台灣企業在印尼直接投資之研究：以食品和飲料業為例 - 政大學術集成

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(1)國立政治大學國際貿易與經營學(系)研究所 International Master’s Program in International Business College of Commerce National Chengchi University. 碩(博)士學位論文 Master’s Thesis. 台灣企業在印尼直接投資之研究：以食品和飲料業為例 Foreign Direct Investment In Indonesia by Taiwan Enterprises: The Case of the Food and Beverage Industry. 指導教授: 譚丹琪博士研究生: 韓美麗撰. 中華民國一百零七年一月二十九日.

(2) Acknowledge. First of all, I would like to thank you to professor Danchi Tan for helping me and supporting me through the process of thesis writing. Without her guidance and valuable suggestions, I would not be able to successfully complete this thesis. I would like to thank to professor Weichieh Su and Szu-Yu Chou who kindly agreed to join my thesis committee and provide me with valuable insights and suggestion. I would like to express my appreciation to the interviewee of the research subjects who willing to share the knowledge and information to complement the study. Without their help I won’t able to get deeper analysis of the research. I would never be able to finish my thesis without help from my friends and support from my beloved family. I am very grateful to have them all in my live. They always believe in me, supporting and encouraging me with their best wishes. Finally, I would like to thank you a good stranger who help me to review my grammar, Jed YJ Kiang who put his time and effort into helping me with correct grammar errors.. Shiely Venessa 韓美麗 National Chengchi University February 1st, 2017. i.

(3) Abstract Foreign Direct Investment In Indonesia by Taiwan Enterprises: The Case of the Food and Beverage Industry Globalization has changed the nature of the global business environment in the past recent years. Many Taiwanese firms have been motivated to grow internationally. The food and beverage sector is a basic industry that experience high growth in many developing economies such as Indonesia. The growing demand in these markets attracts many foreign direct investments. This study focuses on food and beverage industry which examines foreign direct investment in Indonesia. By conducting a deep analysis of two Taiwanese enterprises, the study will discuss the motives of foreign direct investment; the location choice; entry mode and ownership structure; and various criteria in choosing local business partners. The findings indicate that although both company use joint venture to enter Indonesia, since the motive of FDI is different, they tend to have different percentage of joint venture ownership and different criteria in partner selection as well. The companies with market-seeking motive tend to depend on the local business partner to penetrate market. On the other hand, the companies with asset-seeking motive have more control power to operate in export sales.. Keywords: foreign direct investment, food and beverage industry, joint venture, Indonesia. ii.

(4) 摘要. 台灣企業在印尼直接投資之研究: 以食品和飲料業為例. 近年，全球化已變成生意上的主要環境。作為新興的一個工業經濟體，國內企業走像國際化的趨勢是未來的展望。為了滿足民生所需，食品工業發展為經濟體繼續增長的基礎產業。由於東南亞市場規模巨大以及快速成長的經濟近日吸引不少投資客來印尼投資市場。本論文主要研究食品工業以及進行外國企業投資在印尼的研究。藉著進行兩大台灣企業如何產生投資印尼的動機、地點的選取、市場策略、所有權架構和選擇本地商業夥伴的各種標準的分析。研究結果表明雖然兩家公司利用合資企業進入印尼，但由於外商直接投資的動機不同，合資企業的所有權比例和合夥人選擇標準不同。第一個個案公司為追求外商直接投資的動機因著擴展市場目的，性於是依靠當地商業夥伴來滲透市場。另一方面個案公司為尋求外商直接投資的動機是資源和勞動目的性，以便有更多的控制權在出口銷售中。. 關鍵字：外商投資、食品工業、合資企業，印尼. iii.

(5) Table of Contents. Acknowledge ................................................................................................................................... i Abstract ........................................................................................................................................... ii 摘要................................................................................................................................................ iii Chapter 1 Introduction .................................................................................................................... 1 1.1 Research Background and Motivation ...................................................................................... 1 1.2 Research Purpose ...................................................................................................................... 2 Chapter 2 Literature Reviews ......................................................................................................... 3 Chapter 3 Indonesia Business Environment ................................................................................... 9 3.1 Demographics ........................................................................................................................... 9 3.1.1 Population ........................................................................................................................ 10 3.1.2 Language .......................................................................................................................... 11 3.3.3 Religion ............................................................................................................................ 12 3.2 Politics .................................................................................................................................... 12 3.2.1 Government...................................................................................................................... 13 3.2.2 Foreign Relation............................................................................................................... 13 3.2.3 Politics Performance Index...............................................................................................21 3.3 Economy ................................................................................................................................. 17 3.3.1 Economy Growth ............................................................................................................. 17 3.3.2 Domestic Demand............................................................................................................ 19 3.3.3 National Income ............................................................................................................... 20 3.3.4 Currency and Inflation ..................................................................................................... 20 3.3.5 Labor Force ...................................................................................................................... 22 3.3.6 Foreign Trade ................................................................................................................... 23 3.4 Indonesia-Taiwan Relations.................................................................................................... 23 3.4.1 Economic and Trade Relation .......................................................................................... 24 3.4.2 Taiwan’s FDI in Indonesia............................................................................................... 25 3.4.3 Trade and Economic Agreement ..................................................................................... 26 3.5 Food and Beverage Industry in Indonesia .............................................................................. 26. iv.

(6) 3.5.1 Industry Overview ........................................................................................................... 26 3.5.2 Consumer Behavior ......................................................................................................... 30 3.5.3 Distribution Channel ........................................................................................................ 32 Chapter 4 Data ............................................................................................................................. 34 4.1 Uni-President Uni-President Enterprises Corporation (UPEC) .............................................. 35 4.1.1 Company Profile .............................................................................................................. 35 4.1.2 Company History ............................................................................................................. 35 4.1.3 Product Scope .................................................................................................................. 36 4.1.4 Business Model ................................................................................................................ 37 4.1.5 International Scope .......................................................................................................... 38 4.1.5.1 Overseas Company in Indonesia: Overview of PT. ABC President......................... 39 4.1.5.2 Company History ...................................................................................................... 39 4.1.5.3 Industry Overview .................................................................................................... 40 4.1.5.4 Motives of FDI.......................................................................................................... 42 4.1.5.5 Product Scope ........................................................................................................... 43 4.1.5.6 Business Model ......................................................................................................... 44 4.1.5.7 Future Plan ................................................................................................................ 47 4.2 Dachan Great Wall .................................................................................................................. 48 4.2.1 Company Profile .............................................................................................................. 48 4.2.2 Company History ............................................................................................................. 49 4.2.3 Product Scope .................................................................................................................. 49 4.2.4 Business Model ................................................................................................................ 50 4.2.5 International Scope .......................................................................................................... 51 4.2.5.1 Overview of Overseas Company in Indonesia ......................................................... 52 4.2.5.2 Company Profile ....................................................................................................... 52 4.2.5.3 Company History ...................................................................................................... 53 4.2.5.4 Industry Overview .................................................................................................... 54 4.2.5.5 Motives of FDI.......................................................................................................... 55 4.2.5.6 Product Scope ........................................................................................................... 55 4.2.5.7 Business Model ......................................................................................................... 56 4.2.5.8 Future Plan ................................................................................................................ 57 Chapter 5 Data Analysis ............................................................................................................... 59. v.

