David Hidayat, President-director, Sido Muncul

On growth drivers of the herbal medicine industry

Why do you believe Indonesia should be recognised as an international manufacturing hub?

DAVID HIDAYAT: There are two main reasons why Indonesia’s manufacturing sector is globally competitive. First, Indonesia has an incredible amount of natural resources. For example, chemical and pharmaceutical companies, which have traditionally relied on imported materials, are now beginning to have greater access to their own supply of local inputs. Herbal companies also have an easier time securing a standardised quality of natural resources with the improvement in farming technologies. The utilisation of local resources will continue to be dependent on many factors, however, such as support from the government in providing subsidies and loans to farmers. 

Second, given Indonesia’s large population, the country has sizeable human resource potential that is both efficient and cost-effective. Within the next 10-15 years ongoing efforts to improve human capital will see many companies expand their operations. In order to take full advantage of the growth of natural resources and manpower throughout the country, manufacturers are taking steps to increase operational capacity. At the same time, with improving economic conditions, Indonesia itself is a target consumer market.

What factors have contributed to improving the industrial sector over the last few years? 

HIDAYAT: The local industrial sector has become internationally recognised over the last few years, largely due to the government’s support for infrastructure development. The focus of President Joko Widodo’s administration has been on the creation of strong, clean infrastructure – not only in the capital region of Jakarta, but in rural areas as well. Through an increase in transportation and construction projects, improvements to infrastructure have allowed the industrial and manufacturing sectors to expand tremendously. 

Indonesia’s improved research and development facilities have also strengthened the industrial sector, particularly supporting herbal and pharmaceutical companies. Many businesses are now partnering with universities for research and clinical studies, and laboratory testing has been very productive in identifying the symptoms of and potential cures for certain diseases. This has been done not only with chemical ingredients, but also by finding alternative medicines with natural resource components.

How are spending habits evolving, and what should be the strategy for consumer goods companies going forward?  

HIDAYAT: The population of Indonesia is relatively young, with a growing middle class and a millennial generation that is starting to lead the charge in terms of consumer spending. As the economy is expected to stabilise over the next few years, the average income of Indonesian consumers will increase. Along with a rise in the standard of living, people are now more aware of the importance of protecting their health, which has driven an increase in demand for supplements with less chemical content. Due to innovation, automation and the rise of new technologies, meeting growing consumer demand for these kinds of products is also becoming more feasible. 

Social media, advertising campaigns and education initiatives will continue to influence the spending habits of consumers as well. However, demographic differences such as age, gender, economic standing and place of dwelling will continue to play a role, which can be a challenge for modern consumer goods companies. These companies will be successful if they can both modernise and innovate their products to satisfy the demand of the millennial generation, while at the same time making sure that they supply the older and more traditional generations. 

To what extent are e-commerce and other forms of digital technology overtaking traditional retail channels? 

HIDAYAT: E-commerce is certainly the newest trend within the Indonesian retail marketplace, with platforms such as Bukalapak, GoJek and Shopee exhibiting great success. The growth of e-commerce will greatly accelerate the way products are distributed in the market, and companies must understand how to leverage this new way of doing business. However, traditional, offline channels that rely on distributors and wholesalers to cater to different physical retail stores and pharmacies will still play a large role in the future. Digital marketplaces will not simply replace traditional channels, so in order for Indonesian companies to not be left behind, they must learn to balance their sales between the two.