GCR COMPILED REPORT -INDONESIA - 703 PDF 2013/703 Indonesia... · 2020. 9. 11. · Capital of...

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A

GLOBAL COUNTRY REPORT ON

“INDONESIA”

With special focus on industries like Textile, Agriculture,

Rubber, Tourism, Cement, Pharmaceutical & Automobile

SUBMITTED TO

703 - ATMIYA INSTITUTE OF TECHNOLOGY AND SCIECE,

RAJKOT

IN PARTIAL FULFILMENT OF THE REQUIREMENT OF THE

AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

IN

GUJARAT TECHNOLOGICAL UNIVERSITY

UNDER THE GUIDANCE OF

Prof. Alpesh Shah

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1. ECONOMIC OVERVIEW OF THE COUNTRY

Formal Name: Indonesia

Short Form: Indonesia

Term for Citizens: Indonesian(s)

Capital of Indonesia: Jakarta

Date of Independence: Proclaimed August 17, 1945, from the

Netherlands. The Hague recognized Indonesian sovereignty on December

27, 1949.

Fiscal Year: April 1st - March 31st.

Area: 7, 41,096 (in sq mi)

Population: 24, 82, 16,193

Population Growth Rate: -1.04%

Economic groups: There are 300 different ethnic groups have been

identified in Indonesia.

Religions: According to 2000-Muslim: 86.01

Christian: 8.07 %

Hindu: 3.00 %

Buddhist: 1.08 %

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1.1 INTRODUCTION OF ECONOMY

Indonesia is one of the largest countries in South-east Asia, between the

Indian Ocean and the Pacific Ocean which have mainly mountainous and

covered with rain forests, swamps and consists over 13000 islands. Jakarta

is the capital of Indonesia. Indonesia stated its independence on 17th

August 1945 from Japan but Netherlands agreed to transfer sovereignty in

1949.

The president is Susilo Bambang and Muhammad Yusuf Kalla is the Vice-

President of Indonesia. Bahasa is the official language in Indonesia which

adapted form of Malay but the most widely spoken language is Javanese.

88.01% of Indonesians population is Muslim.

There is mixed economy in Indonesia where the private sector and

government play significant roles. The country is the largest economy in

Southeast Asia and a member of the G-20 major economies.

The industrial sector is the economy's largest and an account is for 46.40%

of GDP (2010), this is followed by services (37.10%) and agriculture

(16.50%). However, since 2010 more people were employed in service

sector compared to other sectors. Accounting 48.90% of the total labor

force; this has been followed by agriculture (38.30%) and industry

(12.80%). Agriculture however, had been the country’s largest employer for

centuries.

According to World Trade Organization (WTO) data collected, Indonesia was

the 27th biggest exporting country in the world in 2010, moving up three

places from a year before. Indonesia's main export markets (2010) are

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Japan (17.29%), Singapore (11.30%), the United States (10.81%), and

China (7.63%). The major suppliers of Indonesia’s imports are:-Singapore

(24.96%)

• China (12.52%)

• Japan (8.92%)

1.2 DEMOGRAPHIC PROFILE OF THE COUNTRY

POPULATION

According to the 2010 the population of Indonesia’s national census is

237.60 million, with population growth still high at 1.90 percent. 58% of the

population lives on Java, the world's most densely inhabited island. Despite

a fairly effective family planning program that has been in place since the

1960s, the population is expected to grow to around 254 million by 2020

and 288 million by 2050.

There are around 300 distinct native ethnicities in Indonesia, 742 different

languages and dialect. Most of Indonesians are descended from Austronesia-

speaking peoples whose languages can be traced to Proto-Austronesia

(PAn), which has been originated in Taiwan. Another major grouping is

Melanesians, who inhabit eastern Indonesia. The largest ethnic group is the

Javanese, who comprise 42.01% of the population, are politically and

culturally dominant. The Sundanese, ethnic Malays, and Madurese are the

largest non-Javanese groups.

A sense of Indonesian nationhood exists alongside strong regional identities.

Society is largely harmonious, although social, religious and ethnic tensions

have triggered unbearable violence. Chinese Indonesians are an influential

ethnic minority comprising 3% to 4% of the population.

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The official national language of Indonesian is a form of Malay, which is

universally taught in schools, and consequently is spoken by nearly every

Indonesian. Malay is the language of business, politics, national media,

education, and academia. It was promoted by Indonesian nationalists in the

1920’s and declared the official language under the name Bahasa. Most of

Indonesians speak at least one of the several hundred local languages and

dialects often as their first language.

Religious freedom is stipulated in the Indonesian constitution, the

government officially recognizes only six religions: Islam, Protestantism,

Roman Catholicism, Hinduism, Buddhism, and Confucianism. Although it is

not an Islamic state, Indonesia is the world's most populated Muslim-

majority nation, with 86.10% of Indonesians being Muslim according to the

2000 census.

A. TOTAL POPULATION

Year 2006 2007 2008 2009 2010 2011

Population 24,54,52,700 23,46,94,000 23,75,12,400 24,02,71,500

24,29,68,300

24,56,13,000

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1. Population Growth Rates

The average annual percent change in the population is resulting from a

surplus (or deficit) of births over deaths and the remaining balance of

migrants entering and leaving a country. The rate can be positive or

negative. The growth rate is a factor which is determining how great a

burden would be imposed on a country by the changing needs of its people

for infrastructure (e.g. schools, hospitals, housing, roads), resources (e.g.

food, water, electricity) and jobs. Rapid increase in population growth can

be seen as threatening by neighboring countries.

Year 2006 2007 2008 2009 2010 2011

Population

Growth

Rate

1.41 1.21 1.18 1.14 1.10 1.07

234,000,000

236,000,000

238,000,000

240,000,000

242,000,000

244,000,000

246,000,000

248,000,000

2005 2006 2007 2008 2009 2010 2011 2012

Population

Population

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2. Birth rates

Birth rates give the average annual number of births during a year per 1,000

people in the population at midyear, is known as Crude Birth Rate. The birth

rate is usually the dominant factor in determining the rate of population

growth, which depends on both the level of fertility and the age structure of

the population.

Year 2006 2007 2008 2009 2010 2011

Birth Rate 20.34 19.65 19.24 18.84 18.45 18.10

B. TOTAL POPULATION

1. Age Structure

0-14 years 27.03% (Male 34,165,213/Female

32,978,841)

15-64 years 66.05% (Male 82,104,636/Female

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2004 2006 2008 2010 2012

Population Growth Rate

Population Growth

Rate

8

81,263,055)

65 years and

over

6.01% (Male 6,654,695/Female 8,446,603)

(2011 est.)

2. Sex Ratio

At Birth 1.05 Male(s)/Female

Under 15 years 1.04 Male(s)/Female

15-64 years 1.01 Male(s)/Female

65 years and

over

0.79 Male(s)/Female

Total

population

1 Male(s)/Female (2011 est.)

3. Geographic Areas

Urban

population

44% of total population (2010)

Rate of

urbanization

1.07% annual rate of change (2010-15 est.)

4. Migration Rates and Patterns :

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This entry of migration rates and patterns includes the figure for difference

between the number of persons entering and leaving a country during the

year per 1,000 persons (based on midyear population). An excess of

persons entering the country is referred to as net immigration. Net

Migration Rate-

Year 2006 2007 2008 2009 2010 2011

Net Migration

Rate

0 -1.27 -1.25 -1.24 -1.23 -1.15

5. Ethnic Groups

This entry provides an ordered listing of ethnic groups starting with the

largest and normally includes the percent of total population. Javanese

40.06%, Sundanese 15%, Madurese 3.03%, Minangkabau 2.07%, Betawi

2.04%, Bugis 2.4%, Banten 2.00%, Banjar 1.07%, other or unspecified

29.09% (2010 census).

1.3 ECONOMIC STATISTICS AND ACTIVITY

A. GROSS NATIONAL PRODUCT

1. Total

Year 2006

GDP

(Billion$)

389.12

Indonesia GDP is at 706.56 billion.

Gross Domestic Product of Indonesia is worth 707 billion dollars or 1.14% of

the world economy, according to the World Bank. Historically, from 1967

until 2010, Indonesia's average Gross Domestic Product was 151.08 billion

dollars reaching an historical hi

December and a record low of 5.99 billion dollars in December of 1967.