(7) 5.1 Comparison of Two Companies ............................................................................................. 59 5.1.1 Company Background ..................................................................................................... 59 5.1.2 Business Model ................................................................................................................ 60 5.1.3 Industry and Sector .......................................................................................................... 61 5.1.4 Motives of FDI................................................................................................................. 63 5.1.5 Entry Mode ...................................................................................................................... 64 5.2 Company FDI Analysis........................................................................................................... 65 5.2.1 Motives of FDI & Location Choice ................................................................................. 65 5.2.2 Entry Mode and Ownership Structure ............................................................................. 68 5.2.3 Partner Selection Criteria ................................................................................................. 70 Chapter 6 Conclusion.................................................................................................................... 70 6.1 Research Conclusion............................................................................................................... 72 6.2 Research Limitations .............................................................................................................. 74 6.3 Research Implication .............................................................................................................. 75 Bibliography ................................................................................................................................. 77. vi.

(8) List of Tables. Table 1 World Top Ten Most Populous Countries ......................................................................... 9 Table 2 Percentage Distribution of Gross Domestic Product at Current Market Prices, 2010-2014 (Percent) .......................................................................................................................... 19 Table 3 Percentage Distribution of Gross Domestic Product at Current Market Prices by Industrial Origin, 2000-2014 .......................................................................................... 20 Table 4 Gross National Income per capita in current US$ ........................................................... 21 Table 5 Unemployment Growth Rate (percent)............................................................................ 22 Table 6 Indonesia-Taiwan Economic & Trade Report in 2014-2016........................................... 25 Table 7 Taiwan’s and Mainland China’s Investment in Indonesia (in million USD) .................. 25 Table 8 Development of Goods Imports by Group in 2011-2015 ................................................ 28 Table 9 Gross Domestic Product at Current Market Prices by Industrial Origin (Billion Rupiahs), 2000-2014 ....................................................................................................................... 29 Table 10 Top Ten Taiwan’s Food Manufactures in 2013-2014 ................................................... 34 Table 11 UPEC Headquarter F&B Division ................................................................................. 37 Table 12 Global Instant Noodle Consumption ............................................................................. 40 Table 13 Market Share Composition Indonesia’s Instant Noodles Market (%) ........................... 41 Table 14 Indonesia Retail Beverage Sales in 2013 ....................................................................... 41 Table 15 RTD Tea Bottle Indonesia ............................................................................................. 42 Table 16 Business Line of PT. ABC President in 2016................................................................ 45 Table 17 Indonesia Shrimp Export in 2010-2015 (in ton) ............................................................ 54 Table 18 Product Scope of PT. MMA in 2016 ............................................................................. 56 Table 19 Comparison Analysis on Company Background ........................................................... 59 Table 20 Comparison Analysis on Business Model ..................................................................... 60 Table 21 Comparison Analysis on Industry Sector ...................................................................... 61 Table 22 Comparison Analysis on Entry Mode ............................................................................ 64. vii.

(9) List of Figures. Figure 1 Map of Indonesia ............................................................................................................ 10 Figure 2 Indonesia’s Population by Age and Sex Group ............................................................. 10 Figure 3 Indonesia’s Daily Language (in percent) ....................................................................... 11 Figure 4 Political Stability Index of Southeast Asia Countries in 2000-2015 .............................. 14 Figure 5 Control of Corruption Index of Southeast Asia Countries in 2000-2015 ....................... 15 Figure 6 Voice and Accountability Index of Southeast Asia Countries in 2000-2015 ................. 16 Figure 7 Annual GDP Growth of Selected Countries in 2010-2016 ............................................ 18 Figure 8 GNI per capita in current US$ between 2005-2015 ....................................................... 30 Figure 9 Monthly household income distribution by city............................................................. 30 Figure 10 Breakdown of Monthly Household Expenditure in 2015............................................. 31 Figure 11 Preference of Foreign brands by monthly household income level ............................. 32 Figure 12 Reasons for Channel Preferences by Channel Type..................................................... 33 Figure 13 Company Logo of Uni-President Enterprises Corporation .......................................... 36 Figure 14 Business Scope of UPEC.............................................................................................. 38 Figure 15 Dachan Group Company Logo ..................................................................................... 49 Figure 16 Dachan Group Sales Percentage in 2015...................................................................... 50. viii.

(10) Chapter 1 Introduction. 1.1 Research Background and Motivation The food and beverage (F&B) industry is one of the basic industries for every country around the world, and its relative size also indicates the level of national development and citizen’s quality of life. According to the Ministry of Economic Affairs (MOEA), the annual output of Taiwan’s F&B industry was NTD 6,524 billion in 2014, accounting for 4.5% of the total output of the manufacturing industry. It ranked number 8 among Taiwan’s various manufacturing industries. Due to the rapid globalization trend in recent years, both the domestic and international market for food and beverages face increasingly intense competition. Thus, Taiwan’s food and beverage industry should grasp the advantage of the domestic market and seek international business opportunities. With an enormous total population, the economic growth of Southeast Asia grew well as a whole, including the food & beverage industry. According to the industry analysis of the MOEA in 2014, the F&B industry and market development trends were found in several countries of Southeast Asia including Indonesia, Vietnam, Thailand, Malaysia, and Singapore. Along with the economic growth and industrial chain development, the business opportunities were very promising. Among these countries, Indonesia is the most populous country which also reflects a massive number of demand for food & beverages. In 2016, Tsai-Ing wen, the president of Taiwan, seeks to refresh Southbound Policy which had already did in the 1990’s by the third president of Taiwan, Lee-Teng hui. The "New Go South" policy is aimed at expanding industrial, educational, cultural and agricultural exchanges between 1.

(11) Taiwan and ASEAN as well as South Asia. As a trade and economic partners, Taiwan had accumulated nearly 15.1 billion US dollars of investment in Indonesia up till September 2016, the tenth among investment targets. In fact, Indonesia is one of the important business investments for Taiwan’s enterprises. The major industries for Taiwanese investment have been the textile industry, paper industry, footwear industry and other manufacturing industries. However, there have been less attention and fewer studies on Taiwanese participation in the Indonesian food & beverage industry. This study is motivated by these above reasons to more closely investigate the investment of Taiwanese enterprises in the food & beverages industry in Indonesia.. 1.2 Research Purposes Globalization has led international firms to engage in increasing foreign direct investment (FDI) in an overseas country. Once a firm decides to conduct FDI, it will take a long-term commitment to the investment country and a significant amount of outflow investment. Before the international firms decide to do FDI, the firms have to do research for market entry method and strategy to minimize the risk and threats. Based partially on their enterprise criteria and thought process, this study will focus on the following: 1. Identify the motives of Taiwanese enterprises in conducting FDI Indonesia. 2. Determine the reasons for choosing Indonesia as the location choice of FDI. 3. Evaluate the reasons for choosing entry mode and ownership structure of FDI in Indonesia. 4. Examine the partner selection criteria of the Taiwan enterprise for seeking local partner.. 2.

