Astra's second wing
SK Zainuddin | April 15, 2011

Prijono Sugiarto is in a sweet spot. As president director of Astra International, he oversees a vast business empire that has come to be seen as the barometer of the economy. The company has seen healthy growth in the past few years and the 21-year veteran of the company is now putting in the building blocks to diversify its business by tapping the country’s fast growing mining and energy sectors. SK Zainuddin reports.

Astra International did not become Indonesia’s most admired company and the country’s largest industrial giant by accident. The company, which recently celebrated its 54th anniversary with a dazzling show focused on innovation, has assiduously grown its business empire over half a century.

Astra is not just an Indonesian company. It is the barometer of the Indonesian economy. Its sprawling business empire covers almost every major sector of the economy ranging from consumer to industrial, finance, energy and natural resources. It has become a case study for MBA students across the world and a favorite of fund managers and investors who want exposure to one of the fastest-growing economies in the world.

With a market capitalization of $2.4 billion, it is the largest listed company on the Indonesia Stock Exchange, accounting for 7.3% of total market capitalization. “It is a bell-weather stock and foreign investors as well as domestic investors all use it to gauge the strength of the Indonesian economy,” says Harry Su, senior vice president and head of research at Bahana Securities. “Astra has wide exposure to both in Java and outside Java given its diversified operations.”

And if Astra’s performance is anything to go by, Indonesia’s economy looks set for robust growth. Fueled by strong consumer demand and high commodity prices, Astra recorded strong earnings growth last year. The group posted a 32% increase in net revenue to Rp129.9 trillion and a 43% increase in net income to Rp14.3 trillion over 2009.

This year the outlook is less certain but in no way downbeat. “When we started in January, we knew that there would be a fall in car demand due to the progressive tax imposed on new cars, the higher car registration fees and the possible elimination of fuel subsidies,” says Prijono Sugiarto, president director of Astra International. He had squeezed in an interview with GlobeAsia in between meeting MBA students from Kelogg School of Management, Northwestern University and Vice President Boediono.

“We also started with higher inflation but we keep telling ourselves that Indonesians must get used to high inflation, between 6% to 8% should be considered normal for the country,” he adds. “There is definitely a positive mood in the country and for the first two months, auto sales have been satisfactory.”

Astra is watching the decision on the progressive tax, which will affect auto sales, since not every region will impose it. Despite such uncertainty, the automotive business continues to be the mainstay of the group, with revenue growing 55% to Rp7.1 trillion in 2010. What is less known is that Daihatsu, instead of the better known Toyota, is now Indonesia’s largest carmaker.

Astra made its name and fortune by signing its first dealership agreement with Toyota in the 1950s, then forming a joint venture to produce the Kijang multi-purpose vehicle. The partnership has been a huge success and both parties have benefited.

Over the past decade or so, Astra has revamped its Daihatsu operations after almost selling the business in the late 1990s. Today, Astra produces 300,000 units of Daihatsu vehicles a year, compared to 70,000 units of the Innova, the new Kijang family wagon.
What pleases Prijono is that Daihatsu models use components that are 80% localized and that the standards are high enough for Astra to export 1,000 units to Japan every year. With such high local content, Astra supports more than 1,000 suppliers who in turn employ thousands of people.

“We create a lot of jobs directly and indirectly and we also export our products around the world but we need certainty going forward,” he notes when asked if the government’s industrial policy is conducive to business. “The blueprint is in place but as with the example of the progressive tax, sometimes there are sparks.”

As a result, Astra will no longer automatically seek locally made components and use them only if it is advantageous to do so. “We started localizing 30 years ago but we now only localize if it is beneficial,” he insists.

“What we would like to see is consistency on the part of the government,” he adds. “They must give those who have invested a chance so others will also invest.” For the business community, progress on land reform and infrastructure development remain key priorities.

“We have a toll road project that has been stagnant for three years. Land acquisition is the biggest headache for investors,” says Prijono.

New Frontiers Despite such setbacks, there is no holding either Prijono or Astra back. The group has adopted a more agile posture and is actively seeking opportunities in new ventures or industries to maximize the current positive economic climate.

“We want to be more diversified and grow other revenue streams,” he notes.