Indonesia is the largest national economy in Southeast Asia. It has a

market-based economy in which the government plays a significant role by

owning more than 164 state

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ECONOMIC STATISTICS AND ACTIVITY

GROSS NATIONAL PRODUCT

2006 2007 2008 2009

389.12 421.09 505.04 539.05

Indonesia GDP is at 706.56 billion.




dollars reaching an historical high of 706.56 billion dollars in 2010 of



based economy in which the government plays a significant role by

wning more than 164 state-owned enterprises. The government

2009 2010

539.05 706.56




gh of 706.56 billion dollars in 2010 of



based economy in which the government plays a significant role by

owned enterprises. The government

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administers prices on various basic goods, including fuel, rice and electricity.

This page contains: Indonesia Gross Domestic Product (GDP) chart,

historical data, forecasts and news.

2. Rate of Growth Rate

Indonesia GDP Growth Rate at is 2.90 %

The Gross Domestic Product (GDP) in Indonesia expanded to 2.90% in the

second quarter of 2011 over the previous quarter. Historically, from 2005 to

2011, Indonesia's average quarterly GDP growth was 1.50% reaching an

historical high of 3.82 % in September 2009 and a record low of -3.57 % in

December 2008.


market-based economy in which the government plays a significant role by

owning more than 164 state-owned enterprises. The government

administers prices on several basic goods, including fuel, rice, and

electricity. This page includes: Indonesia GDP Growth Rate chart, historical

data, forecasts and news. Data is also available for Indonesia GDP Annual

Growth Rate, which measures growth over a full economic year.

Year 2006 2007 2008 2009 2010

Annual Growth

Rate

6.01% 5.85% 5.35% 5.43% 5.85%

B. PERSONAL INCOME PER CAPITA

Indonesia GDP per capita is at 1087.00

According to the World Bank, Indonesia GDP Per

The GDP per capita is obtained by dividing the country’s gross domestic

product, adjusted by inflation, by the total population. Historically, from

1960 until 2008, Indonesia's average GDP Per Capita was 530.58 dollars

which reaches an historical high of 1087.00 dollars in December of 2008 and

a record low of 193.00 dollars in December of 1967. This page includes:

Indonesia GDP per capita (Constant Prices Since 2000) chart, historical data,

forecasts and news.

Year 2006

GDP Per

Capita($)

912

12

PERSONAL INCOME PER CAPITA

Indonesia GDP per capita is at 1087.00 USD.

According to the World Bank, Indonesia GDP Per Capita is 1087 US dollars.




hes an historical high of 1087.00 dollars in December of 2008 and



2006 2007 2008 2009

912 949 989 1038

Capita is 1087 US dollars.




hes an historical high of 1087.00 dollars in December of 2008 and



2009 2010

1038 1087

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C. DISTRIBUTION OF WEALTH

Since 1970s, Indonesia has undergone substantial economic development

but the country remains comparatively poor which is around 17% below the

national poverty line. The distribution of wealth in Indonesia is also very

uneven, with the poorest 10% sharing only 3.00% of the wealth, with the

richest 10% sharing over 30%.

Poverty rates have always been higher in the outer islands. The rise of

manufacturing disproportionately benefitted Java, Bali, and Sumatra due to

the better infrastructure of the inner islands. Economic disparity and the flow

of natural resource profits to Jakarta has led to dissatisfaction and even

contributed to separatist movements in areas such as Aceh and Papua (Irian

Jaya). While the new laws on decentralization (moving more economic and

political decision-making to the outer islands) may partially address the

900

920

940

960

980

1000

1020

1040

1060

1080

1100

2005 2006 2007 2008 2009 2010 2011

GDP Per Capita($)

GDP Per Capita($)

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problem of unequal growth and satisfaction, there are many obstacles to

putting this new policy into practice.

Distribution of Income or Consumption by Percentage

Share: Indonesia

Lowest 10% 3.06

Lowest 20% 8.00

Second 20% 11.03

Third 20% 15.01

Fourth 20% 20.08

Highest 20% 44.09

Highest 10% 30.03

1.4 OVERVIEW OF INDUSTRIES TRADE AND COMMERCE

Indonesia is the 4th most populous country in the world which represents a

considerable consumer market with a population of over 237 million. When

we particularly talk about trade in Indonesia, there is slowly and steadily

fostering the growth in various sectors.

In 2011, Indonesia had a gross domestic product (GDP) of $834 billion1.13

making it the 15th largest economy in the world. The Indonesian government

plays a major role in Indonesia’s market economy in which it owns over 160

enterprises and sets prices for several goods such as electricity, rice and fuel

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services. Indonesia has the largest economy in Southeast Asia and is a

member of both the G20 and Asia-Pacific Economic Cooperation (APEC).

According to the IMF, after India and China, Indonesia is the third fastest

growing economy in the G20. The country’s main economic industries

consist of petroleum and natural gas, apparel, textiles, apparel, mining,

tourism and rubber. Indonesia has endured the recent global financial crisis

through its dependence on domestic consumption to drive continual

economic growth. In addition, investment from both foreign sources and

domestic sources has supported the economy of Indonesia. Indonesia’s debt

to GDP ratio has steadily declined due to its recent economic growth and

sound fiscal policies

In the last several years trade was been expanding quickly between the

United States and since 2005, U.S. exports to Indonesia have more than

doubled from $3.10 million to $7.40 million in 2011. The main export

categories are Transportation Equipment, Agricultural Products, Chemicals

and Food Manufactures. Major trade association in Indonesia is the

Indonesian Chamber of Commerce and Industry. Members include

representatives from private industry, cooperatives, public corporations,

utilities as well as state-owned enterprises. In addition, there are several

other specialized and professional organizations that represent the interests

of various other sectors and trades in the economy.

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1.5 OVERVIEW OF BUSINESS AND TREND AT

INTERNATIONAL LEVEL

• FROM THE POINT OF VIEW OF INDIA

International Business in India looks really productive and every passing

day, it’s coming up with only more possibilities. The growth in the

international business sector in India is more than 7.00% annually. There is

scope for more improvement if only the relations with the neighboring

countries are stabilized. The unbelievable performance of the stock market

in India has gathered all the more attention (in comparison to the other

international bourses). India definitely stands as an appropriate place to

explore business possibilities, with its high-skilled manpower and budding

middle class segment. The eastern part of India is known as the ‘Land of the

Intellectuals’, whereas the southern part is known for its ‘technology

acumen’. On the other hand, the western part is known as the ‘commercial-

capital of the country’, with the northern part being the ‘hub of political

power’.

Sectors having potentials for International business in India-

1. Information Technology

2. Telecommunication

3. Pharmaceuticals and Biotechnology

4. Research and Development

5. Banking

6. Capital Market

7. Chemicals and Hydrocarbons

8. Infrastructure

9. Agriculture and Food Processing

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10. Retailing

11. Logistics

12. Manufacturing

Sectors like Health, Education intuitions, Housing, Resources, Environment,

Rural Development, Small and medium Enterprises (SME) and Urban

Development are still not tapped properly and thus the huge scope should

be exploited.

• FROM THE POINT OF VIEW OF INDONESIA

Ambitious and fast rising – these two words appropriately describe modern

Indonesia. A global economic slowdown, Indonesia was the third fastest

growing economy among the G-20 for 2009 and it continuous to post strong

economic growth, at a projected rate of 6.04% for 2012.

Improving economic competitiveness by creating a more constructive

business climate is one of Indonesia’s national priorities for 2010 to 2014.

Making it easier to do business and invest also helps promote sustainable

urbanization, another of Indonesia’s key national development objectives.

Across Indonesia, it’s easiest to start a business in Yogyakarta, deal with

construction permits in Balikpapan, and register property in Bandung and

Jakarta. To start a business in Manado and register property in Batam is the

most difficult task.

Indonesia Market of 220 million is the largest among ASEAN partners India.

Indonesia's economy has stabilized after the crisis of 1997-98, strengths

supported by the country's vast natural resources (oil and gas, coal, copper,

gold, forestry and plantation products) and manufacturing for the domestic

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and export market (textiles, footwear, electronics, automotive, pulp and

paper). While stable in macroeconomic terms, the Indonesian economy is

characterized by low investment growth, export slowdown and high

unemployment, so it is largely driven consumption.

1. Framework:

In the era of globalization, trade relations were formalized under a Free

Trade Agreement signed in June 1978, committing both countries to take all

appropriate measures to facilitate, strengthen and diversify bilateral trade.

The first meeting of the joint commission between India and Indonesia was

held in Jakarta in September 2003.

