Motives of FDI

In the 90s, Indonesia’s population was increasing as the fourth populous country in the world as well as the second populous country in Asia. Thus UPEC decided to enter Indonesia’s market. While the cash flow and GPI growth of Indonesia were growing fast, Indonesians nevertheless retained the habit of

Source: W&S Market Research, November 2017

Table 15 RTD Tea Bottle Indonesia

eating instant noodles in daily life. Those were some considerations for leading UPEC to expand their business to Indonesia

In the geography aspect, Indonesia was an archipelago country which made the distribution of sales very complex. Understanding the system of sales in Indonesia was very crucial, but along with the language barrier and limited resources, it was difficult to figure it out without deeper research. Thus to minimize the entry time, UPEC decided to partner with a local company who already understood the sales system, consumer preference, and the business tricks of Indonesia’s market.

At that time, Indonesia was led by Soeharto, who decreed that foreign companies could not do direct investment in Indonesia. Uni-President needed to find local partner company if they would like to enter the market, so Uni-President decided to use joint venture to entry Indonesia’s market.

As Indofood was the biggest instant-noodle brand in Indonesia, it was hard for UPEC to gain a business relationship with them because of their scope. As PT. Central ABC was trying to defeat Indofood, they agreed to joint venture with Uni-President to strengthen their competitive advantage.

4.1.5.5 Product Scope

In the 2000’s, PT. ABC President faced a big obstacle to defeat Indofood in the instant noodle industry since Indofood controlled the biggest source of the raw material for instant noodles. While the total sales of ABC’s instant noodles kept decreasing, a corporation called Wings Food also suddenly launched an

instant noodle brand called Mie Sedap, which quickly gaining local market share.

To survive, PT. ABC President moved to product differentiation in 2005 by developing PET beverages. PT. ABC President was supported by the existing R&D in PET manufacturing that Uni-President possessed as it launched the first PET beverages in Indonesia. The beverages sector also reduced the business risk, as instant noodle was often lost in transport due to the possibility of the noodles crumbling. The biggest competitor of beverages sector company, Rekso, was still using glass-bottle packaging at that time. Therefore, PT. ABC President easily made market entry into beverages in Indonesia.

Most of the raw material for PET beverages came from Indonesia to keep the material cost low as well as to meet consumer taste and place preference.

Some of the raw material was also imported from Vietnam and Australia.

4.1.5.6 Business Model

In the joint venture relationship, the business duties and responsibilities of both sides were very simple. Research & Development and manufacturing were conducted by UPEC, while PT. ABC Central Food was responsible for marketing and sales, including distribution channel and marketing sales. Both sides conducted rotating business-field observation to complement each other.

Since the manufacturing and R&D departments are divided, they both have different responsibility between market analysis for product development and manufacturing product. The R&D Department was located in Indonesia, led by Indonesians, while the Manufacturing Department was led by Taiwanese.

Table 16 Business Line of PT. ABC President in 2016

Brands Category Flavors

Nu Green Tea Ready to Drink PET Plastic Bottle

Original, rock sugar, honey, less sugar

Nu Milk Tea Milk tea

Nu Oceana Natural sea salt lemonade

Nu The Tarik Indian Milk tea

Mie ABC Selera Asal Instant Noodle Onion Chicken Mie ABC Selera

Pedas

Hot tomato, hot chicken lemon, hot chicken curry, hot chicken semur Mi ABC Cup Cup Package Noodle Fried noodle, beef

meatball, onion chicken, curry chicken, chicken lemon, chicken soto, hot gulai chicken

YOMP Big Cup Package Noodle

with additional meat

Chicken curry, chicken and mushroom

Export & Private Label

Instant Noodle Giant, Super Noodle, Mi ABC, Mi Cup Nivo, Mi President, Mi ABC

As they released new products, the R&D Department would be responsible to do the market preference test and get samples of several flavors.

To understand taste preferences, PT. ABC President will make several samples and use organoleptic and blind tests. In the organoleptic test, PT. ABC President will produce some sample product without labels then spread to several distribution channels, and ask them their preference after several days.

In the blind test, PT. ABC President will invite random respondents to choose Resource: Official website of PT. ABC President, November 2016

their preferred flavor after covering their eyes. After the R&D Department chooses the preferred samples, they will pass the samples to Manufacturing.

Despite that PT. ABC Central is responsible for the country’s sales system, they did the marketing research including market analysis and buying power survey to decide the price strategy. While Nu Tea (PT. ABC President Beverage’s Brand) set the middle-up segmentation of price strategy to take the advantages of the first mover of PET bottle and high-quality brand tea flavor to attract Indonesia’s consumer. PT. ABC President also avoided from the price war between Indofood and Wings Food, they rather to give exclusive branded drink experience to the consumer than price advantages. Which at that time, honey-tea was considered to be a high-level product.

PT. ABC President was very concerned with marketing. Because most Indonesians still watch TV, the biggest promotion spending was mostly on television advertising, often sponsoring quizzes, reality shows, and sports events. Since most Indonesian people drive private cars, PT. ABC President also advertised along roads.

Distribution channels are essential in Indonesia, which is spread across thousands of island and requires professional knowledge of local logistics. In Indonesia, traditional markets still exist while modern markets keep increasing in number. PT. ABC President has its own supply chain company called PT.

Arta Boga Cemerlang, responsible to distribute products all over distribution channels in Indonesia. The biggest distribution channels are still hypermarkets, supermarkets, and mini-markets.

The organizational structure of PT. ABC President is very simple. The Vice President of Manufacturing was Taiwanese, while the other Vice Presidents, mostly in charge of local operations, were led by Indonesians. Uni-President will take some staff of PT. Central ABC to Taiwan for business observations and to look for business opportunities which could apply in Indonesia. In general, new products will be initiated by PT. Central ABC for discussion on both sides. While Uni-President is responsible for R&D and manufacturing, it does not share the recipe for products with the other side.

As companies from two different countries with different languages, some Taiwanese employees were required to learn Bahasa Indonesia. Before they learned, they had to hire translators for around Rp 1.000.000 (NT$ 2400) for an occasion. Therefore, some Taiwanese staff learned the other language to lower the cost expenditure and to communicate more smoothly

The total number of Taiwanese management in PT. ABC President is around 2 to 4 in total, the highest position being Vice-President. They are rotated around 4-5 years in a period to avoid conflicts of interest. They are chosen from headquarters in Tainan are promoted as they are dispatched Indonesia mean that they got promoted as well. The promotion and easier living standards in Indonesia means that this position is often very desirable for the Taiwanese.