(12) Chapter 2 Literature Reviews. The world’s economy keeps evolving, forcing firms to compete with limited markets and added pressure, resulting in firms looking to gain competitive advantages to surpass their competitors (Porter, 1990). Most traditional firms have the same goal to maximize profit. Some local firms try to become the champion of the domestic market but when that enters the saturated phase, the firms need to look for potential new customers to increase the firm’s revenue (Barney & Hesterly, 2015). International business is one method to achieve this goal, through which firms increase the sale and provision of their products and services. At the same time, this process can also raise new lifestyles and ideas to consumers in new markets (Hill, 2009). Now international business is very familiar with the world economy. The most common international business transactions are international trade and international investment. While international trade exchanges products and services with money with a foreign country, international investment transfers assets or acquisition of assets to and from another country. International trade is considered to be lower-risk method than international investment which requires companies to set up capital, technology, managerial talent, and manufacturing infrastructure in another country. In order to do these tasks successfully, firms need to develop international strategic management, which refers to comprehensive and ongoing management planning process aimed at formulating and implementing a strategy that enables a firm to compete effectively internationally (Griffin & Pustay, 2013). There are many factors that the firms should consider to make sure that customers in their target market are willing to buy and. 3.

(13) able to buy the products. This study will focus on the strategy involved in international investment rather than an international trade. According to the earliest findings of the theory of direct investment by Hymer (1960), the investors seek control over the enterprise to ensure the safety of their investment. The control over by investors is defined as direct investment of the investors could control over directly to their investment. When firms engage in the foreign direct investment, they retain direct responsibility and rights to manage their foreign investment. Also relevant are subsidiary companies registered across borders, in which situation the headquarters retain the control of their capital. The Organization for Economic Cooperation and Development (OECD) describes FDI as having the objective of obtaining a lasting interest by a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise, and a significant degree of influence on the management of the enterprise. The controlling ownership of the firm’s equity is worth at least 10% of the firms’ total value (Aregbeshola et al, 2011). Over the past 30 years, FDI keeps growing in both developed and developing countries. FDI inflow recovered in 2015 by rising 38% to $1.762 billion which motivated by slowing growth in emerging market. While FDI outflow has been increasing by 33% from previous year, many multinational companies from developed country invested abroad with a total $1.1 trillion in 2015. According to the World Investment Report 2016, FDI flows declined in 2016 due to the fragility of the global economy and resulting corporate reconfiguration. However, global FDI flows are likely to resume growth and surpass $1.8 trillion in 2018.. 4.

(14) Firms who consider doing FDI should determine whether to employ equity or non-equity modes. The distinction between those two defines whether the firms are classified multinational enterprises (MNEs) or non-MNEs. Non-equity modes are used for smaller commitments to foreign markets, including exports and licensing. On the other hand, firms that involved in equity modes are regarded as MNEs. Equity mode tends to reflect larger commitments to overseas markets including wholly owned subsidiaries or joint ventures (Peng & Meyer 2011). In general, FDI is defined as investment through equity modes. Firms have different motives for FDI and specifically for collaborative ventures. A study from Makino et al (2002) investigated the motives behind Newly Industrialized Economies (NIE) for location choice of FDI. They used the sample of 328 Taiwanese firms to represent NIEs in this study, and each firm had specific motives and sufficient capabilities. While the motives for FDI refers to the reasons to encourage the firm to invest aboard, the capabilities refer to the necessary resources and skills for investing abroad. There are two perspectives of FDI in developing the hypothesis: asset-exploitation and asset-seeking. Asset-exploitation refers to when firms seek for proprietary assets of a foreign country which could transfer overseas, while asset-seeking firms desire to acquire an intangible asset (i.e., technology, management, and marketing) of the foreign country. Since NIE mostly engage in FDI in upstream countries or downstream countries, the location choice defined into Developed Country (DC) and Less Developed Country (LDC). The motives of FDI in developed countries and less developing countries include asset-seeking, resource/labor-seeking, and market seeking. Because from an asset-exploitation perspective, a firm seeks specific “advantages” of the foreign country to engage in FDI, both market seeking and labor seeking is considered to be asset-exploitation.. 5.

(15) The study examined the impact of location choice between DCs and LDCs based upon the motives and capabilities. From the several literature reviews of this study, the hypotheses simplify into three: When the motive of the FDI is asset seeking, the newly industrialized economies (NIEs) are equally likely in DCs due to their desire to acquire advanced technology, management, and marketing expertise. While in resource/labor-seeking motive, the NIEs are more likely to invest in LDCs because of the specific natural resources and lower cost of labor. In the market-seeking motive, the NIEs are more likely to invest in DCs amongst markets of equal population because of higher consumption ability in the DCs; obviously if the population of LDCs are significantly higher, they are seen as a more attractive market. The result of the study showed that the firms from NIEs tend to invest in DCs when they had strategic asset-seeking and market-seeking motivations and in LDCs when they had resource/labor-seeking motivation. For asset-seeking firms, the study suggested that technologybased advantages and prior strategic asset-seeking experiences strengthened the probability of their FDI in DCs. However, for resource/labor-seeking firms, the study suggested that NIEs didn’t strengthen the superior labor intensive production capabilities of the LDC firms because the natural endowments are available for any firms located in the same country or location. We have witnessed that plenty of equity FDI firms pursue various kinds of business objectives. According to Das & Teng (2000), many firms expanded rapidly in emerging markets by using international joint venture entry. Beforehand, the foreign joint-venture partner (FP) and joint-venture partner (JP) must determine their ownership of joint venture, as majority ownership or minority ownership will reflect a firm’s overall control. Yan & Luo (2001) present the importance of the ownership structure which has direct and critical implications in IJV. Whether a firm chooses majority or minority ownership is closely tied to its capability to contribute. 6.

(16) resources to the business practice. Ownership structure may impact strategic control over international subsidiaries, bargaining power, and globally integrated synergy. Firms who contribute more in tangible or intangible assets will tend to have bigger ownership percentage. The ownership structure also reflects the structure of the control over the venture’s operation between the firms. Majority ownership is likely to have control power in the venture’s operation, while minority ownership is likely to be passive or inactively involved in the venture’s management. The study also shows that the higher the degree of the dependence of the venture on local relationships, the more contextual risks will be in the venture. Greater equity ownership of foreign investor reflects lower local risk and uncertainty. The foreign investor unfamiliar with the market will tend to have minority ownership to anticipate the risks of failure. One of the major factors of success for IJVs is the selection of the joint venture partner. A study of Hitt & Dacin (2000) about partner selection between emerging and developed markets concludes that partners are selected mostly for access to resources and organizational learning opportunities that may compliment the firm’s capabilities. Firms from developed market or emerging market will have different criteria in choosing their partner. The study collected data through the survey on 202 firms, 89 of which were developed market countries and 113 of which were emerging market countries. The data also collected by interviews with executives from 24 firms in both developing and emerging markets. The results from the studies are mostly significant in proving the hypotheses. The result of this research also showed the importance of both tangible and intangible resources in the selection of business partner. Except for the tangible asset of financial capital, the most important criteria for emerging market firms were intangible resources. The result also showed the importance of organizational learning in partner selection. Emerging market firms seek for partners from which they could learn technical and managerial capabilities.. 7.

