Indonesian cigarette manufacturer clings to old ways

Indonesian cigarette manufacturer clings to old ways

By Achmad Sukarsono

KEDIRI, Indonesia (Reuters): Juniarsih has been hand-rolling
tobacco for the last 17 years at a big factory run by Gudang
Garam, Indonesia's largest cigarette maker, but with little hope
things will change.

The mother of two toddlers leaves her family before dawn six
days a week and pedals her battered bicycle for more than an hour
past paddy fields in East Java to get to the plant.

"I think I'll be doing this until I become an old granny," the
bony 34-year-old said while putting saturated tobacco blend on
small white paper that left brown splotches on her fingers. "I
can't think of any other job. I don't know how to change."

Like its workers, Gudang, the world's number one maker of
pungent clove cigarettes, popularly known as kreteks, also
appears to be struggling with change.

Product diversification is slow, some work practices are age-
old and management is only just starting to open up to employees,
workers and union leaders said during a rare factory visit
permitted by the notoriously media-shy company.

Juniarsih and 37,000 other female workers who roll, cut, pack
and glue for nine hours a day without a break are the backbone of
Gudang Garam's trademark hand-rolled kreteks.

But some analysts say Gudang Garam's desire to cling to past
successful practices has become an obstacle to taking the company
into the 21st century.

Management is still controlled by the family of late founder
Surjo Wonowidjojo, who was a conservative and cautious operator.

Analysts point to speculation of internal rifts as younger
family members grow impatient with the management's preference to
hang on to old business methods.

This has stunted creativity, analysts say, and explains why
the firm appeared to only half-heartedly jump into the growing
mild kretek and white -- or non-kretek -- cigarette markets.

As a result, Gudang Garam's domestic market share fell to
about 36 percent by the end of 2000 from 48 percent in 1997,
mainly on a slide in sales of its main machine-rolled cigarettes.

"Gudang Garam is just too conservative. The second generation
seems to be afraid of making the wrong move which could ruin the
efforts of their predecessors," said one analyst from a foreign
securities brokerage who declined to be identified.

"But I have heard one key family member is seeking progress."

The firm actually sees conservatism as the key to success.
Underscoring that view, no executives wanted to speak for the
record during the factory tour Reuters made.

"The family is very conservative. But the proof is we survive
due to this conservatism when others fall," a senior executive in
Jakarta, who declined to be identified, said recently.

"(The family's) not breaking up. One wants diversification,
the others dare not to," he said without elaborating.

Despite declining market share, Gudang Garam expects sales to
grow nearly 24 percent this year over 2000, to 18.5 trillion
rupiah ($1.64 billion). Estimates for 2001 net profit were not
available, but the bottom line last year was static at 2.24
trillion rupiah from 1999.

Relations with workers testy

Another issue that has refused to go away has been strikes at
Gudang Garam's base in Kediri, 600 kilometers east of Jakarta,
where commerce hinges on the cigarette giant's activities and its
50,000 workers.

"Communication between workers and management has often failed
in the past. But they're recently beginning to hear us," union
leader Imam Mustofa told Reuters.

Gudang Garam officials blamed trade unions for the strikes.

"We have not violated any (labor) law. But now there are so
many unions with so many wants," said a company official.

Analysts said trade unions were usually ineffective against
Gudang Garam, which, besides being a key source of labor in East
Java, is one of the cash-strapped country's top corporate tax
payers and the second largest stock, in terms of market
capitalization, on the Jakarta stock exchange.

"They control the price of labor," said business researcher
Kresnayana Yahya, who has consulted for Gudang Garam, in the East
Java capital Surabaya.

"To some extent...it's a monopolistic practice."

Gudang Garam pays most of its hand-rolled cigarette workers by
the number of cigarettes they produce. At maximum speed, a roller
can bag some 200,000 rupiah a week, not a bad salary in poverty-
stricken Indonesia. But the conditions are hard.

Dizzying smell

Female guards frisk those passing through the entrances to
huge warehouses that accommodate around 5,000 workers each.

Inside, the dizzying smell of clove and other spices blends
with the blare of pop music.

Workers sit on dilapidated wooden benches without backrests.

They chat and joke while their hands work mechanically but
company officials called monitors, who watch over production,
reprimand loose tongues.

"I am happy here. I have a lot of friends and everything here
is good," said one worker, Maesaroh, shifting uncomfortably.

As she began rolling again, a monitor approached her and in
Javanese said: "Be careful talking to strangers. Say you like it
here. Don't say anything bad or else."

Another worker was more daring, saying her work might be more
hazardous than smoking itself.

"It's unhealthy here. After nine years working here, I always
cough when night falls," said 25-year-old Marni.

But reflecting the sentiments of many following Indonesia's
collapse into crisis several years ago, most workers said they
feared being out of a job and preferred not to make a fuss.

"The victims are always us down below. What can I do apart
from this," said Juniarsih.