History of modern advertising business in Indonesia
History of modern advertising business in Indonesia
By S. Vaidyanathan
JAKARTA (JP): The 1960s was a heady period in Indonesia's national history. In the early 1960s, Indonesia experienced rampant inflation and food shortages due to the Old Order's violation of economic rationality in nation building. The economy was closed to the world. The government was the chief source of information. No urgent need was felt for advertising. Television, introduced in 1962, had restricted air time and reach. Those were the days when market economy was perceived as the devil himself.
The New Order government ushered in the winds of change in the late 1960s. It made attempts to stimulate the economy. Foreign- trained economists played a key role in formulating and implementing policy. An economic system built on profit incentives and competition, known as the market economy, was seen to be the formula for successful nation building.
The foreign investment law was promulgated in 1967, followed by the domestic investment law in 1968. Foreign investment began pouring into the manufacturing industry. The local manufacturing base began to expand. The development of infrastructure meant more roads and electricity in the countryside where hitherto access had been impossible. This also meant ready access to a huge, untapped market.
Marketing techniques as they were known then were not consumer oriented. They were centered around conservative beliefs. Consumer goods were fewer in number, range and choice. Buying power was limited with the per capita income at US$70. The geographical spread of the archipelago further compounded the difficulty of penetrating far-flung markets. The penetration of the print media was concentrated in urban areas because distribution in rural areas was cost prohibitive.
Moreover, advertising agencies were viewed as little more than sign and billboard makers at that time. Their ability to influence consumption patterns through concerted ad campaigns was still suspect. However, the influx of foreign investment accelerated the need for modern marketing and advertising techniques.
Multinationals
The multinational corporations who came with their products were precursors to the modern advertising agencies in Indonesia in some ways. In the days before the multinational corporations (MNCs), the consumer would look for products in the marketplace. With the coming of the MNCs, products were looking for consumers. The multinationals and their modern marketing techniques created an intense need for advertising agencies which were capable of providing comprehensive, integrated services which went beyond mere media placement and outdoor or billboard sign making.
Beginnings
In 1963, the first solely Indonesian advertising agency called InterVista Advertising Ltd. was established by Nuradi, the guru of the advertising sector in Indonesia. He is credited with having changed the image of advertising agencies, which were viewed as nothing but media placement shops. Lintas, as the promotional arm of Unilever, was already present in the country at that time.
With the coming of other MNCs into the country, it was not long before their respective ad agencies gained a foothold in the slowly emerging playing field. Coca-Cola came to Indonesia. And it was only to be expected that McCann-Erickson would follow suit. Global agreements often compelled international ad agencies to follow their MNC client wherever they went.
By the early 70s, companies which had taken advantage of the new investment laws were looking to market their products. In the period before 1970, ad campaigns as we know them today were practically non-existent. Ad spending was consequently insignificant. With the exception of InterVista and Lintas, ad agencies performing integrated services were non-existent.
With the new political wind that blew over the country in the late 1960s, things had begun to change. The early 1970s saw the birth of several of the well known Indonesian ad agencies of today. Matari Advertising was set up in 1970 by Kenneth T. Sudarto and Paul W. Karmadi. Fortune Indonesia was established in 1970 by Mochtar Lubis. IndoAd was founded in 1970 by Emir Mochtar. AdForce was founded in 1972 by Sjahrial Djalil along with Kamardi and Mrs.Sudarto.
In course of time, local companies were looking for ways to expand their market outside Indonesia. They needed advertising services abroad. A need was felt for forging tie-ups with international agencies which would be mutually beneficial. These tie-ups, in course of time, promised access to the latest in advertising techniques, skills, and above all, creative concepts and ideas.
Tie-ups begin
There were many different ways in which local agencies entered into alliances with international agencies. Many Singapore-based companies, for instance, wanted to seize the new opportunities that Indonesia now presented as a potential market for their products. In doing so, they preferred to rely, in the early years, on the then existing Indonesian agencies to advertise their products as these local agencies had the inherent advantage of knowing the local market.
The companies' ad agencies in Singapore entered into representative arrangements with the Indonesian agency. Matari began by representing Marklin Advertising based in Singapore. Soon it began representing other well known international agencies such as Leo Burnett. Through United Multi Media, Matari entered into a co-operative agreement with J. Walter Thompson. Fortune Indonesia began with a managerial and technical tie-up with Fortune International. IndoAd's ties with O&M began right from the time of its founding.
The Indonesian advertising industry thus saw a steady growth in the number of international ad agencies' presence through representative or other arrangements. However, as business grew, the foreign ad agencies representing their client companies smelled a long-term business opportunity in the country and looked for ways to establish themselves more visibly. The seed was thus sown for a more meaningful presence in Indonesia.
Media growth
Parallel with the growth of the ad agencies is the growth of the print and electronic media in Indonesia. TVRI, established in 1962, was the only television station and would only accept commercial advertising on a limited scale. This stopped when the government banned TV ads in 1981.
TV ads were viewed as being capable of encouraging consumerism and materialism and this was looked upon as posing a real threat to a conservative society like Indonesia, with its diverse ethnic groups. The growth of the electronic media in Indonesia was thus temporarily curbed.
By 1989, the government's thinking had changed considerably. The continuous economic development brought about by the five- year development plans had increased Indonesia's per capita income from a mere US$70 in 1969 to US$520 in 1989. Literacy levels had also increased. In the age group of 5 to 29 years, literacy was a high 85.5% in 1989.