(17) Developed market firms seek for the partner from which they could learn market knowledge or gain market access. These results suggest that both emerging market and developed market firms place an emphasis on a potential partner’s willingness to share organizational learning. Besides, the research strongly emphasized other different preferences of partner selection between emerging and developed markets. The firms leverage the tangible or intangible resources from each other for complementary benefit.. 8.

(18) Chapter 3 Indonesia Business Environment. 3.1 Demographics Indonesia with a total population around 257 million individuals in 2015 has been the fourth most populous country in the world (Table 1). The official national motto of Indonesia is “Bhinneka Tunggal Ika” which means “Unity in Diversity.” Although the country contains a variety of ethnic groups and cultures, Indonesia has promoted a national spirit to unite the country. Table 1 World Top Ten Most Populous Countries in 2011-2016 (in millions). Source: United Nations, November 2016. Based on total sum of land area and sea, Indonesia is the 7th largest country in the world with a total area of 1,919,440 square kilometers. The average population density is 134 people per square kilometer which ranks 79th in the world. In Figure 1, it obvious that Indonesia is consisting of thousands islands. Indonesia’s main islands are Sumatra, Java, Kalimantan, Sulawesi and Papua. Java Island is the center of urbanization and the most populous island. Jakarta, the capital city of Indonesia, also located in North Java.. 9.

(19) Figure 1 Map of Indonesia. Source: Indonesia Investments, November 2016. 3.1.1 Population According to Statistics Indonesia, the annual national population growth rate of Indonesia between 2010 and 2015 stood at 1.40 percent on average. United Nations estimated that Indonesia’s population would increase to 295 million in 2030. Java island is the center of economy and politics. The biggest cities in Indonesia are Jakarta (North Java), Surabaya (East Java), Bandung (West Java), Bekasi (West Java) and Medan (North Sumatera). Over the years, Indonesia has experienced. Figure 2 Indonesia’s Population by Age and Sex Group. Source: CIA Factbook, November 2016. 10.

(20) urbanization, with the urban population reaching 53.74% in 2014. In Jakarta, the capital city, the recorded total inhabitants are about 10 million in 2015. This centralization results in massive daily traffic of workers in Jakarta. Indonesia population consists of many ethnic groups which the country keeps its culture as diversity which keeps the country’s culture diverse. In 2015, Statistic Indonesia report that the largest ethnic groups are Javanese (40,22%), Sundanese (15,5%), Batak (3,58%), and Overseas Chinese accounted for 1,2%. According to CIA Factbook (Figure 2), the highest percentage of Indonesia’s population by age group is between 25-54 years which account for 42.35%, while the least percentage age group (6.79%) is between 55-64 years. The ratio of male and female are mostly balanced for the total population. 3.1.2 Language The Indonesian’s official language is Bahasa Indonesia which most Indonesians understand. However, according to a survey of Statistic Indonesia in 2010 (Figure 3), 79.45% of citizens above five years use their own ethnic language to communicate Figure 3 Indonesia’s Daily Language (in percent) Foreign Language, 0.35%. Not answer, 0.26%. Official Language, 19.94%. Ethnic Language, 79.45%. Source: Statistic Indonesia, 2010. 11.

(21) with others. Only 19.94% of the total population use their official language to communicate, and 0.3% of citizen use a foreign language. Soeharto in his presidency forbade all foreign languages and required them to change their name into the Indonesian language. Around 1978, Chinese schools were also forced to close and led to difficulties for Chinese Indonesians to enroll in state university, apply to be civil servants, or join the military or police. Statistics Indonesia also reported that citizens who mostly use Bahasa for communication are found in 5 provinces. There are Jakarta (90.7%), West Papua (69.7%), Riau (58.7%), North Sumatera (55.6%), and East Kalimantan (53.5%). The citizens who live in the other 28 provinces mostly use their own ethnic languages. 3.3.3 Religion Despite the diversity of numerous ethnicities, the population of Indonesia divides mostly into several religions. The majority believe in Islam by 87.18% of total population (207.2 million people). This is followed by Protestant Christians (6.96%), Catholic (2.91%), Hinduism (1.69%), and Buddhism (0.72%). The national holidays in Indonesia mostly are based on Islamic calendar. Most of attitudes and tradition of Indonesians are reflected from Islam as well.. 3.2 Politics In 1945, The Republic of Indonesia was born after a long period of Dutch colonial and Japanese wartime occupation. The politics in Indonesia is a presidential representative democratic republic where the power is concentrated in The President of Indonesia. Following the resignation of President Suharto in Indonesian riots incident at May 1998, Indonesia political and governmental. 12.

(22) structures have undergone major reforms. Since 1999, Indonesia has had a multi-party system which The President of Indonesia will be elected from the parties. The current Indonesia President, Joko Widodo was elected in the 2014. 3.2.1 Government The 1945 Constitution provided a limited separation of the responsibilities, authorities, task and relation between state institution (executive, legislative, and judicial). The president election in 2004 was the first time Indonesians directly elected the president and vice-president. A term of maximum serving of a president is two consecutive five-year term. The legislative institution consists of the People’s Consultative Assembly (MPR) and a House of Representatives (DPR). People’s Consultative Assembly (MPR) is the highest political institution which gathers every 5 years to approve the broad outlines of state policy. The executive institution consists of President who carries out his tasks with the assistance of Vice President and Cabinet. The President of Indonesia is responsible to the MPR. The judicature institution consists of the Supreme Court which is the highest judicial institution along with other lower legal bodies. 3.2.2 Foreign Relation After Indonesia declared its independence in 1945, Indonesia has adhered to a free and active foreign policy. Thus in until now, Indonesia has joined a member of international community membership to increase the economic and political relation with others countries. Indonesia has been recorded as the member of some. 13.

(23) international communities such as ASEAN, Non-Aligned Movement, Organization of Islamic Cooperation, APEC, G-20 Major Economies, IGGI and CGI. 3.2.3 Politics Performance Indicators 1. Politics Stability Index The index of political stability measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism. The range for political stability is from the weakest -2.5 to the strongest 2.5. In Figure 4, among five selected Southeast Asia Countries, the weaker political stability in 2015 below 0 are Indonesia, Philippines, and Thailand while the Malaysia and Vietnam have greater politics stability above 0. Figure 4 Political Stability Index of Southeast Asia Countries in 2000-2015. Source: TheGlobalEconomy.com, The World Bank. However, among the others countries, the political stability of Indonesia has shown significant increasing number from -2 in 2000 to -1.5 in 2015. This number indicate that the political stability of Indonesia is improving during the time being. 14.

