Merck Eyes Indonesia Expansion

Dion Bisara

Pharmaceutical company Merck is counting on Indonesia’s huge population and accelerating economy to expand its chemical business, a top executive said in Jakarta.

Annual sales are expected to grow by 13 to 18 percent next year, after posting double-digit growth in the past few years, said Martin Feulner, director of the chemical division at Merck Indonesia.

Merck is a listed company on the Indonesia Stock Exchange (IDX) and controlled by German-based Merck, one of the largest pharmaceutical companies in the world. Its chemical division produces specialty products, like reagents and instruments for laboratory usage, and pigments for the production of plastic, paints, cosmetics, and printing.

“Indonesia sales are around 30 million euros compared to over 5 billion euros worldwide. It’s small,” Feulner said, referring only to sales of the company’s chemical division. “But Indonesia is one of the countries with the best opportunities, besides Mexico, Turkey and Russia. Indonesia, in the next few years, can move into the ranks of India and China.”

Merck’s chemical sales in China reached around 100 million euros in 2011 and in India around 90 million euros, according to Merck’s annual report.

In Indonesia, the chemical division currently accounts for around 35 percent of Merck’s total sales.

Feulner said that the biggest growth of Merck’s chemical business would come from sales of biotech products under the Merck Millipore brand that the company acquired two years ago.

“We only hold 6 percent of the market share of such products in Indonesia now but we expect to acquire 30 percent over the next five years,” Feulner said.

Merck’s chemical division holds a market share of about 20 percent in Indonesia. The biggest market for its products includes companies that use solvents and reagents. That would include foods and manufacturers of baby formula, Feulner said.

He also hopes that a recent banking regulation, tightening rules on vehicle loans, would not impact the sales of cars and motorcycles. That’s because Merck supplies paint pigment.

A recent minimum wage increase of 44 percent for Jakarta workers (in 2013) will not impact the Merck chemical division as all the products are imported, mostly from Germany.

“As the minimum wage increases, people with the minimum wage will spend more money immediately on food, and our products are used in the food industry,” Feulner added.

He also said that the company has no plans to shift its chemical production to Indonesia in the short term as more than 2,000 of its products were made in Germany and “they are linked to each other.”

“But when I look at the growth of Indonesia for the next 10 to 15 years, then I don’t want to say that we are not investing here,” he said.

In the meantime, Feulner said, Merck’s chemical division is looking into measures that would allow it to comply with new government regulations regarding imports. The regulation forbids Merck from importing chemical products that are not complementary to its pharmaceutical production.

“That is one of the biggest challenges of doing business here,” Feulner said. “I can understand the reason behind it.

“The officials are accommodating but it still makes us work harder.”

Another challenge, Feulner said, is graft, which can be a big problem for multinational companies like Merck.

“Here, good relations are synonymous with giving something,” he said.

Merck joins Kalbe Farma and Kimia Farma in the pharmaceutical business in Indonesia.