2. Bilateral trade:

Indonesia is our second largest export market in ASEAN and one of our main

export destinations. India is the biggest buyer of Indonesian crude palm oil

and its products importer of mining, oil and paper. India exports refined

petroleum products, wheat and rice, sugar and iron and steel products from

Indonesia.

3. Investment / Joint Ventures / Projects:

There are over a dozen major companies manufacturing joint India

Indonesia with direct indigenous participation or financed by Indians abroad.

Large investments are in the fields of synthetic fibers, textiles, garments,

steel and hand tools. A large number of Indian companies have been

involved in the supply of equipment for the implementation of projects and

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in Indonesia. These include WAPCOS, IRCON, rites, STUP Consulting India

Ltd., TCIL, Punj Lloyd, KEC International Ltd. TELK, BHEL and Bharat Heavy

plates. NIIT / APTEC / LCC InfoTech have established education centers in

Indonesia.

4. Banking:

Indonesia has many banks. The Bank of Spain has a branch in Indonesia,

while Indonesia International Bank has a branch in Mumbai.

1.6 PRESENT TRADE RELATIONS AND BUSINESS VOLUME

OF DIFFERENT PRODUCTS WITH INDIA

1. INDIA and INDONESIA - EMERGING ECONOMIES OF INDIA

India and Indonesia are increasingly emerging economies of Asia and has

been the subject of major economic reforms. In the past two decades,

robust sound fundamentals with the financial sector and manufacturing have

positioned among five investment destinations in Asia.

In order to maximize the benefits of their bilateral relationship, however, the

two countries have to tread a middle path, a mix of seeking

complementarities in the economic field, in competition with each other in

terms of attracting foreign investment.

There is hope that the signing of the CECA (Comprehensive Economic

Cooperation Agreement), India and Indonesia, not only reach the target of $

20 billion bilateral trade by 2015, but also sets new benchmarks for an

economic relationship

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2. INDIA & INDONESIA -TRADE and INVESTMENT

COMPLEMENTARITIES

India and Indonesia bilateral trade is at least two millennia old. In the

ancient past, the two nations used to trade in spices, timbers, minerals,

precious stones, cotton and silk.

In present, trade ties have not realized their true potential which can be

attributed to the lack of imaginative planning as well as ignorance on the

part of the business communities of the two countries. Now India and

Indonesia are increasingly seen as emerging Asian economies. Trade and

investment complementary need to be comprehensively explored.

As a result of the continued growth of India's economic operation with

ASEAN since 1970, the amount of trade grew in volume. In 1982 the ASEAN

countries share of India's exports, which was 2.6 percent in 1970 had

increased to 4.02%. During the same period, total imports from India in the

region had increased.

3. THEY ACT AS COMPETITORS?

The answer lies in the treatment of the middle path, while the growing

economic interdependence and integration of production networks and the

strengthening of regional economic institutions tells us that developing

economies with advantage in terms of cheap labor are intended to cooperate

to achieve growth, but also true that it is difficult when they are competing

to attract foreign direct investment. However, what really works it really

works for the benefit of India and Indonesia is the fact that while Indonesia

is an export-oriented economy, India is not. The tourism industry is the

fastest growing industry between India and Indonesia

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4. BUSINESS VOLUME INDIA - INDONESIA TRADE (year to year

trade)

• Export -Import data bank ministry of commerce -11

From the table, it is clear that India's exports have almost tripled in the last

five years, while the import quota equally impressive. Among the important

issues that exports from India to Indonesia are gems and jeweler,

mechanical equipment, raw materials, while in the case of Indonesia has

been chemical, leather, engineering products.

YEAR Export Import

2005-06 1380.20 3,008.11

2006-07 2,032.96 4,181.96

2007-08 2164.17 4,821.25

2008-09 2559.82 6,666.34

2009-10 3063.36 8,656.66

• Co -operation in energy sector

In August 2007 Tata power acquired a 30% stake in the Indonesia energy

Tata power acquired a 30% stake in the Indonesian energy giant P. T. Bumi

resources by paying close to $ 1.3 billion. Anil Dhirubhai Ambani group

Reliance power also acquired three coal mines in Indonesia.

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1.7 PESTEL ANALYSIS

1.7.1 POLITICAL AND LEGAL FACTORS

Indonesia is considered as Republic country. It declared its independence on

17th August 1945from Japan so 17th August is the national holiday.

Indonesia’s legal rules and regulations are based on Roman-Dutch law. Their

constitution has abrogated by Federal Constitution in 1949 and Provisional

Constitution abrogated in 1950 which restored on 5 July 1959.

• Political stability

In Indonesia after every five year election is being contested for president

and vice president post by direct vote of the citizenry. Last time it was held

on 8 July 2009 (next to be held in July 2014). Susilo Bambang has elected

as president and Muhammad Yusuf Kalla is the Vice-President. Similarly,

Cabinet also appointed by the president. So for next 5 years there are more

chances of stability of the government.

• Labour laws

Indonesia has one of the largest labour forces in the world which make it

stand on5th rank. So, to protect the labour rights the government has made

a law called Labour laws Article 28D (2). According to this law 7-hour

workdays and 40-hour workweeks, with one 30-minute rest period for each

4 hours of work is legal in Indonesia. One day of rest weekly also mandatory

in Indonesia. In April 1992, the Government of Indonesia signed a

Memorandum of Understanding with the International Labour Organization

under the International Program for the Elimination of Child Labour (IPEC)

where the minimum working age is 14 years. (Labour &Social Protection in

Indonesia, 2009)

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Labour force - by occupation is as below-

Agriculture: 42.01%

Industry: 18.06%

Services: 39.03%

• Company law

The Indonesian Company Law of 1995 is the most important framework for

the current legislation on corporate governance in Indonesia. Under the

Company Law, a company is a separate legal entity in which Directors and

Commissioners represent the company. Every company must register their

Memorandum of Act under this Company Law. (Incorporation of company

Law in Indonesia)

• Prime lending rate

The Commercial Bank prime lending interest rate is 6.41% and the Central

bank discount rate is 10.83%.

• Environmental law

Indonesia Environmental Agency states Decree Laws. For instance, Municipal

Noise Reduction Plan (MNRP) has noise limit such areas in housing

occupancy, hospitals, schools, and religious buildings.

• Business or individual tax system

Tax system has various rules and categories for example on first 25,000,000

income rate of tax is 10% then on next 25,000,000 it is 15% and on next

50, 000,000 it is 30%. In the same way Income Tax on interest from

Indonesian banks is fixed at a final 15% for both companies and individuals.

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1.7.2 SOCIAL FACTORS

• Population

Indonesia has a large population, which is increasing at a steady rate. It is

on the 5th position all over the world with total 240,271,522 populations

which is growing at 1.13%. The birth rate in Indonesia is 18.84 births/1,000

and the mortality rate is 29.25 deaths/1,000 populations. The total life

expectancy rate is 70.76 years in which for male its 68.26 years and for

female its 73.38 years. 52% of total population lives in urban areas which

are increasing at 3.02% every year.

• Age factor

Indonesia is considered as nation of young people. The total median age is

27.6years in which for male it is 27 years and for female its 28.1 years.

• Age structure

0-14 years: 28.01% (male 34,337,341/female 33,162,207)

15-64 years: 66.00% (male 79,549,569/female 78,918,321)

65 ears and over: 6.00% (male 6,335,208/female 7,968,876)

• Education

If a country has good literacy rate then it has bright future. Same thing

apply on Indonesia. 90.4% of its populations are literate in which male are

94% and female are 86.8%.3.6% of their GDP is spent on education.

• Religion

Indonesia is a multi culture and religion country where people from different

religion work there. If we talk about majority of nation is Muslim with

86.01%, Protestant 5.07%, Roman Catholic 3%, and Hindu 1.08%.

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1.7.3 TECHNOLOGICAL FACTOR

• Transport system

Indonesia has effective and highly developed transport system .Indonesia

has 139 airports, 8529 km railways lines and water ways covering 21579

km. Major ports are Banjarmasin, Belawan, Ciwandan, Kotabaru, Krueg

Geukueh, Palembang, Panjang, Sungai Pakning, Tanjung Perak, Tanjung

Priok. It has one of the largest merchant moraine with 971 in which 114 is

already registered in foreign country.

• Communication system

In Indonesia, the communication system is highly developed.17.33 millions

of people use landlines where as 83.03 million of people use

Cellular mobiles. There are 13 million of internet users which is good sign for

a country. It has interisland microwave system, HF radio police net and

domestic satellite communications system coverage which makes its

communication system better.

