RI has no choice but to open its retail market: Official

RI has no choice but to open its retail market: Official

JAKARTA (JP): Indonesia has no choice but to open its retail
market to foreign players within the next six years to comply
with the country's commitment toward global free trade, an
official said.

Ramlan Zoebir, a retail expert at the office of the
Coordinating Minister for Production and Distribution said that
therefore, an adjustment should be made as preparation for local
retailers to enter the free-competition era.

Local retailers should not only be equipped with technical and
management skills in facing the free competition but more
importantly, with financial incentive, he said.

Indonesia is committed to fully open its markets by 2003 under
the Free Trade Area (Afta) arrangements and by 2020 under the
Asia Pacific Economic Cooperation (APEC) free trade agreements.

Speaking at a seminar on retail store management, Ramlan said
he was optimistic that with good preparation, local retailers
would be ready to compete with foreign players, especially when
the free-trade arrangements are fully implemented.

Under existing regulations, foreigners are barred from making
direct investments in any trade business in Indonesia.

Presidential Decree No. 32, 1992 lists the retail business as
being among the sectors that prohibit foreign direct investment.
This means foreign chains are barred from directly marketing
their products and operating retail outlets.

Ramlan said retail-related business activities which are open
to foreign investment include the construction of shopping
centers but these too should involve domestic investment.

Despite the restrictions, the government allows a corporation
which includes foreign partners to "define the marketing system"
of a product up to the distribution level.

Ramlan said this was expected to stimulate foreign investment.

Furthermore, he said, to improve managerial professionalism
and the quality of goods and services, the government also
allowed domestic companies to collaborate with foreign companies
through technical assistance, management contracts, technological
agreements and franchising agreements.

As a result, many foreign retailers have entered the country.

In the last six years, at least seven foreign retailers have
entered Indonesia to cater to the needs of the growing middle
class.

Japanese retail giant Sogo was the first to open in the
country after it gained permission to operate its first outlet in
1990.

It was soon followed by Singapore's Metro, Japan's Yaohan and
Singapore's Robinson department stores.

In 1995, two of the United States' largest retailers, JC
Penney and Wal-Mart opened in Indonesia and last year, Britain's
Marks and Spencer's department store followed course.

Ramlan said that by 2000, Jakarta would have an additional
1.93 million square meters of shopping space, providing the
city's residents with more than three million square meters of
space to do their shopping.

The entrance of the foreign chains in Indonesia have been met
with anxiety by local retailers.

Mega M, a division of the Matahari development store, had
reportedly filed a dumping claim against Wal-Mart.

However, according to latest reports, Matahari decided to
change its strategy in facing its competitor. Instead of going
against the U.S. giant, Matahari decided to join hands with PT
Multipolar Corporation of the Lippo Group, who operates the
Indonesian Wal-Mart under technical assistance arrangements.

The result of this move -- the creation of a huge domination
in Indonesia's retail market -- is unlikely to stop other local
retailers from complaining.

Local retailers grouped in the Indonesian Retail Merchants
Association have asked the government to introduce a law to
protect domestic retailers from foreign competitors and "unfair
rivalry" among local players.

Observers also consider most domestic retailers unfit for
global competition in terms of product quality, technology
application and human resource skills.

So far, they say, the only ones ready to withstand foreign
competition are the country's big retailers.

Ramlan said the main problem faced by small retail businesses
was the tight competition posed by big-scale retailers.

"On the other hand, big retail businesses are threatened by
foreign retailers," he said.

He suggested small, medium and big retailers to solve this
problem through networking, thus, each business could be
integrated to respond to market changes.

He urged big businesses to improve their relationship with
small-scale firms on the basis of mutual benefit through
partnership programs.

"The general pattern of this counterpart movement is that
middle and big businesses market the products of their small-
scale counterparts," he said.

Ramlan said small retailers and traditional businesses played
an important role in the development of Indonesia's economic
structure.

Currently, small-scale retailers make up 85 percent of the
country's retail market.

He said the contribution of the retail industry to Indonesia's
gross domestic product reached 16.8 percent at the end of the
fifth five-year development plan, which ended in 1994.

During that period, the industry also managed to provide the
second biggest number of job opportunities after the agriculture
sector. In 1993, 17.39 percent of the country's work force were
involved in the retail industry and 63.61 percent were in the
agriculture sector.

"But the trading sector retained only the second-smallest
added-value after the agriculture sector," he added. (pwn)