Future Plan

The expiry of the business was agreed to be at least 25 years afterward, during which if one of the sides breaks the contract, a penalty must be paid.

Of the two sides, PT. ABC Central always has the advantages in market analysis. Indonesia consists of numerous language, ethnicities, and cultures so local people can more easily reach customer demand. PT. ABC President also produces some special product to satisfy some provinces in Indonesia, which means PT. ABC President must conduct the customer approach very carefully.

The contract also forbids that one of the joint venture partnership whether PT. ABC Central or Uni-President cannot do business in the partnership country. Both of them are afraid that the partnership probably takes over the business.

PT. ABC President believes Indonesia still has diverse opportunities for expansion. As Indonesian people still love to eat instant noodle and drink beverages, there are still many rural areas to reach. At the moment, the demand for instant noodle and beverages are larger than the supply, so PT. ABC President will figure out to build more plants of manufacturing factory in other areas in order to reduce logistical cost.

4.2 Dachan Great Wall

4.2.1 Company Profile

Dachan Group is a food, agriculture, and livestock industry manufacturer from Taiwan. With total employees of more than 1400, Dachan Group has a total capital of NT$ 53 trillion. Dachan Group is one of the biggest meat supplier in Taiwan for some well-known restaurant like Burger King, KFC, and Din Tai Fung.

4.2.2 Company History

Mr. Ho-Jan Han, the founder of Dachan established a small soybean crushing factory in 1957 in Tainan. Dachan produced soybean oil and baking flour at first and gradually expanded their business to animal feed and meat supply. Because of their outstanding sales growth, DaChan was officially listed on Taiwan Stock Exchange Market in 1978.

The key success of Dachan was management and quality control from the very beginning of production to provide safe and healthy food to the consumer. Dachan also took Corporate Social Responsibility (CSR) seriously by providing employees a friendly working environment. Moreover, it kept an awareness of environmental protection as part of a sustainable business operation.

4.2.3 Product Scope

Dachan Group focuses their business on food, agriculture, and the livestock industry. According to the Dachan Group Annual Report in 2015 (Figure 14), the largest sales percentage is comprised of animal feed with 47%. While the core product of Dachan Group is animal breeding, they must ensure use high quality feeds for their

Source: Official website of Dachan Group, November 2016

Figure 15 Dachan Group Company Logo

own animals. With more than fifteen years of experience in manufacturing feeds, Dachan Group now has a good reputation in the specialty of animal feed.

32% of the total sales percentage was chicken meat. As a global partner with well-known chain restaurants like KFC, Burger King, and Din Tai Fung, Dachan Group is believed to be a growing meat supplier in the long-term. Dachan also released its own chicken meat brand to other distribution channels.

About 13% of total sales of Dachan Group is comprised of processed food like soybean oil, flavored chicken, eggs, and frozen shrimp, and about 8% of sales comes from flour and baking products. Dachan has even opened a bakery store in Taiwan.

4.2.4 Business Model

With over 50 years’ experience in the food industry, Dachan Group is believed to produce high-quality and safe products. Dachan Group is divided into 5 groups, including Taiwan Agribasics Business Group, East Asia Business Group, Flour Milling Business, Food Service Business Group, and Specialty Business Group.

Processed

Source: Dachan Group Annual Report 2015

Figure 16 Dachan Group Sales Percentage in 2015

Dachan Group uses both B2B and B2C in their business model. Through traditional marketing, distribution of products to both traditional and modern markets, they also opened independent stores to sell fresh meat. As technology grows, Dachan also kept following up through online shopping. Consumers could easily order from their website and receive their order directly at the destination.

Beside maintaining high-quality and safe products, Dachan takes corporate social and environmental responsibility seriously. Dachan provides a friendly working environment for staff and employees. In Taiwan, Dachan uses biotechnology to protect the earth and promote animal welfare, also achieving the goal of zero water pollution.

In Indonesia, they conduct natural shrimp-farming by using mangroves as their feed.

and have started conservation by replanting and restoring mangrove plants to keep them alive.

4.2.5 International Scope

DaChan Group now has more than 50 subsidiaries spanning across the Asia-Pacific region, divided into four segments which are Animal Nutrition, Foods, Flour and Baking, and Chain Restaurant Brands. With a total of 30,000 employees in Taiwan, China, Vietnam, Malaysia and Indonesia, Dachan is one of the leading food companies in Taiwan.

