Moving fast: Rising incomes mean higher expectations and more room for advertising

With July-September 2012 seeing the economy grow at over 6% for the eighth successive quarter, and as the third quarter of 2012 saw a record $5.9bn in foreign direct investment, Indonesia has been recording some impressive numbers in recent months. This growth has also filtered down into higher disposable incomes and new patterns in consumer spending. Indeed, longterm projections in a recent McKinsey Global Institute report on Indonesia estimate that by 2020 Indonesia will have around 40m “middle class” consumers (those earning more than $3600 per year).

RISING INCOMES: The expectation is that the new middle class will put increasing pressure on demand for a wider variety of fast-moving consumer goods (FMCGs), pharmaceuticals, cosmetics, electronics, cars and many other consumer desirables. As these sectors thus become more competitive, advertising expenditure (adex) is also predicted to grow. Global media agency ZenithOptimedia predicted in its 2012 report that the 2011-14 period will see Indonesia rank fifth in the world in terms of contributions to growth in ad spending, adding $3.91bn to the global total. This is still much less than the global leader the US, with $19.82bn, but more than Japan, with $3.02bn, or the UK, at $1.88bn. Meanwhile, international media agency Carat predicts 14.3% adex growth in Indonesia for 2012, more than double its Asia-Pacific forecast of 6.8%, while internet marketing researcher eMarketeer forecasts 20% adex growth in 2012 to $8.61bn.

MORE TO GO AROUND: Advertisers have thus been following the major growth stories of the economy in the search for a larger share of this expanding adex pie. Nowhere has this been more evident than in consumer goods. This sector has seen boosted investment by many of major global and local consumer goods players in recent times. Indeed, a 2011 Nielsen report showed that FMCG companies had boosted their marketing expenditure by 40-50% in 2010, the most recent year for which data was available. This double-digit growth seems likely to have continued in 2012, with Unilever, P&G, Nestle and L’Oreal just some of the brands expanding their production facilities in the country since then – the first with Rp1.2trn ($12m) of new capital expenditure and the last with a €100m investment in West Java, all heralding the new demand.

Meanwhile, expansion by partnerships and acquisitions has also been a trend. Local giant Indofood CPB Sukses Makmur has started joint ventures with two Japanese companies, Tsukishima and Asahi, while pharmaceuticals producer Kalbe Farma bought health drinks manufacturer Hale International for RP100bn ($10m), and Tiga Pilar Sejahtera Food bought Subafood Pangan Jaya via a subsidiary, Balaraja Bisco Paloma.

NEW AVENUES: Telecoms has traditionally been another area of high ad spend – the Nielsen report states that telecoms spent Rp4.1trn ($410m) on marketing in 2010. TiPhone Mobile Indonesia forecasts 1.6m handset sales for 2013, up from 1.38m in the first three quarters of 2012. Meanwhile Bakrie Telecom announced its third quarter of 2012 total of 12m subscribers, up from 11.5m at year-end 2011, with 474,000 data subscribers among them. Indeed, data services are one area of heightened competition, and thus advertising, with Bakrie aiming to sell 1m Cyrus modem units in 2013, while Telkomsel, XL, Indosat and Smartfren aim to sell 2m more between them.

Another area set to see major adex is cars. Traditionally, Indonesians have relied on mopeds and motorbikes for transport, yet as incomes rise many are making the switch to automobiles. The Indonesian Automotive Industry Association predicts a 10% increase in car sales for 2013, up from an expected 1.1m units by yearend 2012. With around 70% of vehicle sales transacted via bank loans this also introduces banks as another source of heightened adex, as competition for customers will increase. Overall, the pattern of increased adex following and indeed enhancing growth in manufacturing remains a strong one. It marks a trend likely to see Indonesia’s ad agencies going through some busy times in the years ahead.