Producers under-utilize trading houses' services

Producers under-utilize trading houses' services

JAKARTA (JP): Indonesian producers have not yet fully utilized the services of trading houses in distributing their products, a survey conducted by the Indonesian Business Data Center (PDBI) revealed yesterday.

"They (producers) prefer to use conventional distributors or set up their own networks," PDBI's director, Christianto Wibisono, told The Jakarta Post.

He pointed out that the condition resulted from the fact that most of the trading houses have to distribute many kinds of products, including those from foreign companies.

Therefore, they tend to discriminate against local products which are the same as those they get from foreign firms, he said.

Small and medium-scale producers, in turn, prefer to adopt the conventional system of distribution, while the big producers set up their own systems of distribution.

PDBI's survey of 209 producers with 40 different products found that they established 157 firms to handle their distribution systems.

The greatest concentration happens in the pharmaceutical sector, with 54 producers setting up their own systems of distribution, followed by the food and beverage sector with 46 producers and the building materials sector with 20 producers.

Christianto also said that only two new trading houses have started operating in the last five years. These two are well connected to their groups of businesses with a captive market.

"This is in contrast to the rapid increase in the number of new plants in the country," he said.

Sales

In 1994, total sales of 16 Indonesian trading houses amounted to Rp 5.2 trillion (US$2.28 billion). The largest sales were recorded by PT Indomarco (with sale revenues of Rp 851 billion), followed by PT Enseval Putera Megatrading (Rp 499 billion) and PT Wicaksana Overseas Int'l (Rp 458 billion).

Of the three, only Wicaksana Overseas functions as a pure trading house and is not directly connected with any producers.

"In the retailing sector, restructuring is underway among local retailers as they are facing open competition with foreign retailers," Christianto said.

The PDBI survey concluded that there has been a tendency among local department stores to enlarge their businesses into "super or mega stores" with product diversification from just fashion to include other consumer goods such as food and drink.

Matahari, for example, reduced the proportion of its fashion sales from 62 percent in 1991 to 51 percent in 1994, while increasing the sales of other consumer goods from 10 percent to 15.4 percent.

"It's interesting to see that Matahari is following the global trend," he said. "Retailers with foreign licenses such as WalMart, for example, are moving toward the formation of super stores with a 'one-stop shopping' system," he pointed out.

"But local retailers have their own strengths so that others will be edged out of the market," he said.

According to Christianto, the demise of Yaohan from the local market demonstrates that retailers with foreign licenses cannot be guaranteed to survive.

During the last five years, the number of retailers in the country increased by 44 percent from 121 with 393 outlets in 1991 to 153 with 562 outlets in 1995.

Their total sales in 1994 reached Rp 5.3 trillion, an increase of 76.6 percent from Rp 3 trillion in 1990. Their total sales in 1995 were estimated at Rp 6.2 trillion, and are expected to increase further to Rp 9.7 trillion in 1998. (13)