In Indonesia, Dachan signed a joint venture with a local company in 1988 to produce frozen food and shrimp feed. In 1989, Dachan signed a contract with Burger King to establish a subsidiary company in Taiwan. To strengthen its regional competitiveness, Dachan also set up flour milling plants in several places in China. In

2007, DaChan Food (Asia) Limited was set up by the holding company under East Asia Business Group and was publicly listed on Hong Kong Stock Exchange Market.

4.2.5.1 Overview of Overseas Company in Indonesia

Dachan Company has been raising aquatic products in Indonesia with has 4 factories. Three of them are in Tarakan, Kalimantan Island, and Java Island. There are also 3 subsidiary companies in Indonesia, which are

1. PT. Mustika Minanusa Aurora (MMA), a joint venture company between Japan Company and MMA Seafood International (Indonesia) in Tarakan, Kalimantan, managed by Dachan Group right now. Dachan is the majority shareholder with 56.80%.

2. PT. Dachan Mustika Aurora (DMA), a subsidiary joint venture company between Dachan Group (Taiwan), a 40.61% shareholder and a local company in 2012. This JV exports processed foods from sea tiger and white shrimp. The factory is located in Tarakan.

3. PT. Misaja Mitra (MM), a Japan-Indonesian joint venture company before Dachan bought 56.80% of shares in 2014. The product mostly is frozen shrimp and processed shrimp. The factory is located in Pati, Jawa.

Those three joint venture companies export about 80% of their product to Japan and 6% to Taiwan. This study will focus on PT. Mustika Minanusa Aurora as they are the earliest joint venture with Dachan.

4.2.5.2 Company Profile

PT. Mustika Minanusa Aurora (MMA) was established in 1998, with 80%

of its product being the black tiger species of shrimp. This export company used

to belong to a Japan company (東邦物産) and MMA Seafood International (Indonesia) in Tarakan, Kalimantan before the majority was sold to Dachan, who was asked to manage manufacturing and export to Japan. MMA is the largest shrimp exporter in Tarakan (250 tons of final product per month) and has a hatchery that produces 30 million post-larvae a month. Shrimp are stocked at three per square meter in extensive ponds (5-25 hectares) and production is just under than 70 kilograms per hectare. Most of the production is exported to Japan.

4.2.5.3 Company History

PT. MMA was established in 1995 and managed by Dachan Greatwall Group from Taiwan since 1998. Over the past 20 years, PT. MMA has been the leader in integrated shrimp farming, bringing together hatcheries, farmers, distributors, and professionals to produce the quality shrimp for consumers.

Before acquiring PT. MMA, Dachan Greatwall had managed an aquatic product factory and feed mill factory in Surabaya, East Java. However ,in 1992 Indonesia had attacked by white spot disease and many aquatic animals had been infected, so Dachan Greatwall had to shut down the company.

The shrimp-raising technique in Tarakan was one of the factors that influenced Dachan Group to do business with them. The Chinese-Indonesian farmers used mangrove forest to feed and protect the shrimp, combined with periodic ocean water to harvest the shrimp. Dachan offered its expertise in frozen food and set up a factory to process the shrimp into the export product.

4.2.5.4 Industry Overview

As an archipelago country, Indonesia has abundant water area and mangrove areas which means great potential for fisheries and shrimp industry.

By the existence of mangrove forest, shrimp have access to natural feeds which contain high-nutrient from the mangrove plants themselves. At the present, Tarakan City located in Kalimantan, already uses the mangrove shrimp farming techniques, Indonesian farmers still have poor productivity and quality control during processing.

Many foreign entrepreneurs started to glance over business opportunities for shrimp farming in Indonesia. In 2015, United States was recorded as having the most imported shrimp from Indonesia, followed by Japan which showed a decreasing number from 2010 (Table 17).

As demand for shrimp keeps increasing, shrimp export becomes one of the important businesses for Indonesia’s GDP. However, due to the quality control

Source: Statistics Indonesia, February 2017

Table 17 Indonesia Shrimp Export in 2010-2015 (in ton)

needed to produce the finest shrimps, Indonesia still needs guidance to lead them to a better result.