(24) 2. Control of Corruption The index for control of corruption captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as capture of the state by elites and private interests. The range for control of corruption is from the weakest -2.5 to the strongest 2.5. The Figure 5 shows that among the five Southeast Asia Countries, only Malaysia have good control of corruption above 0 rather than Indonesia, Thailand, Philippines and Vietnam.. Figure 5 Control of Corruption Index of Southeast Asia Countries in 2000-2015. Source: TheGlobalEconomy.com, The World Bank. However, from 2002 to 2015, the control of corruption of Indonesia keep increasing from below -1 to -0.5. It shows the good improvement condition compare to other Southeast Asian countries.. 15.

(25) 3. Voice and Accountability Index The index for voice and accountability captures perceptions of the extent to which the citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media. The range for voice and accountability index is from the weakest -2.5 to the strongest 2.5. The Figure 6 shows that in 2000, Thailand and Philippines placed above 0 while the other countries below 0. But in 2015 shows that Indonesia and Malaysia placed above 0 and the other countries decreased below 0.. Figure 6 Voice and Accountability Index of Southeast Asia Countries in 2000-2015. Source: TheGlobalEconomy.com, The World Bank. From, the overall performance index is not more than 1 which is indicate that the voice and accountability performance index of these five Southeast Asia countries isn’t that great compare to other developed countries.. 16.

(26) 3.3 Economy According to the International Monetary Fund in 2016, Indonesia’s economy is the world’s 16th largest by nominal GDP. CIA World Factbook claimed Indonesia as the world’s fourth largest population, attracting many investors as the next largest emerging market. The total population is estimated to be over 260 million people in September 2016, with half of them living on Java Island. Strategically located along the equator, Indonesia has abundant natural resources such as oil, natural gas, copper, and gold. 3.3.1 Economy Growth After the declaration of the independence in 1945, the political instability and economic deterioration due to unstable government system. In the 1960s, President Soeharto gradually took Indonesia to have more sustained economic development. In the Soeharto’s administration, commonly classified under the New Order era, tried to improve domestic economic growth by inviting foreign investment and international trade. At that time, Indonesia’s economy stabilized which resulted in controlling inflation, rescheduling foreign debt, and steadying the rupiah (Indonesia’s currency). Despite the fact that Indonesia was the only Southeast Asia member of OPEC, Soeharto tried to recover economic performance through oil exports. From 1973 to 1979, Indonesia’s GDP per capita grew more than 500% of the export revenues. The 1997 Asian financial crisis began to affect economic performance of Indonesia. In October 1997, the International Monetary Fund (IMF) reached an agreement on a program to stabilize the national economy whereas Soeharto began to run austerity acts including the shrinking of public service and removal of business subsidies. However domestic commodity prices and public service prices rose. 17.

(27) dramatically and spread the rumor of corruptions. According to Transparency International’s Global Corruption Report, Soeharto was ranked as the global top ten corrupt leaders who embezzled about $15-35 billion. In May 1998, Soeharto was forced to resign and replaced by his Vice President, B.J Habibie. After some liberalization of politics and party laws, as well as some economic turmoil, Indonesia participated in its first direct presidential election and Susilo Bambang Yudhoyono was elected. He was also elected for a second term.. Figure 7 Annual GDP Growth of Selected Countries in 2010-2016. Source: World Bank, November 2016. During the ten years of his presidency, he managed to consolidate democracy, develop economic growth, and turn down poverty and corruption. Compared to 2004, the economy of Indonesia grew about 5.7% on average. In 2007 Indonesia and Japan reached a free trade agreement. On March 2014, Joko Widodo had elected as the president for the next five years. While citizens saw him as a clean and low profile leader compared to previous politicians, Indonesia’s GDP growth decreased to 4.79% 18.

(28) in 2015, the slowest in the past six years. But despite the weakened growth, Jokowi had run several programs to increase domestic infrastructure, encourage foreign investment, enforce corruption laws, and promote health care and education. Figure 4 shows the annual GDP Growth of some Southesat Asia countries and BRIC countries. Indonesia’s GDP growth kept declining over the years due to factors such as fuel subsidies, increasing oil prices, national debt, and others expenditures. 3.3.2 Domestic Demand According to Indonesia’s Central Bureau of Statistics (BPS), household consumption expenditure accounts for more than half percentage from the total GDP (Table 2). The most household consumption expenditures are food commodities and non-food commodities had percentage about 56.12% in 2014. The second most expenditure came from fixed capital expenditure 31.7% in 2014. The second biggest expenditure (31.7%) came from fixed capital expenditure, which including both domestic and imported of building, machinery, equipment, transportation tools expenditure. International trade was also an important factor of the total GDP with Table 2 Percentage Distribution of Gross Domestic Product at Current Market Prices, 2010-2014 (Percent). Source: Statistics Indonesia, October 2016. total 2014 exports accounting for 23.08% while total imports accounting for 24.84%. From 2010 to 2014 there’s no significant expenditure change except changes in inventories expenditure.. 19.

(29) Table 3 shows the percentage of Indonesia’s GDP by Industrial Origin in 2000 to 2014. Manufacturing industry has the largest percentage, it was approximately 23% - 24% of total GDP. Nevertheless, Indonesia also has enormous mineral resources and low production cost which drives Indonesia’s superior oil, natural gas, steam coal, and Table 3 Percentage Distribution of Gross Domestic Product at Current Market Prices by Industrial Origin, 2000-2014. Source: Statistics Indonesia, October 2016. tin manufacturing industries. While some industries have average percentage over the years, the other industries have shown increased growth including the trade, hotel, restaurant, transport, communication industry. 3.3.3 National Income In 2015, Indonesia’s average gross national income per capita was categorized as lower middle income, at US$3,440. Comparing to BRICS countries, Indonesia still has higher national income than India, but much lower than Brazil, Russia, and China. Compared to other South East Asian countries, Indonesia had a higher national income than Vietnam but still lower than Malaysia, the Philippines, and Thailand (Table 4). 3.3.4 Currency and Inflation Rupiah (IDR) is the official currency of Indonesia which controlled by Bank of Indonesia. The current currency in October 2016, US$1 is equal to IDR 12,987 while TWD1 is equal to IDR 409. 20.

(30) After the Asian financial crisis in the 1990s, rupiah kept declining to its lower point. Until 2006, the rupiah still underwent large fluctuations due to the rising inflation rate, which is related to the government’s agreements to give subsidies oil. Table 4 Gross National Income per capita in current US$. Source: World Bank, October 2016. and electricity to citizens. Indonesia’s government has a national budget for oil and electricity subsidies every year, the oil price fluctuations keep affecting national economy. Therefore, when the oil price increase, the government feels pressure to subside the fuel oil to citizens which leads to inflation of the rupiah. After Indonesia declared its independence in 1945, republic democracy is the country spirit, but this also led to a financial problem. Citizens became addictive to government subsidies, and when the government tried to save the national financial situation by reducing them, the citizens start mass demonstrations and protests. After Joko Widodo won the presidential election in 2014, he tried to stabilize the national economy by gradually reducing the subsidies, but the end results are yet to be seen.. 21.

