VALUE CHAIN ANALYSIS

Transcription

1 VALUE CHAIN ANALYSIS Aquaculture, Textile, Electronics Shangri-La Hotel Jakarta 17 th November 2005 WORKSHOP ON IMPROVING THE INVESTMENT CLIMATE IN INDONESIA

2 AQUACULTURE Import quality brood stock from selective countries and encourage domestication

3 Indonesia s Position in the Global Market AQUACULTURE Shrimp Production by Major Production Countries (2001) Indonesia s Export Destination (based on volume, 2002) 4% 9% Thailand India 10% 4% 4% 14% Japan USA Malaysia Indonesia China others 38% 10% 5% 5% 6% 48% Singapore Hongkong United Kingdom Belgium & Luxemborg Vietnam 14% others 29% Source: Globefish Source: Central Bureau of Statistics Significance of Shrimp Export for Indonesian Economy Shrimp Export Value (FOB USD mn) 888 1, Shrimp Export Volume (thousands ton) Total Export (FOB USD mn) 48,665 62,124 56,321 57,159 GDP (Current Price) IDR bn 1,099,732 1,264,919 1,449,398 1,610,012 GDP (Current Price) IDR bn (W/out Oil and Gas) 992,172 1,081,418 1,261,383 1,421,676 GDP (Current Price) USD mn 129, , , ,413 GDP (Current Price) USD mn (W/out Oil and Gas) 116, , , ,256 Shrimp Export Value/Total Export 1.8% 1.6% 1.7% 1.5% Shrimp Export Value / GDP (W/out Oil and Gas) 0.8% 0.8% 0.6% 0.5% Source: Central Bureau of Statistics, Department of Oceanic and Fisheries, Independent Research & Advisory

4 Value Creation and Margin AQUACULTURE 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Breakdown of the Final Product Value Margin Breakdown Along the value Chain (%) % Monodon Vannamei Broodstock Activity (pair) Farming Exporting Hatchery Cold Storage/Processing Overseas Distributor Source: Independent Research & Advisory Vannamei Monodon Broodstock Activity (per pcs) Exporting Cold Storage/Processing (per kg) Farming (per kg) Hatchery (per fry) Overseas Distributor Increasing productivity and reducing cost in farming activity will result in higher value added and enhanced margin 37

5 Market Barriers & Problems in The Value Chain AQUACULTURE 1. Inability for most traditional shrimp farmers to comply with the stringent international health and safety standard 2. Access to capital is a problem faced by small scale farmers 3. Risk of declining selling price 4. Pressure of transhipment 5. The availability of quality broodstock 6. Broodstock and input variables for shrimp feed are still imported 7. Asymmetrical market information on comparison of quality and similar product features 8. Crucial environmental compliance which practices tighter and more stringent traceability standard

6 Upgrading the Chain AQUACULTURE Activities Brood stock Hatchery Cultivation / Farming Harvesting Cold Storage / Food Processing Marketing Feed Meal Source: Independent Research & Advisory, 2004 Recommendations Import only quality brood stock from selective countries to control source from diseases and encourage domestication through compensation Constraint to 3 5 breeders to control and maintain quality, as well as to enhance research and development Provide training to backyard hatcheries to increase productivity and control production to enhance bio security Control water quality and feeding system to increase productivity and reduce antibiotic and other prohibitive chemicals to enhance bio security Upgrade the mechanic equipments to those using modern harvesting equipments to improve the quality and freshness Upgrade from commodity-based to value added-based and process to become food grade Introduce the HACCP standard Expand markets to others countries like Australia, China, and other Asia countries Protect local market through anti dumping Prohibit transhipment to protect the quality of Indonesia s shrimps and its reputation Support domestic production of corns, soybeans and fish meal to reduce import and tariff

7 Aspects Which Can Be Improved AQUACULTURE Aspects which can be improved Provide access for SMEs and local farmers to financing and training Marketing Domestic policy improvement Law enforcement Promote Indonesian shrimps Cost efficiency Proposed Solutions Upgrade traditional farmers to semi intensive and intensive farming through coordination with the private sector Educate traditional farmers to use high grade brood stocks only Socialise and provide training on ideal shrimp farming methodology Control/monitor production standard of the SMEs and farmers Establish shrimp and fish auction centres Provide free and accessible market information on shrimp price Prevent the dumping of imported shrimps Improve existing infrastructures such as better roads, availability and consistency of energy supply Streamlining and efficiency of the bureaucratic and administrative processes to export Provide up-to-date laboratories of equivalent standard to that of importing buyers Implement environmental and landscape policies to map out suitable farming area throughout Indonesia Increase suitable standard of cultivation system Raise the security level to prevent pilfering Launch effective marketing campaign, in Asia and Australia, to promote Indonesian shrimps as well as encourage participation of local producers in international seafood exhibitions Set a national program to increase high quality seeds for corns, soybeans and fishmeal Source: Independent Research & Advisory, 2004

