance, for example, the domestic suppliers are already in an advantageous position over foreign suppliers with regards to transportation costs and speed of delivery.
The latest worrying trend, whereby imports of consumer goods have increased sharply, albeit from a low volume base, provides a strong warning to domestic companies that they need to step up their internal reform in order to improve their overall competitiveness. However, these companies do not work in a vacuum. That means the government should do its share of creating a conducive climate for sound business development. Put another way, the bureaucratic and regulatory environment in Indonesia should be as pro-business as it is in the other ASEAN countries.