• Broadcasting technology

In media sources, Indonesia has 678AM and 43 FM channels. It has 54 local

TV stations including 11 national TV networks each of with its group of local

transmitters.

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1.7.4 ENVIRONMENTAL FACTOR

• Geographical location

Its geographic environment is one of the most complexes and varied in the

world. By one count, it has situated in South-Eastern Asia between the

Indian Ocean and the Pacific Ocean. It has total 1,904,569 sq km area in

that land is 1,811,569 sq km and water is 93,000 sq km. Basically it is hot

and humid country. At least 669 distinct languages and well over 1,100

different dialects are spoken. The nation encompasses some 13,667 islands;

the landscape ranges from rain forests and steaming mangrove swamps to

arid plains and snowcapped mountains.

• Time zone

Indonesian time zone is UTC+7 mean seven hours ahead of GMT and 16

hours ahead of U.S. Pacific Standard Time.

• Natural or Environmental disaster

Due to its geographic location, several times Indonesia has faced many

natural disasters such as in December 26, 2004; magnitude 9.0 earthquake

caused a tremendously powerful tsunami in the Indian Ocean and about

155000 people died and after this in May 26, 2006, in Feb. 2007, January

27, 2008 and many times country has faced same trouble because of its

location.

In the same way, Country has faced deforestation, soil erosion and massive

forest fires in interior regions of Kalimantan, Sulawesi, and Sumatra due to

its mountainous. In 1983, about 3 million hectares of prime tropical forest

worth at least US$10 billion were destroyed in a fire in Kalimantan Timur

Province. The disastrous scale of this fire was made possible by the piles of

27

dead wood left behind by the timber industry. Even discounting the

calamitous effects of the fire, in the mid-1980s Indonesia's deforestation

rate was the highest in Southeast Asia, at 700,000 hectares per year and

possibly as much as 1 million hectares per year.

CONCLUSION

After analyzing PESTLE analysis of Indonesia, we came to know it has some

advantage and disadvantage in term of legal policy, economic factor, social,

geographic and technological factor. Where growth rate, labour force,

foreign reserve, water resources and natural resources such as gas, crude oil

are more in Indonesia they have less per capita income, huge population,

high inflation and unemployment rate. In Indonesia FDI is restricted in most

of the sectors and the business environment is not good because of

persistent corruption and natural disaster but it is recovering very fast and in

next 4 or 5 years Indonesia would be in better position.

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PART-2 INDUSTRY SPECIFIC STUDY

A STUDY REPORT

ON CEMENT

INDUSTRY IN

INDONESIA

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2.1 INTRODUCTION OF CEMENT INDUSTRY

Cement is the glue that holds the concrete together, and is therefore critical

for meeting society's needs of housing and basic infrastructure such as

bridges, roads, water treatment facilities, schools and hospitals. Concrete is

the second most consumed material after water, with nearly three tonnes

used annually for each person on the planet. Being one of the basic

elements for setting up strong and healthy infrastructure, Cement plays a

crucial role in economic development of any country. Having more than a

hundred and fifty years history, it has been used extensively in construction

of anything, from a small building to a mammoth multipurpose project.

The manufacturing process of cement consists of mixing, drying and grinding

of limestone, clay and silica into a composite mass. The mixture is then

heated and burnt in a pre-heater and kiln to be cooled in an air-cooling

system to form clinker, which is the semi-finished form. This clinker is cooled

by air and subsequently ground with gypsum to form cement. There are

three types of processes to form cement - the wet, semi-dry and dry

processes. In the wet/semi-dry process, raw material is produced by mixing

limestone and water (called slurry) and blending it with soft clay. In the dry

process technology, crushed limestone and raw materials are ground and

mixed together without the addition of water. The dry and semi-wet

processes are more fuel-efficient. The wet process requires 0.28 tons of coal

and 110 kWh of power to manufacture one tonnes of cement, whereas the

dry process requires only 0.18 tonnes of coal and 100 kWh of power. There

are different varieties of cement based on different compositions according

to specific end uses, namely, Ordinary Portland Cement, Portland Pozzolana

Cement, White Cement, Portland Blast Furnace Slag Cement and Specialized

Cement. The basic difference lies in the percentage of clinker used.

30

2.1.1 GLOBAL CEMENT SCENARIO

Cement is a cyclical industry in which long periods of growth are

interspersed by shorter periods of decline. This also means that as a rule the

number of markets in growth at any one time will exceed those in decline.

This is a significant factor for the long-term outlook of the cement sector,

meaning that growth prospects for the industry are encouraging, despite the

2007 downturn in the US.

Cement is a global industry made up of local markets. When a product is

both heavy and cheap, transportation costs become a key factor in

determining its profitability, so cement plants need to be close to customers.

This is why global cement industry leaders are seeking to be present in as

many local markets as they can, resulting in the growing dominance of the

industry by its largest businesses.

The recent years have witnessed a surge of foreign direct investment in the

cement sector. International players like France's Lafarge, Holcim from

Switzerland, Italy's Italcementi and Germany’s Heidelberg Cements together

hold more than a quarter of the total capacity. Holcim, one of the world's

leading suppliers of cement, has 24 plants in the country and enjoys a

market share of about 23–25 per cent. It will further invest about US$ 2.49

billion in the next five years to set up plants and raise capacity by 25 MT in

the country. Holcim has a global sale worth about US$ 20 billion, where

India contributes US$ 2 billion–2.5 billion. Italcementi Group, which acquired

full stake in the K K Birla promoted Zuari Industries' cement, for US$ 126.62

million in 2006 plans to invest US$ 174 million over the next two years in

various greenfield and acquisition projects.

High concentration of cement production may be attributable to high capital

costs and long gestation periods in cement industry. Access to limestone

reserves principal raw material for the manufacture of cement)

significant entry barrier for newer companies.

2.1.2 WORLD CEMENT PRODUCTION 2010

Regionally, Asia contributed about 70% to world production and included 9

of the 20 leading producing countries. Western Europe had about 8% of total

output; the Middle East (including Turkey) and North America, nearly 6%

each Africa, Central America and S

Commonwealth of Independent States, about 4% each and Eastern Europe,

about 2%.

2%

2%

2%

2%2%

1%

1%

1%1%

1%1%

1%1%

1%

1%

China

Brazil

Vietnam

Saudi Arabia

Germany

31



reserves principal raw material for the manufacture of cement)

significant entry barrier for newer companies.

2.1.2 WORLD CEMENT PRODUCTION 2010




each Africa, Central America and South America (combined), and the


54%

7%2%

2%

15%

India USA Turkey

Japan Iran Spain

Russia Egypt Korea

Saudi Arabia Indonesia Italy Mexico

Germany Thailand Pakistan Other



reserves principal raw material for the manufacture of cement) also acts as a




outh America (combined), and the


32

United States is the largest trader of cement in the world, with total trade of

US$ 1,396 million during 2008, followed by Germany, Belgium and

Netherlands with total trade of US$ 945 million, US$ 744 million and US$

562 million, respectively.

Despite being the second largest producer of cement in the world, India is

not amongst the major traders of cement.

33

2.2 INDONESIAN CEMENT INDUSTRY

In Indonesia, nine cement companies operate 15 cement plants with a total

installed production capacity of 46.1 million metric tons (MMT). PT Semen

Gresik, PT Semen Padang, and PT Semen Tonasa are part of the Semen

Gresik Group, which is 51% owned the Government and holds the largest

market share of 45.3%. PT Indocement Tungga Prakarsa, a subsidiary of

Heidelberg of Germany, is the second-largest player with a market share of

29.6%, and PT Holcim Indonesia, a subsidiary of Holcim of Switzerland, is

the thirdlargest with a market share of 15.2%.

The top three companies have a 90% share of the market. PT Semen Gresik,

PT Indocement Tunggal Prakarsa, and, to a lesser extent, PT Holcim

Indonesia each operate several large plants across the country. However,

73% of their capacity is in Java, which accounts for over two thirds of their

sales. The other four companies (PT Semen Andalas Indonesia [SAI], PT

Semen Bosowa, PT Semen Baturaja, and PT Semen Kupang) each operate a

single plant or a few small plants in Sumatra or in other islands.

The cement design capacity and location of the cement plants of these

companies are given in the table.