8 TEXTILE Focus On Mid to High Value Products That Others Don t

9 Indonesian Market TEXTILE Indonesia s textile and textile s products export growth trend took a downturn since 2001 Decreasing export volume had been offset by increasing average price of garments Textile and Garment Export Shares Indonesia TTP s Export Volume 100% 80% 60% Others Garment Fabric 40% 20% Yarn Fiber Source: World Trade Organization (2004) Volume and Value of Indonesia s Export Garment Volume (mn tons) Garment Price (USD'000/ton) Textile Volume (mn tons) Textile Price (USD'000/ton) Source: Indonesia Statistical Yearbook 2002 and Bank of Indonesia; Independent Research & Advisory s calculation. 0% Value 100% 80% 60% 40% 20% 0% Source: Bank of Indonesia; Independent Research & Advisory s calculation. Others Garment Fabric Yarn Fiber

10 Polyester as The Focus Point TEXTILE Why Polyester: Ideal substitute to the inelastic supply of natural fibers such as cotton & wool, back also by its blending flexibility. Polyester is the most popular for being the best wash and wear fiber. The growth driver of the annually 3.3% increasing world production of fiber, that grew at about 4.7% annually from 1997 to 2002 Growth is highest for man-made fiber consumption compare to nylon and acrylic Kg/Capita Consumption of Final Textile Product 7 6 Wool Cotton Man Made Source: PCI Fibers & Raw Materials, World Synthetic Fibers: Supply/Demand Report 2002; Independent Research & Advisory, 2004 Mn Tons F 2005F 2010F Staple Nylon Filament Nilon Consumption of Textile Mill Staple Polyester Filament Polyester The growth of polyester industry in Indonesia is driven by the fact that 95% of its annual consumption is produced locally F 2010F Source: PCI Xylenes & Polyester Ltd, World Supply & Demand Report 2001; Independent Research & Advisory, 2004

11 Indonesia s Sources of Competitiveness Integration Surviving companies are those which previously were integrated. National wide, there are some disintegration of the supply chain, that is, still importing despite the availability of domestic production. The highest cost in the polyester fiber industry is the input cost, that PX and MEG are still imported, whereby the integration of national supply chain should be reorganize to reduce import. Technology On average, Indonesia s textile machinery is more than 15 years old. However, access to bank credit is unavailable due to perceived unattractiveness. TEXTILE Trade Barriers With the Agreement of Textile and Clothing starting January 2005, concern on the removal of quota is not proven. Indonesia should benefit in the long term if it still focus to be an efficient producer. Prevent from smugglings and especially transshipments to avoid safeguard mechanism from buyer s countries 100% 80% 60% 40% 20% 0% Export TTP to Quota s Countries 72% 28% 82% 18% 38% 62% 51% 49% Source: Indonesia Statistical Yearbook 2002, Independent Research & Advisory s calculation. 80% 20% Total TTP Textile Garment Total TTP Textile Garment Volume Quota's Countries Others Value 29% 71%

12 Productivity Issue Textile mills operate 24 hours a day at 2-3 shifts, the cost of labor continues to increase, production workers may have to work till evenings and weekends. Some producers complain about the holiday regulation which effectively reduce the working days in a year. Although China does not have the lowest wage in the region, it is competitive in terms of low cost per unit due to its high productivity. Indonesia s Public Holiday Arrangement Year Original Holidays 9 days 9 days Under New Rules 18 days 18 days Comparison of Basic Monthly Labor Cost In 2003 (USD) China Indonesia India S.Korea Workers ,243 Engineers ,255 Mid-level managers ,994 Legal minimum wage Bonus payments Basic wage x Basic wage x Basic wage x Basic wage x (fixed + var. bonuses) 2.6 months months 1 months 7.6 months 1-2 payments/year Social security burden Employer 30.5% 9.5% 12.0% 8.8% ratio (health and Employee employment insurance)* 9.5% 2.0% 12.0% 6.8% *) Percentage of Basic Sallary Source: JETRO, The 13th Survey of Investment-Related Cost Comparison In Major Cities and Regions In Asia, 2003

13 Critical Issues TEXTILE Create a financing scheme to upgrade the machinery to become more productive and competitive Set a market information center to coordinate domestic supply and demand, notably on production inputs Eradicate hidden costs such as taxes and unnecessary burdens at local level Efficiency of the supply chain. As an example, delay in port clearance raise the cost Increase labor productivity through various incentives Integrated focus to increase and enhance the respective value of the products

