The growing business of seeds
With a total national market valued at Rp800 billion ($90 million), East West Seed Indonesia is the leading company in the Indonesian horticulture seed industry with 50% market share.
When Glenn Pardede, managing director of East West Seed, first joined the company in 2000 as operational director, the market was led by Thailand’s BISI International with a 20-30% market share.
Glenn was determined to establish East West as the commanding player in its own territory, based on its competence in breeding and producing good quality seeds. Along with the rest of the management team, he believed that quality seed products would lead the way to success.
With its focus still firmly on the horticulture seed market, East West is now preparing to make new investments to raise production capacity and anticipate both the growth of the market and climate change. With half the market under its control, that gives it annual revenue of around Rp400 billion.
Research is a vital part of any seed production enterprise, and that’s why, out of 700 employees, 250 of them work in East West’s research department. “We have no choice, our business is dependent on the research team finding better seed varieties. Of our operational costs, 20% is committed to financing the research and development team,” says Glenn.
One of the first problems he identified when he joined the company was the complete lack of any storage for seed production. Instead, the company was renting unused school rooms for storage because it was a cheap option.
“We should not have kept the seeds at room temperature, it would damage the quality. The seeds need to be kept at a low temperature and in a dry place. So the first thing I asked for was a better processing system and storage warehouse,” Glenn recalls.
Other members of management were resistant. Glenn went to the owners, who agreed that additional investment was needed. In 2001 the company started to spend Rp20 billion to build a storehouse for seeds as well as a new facility to sprout seeds.
The company also won a Rp10 billion grant from the Dutch government to develop breeding processes and apply quality controls to the production process. “I sent a proposal for a grant to the Dutch government, arguing that production of good quality seeds would help Indonesian farmers,” says Glenn.
At that time East West had 5,000 farmers producing seeds and it has now expanded that number to 7,000. Commercial success followed, with sales growth averaging 20% every year. In 2007, East West achieved a major landmark by grabbing 50% of the market. The other 50% is shared between another 114 companies.
“This kind of corporate action has never been applied by the other companies,” says Glenn in a reference to East West’s concentration on quality. “Usually, other companies choose to focus on breeding only, or marketing only. For example, companies from Thailand are usually very strong on breeding but not in selling”.
Tony Prasetyantono, a leading economist from Gadjah Mada University, emphasizes the importance of innovation in the seed business. Having a mind open to new ideas is one of the keys to solve any business problem, he adds.
In 2006, Glenn Pardede was made marketing director of East West, just as an economic downturn forced management to lay off some employees. “Many problems emerged because a lot of employees felt they had already done everything necessary and they didn’t want to make any more efforts,” he recalls.
In just one example, people in West Java traditionally liked to eat white cucumbers, as well as other white vegetables. Because of this cultural factor, East West’s sales and marketing team in the area was unwilling to sell seeds of green vegetables as they were pretty sure there would be little demand.
The company rotated its staff, moving its East Java team into West Java. Members of that team saw no reason why they shouldn’t try to sell green vegetable seeds. Their stocks of high quality seeds sold out. “It proved that we can change market behavior if we have really superior products,” says Glenn.
Pardede’s success in leading the company to market leadership saw him prepare for a new leap forward. With the company’s 3,000-ton warehouse in West Java unable to cope with increasing production, and to anticipate climate change, the company is now building a new storage facility in East Java with capacity of another 3,000 tons at a cost of Rp30 billion.
The slow initial growth of the company after its foundation in 1980 – and the mixed fortunes of its competitors – demonstrates that the seed business is not a guarantee of success.
Sanata Dharma University agro-industry researcher Antonius Budisusila notes that this is not an instant business. “It needs to be backed up by a strong research team. Anyone who invests in this business needs to understand that you need to have stamina for the long run, as you can not expect instant results from research.” GA