4.2.5.5 Motives of FDI

Dachan established an animal food company in Indonesia with a local partnership company in 1988 which also their first step expanding in Asia (金大 成飼料公司). At that time Dachan just started to expand to aquatic food, and saw that Indonesia’s environment was very suitable to do aquatic farming with the labor cost and total investment cost so much lower back then. Moreover, aquatic feed industry is a profitable sector which could reach 15-20% of gross profit. While the white spot disease started to attack aquatic farm in 1991-1992, they needed to look for other opportunities, including shrimp farming on Kalimantan island. At that time, they found a Japanese company who were willing to sell their shares and already had its own export partners. Thus, Dachan decided to take over MMA in 1998, DMA in 2012, and MM in 2014.

When Dachan Group started to expand its business in Asia in Indonesia, it only had a slight knowledge about the country at that time. The local partnership had allowed its initial expansion and helped Dachan to decrease the risk of loss.

Indonesian government also made it difficult for foreign investors to get permission to Greenfield, so the joint venture was the perfect solution.

4.2.5.6 Product Scope

PT. MMA has several groups of shrimp products: Black Tiger, Sea Tiger, Black Pink and White (Table 18).

Table 18 Product Scope of PT. MMA in 2016 Black Tiger

Sea Tiger

Black Pink

White

4.2.5.7 Business Model

Dachan Group is responsible for food processing technology, quality control, and quality assurance, while the local company is responsible for operations such as labor, export-import procedure, certification, negotiation with the government, etc.

PT. MMA is also doing sales strategy to increase exports to Taiwan’s market, which only accounts for 5-6% of their total exports. PT. MMA export

Source: Official Website of MMA, accessed on February 2017

white shrimp and crab to Taiwan. They export the highest quality product to the high-end seafood restaurant and crab products to Din Tai Fung. Some of the middle range products, such as the branded Tarakan Shrimp (根島蝦) will be exported to supermarkets like Jason and Sogo. Furthermore, they also started to sell it online in Taiwan.

As PT. MMA was begun by a Japanese company, the new company under Dachan already had the loyal customers and didn’t need new marketing and promotion strategy. Because shrimp farming in Tarakan uses the natural mangrove forest, PT. MMA often does activities to recover the mangrove forest.

They even have environmental activities where Japanese customers come along, creating good feedback from customers and word of mouth marketing.

The total of Taiwanese staff at the moment is ten. Five people dispatched to MMA, 4 people dispatched to MM, and 1 person dispatched to DMA. They usually have managerial positions in QC, QA, and sales. However, PT. MMA does not use rotating staff strategy, and some of the management have been living in Indonesia for over 5-20 years.

Learning Bahasa Indonesia is also a goal for PT. MMA, which finds overseas Chinese student who understands Bahasa to be dispatched to Indonesia to make operation and communication easier with the local people.

4.2.5.8 Future Plan

As PT. MMA Group has been doing shrimp farming and processed food in Indonesia, they are planning to expand to fish products for export to Taiwan

and other countries. Indonesia has many marine resources and overall costs are very low.

Chapter 5 Data Analysis

After conducting deep research and interviews with two research subjects, the study will provide analysis regarding Taiwanese FDI through joint ventures with local companies in Indonesia.

5.1 Comparison of Two Companies 5.1.1 Company Background

Both UPEC and Dachan are Taiwan-based companies that they both have different background and history. Table 19 presents the comparison analysis between two companies.

Table 19 Comparison Analysis on Company Background

They both started with a small factory in Tainan which focuses on commodity products then grow to different product scopes of business. F&B divisions of UPEC specializes in processed food like dairy products and instant noodles while Dachan’s product scope is animal feed and meat product, including raw and processed.

Uni-President Dachan Greatwall

Established 1967 1957

Industry Food & Beverages Manufactures

29.12% from Dairy Product 47% from Animal Feed

5.1.2 Business Model

Both UPEC and Dachan engage in food manufacturing in Taiwan however they both have different background and histories on business model. Table 20 below is the

Diversification Business Vertical Integration

Product Processed food Raw & frozen meat Target

Costumer

Entire group customers Household

Price Low-medium Low-medium

Distribution Channel

Reseller Own stores & reseller

International

UPEC expanded their business line not only in the food & beverages industry, but also penetrated the medical industry, leisure industry, logistics industry, and petroleum industry.

UPEC continuously seeks for unmet needs of customers and invests in many potential opportunities. From dairy products, beverages, and processed food, they continue to do research and development to satisfy customer’s need. While Dachan is still engaged with livestock and poultry industry, they gradually expanded to the aquatic industry.

