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Market Entry Analysis for Indofood

 

Market Entry Analysis for Indofood

Company Profile

PT Indofood Sukses Makmur Tbk (“the Company”) was established in the Republic of Indonesia on August 14th, 1990 under its original name PT Panganjaya Intikusuma.

From simple beginnings as an instant noodle producer, Indofood has been progressively transformed to become a Total Food Solutions company with operations in all stages of food manufacturing from the production of raw materials and their processing through to consumer products on the retailer’s shelf. A leader within its industry in Indonesia, an extensive distribution system supports the position of the company’s products as household names in every part of the country.

Indofood’s strongest legacy today is the strength of its brands, many of which have been companions to the people of Indonesia for years. These include a variety of brands of instant noodles (Indomie, Supermi and Sarimi), wheat flour (Segitiga Biru, Kunci Biru and Cakra Kembar), cooking oil (Bimoli), margarine (Simas Palmia). Despite intense competition, these brands remain the market leaders in their specific segments with a reputation for quality and value for money that remains unrivalled.

The Agribusiness

The Agribusiness Group operates under PT Salim Ivomas Pratama and PT PP London Sumatra Indonesia Tbk, public listed companies in Indonesia Stock Exchange. Both companies are subsidiaries of Indofood Agri Resources Ltd., a public listed company on the Singapore Stock Exchange.

Agribusiness Group is a vertically integrated operation possessing a number of leading brands derived from palm oil. Its operations cover the whole value chain from research and development, oil palm seed breeding and cultivation to milling, refining, branding and marketing of cooking oil, margarine, shortening and other palm oil derivative products. In addition, the group also engages in rubber, cocoa and tea plantations. Within the Agribusiness Group there are three operational divisions namely Plantations, Cooking Oils & Fats and Commodities.

Distribution

Indofood’s Distribution Group has the most extensive distribution network in Indonesia, penetrating to virtually every corner of the archipelago. In addition to Indofood’s own products, the group also distributes third-party products as well. The number of stock points has been expanded aggressively since 2005, providing wider and deeper penetration through efficient supply and delivery chains. Stock points are located in areas with a high density of retail outlets, including traditional markets, allowing each stock point to serve a closely defined geographical area in the shortest time possible.

Indofood SWOT Analysis

The SWOT (Strenghts-Weakness-Oppurtunities-Threats) analysis of Indofood products that may affect the process of Indofood to go global:

Strengths

  • Range almost all market segments
  • Wide distribution range
  • Strong seasonings
  • Affordable price
  • A lot of variant flavor

Weakness

  • Contains MSG
  • Contains perservative

Opportunities

  • Expanding the market to global world

Threats

  • Innovation from competitor
  • Healthy life-style issues

Indofood Market entry Analysis

1.            Exporting, importing, and countertrade

Indofood applied some entry modes that describe above. The most common method of buying and selling goods internationally is exporting and importing. Exporting is the act of sending goods and services from one nation to others and that importing is the act of bringing goods and services into a country from other countries.

Indofood company also do exporting and importing in its business. Indofood has ability to expand regionally and globally. Drawing on First Pacific’s experience in marketing goods across Asia and Nissin Food’s worldwide expertise in the food business, Indofood have more capability to accelerate its expansion into regional markets.

Moreover, Indofood’s instant noodles last year, the company exported products to more than 35 countries, which accounted for approximately 15% of revenues and it is expected that there is room to significantly increase this proportion. (Indofood Annual Report, 2005).

There are three main reasons why this company begin exporting :

    1. Expand sales
    2. Diversify sales
    3. Gain experience

      Degree of export involvement by Indofood
      There are two basic forms of export involvement, that is :

  1. Direct exporting
    Occur when a company sells its products directly to buyers in a target market.
  2. Indirect exporting
    Is a practice by which a company sells its products to intermediaries who resell to buyers in a target market. There are several different types of intermediaries : agents, export management companies, and export trading companies.

Indofood apply direct exporting, that is by selling the product directly to the end users. Typically, they rely on either local sales representatives or distributors. Sales representatives (whether an individual or an organization) represent only its own company’s products, not those of other companies. They promote the product in many ways, such as by attending trade fairs and making personal visits to local retailers and whole sellers.

Through indirect exporting, Indofood also has intermediaries, which are agents, individuals or organizations that represent one or more indirect exporters in a target market. Agents typically receive compensation in the form of commissions on the value of sales. Because establishing a relationship with an agent is relatively easy and inexpensive, it is fairly common approach to indirect exporting.

2.            Investment entry modes

For investment entry modes, indofood held joint ventures, that is separate company that is created and jointly owned by two or more independent entitites to achive a common business objective. Under certain circumstances, companies prefer to share ownership of an operation rather than take complete ownership. Joint venture partners can be privately owned companies, government agencies, or government-owned companies. Each party may contribute anything valued by its partners, including managerial talent, marketing expertise, market access, production technologies, financial capital, and superior knowledge of or techniques of research and development.

Bogasari world’s largest floor mill, Currently Indofood is the world’s largest instant noodles producer with an installed annual capacity of over 13 billion processed packs and 23 manufacturing plants throughout Indonesia (PT. Indofood, 2003). Indofood brands, distributed in Indonesia through one of their own division and internationally Indofood subsidies by the third party distribution agency. Specifically for instant noodles products, the well-known and trusted brands of Indofood include household names such as Indomie.

Indofood continues to benefit from its significant competitive advantages in Indonesia. In 1998 the Joint venture between Salim’s Group’s Food, First Pacific and Nissin Food Products Co. of Japan, the company’s position in the market become stronger by making advances into international market share.


Published at :
Written By
Selly Novela
IRRC | SoBM/IBM
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