OWNERSHIP. Sambu&Group& Indonesia. Vertical&integration ASEAN%ENTERPRISE% SYSTEMS. COORDINATION Networks%and% Management ORDER

Transcription

1 ModifiedReddingFramework PepsiPhilippinesandSambuGroupIndonesia OWNERSHIP SambuGroup Indonesia Verticalintegration Pepsi Philippines EconomicStrength ASEANENTERPRISE SYSTEMS COORDINATION Networksand Management Culture ORDER CULTURE Both Philippines and Indonesia have a long history of colonization and military rule. Both these countrieshavebeenprofoundlyimpactedbytheirforeignrulersanddictators. ThePhilippineswasaSpanishcolonytillthelate19 th century,andauscolonytilltheendofwwii. TheSpaniardshadintroducedcoconutfarminginPhilippines.Philippinesestablishedstrongtrade relationships with the US and Europe during the period of colonization. Even today, a bulk of PhilippinescoconutexportsaredestinedtotheUSandEurope.UnderthemartialruleofPresident Marcos, Philippine coconut industry suffered greatly. The nationalization of coconut oil mills introduced crony capitalism and eventually made the industry nongcompetitive; imposition of coconutlevyanditsillegaldiversiontopurchasesharedofsanmigcorporationsmadethefarmers pooper;reorganizationofthecooperativestocatertotheidealsofnewsocietydestroyedthesocial andeconomicfabricofthecoconutfarmers.theprotractedimplementationofthecomprehensive AgrarianReformPolicydiscouragedfarmersfrominvestingintheirownfarms. 1

2 IndonesiawasruledbytheDutchtilltheendofWWII.INthemidG1960 s,generalsuhartoousted PresidentSukarnoandsetuptheNewOrderadministration.TheDutchexploitedIndonesia sfertile soils and rich mineral deposits. Large swathes of Indonesia were converted into plantations of coffee,rubber,tea,tobacco.atonepoint,thedutcheastindiesproducedaquarteroftheworld s coconutsupply. The period of martial law increased the culture of crony capitalism, corruption and economic mismanagement.withtherestorationofdemocracyoverthepast2decades,bothcountrieshave takenconcretestepstocorrecttheexcessesofthepastmilitaryregimes,restoreeconomicorder, checkcorruptionandmadefocusedeffortstoincreasesocialinclusion. BothIndonesiaandPhilippineshaveacultureofreligioustolerance.WhilePhilippineshasmore than 91 Christians and about 5 Muslims, Indonesia has about 87.2 Muslims and about 9 Christians.Bothcountrieshavereligiousharmony,butregionaltensionsdoexists.InPhilippines, separatist movements still trouble the Autonomous Region in Muslim Mindanao. This separatist movementhasaffectedthecoconutindustryinthisregion,whichisthelargestcoconutgrowing areainthecountry.indonesiatoowastroubledbyseparatistmovementsinacehandeasttimor regions.theseconflictsdivertedvaluablestateresourcestocontainingthem,ratherthanonsocial andeconomicdevelopment. Bothcountrieshaveafewpowerfulfamiliescontrollingtheeconomy.LikemanyAsiancountries, thetop40billionairescontrol10ofthegdp.bothcountrieshaveanethnicchinesepopulation whoaredeeplyinvolvedintheeconomy.inindonesia,theywerebroughtinbythedutchmasters to work on the plantations. Today they control a major share of the economy. This generated resentmentandtheyweresubjectedtopersecutionforacoupleofdecades.today,thereisrelative peaceamongstallcommunitiesinbothcountries. Order Both counties have very large populations, Philippines with 98 million and Indonesia with 250 million. Both have a relatively young population too, the median age being 23.1 and 28.5 respectively. This means that both countries have a large working age population who can be productivelyemployedinfarmingandcoconutprocessingindustries.withsimilargdppercapita of $1144 and $1383 respectively, both Philippines and Indonesia are relatively poor countries. 2