34

Company Location of

cement

plants

Capacity

(tons)

Domestic

Sales

(tons)

Market

Share

(%)

Major

Shareholder

PT Semen

Andalas

Indonesia

Aceh

1,124,580 - 3.6 Lafarge

PT Semen

Padang

West

Sumatra

5,440,000 3,876,732 12.3 PT Semen

Gresik

PT Semen

Baturaja

South

Sumatra

and

Lampung

1,250,000 895,235 2.8 Government

of Indonesia

PT Indocement

Tunggal

Prakarsa

West Java

and South

Kalimantan

15,650,000 9,335,415 29.7 Heidelberg

PT Holcim

Indonesia

West Java

and Central

Java

9,700,000 4,793,114 15.2 Holcim

PT Semen

Gresik

East Java 8,200,000 7,903,635 25.1 Government

of Indonesia

PT Semen

Tonasa

South

Sulawesi

3,480,000 2,496,165 7.9 PT Semen

Gresik

PT Semen

BosowaMaros

South

Sulawesi

1,800,000 922,363 2.9 Bosowa

Group

PT Semen

Kupang

East Nusa

Tenggara

570,000 68,942 0.2 Government

of Indonesia

The domestic producers are expected to respond to the rising demand by

increasing their capacity through new or better-performing plants. As foreign

35

investors are not restricted from entering the Indonesian cement industry,

the entry of new players could generate additional capacity. These projects

are, however, not expected to pose a major threat to existing cement

players, given the large capital investment requirement and the need for

well-developed distribution network and brand recognition.

In response to rising demand and higher domestic prices compared with

export prices, these companies have progressively shifted their sales toward

the domestic market. Further capacity expansions could come with the entry

of new players. However, they are not expected to pose a major threat to

existing cement players, given the large capital requirements for new plants

and the need to develop a distribution network and brand loyalty.

Java is the largest-consuming region with the highest share of 62% of the

national demand. The top three cement producers, which competed

aggressively for market share in this region, appear to have switched to a

“for profit” rather than a “for market share” strategy to maximize

shareholder value and improve financial health. In other regions, smaller

producers are ranked among the top three companies in market share, given

the limited radius of competition in the cement industry. For example, SAI is

ranked second in Sumatra, while PT Bosowa Maros is ranked second in

Sulawesi and eastern Indonesia.

36

2.2.1 ROLE OF CEMENT INDUSTRY IN INDONESIAN ECONOMY

The above chart shows the relationship between Indonesia’s GDP Growth &

Cement Sector Growth along with the Domestic Consumption data. The

Cement Industry is growing at a good pace of around 9 % on an average of

past 3 years annually compared to Its GDP of 6.6%. Also the domestic

consumption of cement in Indonesia is increasing at a high sped.

37

2.3 STRUCTURE OF CEMENT INDUSTRY

Public (48.99%)

PT Semen Gresik (Persero) Tbk.

PT Semen Padang PT Semen Tonasa

The Govt. of the Republic of Indonesia (51.01%)

Four Subsidiaries non-cement producers: Six Subsidiaries non-cement producers:

Name Activities Owne rship

Lgasar

Cement Distribution 12%

Sepatim B

General Trading, Cement Packaging

85%

Bima SA General Trading, Cement Packaging

80%

SUPS

Cement Packaging 10%

Name Activities % Ownership

1. UTSG

Limestone & Clay Mining

55%

2. IKSG

Cement Packaging 60%

3. KIG

Industrial Estate 65%

4. Swadaya Gra

Steel Fabrication, Contractor

25%

5. Varia Usaha

Transport & General Trading

24.90%

6. Eternit Building Materials 17.60%

38

2.3.1 TYPE OF CEMENT AND USES

Indonesia produces various types of cement. The main type is OPC (Ordinary

Portland Cement) or Portland Cement of Type I (CP I). Other types include

special ones and mixed cement, for certain uses in relatively small quantity.

Those categorized in the special types are Portland Cement of Type II (CPI

II), Portland Cement of Types III (CPI III), Portland Cement of Type V (CPI

V) and OWC (Oil Well Cement).Those categorized as Mixed Cement are PPC,

fly ash cement, and Super Masonry Cement (SMC) and Masonry Cement.

TYPES OF CEMENT

Portland Cement of Type I or Ordinary Portland Cement (OPC) is a cement

type with standard quality used widely for general construction such as

building constructions which do not need specifications such as house

buildings, high rise buildings, bridges and roads.

Portland Cement of Type II is a type of cement more resistant to sulfates.

Portland Cement of Type II is used such as for port pier, dam and bridge

constructions and heavy foundation of buildings in soil having moderate

content of sulfates.

Portland Cement of Type III is used for constructions needed high early

pressure after pouring a cement foundation in a fast process, such as in

road, bridge and airport construction.

Portland Cement of Type IV is used for constructions that need low hydration

heat such as large dams, thick concrete buildings or buildings in dry areas.

39

Portland Cement of Type V gives better protection against corrosion from

water or soil containing sulfates larger than 0.20% such as sea water,

ground water and water in mining sites. This type of cement is used for

constructions of pools processing waste from chemical factories, sea

building, etc.

Oil Well Cement (OWC) is used for oil and natural gas well constructions of

certain depth. OWC is different from other types of cement as it will become

hard if it is used for oil wells under high temperature.

Mixed Cement is a mixture of cement almost the same types and produced

from limestone as an additive to mixture of crusts and gypsum in the final

process of grinding. This type of cement is suitable for light and medium

construction (semi permanent) such as houses and low cost buildings.

PPC (Portland Pozzolan Cement) is a mixture of cement using pozzolan as

the material. It is suitable for sea beach buildings or buildings in swampy

areas, dams and waterworks that need resistance to sulfates and low

hydration heat.

White Cement (CementPutih) is produced in the country only by PT

Indocement Tunggal Prakarsa. It used mainly for terrazzo tiles, or for

ceramic products and other decorative ornaments.

40

COMPOSITION OF THE PRODUCTS

Most cement factories in Indonesia produce Portland Cement of Type I or

Ordinary Portland Cement, which accounts for 88% of the country's total

production of cement. Other types, mixed cement accounts for 11.6%, and

the rest are made up of OWC, PC type II and Type V.

Key Drivers of Domestic Cement Demand:

� National Economic Growth

� Favorable Interest Rate Environment

� Infrastructure Expansion

� Per Capita Consumption increase from Current Low Levels

41

2.4 Functions of Cement Industry

Housing and infrastructure sectors constitute a major part of the total

demand for cement in India. These two sectors have been further analyzed.

Housing

Housing, besides being a very basic requirement for the urban settlers, also

holds the key to accelerate the pace of development. Investments in

housing, like any other industry, have a multiplier effect on income and

employment. Construction sector employment is growing at the rate of 7%

per annum. Housing provides opportunities for home-based economic

activities.

The Indian Housing sector has grown by leaps and bounds in the last few

years. The total home loan disbursements to this sector has risen from Rs

19,723 Crore in the year ended 2000 to a massive Rs 2,52,932 Crore in the

year 2010. This robust growth has been triggered by a number of factors.

Some of which are:

• Tax rebates on housing loans

• Continued growth in population

• Decrease in number of people per household (average size of

household)

• Rise in disposable income levels

• Lower interest rates and easy availability of housing finance

Also the Housing Finance Companies and banks have introduced various

schemes to attract the young generation borrower. Free home insurance,

lower rates for purchase of consumer durables, household goods, and

42

refinance options are some of the noteworthy schemes that the institutes

have come up with to attract the borrowers.

The Indian housing industry is highly fragmented, with the unorganized

sector, comprising small builders and contractors, accounting for over 70%

of the housing units constructed and the organized sector accounting for the

rest. The organized sector comprises large builders and government or

government affiliated entities. The housing market witnessed a frenzied

boom in the early nineties on the back of a booming stock market and a

liberalization process that was kicked off in 1991.

Infrastructure

Infrastructure projects along with commercial constructions accounts for

about 35% of the total cement consumption in India. With the government

increasing its focus on infrastructure spending, particularly on roads, ports

and airports, the cement demand is likely to go up in the near future. Since

India began opening up in 1991, until recently, the progress of infrastructure

has been very poor and has been a zigzag process. But if one considers the

following developments, it would be visible that India is turning the corner

on the infrastructure question and in turn spurring the demand for cement.

Firstly, there are over a hundred Special Economic Zones (SEZs) in India

either in operation or under construction. Many international companies, like

Nokia and automotive makers like Volvo, are actually producing in the SEZs.

Construction has been taking place – land clearance has been done to

relocate squatters or farmers away from their land and this has already

happened in the last five years.