(31) In 2005 to 2014, inflation growth rate in Indonesia’s was 8.5% which is higher than other developing countries, usually around 3%-5% in average. Government subsidies, country debts, and lack of quality of infrastructure led to unstable economy and increase in the level of poverty. 3.3.5 Labor Force Indonesia, the fourth most populous country in the world, has been struggle to decline the number of unemployment rate. After the Asian Financial Crisis in the late 1990s, the macroeconomic growth pushed Indonesia’s unemployment rate into a steady downward trend while the number of labor force kept raising for each year. In 2016, the unemployment rate fell to 5.5 percent of the nation’s labor force or 7.02 million people in absolute terms. According to Statistics Indonesia, the number of Indonesia’s labor force shows that indicator of working and unemployed labor grew in the recent years. Working labor force from 2010 show 108.2 million people increased to become 120.7 million people in 2016. While for the unemployed people from 2010 show 8.3 million people decreased to become 7.0 million people in 2016. According to Bureau Statistics. Table 5. Unemployment Growth Rate (percent). Source: Statistics Indonesia, October 2016. 22.

(32) Indonesia (Table 5), it had shown a decrease of 7.1% in 2010 to 5.9% in 2014, still higher than most other SE Asian and BRICS countries. 3.3.6 Foreign Trade According to Economic Complexity Index (ECI), Indonesia is the 25th largest export economy in the world which has remarkable growth rate from 1995 to 2004 of total exports to imports. Based on a report of Observatory of Economic Complexity (OEC) in 2014, Indonesia exported total $197B and imported $178B which resulting in a positive trade balance of $19.4B. In 2014, China was the top origin of imports with about 18% ($32.5B), followed by Singapore 14% ($25.6B), Japan 8.6% ($15.4B), South Korea 6.5%($11.6B), and Malaysia 6% ($10.6B). The top export destination of Indonesia is Japan 13% ($24.9B), China 11% ($20.8B), the United States 9.5%($18.8B), Singapore 9.5% ($18.7B) and India 6.9% ($13.6B).. 3.4 Indonesia-Taiwan Relations Since early 1950s, Indonesia had maintained interaction with China and Taiwan. However due to communist-led coup in September 1945, Indonesian government suspected that PRC (People’s Republic of China) was involved in supporting the communist party. In October 1964 to mid 1967, many ethnic Chinese in Indonesia were killed to avoid anti-communist and anti-Chinese which led to freezing relation with the PRC and Taiwan as well. In 1971, Taiwan and Indonesia restarted their interactions when both countries allow each other to set up country economy representative. Since then economics became the key factor in maintain good relationship between Indonesia and Taiwan. In 1989, Indonesian government allowed Taiwan to change the name of. 23.

(33) economy representative in Jakarta from Chinese Chamber of Commerce become Taipei Economic and Trade Office. After that the relationship between Indonesian and Taiwan showed very substantial improvement. 3.4.1 Economic and Trade Relations In 2016, Indonesia was the 14th largest trading partner of Taiwan, the 10th largest source of imports and the 16th largest export market. Taiwan exports gasoline and diesel, steel products, textile raw materials, machinery equipment and chemicals to Indonesia. Taiwan imports raw materials such as liquefied natural gas (LNG), coal, copper alloy, wood and rubber from Indonesia. To promote trade between Taiwan and Indonesia, Taiwan Trade Development Council (TAITRA), a public interest incorporated by the Ministry of Economy and Civil Industry and Commerce, set up the "Taiwan Trade Center in Indonesia" Center, Jakarta. According to the BKPM, Taiwan's investment in Indonesia totaled $ 15.1 billion by the end of December 2016, with an investment of 2,425. The main industries of investment in Indonesia are furniture industry, textile industry, footwear industry, noniron ore industry, metal products industry, tire industry, trade and service industry and agricultural planting. According to the Indonesian Immigration Department data, there are currently about 10,000 Taiwanese businessmen and technical staff who are operating or working in Indonesia. The number of Taiwan companies should be over 2,000. Table 6 shows the recent economic and trade report between Indonesian and Taiwan in 2014-2016.. 24.

(34) Table 6 Indonesia-Taiwan Economic & Trade Report in 2014-2016. 2014. 2015. 2016. (in billion U.S dollar) Indonesia Exports to Taiwan Taiwan exports to Indonesia. 73.87 38.34. 59.67 30.34. 43.26 27.45. Total bilateral trade Indonesia trade balance. 112.21 35.52. 90.08 29.27. 70.71 15.81. Source: Taiwan Official Website, December 2017. 3.4.2 Taiwan’s FDI in Indonesia Indonesia’s president, Suharto desired to promote the economic development of Indonesia while the economy of Taiwan grew rapidly during 1970s. In the Table 7, it shows that Taiwan had more trade relationship in cumulative investment in Indonesia compared to Mainland China between 1967-2000. Indonesian improved its relationship with Taiwan earlier than China. By 1990, Taiwan had invested Indonesia at the largest amount compared to other Southeast Asians countries. While to attract foreign investment, Suharto brought another economic reform called “Pakto 88” which expand joint venture investment in Table 7 Taiwan’s and Mainland China’s Investment in Indonesia (in million USD). Source: Samuel C.Y. (2002). December 2017. Indonesia by deregulate the banking sectors. According to Indonesia Statistics, Taiwan had invested to Indonesian nearly $5 billion in 2000, 424 projects and created. 25.

(35) 40,000 jobs in Indonesia. 3.4.3 Trade and Economic Agreement While the economic and trade relation between Taiwan and Indonesia keep growing for the years, Taiwan and Indonesia have signed several documents in the recent years to cooperate with each other. Some of agreements that have been signed between Taiwan and Indonesia are presented below: ● 1990: Agreement for the Promotion and Protection of Investments ● 1995: Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion ● 1995: MoU on agriculture cooperation ● April 2004: MoU on Marine and Fisheries Cooperation ● December 2004: MoU on labor cooperation ● 2006: Agreement on Agricultural Technical Cooperation ● January 2010: MoU on the “One Village One Product (OVOP)" cooperation ● May 2011: MoU on higher education cooperation ● 2016: cooperation agreement in agriculture.. 3.5 Food and Beverage Industry in Indonesia 3.5.1 Industry Overview The food and beverage Industry is one of the most important industries in Indonesia. According to Statistical Data in Indonesia (Table 8), the F&B industry is still increasing day by day while the F&B good’s import was decreasing between 2011 to 2015. These findings indicate that F&B sector is constantly evolving and increasing the domestic products rather. 26.

