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Taiwanese Business Looks South

Tapping Indonesia's Middle Class


Tapping Indonesia's Middle Class

Source:Ming-Tang Huang

As Indonesia shifts from exports to an economy driven by domestic demand, its Taiwanese business presence is also shifting from manufacturing to the service industry. What are the secrets to tapping this new source of wealth?



Tapping Indonesia's Middle Class

By Hsiao-Wen Wang
From CommonWealth Magazine (vol. 458 )

Her head wrapped in a pink hijab, 32 year-old Futhi strolls hand-in-hand with her two-year-old son through the doorway of a Jakarta branch of Taiwanese children's clothier Les Enphants. Futhi shops here three times a month, each time spending upwards of a million Indonesian rupiah (US$112) to buy new clothes for her two sons. She wears a coy smile but is no shrinking violet when it comes to forking over the cash.

Les Enphants has been expanding its Indonesian operations for 15 years now, with branded counters in 65 department stores and five independent retail outlets, and is finally getting a taste of the fruits of Indonesia's economic growth. Its 2010 operating revenue is projected to reach US$1.2 million, and it plans to increase capitalization by US$1.5 million in November.

"The Indonesian market isn't easy," sighs David Liu, president of Les Enphants Indonesia Co., Ltd.

More than 8,000 Taiwanese businesspeople have been making a go of it in Indonesia for the past 20-odd years, enduring labor unrest, regime changes, and fluctuations in utility and commodity prices. Emerging from the trauma of Indonesia's anti-Chinese pogroms, they have made the country their home away from home.

As Indonesia's economy has shifted from an export-driven to a domestic demand-driven model, the Taiwanese expatriate business community, once dominated by manufacturers, is also shifting toward the service industry, hunting for ways to open up the wallets of Indonesia's emergent middle class.

Dante Coffee: Affordable Luxury

In a scene hard to imagine, a full-service Dante Coffee shop occupying roughly 8500 square feet of floor space sits across the way from a tiny Starbucks counter at the entrance to a major Indonesian shopping mall. In Taiwan, Dante outlets lie tucked away in the nooks and crannies of little side streets, but in Indonesia, all 12 Dante Coffee outlets are located square in the middle of upscale shopping malls, complete with friendly and attentive table service.

Occasionally, primary school kids clutching their parents' debit cards can be seen in Dante getting a bite to eat, ordering up US$3.25 XO fried rice or US$6.50-plus bowls of oxtail soup. An order of chocolate-avocado juice will set you back 35,000 rupiah (about US$4) – a fairly lavish treat in a nation with an average per capita income less than one-third that of Taiwan.

"Most customers coming into Dante are businesspeople, young people spending whatever they have, and families," observes Hengky Wijaya, "They're looking for a luxury they can afford."

As agent for Taiwan's Dante Coffee brand, Wijaya has meticulously researched pricing strategies. Wijaya, who started as an importer of spices and foodstuffs, is also a supplier of some items for Starbucks. After crunching the numbers on Dante's coffee bean imports and retail space leasing costs, he determined that locally roasting Dante's coffee beans would reduce costs by 20 percent, allowing Dante to sell its beverages for 20 percent less than Starbucks.

If you're in manufacturing and you want to set up shop in Indonesia, you must get to know the workers and the attitudes of the unions, and you should not try to introduce second-tier goods that have already been shunned in the developed world. In the service sector, the trick is to thoroughly understand your end consumers before picking up the pace and expanding to new locations.

DinTaiFung: 5 Locations, Differing Menus

Having opened just five branch restaurants over five years, DinTaiFung Indonesia head Yao Huang-hung has walked a cautious path, hesitant to expand before the first branch began to turn a profit, and then only gradually.

"You have to find your depth before you can look for breadth," says 37-year-old Yao, formerly with Merrill Lynch in Hong Kong, insisting on a deep penetration of Indonesia's consumer base through the same high quality as DinTaiFung in Taiwan.

Indonesia is vast and culturally diverse, with broad disparities in income. Even within Jakarta, any two shopping malls within a 30-minute drive of each other will have quite different kinds of consumers. That's why each of DinTaiFung's five Jakarta restaurants has its own unique menu.

The biggest common thread has been the effort to attract Muslim customers, who are forbidden to eat pork, so DinTaiFung's Indonesian restaurants are its only locations in the world that don't serve it.

The chicken xiaolongbao dumplings weigh in at 23 grams each, two grams lighter than those in Taiwan. Catering to Indonesian proclivities for rice as a staple, Yao has come up with a dish of black pepper sirloin cubes over rice, the beef specially select Australian sirloin cut into tiny 2 cm cubes to give customers the same consistency in every bite.

Chinatrust: Aiming for the Pyramid's Base

Arriving in Jakarta 13 years ago to get involved in business financing, Chinatrust began an aggressive expansion campaign three years ago and currently operates 11 branch offices with operating revenue of more than US$20 million.

With Indonesia's future economic prospects brightening, Chinatrust has begun to take aim at opportunities at the lower end of the market. Each year some 50,000-60,000 Indonesians come to Taiwan to work, many as caregivers, but Taiwanese banks have not viewed Indonesians as a profitable demographic, because of the negligible incomes of the country's rural population.

In an unprecedented move, Chinatrust has begun working with Indonesian training centers to offer security deposit escrow services and remittance services to caregivers before they depart for Taiwan. It also offers loans to blue-collar workers headed to Taiwan's factories. Although this segment of Chinatrust's business remains small, accounting for just 10 percent of operating revenue, it accounts for 30 percent of profit.

Taiwanese businesspeople are returning to Indonesia now, taking flight on the wings of Indonesia's emergent middle class. And this time they're looking to win the hearts of the Indonesian people.

Translated from the Chinese by Brian Kennedy