43

The various road projects under the National Highway Development Program

(NHDP Phase I and II) initiated by the previous government are being

successfully implemented by the present government. Further, government

has also announced new projects namely NHDP Phase, III, IV, V and VI,

which include having four lanes on high density highways, up gradation of

existing highways, six-lining of roads under NHDP Phase I and also

1,000kms of new expressways.

2.5 BUSINESS ACTIVITIES OF CEMENT INDUSTRY IN

INDONESIA

There are seven main players with a combined design clinker capacity of

40.7 million tons per year and cement 44.9 million tons. Cement output in

2009 was 39.6 million tones. Much of the domestic cement supply is now

extended by blending in fly ash or other enhancers so the actual capacity

could be more however allowance should be made for the age of some

cement plants and corresponding inefficiencies. Also, some plants are

currently shut down such as Kupang.

• Design Capacity: 54.4 m ton

• Domestic Growth: 17.7%

• Domestic Utilization: 89%

• Total Utilization: 91%

• Supply:-Domestic: 48.0 m ton

Export: 1.2 m ton

Import: 1.8 m ton2

44

2.6 INDIAN CEMENT INDUSTRY

The cement industry in India dates back to 1914, with the setting up of its

first unit in Porbunder. It is considered as one of the core infrastructure

industries. It is the second largest producer of cement in the world just

behind China, with industry capacity of over 200 million tonnes. It is

consider to be a core sector accounting for approximately 1.3% of GDP and

employing over 0.14 million people. Also the industry is a significant

contributor to the revenue collected by both the central and state

governments through excise and sales taxes.

The Indian cement industry is extremely energy intensive and is the third

largest user of coal in the country. It is modern and uses latest technology,

which is among the best in the world. Only a small segment of industry is

using old technology based on wet and semi-dry process.

Cement is an essential component of infrastructure development and most

important input of construction industry, particularly in the government’s

infrastructure and housing programs, which are necessary for the country’s

socioeconomic growth and development. Cement ranks second in volume

among the industrial products manufactured in the world. And it is the most

widely used man-made product and second only to water as world’s most

heavily consumed substance.

Cement is poly-phased inorganic compound of complex nature formed by

burning of calcareous and argillaceous raw materials as a binding material.

Cement is used as a binding material in various types of civil constructions.

Earlier, clay or lime was used for binding materials together.

Its properties include- Low cost, high performance, Binder with almost any

hard material, Building block, Gain strength progressively with ageing

45

Substitutes with steel, polyester, epoxy-resin, plasticizers With

advancement in manufacturing technology, today cement is a completely

technical product. Various types of grades of cement are being

manufactured to satisfy different needs of the construction industry.

However, cement is still considered as a non-technical product and used in a

traditional and often unscientific manner.

There are around 11 different types of cement that are being produced in

India. The production of all these cement varieties is according to the

specifications of the BIS (Bureau of Indian Standards).

Some of the various types of cement produced in India are:

• Clinker Cement

• Ordinary Portland cement (OPC)

• Portland Blast Furnace Slag Cement (PSC)

• Portland Pozzolana Cement (PPC)

• Rapid Hardening Portland cement

• Oil Well Cement

• White Cement

• Sulphate Resisting Portland cement

46

Highlights of Indian Cement Industry @ as on 31st March, 2011

2.6.1 CEMENT PRODUCTION AND DESPATCHES (P)

January 2012 (MillionTonnes)

Description Jan-12 Dec-

11

Jan-

11

(Apr-Jan)

Cement

Production

16.47 15.72 14.82 145.00 137.16

Cement

Dispatches

16.27 15.76 14.73 143.96 136.18

LARGE CEMENT PLANTS

Companies (Members) (Nos.) 42

Cement Plants (Nos.) 139

Installed Capacity (Mn. tn.) 234.30

Cement Production (Mn. tn.) 2009-10 168.29

Plants with Capacity of Million tonnes and above

(Nos.)

97

Manpower Employed (Nos.) Approx 1,20,000

Turnover in 2010 (Mn. US$) around 18,000

Statistics - Mini & White Cement Plants

Cement Plants (Nos.) Approx. 365

Installed Capacity (Mn. tn.) 11.10(P)

Cement Production (Mn. tn.) 2010-

11

6.00(P)

47

2.6.2 CEMENT MAP OF GUJARAT

All India Ranking – 5

(As on 31st March, 2011) (Cement Production in Million

Tonnes)

Year Capacity Cement

Production

Cement

Consumption

Cement &

Clinker

Export

2010-

2011 18.72 (7.99) 12.19 (7.24) 13.08 2.53

2009-10 16.82 (7.56) 11.49 (7.15) 11.54 3.23

2008-09 19.62 (8.86) 15.21 (8.38) 12.09 5.06

2007-08 19.07 (9.63) 15.40 (9.15) 11.68 5.11

2006-07 17.47 (10.41) 15.22 (9.78) 10.08 7.83

Details of Cement Plants and Grinding Units in Gujarat

Sl.No. Name of Cement Company Location Annual

Installed

Capacity (MT)

1 Shree Digvijay Cement Company

Ltd.

Sikka 1.07

2 Saurashtra Cement Ltd. Ranavav 1.50

3 Gujarat Sidhee Cement Ltd. Veraval 1.20

4 UltraTech Cement Ltd. Pipavav 5.80

5 UltraTech Cement Ltd. Jafrabad 0.50

6 UltraTech Cement Ltd.(G) Magdalla 0.70

7 Sanghi Indus. Ltd. Abdasa

Taluka

2.60

8 JK Lakshmi Cement Ltd.(G)

9 Jaiprakash Associates Ltd.

10 Jaiprakash Associates Ltd. (G)

Wanakbori

2.6.3 MARKET SEGMENT OF INDIAN CEMENT INDUSTRY

Market segment — north

• Key markets in northern

Haryana and the National Capital

• Demand in this region is being driven by growth in infrastructure, and

residential and commercial

has been fuelled fu

Market segment — west

• The states of Maharashtra and Gujarat are the key markets in this

region.

• Over the past few years, growth in housing and commercial real

Regional Share of Installed Capacity

48

JK Lakshmi Cement Ltd.(G) Kalol

Jaiprakash Associates Ltd. - Kutch Sewagram

Jaiprakash Associates Ltd. (G) - Sonipur

Total

(G):Grinding Unit


north

Key markets in northern India include the states of Rajasthan, Punjab,

Haryana and the National Capital Region (NCR).

Demand in this region is being driven by growth in infrastructure, and

residential and commercial construction. In the past few years, demand

has been fuelled further by the metro project in Delhi NCR.

west

The states of Maharashtra and Gujarat are the key markets in this

Over the past few years, growth in housing and commercial real

North

23%

West

16%

Central

14%

East

14%

South

33%


(2010)

0.55

2.40

1.40

18.72


India include the states of Rajasthan, Punjab,

Demand in this region is being driven by growth in infrastructure, and

construction. In the past few years, demand

rther by the metro project in Delhi NCR.

The states of Maharashtra and Gujarat are the key markets in this

Over the past few years, growth in housing and commercial real


49

estate has augmented the demand for cement in this region.

• The western region also exports cement to countries in the Middle

East.

Market segment — Central

• The state of Uttar Pradesh is the key market in this region.

• The demand for cement in this region has primarily grown due to an

increase in the number of housing and infrastructure projects.

Market segment — east

• The key markets in the east are the states of West Bengal, Orissa and

Bihar.

• Growth in housing and industrial activity is primarily driving demand for

cement in this region.

Market segment — south

• Key markets in the southern region are the states of Tamil Nadu,

Andhra Pradesh and Karnataka.

• The south zone has witnessed increased capacity in last few years

due to its rich limestone reserves.

• Growth in the real estate market in the region, coupled with the

development of key infrastructure projects such as airport and

metro rail, has resulted in increased demand for cement in this

region.

2.6.4 CEMENT PLANT INSTALLED CAPACITY GROWTH IN IND

The above chart shows the cement plant installed capacity of Indian Cement

Industry which is increasing at almost 8

capacity grew up to 235.9 Mt.

154.3

0

50

100

150

200

250

2004-05

50

2.6.4 CEMENT PLANT INSTALLED CAPACITY GROWTH IN IND


Industry which is increasing at almost 8-10% every year. In 2010, cement

capacity grew up to 235.9 Mt.

160.2 168

198.3211.8

2005-06 2006-07 2007-08 2008-09

Installed Capacity Growth (in MT)

2.6.4 CEMENT PLANT INSTALLED CAPACITY GROWTH IN INDIA


10% every year. In 2010, cement

235.9

2009-10

Comparison between Capacity & Production

The above graph shows

Utilization & the Actual Production of Cement across different Five Year

Plan.