“We want to be seen as the best Indonesian conglomerate.” Towards achieving that goal, Astra recently entered the mining sector through the acquisition of four coal mining concessions in Central and South Sulawesi. The mines will come on stream this year producing between three to four million tons, while the company hopes to boost production to 10 million tons in the next three years.

Mining, says Prijono, was a natural extension to some of Astra’s existing businesses. As a major shareholder in United Tractors, the largest supplier of heavy equipment in the country, Astra has had exposure to the mining sector for years. It also owns PT Pama Persada, the largest mining contractor in Indonesia, which is growing rapidly with client companies such as Adaro, Kaltim Prima Coal, Kideco and many others. “The idea is for us to integrate our mining and energy businesses so as to create an entire value chain as has been achieved in the auto business,” says Prijono. “That is why we are also expanding into power plants as independent power producers.”

With this expansion, Astra’s dependence on its automotive business is expected to decrease while its exposure to the mining sector will allow it to continue growing its bottom line.
“For 10 years, the automotive business contributed 85% of our total revenue,” he notes. “Last year it had fallen to 65% if the auto financing is included but going forward I don’t mind if at the end of the day we get 50% of our revenue from the automotive business and 50% from non-auto business.”

This strategy, says Harry Su from Bahana Securities, makes perfect sense and increases the company’s attractiveness to investors. “We like Astra because of its balanced earnings and its diversification. Its mining exposure can provide a cushion when inflation goes up too much.”

And when commodity prices do come down, its auto business will pick up so the company is well positioned to ride Indonesia’s economic growth on multiple fronts, he adds.

Grooming talent Leading a company as large and diverse as Astra is not easy. But that is one of the secrets behind the continued success of the company: it has a ready core of experienced, talented and dedicated executives ready and willing to step up.

Prijono is Astra’s fourth president director since the company was acquired by the Jardine Matheson group in 1999 as part of the asset sale program under the Indonesian Bank Restructuring Agency (IBRA). He took over in trying circumstances after his predecessor, Michael Ruslim, died suddenly from dengue fever.

Prijono is no newcomer to the company. The German-trained engineer has spent nearly all his professional life with the company, joining the ranks of young Indonesians who aspire to work for Astra. For the past 11 years of his 21 years with Astra, he has served as a director on the board, simultaneously heading some of the subsidiaries in the group.
His understanding of what makes the group tick is thus almost intuitive. He has in-depth knowledge of the multiple businesses the group is involved in and is aware of where he needs to focus.

Now he is leading the group’s push into the energy sector where he feels future growth will be most apparent. He is putting in the building blocks to ensure that the pool of management talent within the group is replenished so that there will always be someone ready to takeover the helm when needed. He wants to ensure that as the company grows, there will be enough talented young executives to manage the business.

That, he says is his biggest challenge. “I can see that my business is growing faster than my ability to groom my people,” he tells GlobeAsia in his spacious office at the group’s headquarters at Sunter in North Jakarta. “We have revamped our human resources department and engaged an international consulting firm to review the entire HR process.”

He is leading a change that in effect will position the company to continue growing in the 21st century. Human talent management is the biggest problem facing the entire Indonesian corporate world and companies that can groom talent will have a huge advantage.
“We will focus on talent development so that we will have the right people working for us,” Projono says. “We must give our younger generation the opportunity to grow within the company and to contribute.”

To engage employees at all levels, the management at Astra started a suggestion box and the response blew them away. They received more than 50,000 suggestions, proving that if employees are made to feel part of the company, they will respond.

“The spirit is there. There is a young generation we have to consider and we need to give them an opportunity,” he notes. “These young people think that if the company is suitable and understands them, their productivity is a lot higher.”

Such long-term vision has always been part of the Astra culture. That is what sets it apart from other Indonesian conglomerates and what continues to drive it forward. The Astra brand acts as a magnate for young Indonesians who want to cut their teeth in the corporate world. Meanwhile leading the company is one of the most prestigious jobs in corporate Indonesia.

Achieving this vision will not be easy and it will need significant investments, vision and commitment. But if there is one company that has the resources to overcome these challenges, it is Astra International. GA

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