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)