Albertus Weldison Nonto
Flat-screen televisions are predicted to outnumber their old-fashioned CRT counterparts by 2013. While sales are booming, most components are still imported, leaving Indonesia mainly an assembly point.
If you’ve been keeping an eye on electronic stores and supermarkets throughout Jakarta and other major cities, you would have noticed an aggressive retail push. Flat-screen TVs, exclusive high-end products in the past, are making their way into the mainstream.
Herdiana Anita, general marketing manager at Sharp Indonesia, recently told local media the sale of flat-screens would surpass the sale of conventional TVs by 2013. More than 800,000 flat-screen TVs were sold nationwide in 2010, in comparison to three million conventional TVs, she said.
A coveted middle-class commodity, flat-screens are stylish and compact. Now they are also affordable. Attractive interest-free payment options and cheaper prices have helped sales skyrocket over the past three years. Only five years ago the retail price of a 32-inch LCD TV was Rp9 million. Today it is nearly half that at Rp4-5 million.
The rising purchasing power of the growing middle class is proving that Indonesians love TV. Global market research company GfK reports that electronic industry sales in Indonesia rose by 20% in 2010 compared to the year before with a total turnover of Rp83 trillion ($9 billion). Sales are expected to hit Rp99 trillion this year. While that figure excludes illegal products widely available on the black market, it is clear the sector is on a positive trajectory.
The most purchased electronic goods, notes the survey, were flat-screen TVs, mobile phones and laptop computers, in that order.
Darwin Leo, sales director at the multi-finance company Columbia, estimates that sales of electronic goods this year will double GfK’s figures. Cheaper prices across a range of products will see more than 1.5 million units sold this year, he argues. This would represent a more than 60% growth rate.
The market frenzy has caused a stir among producers and financial companies such as Colombia, which is working hard to profit from the rush.
Price versus quality
Chairman of the Electronic Marketing Club (EMC) Irfan Suryanto says that positive trends in the sales of flat-screen TVs have led producers to boost production. Over the past three years sales of the TVs have grown by more than 50% and continue to grow.
In terms of quantity, the product category contributes around 30% of total sales in the TV market, but in terms of value it represents more than 65% of sales.
Irfan agrees that lower prices have been a major factor in the surge of interest. “In terms of the price gap between CRT TVs and flat-screens, the price margin has become so narrow that consumers opt for the more modern flat-screen version now,” says Irfan, adding the price war among producers is fierce.
Most of the components of TVs on the Indonesian market are imported from Korea, Taiwan and China. Samsung is the current market leader in terms of panel production, followed by LG and Japan’s Sharp.
“I see bright prospects for the product in the future. In February and March alone 35% of TV sales throughout the country were from these categories,” says Irfan.
Consumer interest, he notes, has spurred production of 32-inch flat-screens, rather than the larger screens that are more popular with the high-end market.
Producers are working hard to attract customers. While competitive pricing is essential, product specifications are also an important selling point. The quality of the picture, energy-saving features and sound quality are where producers are looking for an edge.
“For more than 80% of customers, price sensitivity is essential, while in the high-end market quality products are mandatory,” explains Irfan.
Local player Polytron, owned by tycoon Budi Hartono, has been targeting the lower-end market for several years. Company spokesperson Santo Kadurusman says that while Polytron is by no means the biggest in the flat-screen market, the sound quality of its products has boosted its sales. The company is the current market leader for audio products, where it has led the market for the past three years.
Korea’s LG dominates the flat-screen market at the moment with a 34% share and annual sales of around 300,000 units. Samsung, Sharp and then Toshiba follow, leaving 40% of the market to be fought over by several smaller companies.
The growing demand for electronic goods has not been matched by growth in Indonesia’s electronics industry. It remains an assembly site for most electronic goods, where 60% of parts are imported.
In its industry sector road map, the Indonesian Chamber of Commerce and Industry (Kadin) singled out four sectors as main economic drivers: food and beverages, textiles and related products (TPT), electronics and electronic parts as well as transport and automotive parts. Of the four sectors, only the automotive and food industries have grown significantly over the past five years at rates of 10-15% each year.
The textile industry has faced a string of setbacks, while the electronics industry has not been able to compete with the influx of foreign products.
President director of PT National Panasonic Gobel Rachmat Gobel has expressed concern over the lack of government support for domestic electronics companies. Indonesian electronics companies could be more profitable if they set clear targets of how and where to develop, he says, adding that opening manufacturing plants will create more value.
Juniman, an economist with Bank International Indonesia (BII), adds that to make its clustering program more valuable, the government must provide incentives and nominate certain regions as production bases. Tangerang or Bandung, he says, could be converted into electronics zones with clear fiscal and infrastructure incentives.
“What the government needs to do is stop talking too much and implement some strategies,” stresses investment banker Kunardy Lie, when asked how Indonesia’s electronics industry could be improved. GA
The electronics boom has not been lost on domestic companies. Tycoon Budi Hartono identified the strong potential of the sector way back in 1975 when he set up Indonesia Electronics and Engineering, which later became PT Hartono Istana Electronics and then Hartono Istana Tecknology through an internal merger.
The company currently has two plants in Central Java, in Kudus and Semarang. While it mostly targets the domestic market, the company also sells its products to countries such as the Philippines, Bangladesh, Thailand, India, Pakistan and the United Arab Emirates. Polytron’s home appliances and cell phones are its top sellers in Indonesia.
One industry source estimates that Polytron has a 17% market share of all electronic products sold in Indonesia, where last year’s sales in the sector reached Rp80 trillion.
Polytron spokesperson Santo Kadarusman quotes a GfK report showing the company’s audio products led their market niche with a 46% share and enjoy a 17% share of the TV market.
This year, Polytron has started producing cell phones specifically for the low-end market where Santo says potential is huge.
Along with Hartono Plantation’s 200,000 hectares of oil palm and CPO mills, Bank BCA, cigarette company PT Djarum and his electronics interest, Budi is reportedly worth around $4.8 billion.
BII economist Juniman says that Polytron offers many in Indonesia the chance to buy their first electronic product. However it will face competition from local producer Denpoo. With strong sales in washing machines and air conditioners, Denpoo is poised to become an important player in the electronic goods sector.
Columbia Credit, a multi-finance company, is also trying its luck with its brand Fujitec. Last year the company produced more than 60,000 CRT TVs and thousands of washing machines, says its sales director Darwin Leo, who also believes that Fujitec’s 200 showroom and outlets throughout Indonesia will boost sales of the brand in the future. GA