Consequently, an increasingly educated and a more sophisticated middle class, capable of making a more informed choice, was emerging in Indonesia . Moreover, with the rapid expansion of the consumer goods industry during this period, the government felt the need to revitalize the domestic market and make it more lively. The expansion of exports also demanded that goods produced for the international markets should be made more competitive. This resulted in a series of deregulatory measures which aimed at opening up the industry and modernizing communication links.
After 1989
From a single TV channel up to 1989, the electronic media industry saw a revolution with the appearance of the country's first private television station RCTI in 1989, followed quickly by SCTV in 1990, TPI in 1991, and AN-TV in 1993. The last to appear was Indosiar, on Jan. 11, 1995.
Also in the electronic media sector, from 1989 to 1994 the number of commercial radio stations grew from 498 to 600, while the central government owned stations, led by Radio Republic Indonesia, grew from 49 to 50 during the same period.
In the print media sector, the total number of publications (newspapers, magazines and bulletins) grew from 271 in 1989 to 286 in 1994.
Television's penetration among adults in the population of 15 years of age and above, in six major cities of the country during the period 1990 to 1994 period grew from 60.1 percent in 1990 to 67.8 percent in 1994. The comparative figures for those years for radio were 59.8 percent and 53.7 percent and that for daily newspapers 49.1 percent and 50.8 percent for the same yeas. Media Scene projects the following figures for 1995: 82.6 percent for television, 53.2 percent for radio and 50.2 percent for the print media.
Ad spending
The ad spending cake has grown steadily ever since television was deregulated. In 1990, total ad spending was Rp 639 billion, of which newspapers accounted for Rp 320 billion or 50.1 percent, radio Rp 105 billion or 16.4 percent, and TV Rp 51 billion or 8 percent. Outdoor advertising, magazines and cinemas accounted for the balance. As against this, total advertising expenditure in 1994 was Rp 2,286 billion, of which Rp 743 billion or 32.5 percent went to newspapers, Rp139 billion or 6.1 percent went to radio and Rp 1062 billion or 46.5 percent went to television.
Ad spending grew by 66 percent from 1993 to 1994. Media Scene projects ad spending for 1995 at Rp 3113 billion, of which the share of newspapers is Rp 1012 billion (32.5 percent), radio's share Rp 170 billion (5.5 percent) and TV's Rp 1503 billion (48.3 percent).
The emergence of private television networks in Indonesia gave a tremendous boost to the growth of ad agencies. It prompted investors, big and small, to try for a piece of the advertising cake. Only state-owned TVRI continues to remain off limits for advertising. With advertising revenues expected to grow, new players are expected to appear on the field. Simultaneously, existing marketers are expected to spend more to keep their market shares in the face of increased competition. What is more, the government has decreed by regulation that each of Indonesia's 27 provinces is entitled to one private TV station. So the possibilities for the cake to grow in the future are endless. This means that the business of ad agencies is booming and can be expected to continue to do so in the years to come.
According to official figures, 150 ad agencies operated in Indonesia in 1992. By 1994, that figure had soared to 300, with another 200 agencies not registered. Unofficial figures put the total at 800. Industry sources are confident that the figure will continue to grow in keeping with the economic growth.
Current scenario
Although direct foreign investment in or ownership of ad agencies continues to be banned in Indonesia, many international agencies have taken advantage of liberal laws to forge alliances in the strategic growth area.
On the other side of the coin, many local agencies have forged tie-ups with international agencies to take advantage of their technical and marketing expertise in order to succeed in the Indonesian market and keep growing.
One of the biggest problems faced by the industry is the ongoing lack of enough qualified personnel, particularly copy writers and art directors. Expatriates hold important positions in the industry. Indra Abidin, the chairman of Fortune Indonesia, says that one reason for this is the lack of adequate training facilities in the creative aspects of the job. This situation is expected to change with time.
The benefits of the television boom in Indonesia are currently being contested among the various commercial TV channels, direct broadcast satellite channels and pay-TV. Mind-boggling increases forecast in ad spending nurture a cause-and-effect relationship among the various players in the industry -- the consumers, the advertisers, the media, and the agencies. Per capita income in 1994 was US$700. A growing and viable middle class assures the continued relevance of advertising to modern Indonesia.
All of this augurs well for the average Indonesian consumer who is now in a position to choose. Planning for growth includes investments in mobile film units and computers for creative and research-related services, and trans-national link-ups via Internet. Spin-offs from the ad industry's growth are even being felt in the printing and packaging industries.
Total literacy rates are a high 85 percent for the country as a whole, and Media Guide 1995-1996 reports that nearly 95 percent of the literate population is in the 10 to 19 age group. Indra Abidin says, " Advertising in Indonesia has one major mission ... to develop the national media." Because the mass media has taken on the mission to educate, disseminate and inform, public service campaigns and social marketing are perceived as having a role to play.
In recent times, jobs in ad agencies have come to be regarded variously as respectable (in the same league as medicine and law), high-profile and glamour-filled. Clearly this field offers, which is considered to pay well, has come to be seen as a desirable career-alternative and is therefore attracting more talent.
Abidin cautions, however, that in this era of globalization and information technology, every Indonesian, while taking advantage of the career opportunities in the industry, should not forget that "... we are Indonesians and we must upkeep the values".