(36) than import goods. From 2010 to 2014, the F&B Industry output value has increased in terms of the percentage of Gross Domestic Product by Industrial Origin (Table 9). In 2014, the Indonesia F&B Industry accounted for 7.7% of the total GDP, and 20.84% of the manufacturing industries sector in the non-oil GDP. Indonesia’s Ministry of Trade reported that Indonesia’s vital import sectors were consumer goods and raw material which F&B industries have been contributing significantly to national economy. In fact, the value of imported consumer goods had decreased in 2015. However, the General Chairman of the Indonesia Food and Beverage Association, said that F&B Industries in Indonesia has been recovering during 2016. According to Indonesia's Investment Coordinating Board, foreign investment in Indonesia’s processed food and beverage industry is expected to surpass USD $3.9 billion in 2016. In terms of average food expenditures per capita in a month, each person spent IDR 388,350 (NT$ 862) in 2014, prepared food and beverage contributed 26% of total foods consumed, then followed by cereals (15.51%), tobacco and betel nut (12.64%), fish (8.2%), vegetables (7.74%), eggs and milk (6.2%), and fruits (4.9%). Indonesia’s consumer behavior will make food and beverage products into a promising sector in the future, because food and beverage products are the main contributor to Indonesia's economy.. 27.

(37) Table 8 Development of Goods Imports by Group in 2011-2015. 28.

(38) Table 9 Gross Domestic Product at Current Market Prices by Industrial Origin (Billion Rupiahs), 2000-2014. Source: Statistic Indonesia, 2010. 29.

(39) 3.5.2 Consumer Behavior Indonesia’s Gross National Income increased significantly between 2005 to 2013 which indicate an improving economy during that time (Figure 5). Figure 8 GNI per capita in current US$ between 2005-2015. Source: World Bank, November 2016. However, it began to decreased slightly thereafter. According to World Bank report, Indonesia’s annual GNI per capita in 2015 was US$3400. Surveys conducted by Deloitte (Figure 6) among 5 largest cities in Indonesia such as Jakarta, Bandung,. Figure 9 Monthly household income distribution by city. Source: Deloitte Consumer Insight, 2015. Makassar, Medan and Surabaya shows that urban areas like Jakarta has higher average income than any other cities in the country, and 43% of the survey participants have monthly household income more than IDR 10,000,000 (NT$ 22,196).. 30.

(40) Surveys showed in Figure 7 that consumers who earn less than 2 million Rupiah (NT$ 4434) per month spend 31% of their total income on food, while those who earn more than 10 million Rupiah (NT$ 22,196) spend 18% on food, 16% for savings, and 8% for credit card. Figure 10 Breakdown of Monthly Household Expenditure in 2015. Source: Deloitte Consumer Insight, 2015. According to a survey by Nielsen’s Global Consumer Confidence Index to more than 30,000 online consumers in 61 countries throughout Asia-Pacific, Europe, Latin America, the Middle East/Africa and North America, the global consumer confidence average is 99 in Q3, indicating how strong consumer confidence is. Consumer confidence typically increases when the economy expands, and decreases when the economy contracts. Regarding to the brand preferences in Indonesia, Figure 9 shows that more than half of Indonesian prefer local brands, particularly across food and beverage categories. However, consumers aren’t strongly aware of brand ownership and consider some multinational brand as the local brand, Buavita (fruit juice brand acquired by Unilever), for example. Thus multinational brands are not at a true disadvantage, provided they can develop a brand position that resonates with local buyers. Danone, for instance,. 31.

(41) used the Bahasa Indonesian words “biscuit” which means cookies, success to win the local advertising campaign. In conclusion, the majority of Indonesians continue to show preference for brands that they perceive to be local, but also mistakenly understand some foreign brands to be local. Figure 11 Preference of Foreign brands by monthly household income level. Source: Deloitte Consumer Insight, 2015. 3.5.3 Distribution Channel Before the foreign retailers entered Indonesia’s market, traditional mom and pop stores were very common retail stores to buy food and beverages products. Mom and pop store were usually family-owned which open for business only in a single location and usually located in the front of the house. Indonesian retail sector began rapid expansion in 1999, when a Presidential Decree allowed Carrefour, a French retailer, to increase outlet numbers in Jakarta. This chain was followed by several foreign retailers such as Giant, Lotte Mart, Lion Superindo, Circle K, Seven-Eleven, Lawson, FamilyMart and Ministop. In urban districts like Jakarta and Surabaya, the traditional local markets have been increasingly replaced by hypermarkets and convenience stores which being very popular among Indonesia's young generation. Meanwhile, people in rural areas still prefer to visit traditional markets.. 32.

(42) Deloitte Consumer Insight categorized the retail market in Indonesia into two: traditional markets and modern markets. Street vendors, wet markets and mom & pop stores are considered as traditional markets, while mini-markets & convenience stores, branded store are considered as modern markets. In Figure 10, Deloitte reported that respondents prefer traditional markets because of price and location, while others prefer modern markets due to the completeness of the goods. Modern retail in Indonesia will experience significant growth in the next few years. The two biggest convenience store brands in Indonesia, Indomart and Alfamart have led the local competition. They two competing brands that are always located right next to each other. In 2016, Indomaret has 12,100 stores while Alfamart has 11,300 stores throughout Indonesia. Their biggest competitor, 7-11, comes from the USA and entered in 2009. Figure 12 Reasons for Channel Preferences by Channel Type. Source: Deloitte Consumer Insight, 2015. 33.

(43) Chapter 4 Data. In the past, Taiwan’s food manufacturing industry had processed agricultural products to satisfy the domestic needs. However, consumers pay more attention to healthy food products so that many producers tried to meet these needs. By improving research and development, maintaining quality control, and being aware of nutrition and healthcare, Taiwan’s food manufacturing has been gradually recognized by other countries. In recent years, the scope of F&B manufactures in Taiwan has stayed steady about 5000 to 6000 companies, most of which are Small and Medium-sized Enterprises (SME). According to Economic Statistics, the total sales of food consumed were NTD 6.065 trillion, ranking in the Top Ten of important sectors in Taiwan. Table 10 presents the top ten Taiwan’s food manufacturers between 2013 to 2014 which led by Uni-President Enterprises (UPEC), Dachan Group, and TTL Corporation. Table 10 Top Ten Taiwan’s Food Manufactures in 2013-2014. Source: organized by author, November 2017. 34.

(44) I will examine two Taiwanese enterprises that have enter Indonesia’s market in food and beverages company. First case study is the largest food production company in Taiwan, UniPresident Enterprise Corporation (UPEC), which has a significant market share of dairy product, foods and snacks, and beverages markets. The other case study is one of the largest meat production companies in Taiwan, Dachan Great Wall Enterprise, which is involved in animal feed production, meat processing, and processed food supply. This study will be investigating the motives of these two corporations in choosing Indonesia for expanding their business, the entry method and ownership structures, and partner’s selection criteria. 4.1 Uni-President Uni-President Enterprises Corporation (UPEC) 4.1.1 Company Profile Uni-President Enterprises Corporation (統一集團) is the largest food manufacturing companies in Taiwan which employs more than 5000 people in total. The headquarters company are located at Yongkang District, Tainan City, with several branches and factories across Taiwan and the other countries. Besides manufacturing food and beverage products, UPEC has also expand their business to other areas such as retail, pharmaceutical, tourism, distribution logistics, general investment, and many other more industries. The total capital asset of UPEC is recorded approximately at NTD 566 billion. 4.1.2 Company History UPEC was established in 1967 in Tainan as a flour producer which gained enormous experiences in the food and beverage industry in Taiwan. Now, UPEC has become the one of the largest international F&B manufacturing companies. As consumer preferences have changed, UPEC never stop to expand its business into several industries besides F&B sector which has accomplished outstanding achievements in customer awareness.. 35.

