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.