UPEC and Dachan’s products both are daily consumer products. Comparing their distribution channel, Dachan focuses on hypermarkets, supermarkets, and restaurant chains while UPEC distributes their product mostly at convenience stores, with only some to hypermarkets and supermarkets. UPEC produced various product scope of processed food and beverages for different target audiences, from children who often drink milk, teenagers

and adult who consume beverages and instant noodles, and healthier beverages like sugar-free soy milk and low-fat yogurt. Dachan sells meat and seafood products to other brands, such as supermarkets and fast food chains. Both UPEC and Dachan set their price at low-medium to attract customers.

In 1992 UPEC started global outsourcing in China with 17 plants and several businesses there now, with food factories in Vietnam, Thailand, the Philippines, and a joint venture with a local company in Indonesia. In 1988, Dachan started to joint venture with a local company in Indonesia. In 1990, Dachan established a cooperative investment in China.

Now Dachan has more than 50 subsidiaries in the Asia-Pacific Region including Taiwan, China, Vietnam, Malaysia, and Indonesia.

5.1.3 Industry sector

The F&B industry in Taiwan has been very competitive in the recent years.

Manufacturers keep doing research and development to pursue consumer trends, resulting in many small home-made producers who have entered the market. Using Porter's five forces analysis, the Table 21 below compares industry analysis between UPEC and Dachan in Taiwan.

Table 21 Comparison Analysis on Industry Sector

Low, consumer has slightly choice

Threat of

High, many similar products Low, connection with distribution channel

As for competitive rivals, UPEC has several competitors in each business line in which make consumers have a lot of product choices. For example, in the dairy business, UPEC has to compete with local competitors like Kuang Chuan (光泉) and Wei Chuan (味全). In the instant noodle industry, UPEC has to compete with TTL (台灣菸酒 ) and Wei Chuan (味全), and also international competitors from Hong Kong and Korea. Dachan is one of the biggest chicken suppliers in Taiwan. Other competitors mostly produce processed food, but Dachan integrates all production process which dominates the market industry. The biggest competitor of Dachan in Taiwan is Charoen Pokphand Enterprise (卜蜂集團) from Thailand which also produces both raw chicken meat and processed frozen food.

Both UPEC and Dachan do not lose much to supplier tower. UPEC manufactures several raw materials used for their products. Furthermore, there are too many supplier choices which negatively affects their bargaining power. Half of Dachan’s market sales is animal feed and along with their vertical integration system, Dachan supplies raw meat and processed meat which reduces supplier bargain power for them.

As for buyer bargain power, the industry scope of possessed food and beverage in Taiwan is very intense. Consumers have strong bargain power because they easily find the substitute products, and have become one of the biggest consideration for UPEC in setting product price. Dachan has fewer competitors than UPEC, usually, a distribution channel will choose one supplier of raw chicken meat through a long-term contract. Buyer bargain power is low because they don’t have many other choices for chicken.

UPEC and Dachan face little threat from new competitors. UPEC now is the largest conglomerate food company, engaging in daily Taiwanese lifestyle by using different retail

businesses. It is not easy to build new manufactures which require a huge amount of money to compete with UPEC among various business lines. Dachan is a big meat firm which operates vertically. Their long history of high-quality assurance and low price makes them hard for new entries to compete with.

For the threat of substitution, consumers can easily find substitutes for UPEC products.

The consumers have so many choices in product selection and make the threat of substitution is high. While in the meat market, the same reason for vertical integration and the size of Dachan means the threat of substitution is low.

5.1.4 Motives of FDI

In 1990, the third president of Taiwan, Lee Teng Hui encouraged Taiwanese enterprise to expand the investment and economy of Taiwan to Southeast Asia while reducing Taiwan’s investment to China. After the South Policy had been declared, many Taiwanese enterprises started to seek Southeast Asia countries for business expansion.

Before the South Policy issued, Dachan engaged in a joint venture with a local company in Indonesia to establish aquatic factory farm (金大成飼料公司) in 1989 which also their first step expanding business in Asia country. One of the reasons Dachan reached Indonesia’s market is product diversification. Dachan had been engaging with livestock and meat manufacturing in Taiwan, and it saw that Indonesia was an appropriate country for aquatic farming. The climate of Indonesia rarely faces typhoon and earthquake while the price of aquatic farming was quite low compared to Taiwan. UPEC later entered Indonesia market 1991 because of the large population of Indonesia and the high consumption of instant noodles. These factors attracted UPEC despite their little knowledge about the market.