(45) In 1979, Taiwan was an agriculture-based society that gradually move towards to the industrialization. Adopting highly efficient manufacturing technology were the firm’s strategy to enlarge the company’s scale. From satisfying the basic need of the consumers, UPEC gradually expanded to accommodate the change in consumer preferences and satisfy their daily product and service. The firms also began to create high-end products and services to satisfy the needs of every consumer group. In the 1980s, UPEC became the leader of the domestic food and beverages manufacturing industry. Figure 13 Company Logo of Uni-President Enterprises Corporation. Source: Uni-President official website. As Taiwan’s economy continued steady growth in the 1990s, UPEC was ready to move its business into the global industry. It started to invest and set up plants in emerging markets throughout Asia Pacific including China, Indonesia, Thailand, Vietnam, and the Philippines. In 1991, UPEC was listed on the Taiwan Stock Exchange. UPEC also gradually expanded into the chain-store industry (7-Eleven), and conducted joint ventures with multinational companies including Starbucks Coffee which creating its own logistic channels. 4.1.3 Product Scope UPEC’s business divisions were divided into several groups according to their annual report in 2015, as follows.. 36.

(46) Table 11 UPEC Headquarter F&B Division. Source: Uni-President Annual Report 2015. The largest business was the Dairy Division which took 29.12% of the overall business, then the Tea Beverages Division with 18.53%, and then the Processed Food Division with 10.98%. 4.1.4 Business Model. As the leader of the food manufacturing industry in Taiwan, UPEC has pioneered both Research and Development (R&D) as well as its vertical business model in Taiwan. When UPEC had enough capital to expand their business, they also acquired distribution channels by themselves. UPEC succeed to win the market by acquired the vertical business with their own distribution channels. In 1978, UPEC signed permanent management rights for 7Eleven stores in Taiwan. It was hard to convince Taiwanese of convenience stores at first,. 37.

(47) but now, convenience stores have become the culture of Taiwan. In November of 2016, the total number of 7-Eleven stores in Taiwan was 5,106 units. Figure 14 Business Scope of UPEC. Source: Uni-President Official Website. The business model of UPEC is to acquire or create manufacturing, marketing, and distribution channel all on its own. UPEC’s logistics has integrated over 30 retail subsidiaries with a total workforce over 10,000 employees. UPEC has a goal to influence all aspects of daily life for Taiwanese consumers to become the new lifestyle. By minimizing the cost and continuing to expand the business fields, UPEC became a huge F&B manufacture in Taiwan. Pictured in Figure 4.5 are the various business fields acquired by UPEC to meet the consumer’s need. 4.1.5 International Scope After Taiwan become the member of the WTO, many Taiwan enterprises started to grow their business internationally. UPEC began to open their business to the China in 1992 starting with global outsourcing. Then UPEC gradually built production plants in several 38.

(48) units in China. At the present, UPEC has invested about 17 plants of food manufacturing, several Starbucks and Carrefour stores, and other business fields in China. UPEC also found opportunities in emerging markets in the Asia-Pacific region, building an animal feed and processed food plants in Vietnam in 1992. They also started a joint venture with a local company in Indonesia in 1991 and to set up an instant noodle factory in 2006, which also expanded to become a beverage factory. In the Philippines, UPEC established a new instant noodle manufacturing factory, with local people in charge of sales. 4.1.5.1 Overseas Company in Indonesia: Overview of PT. ABC President PT. ABC President Indonesia was a private company established in September 1991 as a joint venture between PT. ABC Central Food from Indonesia and Uni-President Enterprises Corporation from Taiwan, which acquired 49.63% of the company share. Originally focused on instant noodles, PT. ABC President now has become one of the largest beverage companies in Indonesia. 4.1.5.2 Company History PT. ABC Central Food was established in 1975 in Jakarta by a Chinese Indonesian and bought by Heinz Company in 1999 which acquired a 65% share. Around the 1980s, ABC led the market for bottled sauces in Indonesia. The prior brand of PT. ABC Central Food is called ABC, which first began with sweet soy sauce, followed by tomato ketchup, hot chili sauce, and fruit syrup. While PT. ABC was involved in the instant noodle market, 50% of market share of instant noodle was held by the Indofood Company while the Wings 39.

(49) Corporation also provided stiff competition as well, leading PT. ABC President to expand overall revenue through beverage products. Since UPEC led ready-todrink plastic bottle beverages in Taiwan, ABC President was convinced to expand their business to beverages manufactures. ABC President launched NU Green Tea as their first beverage product in 2005. At the present, ABC President has stronger business in the ready-to-drink tea beverage. Nu Green Tea was also the first beverage to use PET septic filling technology which changed customer’s taste preference of beverages. 4.1.5.3 Industry Overview In Indonesia, both primary and processed food and beverages are produced in mass amounts to meet consumer’s need. According to the World Instant Noodle Association (WINA), Indonesia placed the second rank for the largest consumer of instant noodles after China (Table 12). Table 12 Global Instant Noodle Consumption. Source: World Instant Noodle Association (WINA). With this promising opportunity, there are a lot of competitors who are involved in this field. Indofood Sukses Makmur is still the biggest instant noodle. 40.

(50) manufacture in Indonesia. ABC President Indonesia placed on the 4th rank. Indofood Sukses Makmur controls most of the instant noodle market in Indonesia with the Indomie brand (Table 13). Table 13 Market Share Composition Indonesia’s Instant Noodles Market (%). Source: JP Morgan, November 2017. Due to the Muslim majority, Indonesia people prefer to drink nonalcoholic beverages (Table 14). According to the Euromonitor in 2013 report, most of Indonesia people consume bottled water (total IDR 20.05 trillion), followed by bottled tea (total IDR 13.52 trillion), and then carbonated beverage (IDR9.03 trillion). Table 14 Indonesia Retail Beverage Sales in 2013. Source: Euromonitor, May 2017. 41.

(51) In the past, Indonesia used reusable glass bottles to store tea drinks, Sinar Sosro being the first manufacturer. In 2005, PT. ABC President released the first Table 15 RTD Tea Bottle Indonesia. Source: W&S Market Research, November 2017. plastic bottled tea, the NU Green Tea, and other competitor soon copied them. To compete, many manufactures have released various kinds and flavors of tea like tea soda, fruit tea, milk tea, etc. Table 15 shows the popular RTD Tea Bottle brands in 2015. Sinar Sosro took the largest market share, surpassing the share of the next three competitors combined, while ABC President ranked the fifth rank with the Nu Green Tea brand at 8%. 4.1.5.4 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. 42.

(52) 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 UniPresident 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. 43.

(53) 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.. 44.