3 ThereisanurgentneedtoincreasetheGDPpercapitathroughimprovementsinfarmproductivity andsettingupofindustrieswhichcanemploytheyoungpopulations. Both countries lack good physical infrastructure to support trade and industry. Philippines has poor rural infrastructure which increases the cost of farm inputs, reduces farm productivity and addstothefinaloutputcost.italsopreventsthewidespreadpracticeoffarmlevelprocessing.both Indonesia and Philippines lack good road and port infrastructure which increases shipping time andcost.italsoreducestheviabilityoftradinginperishablegoods. Running a business is difficult in both countries. The World Bank Ease of Doing Business ranks PhilippinesandIndonesiaat138and128intheworld.Bothcountriesaretakingstepstoreduce red tape, improve transport linkages, and improve access to capital and infrastructure. There is progressineachoftheseareas;howeveritwilltaketimetoachievesizeablegains.ascensioninto theaseaneconomiccommunityby2015willdrivethemtospeedupactiononthesefronts. Coordination Thereisahugedemandforcoconutwaterinthedevelopedmarkets.Paradoxically,eventhough thereissufficientrawmaterialavailabletomeetthisdemand,thecurrentsupplychainisdesigned toutilizethecoconutwater.itconsidersitasawasteproductandisthrownaway. Philippineshasastrongfoodprocessingindustrybase.However,lagsbehindinfarmmanagement andsme s.ontheotherhand,indonesiahasbeenverysuccessfulinmanagingitsfarmsandlasa very large and successful SME segment. Both countries can help each other by sharing their knowledge, technical mangpower to grow the coconut industry. With the impending AEC integration, they need to be prepared for intense competition from countries like Thailand, MalaysiaandVietnam. The Sambu group has vertically integrated the coconut processing. It manages over 100,000 hectaresofcoconutfarmsanditsfactoriesutilizealmosteverypartofthecoconut.itdistributes coconutcream,milk,desiccatedcoconut,shellcharcoaltodifferentpartsofasiaandtheworld. PCPPI has the technology to extract coconut water and convert it into juice. It also has a global supplychainandthemarketingmighttosellitacrosstheworld. Ownership 3

4 Both PCPPI and Sambu group are privately held enterprises. PCPPI can collaborate with Sambu grouptojointlyproducecoconutwateratsambu sexistingplants.pcppicanshareitstechnological knowghow while Sambu will provide the necessary raw materials, processing facility and can deliverthefinalproductstopcppi ssupplychainsthroughitsdeliverynetwork. Bothcompaniescanincreasetheirrevenuesandprofitsthroughthisnewproduct.Byutilizingan existingplanttheyachieveeconomiesofscope.finally,pcppicandiversifyitspolitical,economic andnaturalrisksbysettingupnewprocessingfacilitiesinanothercountry.sambugroupcanshare itscoconutfarmingtechnologywithpcppiwhocanuseitonitsfarmsbackinphilippines. Thereisintensecompetitioninthecoconutwatersector.PCPPI,bylockinginSambugroup,can effectivelymakelifemoredifficultforothercoconutwaterplayerlikecocovitaandcocacola.it wouldbedifficultforthesecompaniestocreatesuchalarge capacity in the short time and cost whichpcppicanachieve. ApartfromthismodelofcoGopetiton,wealsosuggestthatbothcompaniesandgovernmentslookat thebelowrecommendations SustainabilityDevelopmentofCoconutFarming Acoconuttreeisconsidereda ThreeGgenerationtree forthereasonthatthesetreeslive and bear fruit for up to more than 60 years. It can support a farmer, his children and even his grandchildren.inadditiontoitslonglife,thecoconuttreeis100useable.coconutoilisthemost popular product from this tree but some of its hundreds of other uses are as follows: trunk for lumber or furniture, roots for herbal medicines, leaves or fronds for matting of walls, midrib as torches, hollowed out coconut shell as charcoal for cooking, husk as scrubber to clean floors, its meatasnaturallaxative,milkforbodylotion,sapasvinegar,waterasantioxidantandmanymore. 4

