RI remains central on LG's overseas investment map

With its vast population, Indonesia remains an important investment destination for many of the world's business giants, although poor infrastructure in many parts of the country still poses a major problem.

LG Electronics, the Korean electronics giant, considers Indonesia one of the most important countries on its overseas investment map.

"For us, Indonesia is one of the most important production and marketing bases in Southeast Asia," LG's vice president and senior manager of public relations Park Hyeong Ill told visiting Indonesian journalists at the company's headquarters in Seoul recently.

With a population of over 200 million and the growing number of the middle class, it will be too expensive to ignore the potential of the Indonesian electronics market, he said.

"Indonesia is quite promising for electronics producers worldwide, and that's why we are committed to further expanding our operations in the country," Park added.

This positive outlook may be the reason why the company, through its local subsidiaries, has allocated a lot of money to expand its production facilities here.

At present, LG has four subsidiaries in Indonesia, including PT LG Electronics Indonesia, PT GE Electronics Display Devices, PT LG Philips Display and PT LG Innotek.

PT Electronics Indonesia produces conventional and plasma TVs, as well as refrigerators, both for the local and overseas market in its factory in Cirarab, Tangerang.

PT LG Electronics Display, located in the MM2100 industrial estate in Cibitung, Bekasi, produces computer monitors and audio video equipment also for the local market and exports.

The third company, PT LG Philips Display, also located in the MM2100 industrial estate, Cibitung produces TV tubs and TV monitors to supply both local and overseas markets, while PT LG Innotek, which operates a factory in Cibitung, Bekasi, produces tuners and TV components.

LG is among the most aggressive electronics producers in Indonesia, not only in terms of production activities but also in marketing efforts.

Such aggressive marketing approaches have produced good results with a continued increase in the company's market shares in the Indonesian electronics market.

According to data provided by international surveying company GfK, at present LG controls about 20 percent of the washing machine market, 20 percent of the home theater market, 25 percent of the one-door refrigerator market, 26 percent of the two-door refrigerator market, 18 percent of the air conditioner market and 20 percent of the TV market.

Its market share in the country's growing mobile phone market is still relatively small. LG, the world's largest producer of CDMA-based mobile phones, is among the newcomers to Indonesia's mobile phone market. But the company plans to boost its market share by introducing more stylish GSM-based handsets in the country.

This year, LG expects to book sales revenue of about US$380 million, a 30 percent increase from the company's target in the previous year, which reached US$330 million.

During the first half of this year, the company's sales totaled about US$180 million -- about 38 percent of the amount came from export and the remainder from local sales.

Regarding LG's investment plan in Indonesia, LG Electronics Indonesia's head of public relations Widi Nugroho Sahib said that there were a number of business agendas now in the pipelines as part of the company's expansion program.

One of the agenda is to consolidate LG's operations by merging PT LG Electronics Indonesia and PT LG Electronics Display Device Indonesia into a single company in order to integrate the two companies' production activities.

After the merger, the factory in Cirarab, Legok will focus its operation on the production of digital appliances, while the factory in Bekasi will focus on digital display and digital mobile products.

"The merger of the two companies will be officially inaugurated by the minister of industry and the chairman of the Investment Coordinating Board (BKPM) on Jan. 7," he said.

In addition to the consolidation of the two companies, LG also plans to invest about US$15 million to further boost its production activities including plasma TVs in the Cirarab factory.

But Widi said the board of management had considered delaying the investment plan until the government repaired the road that links the Cirarab factory in Legok, Tangerang with the Jakarta- Merak toll road.

"It is quite risky for the company to transport 'sensitive products', such as plasma TVs, via the road. That's why the plan has been temporarily delayed," he said.

Minister of Industry Andung Nitimihardja said that he had sent a letter to the local government to repair the road, not only in order to support the operation of LG but also of other companies in the area. But due to financial constraints, the local government had been unable to repair it.

Besides employing thousands of workers, the country's electronics industry is one of the major foreign currency recipients. Indonesia's total electronics and telematics exports reached a total of US$8.7 billion between January to September this year.

Indonesia is part of LG's massive global network, which consists of 76 subsidiaries. The company's overseas operations contribute more than 80 percent to its total sales, which reached US$37.7 billion in 2004.

The company's Asian operations alone contributed about 20 percent to the total sales.