Hypermarkets: Lessons from abroad

Barlev Nicodemus Brussels

An article that appeared in The Jakarta Post on Dec. 20 attracted my attention. The article, When violence is used to overcome big business, shed light on an issue that is very crucial to all of us. The writer said small suppliers were complaining about the number of hypermarkets around Jakarta, and were afraid of being displaced by these massive retailers.

These hypermarkets are supported by multinational companies with unlimited capital and world-class management. Because they buy goods directly from producers in huge quantities, they receive price reductions, which they then pass on to customers.

It is no surprise then that hypermarkets can provide goods at lower prices than smaller retailers. This is the key to the retail business. Under these circumstances, small suppliers and retailers really have no way to compete.

This is clearly understood by the governments of the countries from which the hypermarkets come. In their home countries, hypermarkets are allowed to open stores only on the outskirts of cities. The reason is straightforward: to protect local or small retailers.

Customers therefore have to drive quite a long distance to reach the hypermarkets. They have to spend more time and money to obtain the cheap goods. We have here, as the economists say, an opportunity cost. As time is in short supply, the more time they have to spend getting to the hypermarket, the less time they have for other activities.

As a result, people will tend to go to smaller stores in their neighborhood rather than to big retailers. Only when they have time will they go to the hypermarket. Obviously, this policy helps small shops survive and grow.

As a student abroad, I never saw a hypermarket located in the business center of a city. Take a look Carrefour, for instance. Here in Brussels, you will not find a hypermarket in Rogier (a business center similar to Kuningan in Jakarta). You will only find them in suburban Brussels, standing on a crossroad.

In fact, that is how Carrefour got its name. The French word "carrefour" means crossroad, and the store took this name because the markets are typically built on a crossroad.

This same situation occurs in the Netherlands, where another big retailer, Makro, operates.

However, the situation in Jakarta is completely different. Carrefour, for instance, has opened stores in many strategic locations, such as Kuningan, Harmoni and Ratu Plaza. People can easily reach these locations even when they are on the way home from work. There is no disincentive to shopping at a hypermarket. In other words, here in Jakarta we have conditions that would be unacceptable even in Carrefour's homeland.

More surprisingly, Makro does not have seem to have the same privileges as Carrefour. Their shops typically are located on the outskirts of Jakarta, such as in Ciputat, Kampung Rambutan or Meruya.

Since we have two different situations, which one is correct under the law?

I would suggest the problem here is a lack of laws, not merely the implementation. The fact that President Susilo Bambang Yudhoyono plans to issue a decree in the future to regulate wholesalers, as the article in the Post said, is clear evidence of this. There is currently a lack of regulations. The absence of laws has led to the two completely different treatments discussed above. Whoever can pay more will probably receive more privileges. Consequently, we cannot say big retailers are operating under the law because the law is not there.

Another point I would like to put forward is the way foreign investment is perceived. There is generally an overreaction to foreign investment, which is clearly needed to create jobs.

However, this does not mean Indonesia cannot develop its own domestic firms. The authorities must realize that when large companies enter a country, they can stifle local firms. Therefore, protecting small shops is not a mistake. It is an acceptable practice, even in developed countries.

There is no reason to worry that such a policy would reduce foreign investment. Indonesia does not want "a winner take all" society, which would only lead to disempowerment and impoverishment. Let us hope this belief will underpin all of the regulations on foreign investment.

The writer is a student at Katholieke Universiteit Brussel and can be reached at BarlevNicodemus.Marh@student.kubrussel.ac.be.