Most distribution networks operate in Java

JAKARTA (JP): Distribution networks of manufactured goods in the country are mostly located in Java due to the lack of demand in other parts of the country.

According to a three-month survey conducted by research company, Business Intelligent Report (BIRO), on 1,145 companies in nine provinces, about 65 percent of the manufacturing companies have concentrated their distribution and retail networks in Java either through their own branches or through authorized distributors.

Respondents in the survey included 924 agents and distributors and 221 trading houses, covering 40 products ranging from electronic wares to heavy equipment. The survey also included 1,397 brand names.

The companies, with most of their distribution networks in Java are predominantly those producing electronic goods with over 2,800 outlets, automotive products and spare parts, with 1,750 outlets and building material with over 630 outlets.

Java was also chosen as the distribution and retail center of companies producing and selling optical products (83.7 percent), textile and textile related products (82.6 percent), medical and laboratory equipment (82.1 percent), furniture (72.6 percent), metal products (69.2 percent) and food and beverages (57.5 percent), the survey said.

According to the survey, companies that concentrated their distribution networks in provinces like Sumatra, Kalimantan and Sulawesi were those dealing in heavy equipment and parts supplies.

"Manufacturers of heavy equipment and their related parts concentrate their marketing networks in the three provinces to benefit from operations of natural resources-based companies in the areas," said the survey.

The survey also found that in the retail sector the competition among the players was so tight that none of them could really dominate the market.

"Conglomeration in the retail sector is unavoidable as a result of the integration of the upstream and downstream sectors by several firms. However, no retailer can really control the market because the market is so fragmented," it said.

The survey indicated that most trading companies opened their own logistics and retail divisions to cut operational costs.

Local giant consumer goods distributor Tigaraksa, for example, has logistics company TNT Logistic, and hypermarket Carrefour to distribute and sell its goods.

Another local business empire, the Salim Group, also operates grocery chains under the flag of Indo Grosir, supermarket chains Super Indo and minimarket chains Indomaret and trading house Indomarco to distribute and market its consumer goods.

The survey also found that these giant business groups also expanded their retail operations by acquiring stakes in foreign retailers such as the France-based Carrefour, partly owned by Tigaraksa, and Price Mart, partly owned by Wicaksana.

Renown local supermarket and department store operators like Hero Supermarket, Matahari and Ramayana were focusing their businesses on their own retail services and had not merged with local or foreign trading houses.

It said that local retailers should not be too worried about the recent entrance of big foreign retailers because the latter could not dominate the market.

Several foreign retailers such as Japanese Yaohan, WalMart, NTUC and Singapore-based Lion have been forced to pull out of the country for failure to compete with local retailers.

The survey said product distribution networks in the country was expected to be more efficient in the near future thanks to the adoption of information technology by many of the country's manufacturers and retailers.

Business Intelligence Report said that the total sales in the domestic retail sector reached Rp 140.8 trillion, contributing about 12.6 percent of the country's Gross Domestic Product (GDP).

The research company estimated the per capita consumption in the country would increase to Rp 2.9 million this year from Rp 2.3 million in 1999. (cst)