67

92

0

50

100

150

200

250

51

Comparison between Capacity & Production

The above graph shows the comparison between India’s Capacity,


92 86 9174

8672 74 72 73

91 90

Capacity (M.t.)

Production (M.t.)

Capacity Utilisation (%)

the comparison between India’s Capacity,


Capacity (M.t.)

Production (M.t.)

Capacity Utilisation (%)

52

2.6.5 EXPORTS OF CEMENT FROM INDIA

Exports of cement (total) decreased to 3.42 million tonnes in 2009-10

from 4.82 million tonnes in 2008-09. Portland grey cement had a share

of 82% and cement clinker 12% in the total cement exports. Portland

white cement and other cements together had a 6% share. Exports of

cement in 2009-10 were mainly to Malaysia (30%), UAE (21%), Iraq (20%)

and Yemen Republic (12%).

2.6.6 IMPORTS OF CEMENT FROM ABROAD

Cement imports in 2008-10 increased to 6.2 lacs tonnes from 2.12 lacs

tonnes in 2008-09. Grey cement had a share of 61% in the total

cement imports in 2007-08 followed by cement clinker (28%), other

cements 10% and white cement (

53

France 909 22210 993 18734

Netherlands 601 25431 399 14690

UAE 3135 11686 3016 13212

Other

countries

4918 33438 5952 38300

Unspecified - - 33624 79613

All

Countries

211771 654019 621474 2181608

54

2.6.7 INDIA’S CEMENT TRADE

Cement has traditionally not been among India’s major traded products.

During 2010, India was the 44th largest cement-trading nation in the world.

However, increased focus on infrastructure development in recent years has

led to a Splurge of construction activity in the country, resulting in higher

cement imports and hence trade.

Trade in cement is also underway with the neighboring countries and

countries in Africa and West Asia. L&T (now a part of Grasim), Gujarat

Ambuja Cements Ltd and Jaiprakash Industries are the top exporters. The

western region, due to its proximity to the coasts, accounts for 92.4 per cent

of total exports, of which Gujarat holds a share of 76 per cent.

During the period from 2003 to 2010, India’s cement trade increased from

US$ 4.1 million to US$ 44.2 million, a CAGR of 40.3%. The increase in trade

was led by rise in imports, which increased, from US$ 0.3 million in 2001 to

US$ 37.1 million in 2010, at a CAGR of 91.3%. India’s cement exports on

the other hand increased at a CAGR of 9.9%, from US$ 3.7 million to US$

7.2 million. China was India’s main source of cement imports, during 2010

with imports worth US$ 13.9 million followed by Italy and Taiwan with

imports worth US$ 13.5 million and US$ 2.5 million, respectively. India’s top

five import sources together accounted for close to 92% of India’s total

cement imports during 2010.

55

India has an immense potential to tap cement markets of countries in the

Middle East and South East Asia due to its strengths of location advantage,

large-scale limestone and coal deposits, adequate cement capacity and

production of world-class quality of cement with the latest technology.

However for this Indian cement industry will have to become cost

competitive vis-à-vis China. Cement companies in India often complain that

the entire gamut of direct and indirect taxes and the freight for transporting

cement from hinterland to the port substantially increases the price of

cement. Moreover the infrastructure facilities at port to handle bulk/bagged

cement are poor leading to delays in exporting.

56

2.7 POLICIES & NORMS OF INDONESIAN CEMENT

INDUSTRY

By Presidential Decree No. 54/1993, the cement industry in Indonesia is a

highly regulated industry, to which access was once prohibited through a

Negative List for Investment (DNI) before such prohibition was finally lifted

through deregulation. The market is also full of rules which govern

competition, such as price fixing and market allocation.

In Indonesia, Cement Industry is an industry that is considered as strategic.

The cement industry has natural characteristics of the economies of scale.

From selecting the factory location, production stages, and especially the

distribution, the whole process of cement production is heavily affected by

operation scale considerations. To operate efficiently, the production and

distribution have to be conducted massively. These facts are reflected from

the concentration level of the cement market which reached 83% in 1993,

and 61.6% in 1995, and in 1998 the biggest company in the industry

controlled 27% of the industry’s capacity.

Considering the large significance being put on the distribution cost factor,

the price of cement for consumers relies heavily on the mode of

transportation used for distribution, since cement factories cannot be built

on just any location. Consequently, distribution to consumers becomes a

major problem in the cement industry. Eastern Indonesia, which does not

have a cement factory, has to pay a higher price compared to those which

owns one.

The geographical conditions of such regions make it impossible to build a

cement factory, so that cement has been transported from other islands

57

which have cement factories. Regarding those reasoning the government

conducted intervention on the market by introducing market allocation

mechanism to each of the producers which are determined by negotiations

in monthly meetings attended by representatives from the Ministry of

Industry and Trade, Ministry of Communications and the Indonesian Cement

Association (ASI). The quota has been determined based on factories

location, production capacity, and the condition of the cement market in the

region. The purpose of this arrangement of distribution and quota was to

assure cement supply and stock in every province at a relatively stable price.

The cooperation between producers and the government in establishing

regulations for distribution has created an agreement similar to a cartel, in

which competition among producers are arranged.

Furthermore, in order to maintain the stability of cement price in the

country, the government has established Pegged Pricing System with

Maximum Retail Price HET) system, the price is monitored at all times to

ensure that the price of cement on the market is within reasonable range.

The government originally set the price of Rp.1.650/bag on 17 February

1974. And by Ministry of Trade Decree No. 319/KP/IV/1979 later the HET

system is changed into Local Price Standard (Harga Patokan Setempat-HPS)

system, which even though provide guided price system to the retailer, it

still does not provide sufficient binding power to retailer to adhere to such

limit since it was only a guidance.

The basic idea of market intervention by government was to achieve public

welfare in order to provide consumer with sufficient and affordable supply of

commodities. Price fixing and market allocation policies were viewed as cross

subsidy policies from consumer in producing region to non-producing region.

Consumer protection idea as identifiable, where consumer rights to obtain

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goods in competitive price is focus of the government in establishing their

cement policy.

Thus, the role of government practically has solely become the endorser of

ASI’s policy. Moreover, market allocation has also promoted the

establishment of barrier to entry to cement industry. This practice can be

traced back from the early development of cement industry. Prior mid-70’s

ASI has established comprehensive system of market allocation system for

cement industry.

Quality Standards

The government has set standards for the quality of cement products as

given in SNI 15-2049-2004, which is the standard for Portland cement of the

I, II, II,IV, and V types. Standards for other types of cement have also been

set by the government.

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2.8 POLICIES & NORMS OF INDIAN CEMENT INDUSTRY

� Government Policies

Government policies have affected the growth of cement plants in India in

various stages. Their control on cement for a long time and then partial

decontrol and then total decontrol has contributed to the gradual opening up

of the market for cement producers. The stages of growth of the cement

industry can be best described in the following stages:

� Price and Distribution Controls (1940-1981):

During the Second World War, cement was declared as an essential

commodity under the Defense of India Rules and was brought under price

and distribution controls which resulted in sluggish growth. The installed

capacity reached only 27.9 MT by the year 1980-81.

� Partial Decontrol (1982-1988):

In February 1982, partial decontrol was announced. Under this scheme, levy

cement quota was fixed for the units and the balance could be sold in the

open market. This resulted in extensive modernization and expansion drive,

which can be seen from the increase in the installed capacity to 59MT in

1988-89 in comparison with the figure of a mere 27.9MT in 1980-81, an

increase of almost 111%.

� Total Decontrol (1989):

In the year 1989, total decontrol of the cement industry was announced. By

decontrolling the cement industry, the government relaxed the forces of

demand and supply. In the next two years, the industry enjoyed a boom in

sales and profits. By 1992, the pace of overall economic liberalization had

peaked; ironically, however, the economy slipped into recession taking the

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cement industry down with it. For 1992-93, the industry remained stagnant

with no addition to existing capacity.

Government Controls

The prices that primarily control the price of cement are coal, railway, power

tariffs, freight, royalty and cess on limestone. Interestingly, all of these

prices are controlled by government. It is now encouraging the use of

wastes such as slag and fly ash as a substitute to limestone concerning

environmental issues which helps in reducing pollution.

Government Controls

The Ministry of Mines regulates the mining sector, while the states own the

minerals sector in their respective territories in India.

FDI of up to 100 per cent is allowed in the mining sector under the

automatic route for cement production.

