Indonesia, the last frontier for electronics producers

Indonesia, the last frontier for electronics producers

Rudijanto
Contributor
Jakarta

Indonesia remains a major battleground for the world's
electronics giants as within many parts of the country there is
still room for expansion while other Southeast and East Asian
markets, except China, are already saturated.

While the Japanese, South Korean, Taiwanese and Singapore
markets, for instance, depend more on repeat customers rather
than first-time buyers, a large portion of the Indonesian
population, especially those outside Java, Bali and Sumatra are
still largely untouched by electronics companies.

With this in mind, South Korean electronics giant Samsung
remains optimistic about the prospects for the Indonesian market
for 2004 although many predict that there will be uncertainty in
the security situation during the country's first direct
presidential election in the year.

Samsung Electronics Indonesia's marketing director Christian
Sudibyo estimates the market will grow by 10 percent.

With already a strong presence in Java, Bali and Sumatra,
Samsung is eying Kalimantan, particularly areas with high
economic growth such as Tarakan and Kutai.

Korean electronics companies have made aggressive moves in
penetrating the Indonesian market, threatening the market
position of and even replacing already established Japanese
electronics companies in some market areas.

If Korea's LG looks aggressive in television advertising,
Samsung is known for its low-price strategy. Some electronics
companies even suspect Samsung of subsidizing its selling price
in the Indonesian market in order to grab a greater market share.

Certainly, Samsung rejects such an allegation. Samsung
Electronics Indonesia's marketing manager Budi Pramono said that
what Samsung is doing is simply adjusting to Indonesia's market
conditions. In spite of lower prices, Budi insists that Samsung
still has a profit margin.

More established Japanese electronics giants are greatly
disturbed with the aggressive approach of Korean companies.
Technologically, they have a hard time maintaining their
superiority over the Korean companies.

In cognizance of Korean mastery in LCD technology, Japanese
company Sony Corp. approached Samsung Electronics Co. Ltd. for a
partnership in manufacturing Liquid Crystal Displays (LCDs). Sony
lacks its own production facilities for LCD production for large
TV sets.

The company uses a lot of displays for its products such as
TVs, cellular phones and digital cameras. Sony considered all
possible choices before choosing Samsung to enter into a joint
venture for LCD production.

LG has even claimed technological superiority in its
refrigerator products over some Japanese manufacturers. LG
Electronics Indonesia's national sales and marketing manager Sung
Khiun reveals that the cooling system of its latest generation of
refrigerator, Ice Beam Door Cooling, is already superior to
Japanese brands.

PT Sharp Yasonta Indonesia's president director Kenji Okunaka
admits the decline of some Japanese electronics companies due to
competition with technologically savvy Korean brands.

"Japanese companies that are losing their market are those
that do not have technology. But we are able to maintain our
growth because we keep on developing our technology and make
adjustments to local taste. For instance for our audio products,
we put in higher bass and eliminate the middle sound," Okunaka
said in an interview recently.

He agrees that electronics companies need to put more efforts
into research and development in order to survive. Sharp's strong
presence in Indonesia is partly attributed to its ongoing
research and development undertakings.

But another Japanese company Toshiba believes that the
Indonesian market still prefers Japanese brands. Citing the
results of market research, Hery Sugiarto, product manager of
Topjaya Sarana Utama (TSU), Toshiba's marketing arm, said that
the Indonesian market still preferred Japanese brands over Korean
ones.

"The market still perceives Japanese brands as more durable
and technologically more advanced than the Korean ones," Hery
said.

Samsung's Christian admits that the middle and upper market
segments with a strong brand consciousness still prefer Japanese
products. But he adds that for the middle and lower market
segments, Korean brands have already dominated the market.

"In the long run, consumers will know that Korean products are
not inferior to Japanese ones," said Christian.

Jakarta's Glodok electronics market traders and Kelapa Gading
Electronic City sales personnel said in an interview that
consumers no longer differentiated between Japanese and Korean
brands in purchasing televisions and refrigerators.

Amid such market conditions, competition will be tougher for
all brands.

In anticipation of tougher competition in the years ahead,
Okunaka reveals that Sharp will increase its advertising budget
by 30 percent next year.

Next year, the market is expected to be more competitive.
Sharp predicts a flat growth in the Indonesian electronics
market. If this market forecast is true then next year
constitutes the first time since 1999 that the Indonesian
electronics market will be stagnant.

In Okunaka's records, the Indonesian electronics market
enjoyed steady growth since 1999 until last year partly due to an
improvement in the country's economy.

One of the reasons for the predicted stagnancy of the
electronics market is, according to Okunaka, lower growth in the
minimum wage of 6 percent in 2004.

The minimum wage increased by 40 percent in 2001, 30 percent
in 2002, and 12 percent in 2003. With an expected growth of 6
percent next year, Okunaka said that people will have less money
to spend on electronics.

In such a situation, Okunaka believes that manufacturers have
to adjust prices. This will result in a decline in electronics
products by about 15 percent next year. However, in terms of
production, there will be an increase of about 10 percent as most
electronics manufacturers plan to further increase their
production this year.

This year, Sharp itself increased its refrigerator production
to 600,000 units from 420,000 units as well as its TV production
to 1 million units from 720,000 units.

Sharp also increased significantly the production of its audio
products.

Another manufacturer, Samsung Electronics Indonesia, has also
raised this year's TV production by between 20 percent and 25
percent from 350,000 units to 500,000 units. The company also
increased its refrigerator and washing machine production from
15,000 units to 20,000 units.

With the increase in production and the expected stagnant
growth in sales, will the Indonesian market be saturated next
year? Not at all. Okunaka still believes that Indonesia still has
room for growth, especially since present TV sales have only
penetrated 50 percent of the total market, refrigerators 37
percent and air-conditioners 5 percent.

As the market remains largely undeveloped compared to other
East Asia and Southeast Asian markets, giant electronics
companies can expect a long, fierce battle to gain a sizable
foothold in the Indonesian market.

The battle to win the electronics market depends on
technological superiority. That is why, in spite of the small
market for technologically advanced plasma TVs, manufacturers
feel the need to sell them in the Indonesian market.

Plasma TV technology will certainly boost a manufacturers'
image. Plasma TV has become the new symbol of technological
mastery.

"The fact that we can produce Plasma TV will boost our image,
which will positively affect our other products in the market.
Consumers will think that if we can manufacture technologically
superior products such as Plasma TVs, then they will have no
doubt in our other products," Sung Khiun said.

The Indonesian electronics market hold promise in the years
ahead as a large portion of the country remains untouched. There
is certainly room for growth for major players but, of course
this is for the winners in the high-tech war without which the
fate of electronics companies is already sealed.