14 ELECTRONIC Increase Local Components in TV Manufacturing

15 Indonesia s TV Industry ELECTRONIC Company Indonesia s TV Producers (2003) FDI/DDI Annual TV Unit Capacity (mn units) TV Units Sales (mn) 2003 Source: Independent Research & Advisory Data Compilation (2004) Export (%) Domestic (%) Domestic Market Share (%) PT Panasonic Gobel Indonesia FDI (Japan) PT Sharp Yasonta Indonesia FDI (Japan) PT Toshiba Consumer Product Indonesia FDI (Japan) PT Samsung Electronics Indonesia FDI (S.Korea) PT LG Electronics Indonesia FDI (S.Korea) PT Hartono Istana Teknologi (Polytron) DDI PT Panggung Electric Indonesia (Akari) DDI Others Total Indonesian producers only have 21% market share and only 20% of production being exported.

16 Indonesia s TV Unit Sales ELECTRONIC Increasing demand for TV sets is triggered by improving affordability, financing availability, attractive TV programs, and entertainment functions Mn Unit Indonesia TV Unit Sales Source: Independent Research & Advisory s interviews with several TV manufacturers, GABEL, & EMC F 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Bar Chart of Average TV Size Sales Ratio 46% 37% 16% 14" 20" 21" 25" up 44% 33% 21% 42% 1% 2% 3% Source: PT. Panasonic Manufacturing Indonesia / PT. Sharp Yasonta Antarnusa 30% 25%

17 Problems in the TV Value Chain ELECTRONIC Supporting Industry: - Government has no blueprint to develop supporting industry. - Limited resources (technology, skill, capital) for expansion or upgrades. - Business ventures vulnerability due to heavy reliance on exclusive principals. - Local SMEs are only involved in domestic market. TV Assembling: - Weak law enforcement resulting in influx of smuggled products and components at significantly cheaper price discourage greater investment and locally integrated production. Distribution: - Inefficient logistics, especially in the ports which causes the bottleneck - Poor road infrastructure in the rural area, notably in the eastern part of Indonesia - Unnecessary illegal retributions along major roads Source: Independent Research & Advisory (2004)

18 Critical Points For TV Supporting Industry ELECTRONIC Market barriers for component producers Original Equipment Manufactures (OEMs) have very strict requirements in terms of Q-C- D (Quality, Cost and Delivery) which most component producers have difficulty in qualifying. Process of localization Producers have preference to use suppliers from their country of origin. However, the lack of incentives, greater bureaucracy and more cumbersome to set up new factories when compared to other countries discourage foreign investment. Inefficient logistics Costlier transportation for domestic distribution than exporting due to poor land infrastructures as well as hidden costs. Process of Localization Understanding Business Circumstances Decision on Local Purchasing Ratios Decides Items & Schedule of Localizations Deep Understanding of Components Finding Local Suppliers Making Cost Planning Technical Meeting Approval Action for Cost Maintenance Source: PT. Panasonic Manufacturing Indonesia

19 Efficiency Issues ELECTRONIC Production Efficiency in TV Assembling Plant & CRT Manufacturing Production Efficiency Based On: Cost competitiveness Inefficient Factors Import of Input materials Increase of utility cost Impacts Increase in raw material cost Increase in overhead cost Production Efficiency Based On: Cost competitiveness Capacity to make fundamental changes to products & processes Production Efficiency in Chassis Assembly Inefficient Factors Import of input materials Increase of utility cost Lack of access to capital Equipments Lack of capital Source: Independent Research & Advisory Data Compilation (2004) Impacts Increase in raw material cost Increase in overhead cost Less opportunity to upgrade Indonesia lacks cost competitiveness due to costlier import s input materials

20 Upgrading in the TV Value Chain ELECTRONIC Types of Upgrading Practices Performances Process Upgrading Product Upgrading Quality of Human Resource Types of Upgrading Practices Performances Process Upgrading Implementation of e- procurement Enhance productivity, delivery accuracy, quality performance Product Upgrading Increase TV size range Enhance diversity, less dependent towards imports Quality of Human Resource Upgrading in CRT Manufacturing Replacement of machineries with manual labor Start production of flat CRT In-house training Lower production cost Upgrading in TV Assembling Plant Increase diversity, satisfying market demand Enhance labor skills at technical and personality development. Technical training school Enhance labor skills at technical and personality development. Source: Independent Research & Advisory Data Compilation (2004)

21 THANK YOU