National Mineral Policy (NMP) 2008

The NMP aims to achieve the twin goals of large-scale prospecting with

optimal mining and attracting investments with the latest technology. To

implement comprehensive reforms stated in the NMP, the GoI has proposed

a new legislation and amended the existing Mines and Minerals (Development

and Regulation) Act. This legislation is expected to enhance the country’s

regulatory environment by making it simple and transparent.

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3.1 FUTURE PROSPECTS OF THE CEMENT INDUSTRY

High spending on infrastructure projects and growing demand for housing

units will fuel the Indian cement industry. Despite the gloomy outlook for the

world economy, cement dispatches have witnessed impressive growth of

11.02% and 12.01% in November and December 2008 respectively.

INFRASTRUCTURE:

The Indian government has considered spending more than US$ 499 billion

on infrastructure in the 11th Five Year Plan. This plan includes building road

infrastructure, which will require 75 million metric tons of cement and power

infrastructure that demands around 44 million metric tons of cement. Report

has been said that apart from this, railways, urban infrastructure, ports,

airports, IT & ITES sector, organized retailing, shopping malls and

multiplexes will be the main sectors driving the demand of cement in the

country.

Besides this, the housing sector is also one of the key drivers for the cement

industry and accounts for more than 41% of total cement demand. To

further boost the housing demand in the country, their interest rates on

housing loans have been reduced by many nationalized banks. As a result,

the number of houses constructed is expected to increase from 3.6 million in

2009 to 6 million units by 2014. This concrete growth in the housing sector

will lead to huge cement demand in the country.

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GOVERNMENT INITIATIVES

• A package of fiscal incentives and other concessions for the North East

Region, namely the North East Industrial and Investment Policy, 2007 has

been approved The Government of India.

• In a bid to attract foreign investors to its ambitious highways building

programmed, the Ministry of Road Transport plans to roll out projects

worth US$ 122 billion by 2016

With an aim of accelerating and sustaining growth in the cement industry

various measures has been taken by Government in the Union budget 2011-

12. The infrastructure sector has received an impetus in the form of

improved funds and tax related incentives offered to attract investors for

tapping the infrastructure opportunities around India. Introduction of tax

free bonds, formation of infrastructure debt funds and formulating a

comprehensive policy for developing public private partnership projects

(PPPs) are some of the steps that will provide required stimulus for growth.

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3.2 BUSINESS OPPORTUNITIES

The Indian cement industry has been on a high-growth trajectory led by

buoyancy in sectors such as infrastructure, real estate and

construction.

• The GoI plans to increase its investment in infrastructure to US$ 1

trillion in the Twelfth Five Year Plan (2012–17) as compared with US$

512 billion expected to be spent on infrastructure development under

the Eleventh 5 Years Plan (2007–2012).

• Union budget 2010–11 plans a total outlay of US$ 6.41 billion on rural

housing, roads and bridges.

• Formal approval has been granted to 570 SEZ proposals and 364 have

already been notified as SEZs, as of August 2010.

Infrastructure projects such as the dedicated freight corridors (DFC),

upgraded and new airports and ports are expected to enhance the scale of

economic activity, leading to a substantial increase in demand.

• There is an increasing demand for housing in the country, especially in

the economically weaker section (EWS)/low-income group (LIG),

According to the Eleventh 5 Year Plan (2007–2012).

• The housing segment accounts for major proportion of the total domestic

demand for cement in India.

Given the intense shortage of housing in the country, this segment has been

the primary demand driver for the industry. The demand for office space in

India is being driven by the influx of multinational companies and the growth

of the services sector, especially the IT-BPO industry. Progressive

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liberalization and easing of FDI norms in various sectors paved the way for

growth in FDI, which led to a burgeoning demand for office space from MNCs

and other foreign investors.

• Growth in organized retailing and the entry of international retailers into

India has fuelled the demand for good quality mall space.

• Strong growth in tourism, including both business and leisure travel, has

increased the construction of hotels in the country.

• The real estate sector contributes 5 per cent to India’s GDP and is

expected to reach a size of US$ 180 billion by 2020.

• Upcoming industrial clusters and infrastructure development in

emerging tier-II and tier-III cities are also likely to fuel demand in the

sector.

The growing population and increased urbanization in the country has

increased the need for more civil facilities.

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3.3 POTENTIAL FOR EXPORT

Though India is the second-largest producer and consumer of cement in the

world, there is a significant potential to increase the per capita consumption

of cement in the country in comparison to Indonesia. The per capita

consumption of cement in India is 142 kg, as compared with Indonesia of

173 kg.

Five Forces Model of Indian Cement Industry

Entry Barriers

High – Huge capital investments are required present substantial barriers

to entry and achieving economies of scale.

Supplier's Power

Moderate – Cement players have to depend on the Railways for carriage

outward and local coal companies for fuel, although diversification of

freight options and fuel sources are diminished the suppliers’ power

Entry Barriers

Supplier's

Power

Buyer's

Power

Substitute

Threat

Inter Firm

Rivalry

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Buyer's Power

Low – Substantial market concentration among large players ensures low

bargaining power of buyers

Substitute Threat

Low – Practically Cement has no substitutes

Inter Firm Rivalry

Low – The Indian cement market is oligopolistic in nature, characterized

by tacit collusion, where large players partially control supply for the

better price discipline

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3.4 SWOT ANALYSIS

A) Strengths:

• Second largest in the world in terms of capacity:

Approximately there are 124 large and 300 mini plants with installed

capacity of 200 million tonnes in India.

• Low cost of production:

Due to the easy availability of cheap labour and raw materials.

B) Weakness:

• Effect of global recession on real estate:

The real estate prices are very stabilizing and facing steady slowdown

especially in metros. Property prices have been drastically reduced in due

to reduced demand and increased supply.

• Demand-Supply gap, overcapacity:

The capacity additions distort the demand-supply equilibrium in the

Cement industry thereby affecting profitability.

• Increasing cost of production:

Due to increase in the prices of coal.

• High Interest rates on housing:

The re-pricing of the interest rates in the last four years from 07% to

12% has resulted in the slowdown in residential property market.

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C) Opportunities:

• Strong growth of economy in the long run:

In the recent year’s Indian economy has been one of the stars of global

economics, growing 9.02% in 2007 and 9.06% in 2006. However, India is

facing tough economic times in 2008.

• Increase in infrastructure projects:

Infrastructure accounts for 35% of cement consumption in India with

increment in government focus on infrastructure spending, such as roads,

highways and airports, the cement demand is likely to grow in future.

• Growing middle class:

There has been increased in the purchasing power of emerging middle-

class with rise in wages and salaries, which results in rising demand for

better quality of life that further necessitates infrastructure development

and hence increases the demand for cement.

• Technological changes:

The Cement industry has made tremendous strides in technological up

gradation. At present 93% of the total capacity in the industry is based

on modern and environment-friendly dry process technology and only 7%

of the capacity is based on old wet and semi-dry process technology. The

induction of advanced technology has helped the industry immensely to

conserve energy and fuel and to save materials substantially and hence

reduce the cost of production.

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D) Threats:

• Imports from Pakistan affecting markets in Northern India:

In 2007, 130000 tonnes in 2008, 173000 Metric tonnes of cement was

exported to India. It was done to keep the price of cement under check.

• Excess overcapacity:

Can hurt margins, as well as prices

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3.5 CONCLUSION

It can be concluded that, the demand for cement is increasing rapidly in

India as well as Indonesia & India has not only been able to meet domestic

demands but also to international demand. Superlative quality of the cement

produced in India has helped in raising boom in exports. India is ranked as

the second largest producer of cement in the world. The Indian cement

industry increased in value at compound annual growth rate (CAGR) of

13.4% during the review period (2007-2011) & is estimated to increase at a

CAGR of 10.64 % over the forecast period (2012-2016).

India and Indonesia had set up joint feasibility study of a comprehensive

economic co operation agreement (CECA) between the two countries in

2007. The cement industry of Indonesia is going to expand its production

capacity due to high demand. So, there is a bright opportunity for Indian

entrepreneurs for business in Indonesia.

The cement industry has a wide scope in construction & housing sector,

infrastructure etc. In the overall analysis, it can be suggested that economic

and trade complementarities between India and Indonesia are immense and

there for there is a need for two nations to sort out the nagging issues and

clear doubts for its part, Jakarta needs two understand Indian sensitivities

about the liberalization in Indonesia.

Finally, India & Indonesia require sorting ou

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