Global Business Guide Indonesia

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Joint Ventures
Delcoprima Group | Mr Hendrik Kianto
Mr Hendrik Kianto

In the short term, entering Indonesia is far from easy but there are rewards to be earned by those who approach the market with patience

Mr Hendrik Kianto, Owner

Delcoprima Group was established in the late 90s and is now a leading steel product manufacturer in Indonesia, with a focus on providing steel for the construction industry. What can you tell us about your company’s current and future business strategies?

Delcoprima Group was initially founded as a cloning mill that primarily produced rebar used in construction. It was our aim to spur Indonesia’s development by providing quality building materials. Our strategy was to target rapid expansion and become one of the top suppliers and manufacturers of rebar and other steel products to support the country’s construction industry. We have grown quite quickly and become one of the better name, trusted brands in steel production. This is evident in our customer base, as we have worked with a host of Indonesia’s top grade contractors and developers, most of whom go on to become repeat buyers.

The steel rebar industry in Indonesia is still in its infancy stage, as is evidenced by our low annual per capita consumption of steel products. Last year, Indonesians consumed between 25 to 35 kg per capita, which is way below benchmarks set by other countries in the region such as Malaysia, China and Singapore, which consumed 100 kg per capita, 600 kg per capita and 1000 kg per capita, respectively. As such, we have a considerable way to go in terms of fulfilling the market opportunity but expect that there will be high demand for our services as the country advances. 

Our company takes great pride in serving high quality standardized products, and is extremely vigilant in making sure that we manufacture our goods in accordance with strict quality control guidelines that adhere to both Indonesian and international regulations. All of our products are sold with proper documentation, to ensure that we are 100% tax compliant. We want customers to select Delcoprima Group because they trust us and our services. Punctuality, dependability and trust are key facets of our business strategy. In recognition of our work, we recently received awards for having the best customer service from several state owned enterprises.

Your company is very much linked to the property sector, which has experienced substantial growth over the last five years. What is your outlook for steel consumption, especially in regards to steel used in the construction and property development sector?

It is my view that Indonesia’s steel consumption is much too low compared to what it should be. Our steel consumption before the 1997 crisis was around 20 kg per capita, which means that we have barely surpassed steel consumption levels from during the worst years of our financial turmoil.
There are a few reasons why this is the case. First, there are some hindrances in the form of regulations. In the past, it was quite difficult to obtain permits to build skywards. Developments in the housing sector thus tended to be built wide and low and because of this a large proportion of Jakarta’s population now lives in landed properties, which is unusual for metropolitan areas in Asia. Compared to developing structures of at least five floors, steel is rarely used in the construction of low-rise buildings.

Furthermore, Indonesia has been subsidizing fuel for a long time, making commuting to work relatively inexpensive. This has caused approximately 4 million people, more than a third of Jakarta’s population, to buy houses that are a considerable distance away from the city. Going forward, once the government reduces the fuel subsidy and transportation costs account for more of people’s daily expenses, I think people will move into the city and stay closer to where they work. It is at this time that we expect to see more high-rise property development in the city and a subsequent rise in steel consumption.

Finally, we foresee a boost in the number of projects aimed at addressing the country's lack of infrastructure in the near future, which should further increase the demand for steel in Indonesia.

In which areas are you seeing peaks in demand within Indonesia?

Indonesia is unique in the sense that it is an archipelago, which makes it more difficult to have a unified national market. Because of this geographical situation, we expect to see pockets of growth around the country and do not believe that a single super large steel mill will be able to serve the whole country due to transportation and logistics issues. Knowing this, our company has focused its growth strategy for the next five to ten years on developing integration and expanding our network of operations to include other parts of Indonesia.

To succeed in the Indonesian market as a foreign investor, it is well established that you need to work with quality local partners who understand the intricacies of Indonesian business culture. Would you be open to partnerships with foreign companies looking to enter your sector?

This is very much our company’s strategy going forward. We have previously been approached by several notable foreign firms in the past but have not yet advanced beyond discussing potential opportunities to partner up. There is certainly room for us to incorporate partners into our plans in the future, and we expect that doing so will allow us to strengthen our hold on the market.

We are very much interested in the potential for foreign investors to help us jump start a period of rapid expansion that will allow us to cover a wider region and increase our customer base. In forming alliances with foreign investors, we would also hope to learn from our partner’s management processes. Locally, our company is renowned for being extremely progressive and open to new ideas. Working with other firms will facilitate the absorption of novel techniques and practices that can help us achieve a higher level of professionalism.

What would you like our readers to remember about Indonesia as a final message?

When investing in Indonesia, it is important for foreign investors to have a balanced view. Whereas in the past people typically looked at Indonesia with skepticism, there now exists a tendency to be overly optimistic. In the short term, entering Indonesia is far from easy but there are rewards to be earned by those who approach the market with patience.

Global Business Guide Indonesia - 2014

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