Indonesian companies are increasingly looking to India as the next big market. Since liberalizing its economy two decades ago, India has emerged as the second fastest growing economy in the world and a vast market for Indonesia’s natural resources as well as manufactured goods.
When Sinar Mas Asian first entered the Indian market in 1996, the country was taking its first few steps towards liberalizing its economy. The Indian government had identified paper as a priority sector and Sinar Mas answered that call by establishing a factory in Pune, just outside Bombay.
The giant Indonesian pulp and paper producer ended up selling the factory in 2001 but that did not end its relationship with the country. In fact, the company kept in touch with its customers and in 2003, another window of opportunity opened up when Trade Minister Mari Pangestu paid a visit to New Delhi and initiated bilateral trade links between the two Asian economies.
Today Asia Pulp and Paper (APP), the group’s paper and pulp producer, exports 60,000 tons of paper and 100,000 tons of pulp annually to India. The value of the exports is worth $150 million and, according to Suresh Kilam, export director for Asia Pulp and Paper, the figure is expected to triple in three years.
“Paper is included in the ASEAN-India Free Trade Agreement on Goods which provides preferential tariffs,” he told GlobeAsia on the sidelines of the recent India-ASEAN Business Conclave in New Delhi recently. “When paper duty falls to 0% from the current 5%, the value of our exports will rise to $300 million over the next three years.”
He added that there are currently 500 paper mills
operating in India but most are relatively small.
The 20 largest mills control 70% of the paper market in India.
“In three years, the demand for paper will grow by three million tons,” says Suresh.
“If we can capture 30%, which is one million tons, that will be worth $700 million.”
That’s just one pointer to the huge scale of the market, even with the infrastructure bottlenecks and high shipping costs.
“For APP, China and India are equal in terms of size and opportunity,” notes Suresh. APP produces 11.5 million tons of paper annually in Indonesia and China, of which it exports 500,000 tons to India, which accounts for 20% of total paper imports into India. The company exports 70% of its paper, primarily to Japan.
“Our biggest market today is Japan as India has only emerged over the past five years,” says Suresh. “We started producing paper in 1978 with 100,000 tons but today we are the third largest paper and pulp producer in the world. In three to four years time, we aim to be number one.”
The elephant awakes
India’s rise over the past two decades has significantly altered the economic and political landscape in the region. India is today one of the world’s most dynamic economies and its economic liberalization in the early 1990s has been dubbed by Indian business people as its second independence.
With a population of over one billion and GDP of
$1.5 trillion, India offers enormous opportunities for Indonesian businesses.
APP is by no means the only major Indonesian conglomerate eyeing the Indian market.
Bilateral trade between the two countries expanded
more than three times from $3.9 billion in 2005 to $13.3 billion in 2010.
Indonesia exports palm oil, coal, paper and pulp, rubber and rubber products,
copperware and chemicals to India. Indonesia is the number one supplier of palm
oil to India, accounting for 70% of the country’s needs.
The aim now is for Indonesia to export more processed goods to India, says Trade Minister Mari Pangestu. This is already happening with the Salim Group selling Indomie to the Indians while Gajah Tunggal is working to export more tires to the country.
The two countries are now pursuing a bilateral
trade agreement, says Mari. This will complement the India-ASEAN Free Trade
Agreement in Goods.
“We have launched negotiations for an India-Indonesian Comprehensive Economic Agreement which we hope to finalize in the near future,” she says.
Indian companies have also started looking East to invest and more and more of them are heading to Indonesia. The giant Tata group has acquired stakes in coal mines while others are looking to participate in Indonesia’s bid to upgrade its infrastructure.
“We also want them (Indian companies) to invest in
smelting plants so we can add value,” says Mari.
“They are also very strong in IT and other services which we can benefit from.” Other areas where Indian companies can play a role are in the creative industries and tourism.
Indian companies such as the Aditya Birla Group
have had a long presence in Indonesia. The giant conglomerate, which has an
annual turnover of $30 billion, operates three textile mills in Indonesia,
employing close to 10,000 workers.
“We are exploring several opportunities in Indonesia in the strengths we have built up,” Pragnya Ram, group executive president, corporate communications and CSR, told a meeting in Mumbai.
Outsourcing giant Wipro Technologies is also on the lookout for opportunities in the ASEAN market. The company, with an annual turnover of $6 billion, has established a regional headquarters in Singapore and is now seeking to penetrate the Indonesian market.
Wipro is strong in business intelligence, which allows companies in banking, retail and telecommunications to better understand the needs of their customers. All three industries are growing rapidly in Indonesia.
But there are some roadblocks towards increasing
economic ties. Indofood, for example, is very serious about penetrating the
Indian market but faces an 80% tariff on its instant noodles.
Go East young man
Since India launched its Look East policy, Indian companies have been aggressively making inroads into the ASEAN region. With the landmark free trade agreement on goods already signed and sealed, ASEAN and the Indian government are now looking at an agreement on services and investments, all part of a conscious move to bring the markets together.
“The conclusion of the India-ASEAN FTA will create the world’s largest free trade area with 1.8 billion people and $2.8 trillion in gross domestic product,” Indian Commerce Minister Sri Anand Sharma told the opening of the Business Conclave.
“It was 20 years ago that India embarked on a Look
East policy and we have embraced it,” he added.
“This goes beyond annual summits but involves institutional connections and business links.”
The success of the closer relationship is evident
in the growth of bilateral trade between the two partners, which exceeded $50
billion in 2010 and is estimated to reach $70 billion by 2012.
“There is no denying that ASEAN and India complement each other and that the creation of a new economic eco-system is under way,” said Sharma.
As trade and economic ties between India and ASEAN grow, Indonesian companies are poised to take advantage. India offers vast potential for both Indonesia’s natural resources as well as for its manufacturing goods. As Suresh from APP notes, India is the next frontier for Indonesian companies. GA