5 Correspondingly, the cultivation of coconut trees has always been compared to that of a palmtree.theformerhastrumpedthelatterbecauseitsfarmingprocessismoreenvironmentallyg friendlythantheother.palmoilproductionentailsfieldrazinganddeforestationwhilecoconutoil production,whichisregardedasarenewablesourcesinceitcanbegrownagain,onlyrequiresfruit harvestingandallowsthetreetosurviveafterwardsinordertobearmorecoconutsinthefuture. However,thefinancialpotentialthatthisindustrypossesseshasnotbeenachievedyetbecauseof barriers such as infrastructure and government support. This situation primarily affects the coconutfarmersandtheirfamilies. IssuesandRecommendations:PhilippineCoconutFarming CoconutGbasedlivelihoodinthePhilippinesemploysabout3.4millionfarmersandworkers and these farmers constitute not only the largest landgbased agricultural sector but also the poorest.coconuthadalwaysbeenamongthecountry stopagriculturalexportbutthesefarmers, up to now, are just focused on producing copra which is processed into coconut oil. Since the number of senile and nutrient and deficient continually increase annually, the production and productivityforandfromcopradeclinedwhichconsequentlyanddirectlycausedthedropinthe incomeofthecoconutfarmers. Apossiblesolutiontothisproblemisthereiterationthatcopraproductionisnotanymore themostcompetitiveaspectoftheutilizationofthecoconuttree.rather,theevolutionoftheuses ofthecoconuthighlightstheshiftfrommerelyvegetableoilstoahealthandwellnessalternativein food and beverage. This fact further emphasizes the need to support these coconut farmers to diversifyintootherfoodcropsthatcanbeplantedinthemiddleofthecoconuttreestomaximize thelandtowhichithasbeenplanted.thetrainingofthesefarmers,therefore,istheimperativecall here. Their mindset must be changed from being just harvesters to now farm entrepreneurs producingseveralfoodcrops. Anewinitiativethatcanserveasanalternativetotherelianceoncopraproductionisfresh coconut(fresco)industrydevelopmentapproach,createdbyleonardoq.montemayor,president of the Federation of Free Farmers. According to Mr. Montemayor, unlike the traditional setup of farmersconcentratingoncopraproduction,thefrescomodelwillfurtherencouragethecoconut farmer by supporting him and his family in the processing of the coconut in its entirety. These diverseoutputsfromtheentiretyofthecoconutwillbeproducedbyanationalnetworkoffarmerg ownedprocessingplantsatthevillageormunicipallevel.toinstantlyforecastthattheresultofthis 5

6 proposal will be vast in terms of financial return will not be accurate since it should take a few yearsforthisplantoreallytakegoff.however, Mr. Montemayor envisions that this initiative will haveanenormousandsustainableeffectinthepovertyalleviationeffortsoftheindustry. Anotherfactorwhichcontributestothisimpoverishedstateisthelackofinfrastructurefor businessdevelopment.currently,thepricestowhichthefarmerscanselltheircropstobuyersif theyarecomingfromremotetownsamountonlytoaninsufficientp4.00perkiloandp8.00perkilo if sold by ingtown farmers. This transpires because some traders are taking advantage of the farmers by providing only oneghalf of the correct price. Looking at the situation as a whole, the numberofareasplantedwithcoconutismorethanenoughthatifitwasonlyprovidedwithmore efficient rural infrastructures like farm to market roads and irrigation systems can significantly increaseproductivityandincomes.also,immediatepostgharvestfacilitiessuchascommunityglevel processingcentrescanbebuiltsoastoaddvaluetothecommunityandliftthesefarmersandtheir familiesfrompoverty. Lastlyistheroleofgovernmentinthesupportofthesefarmers.Severaldiscussionshave beenmadeonthemagnitudeofhelpthatcanbeextractedoutofthecocolevyfundsthathasbeen allotted by the Supreme Court to the coconut farmers. But more than the funds that can undoubtedly be rapidly be consumed to build infrastructures and purchase more crops, the implementationoftheagrarianreformprogramisstillofprimaryconcern.thesefarmersdeclared thatthereasonwhymajorityofthemhasnotputitintheefforttoexploitlongtermimprovements totheirfarmsisbecauseuntilnow,theydonotownthelandtheytill.inordertoencouragethe continuous interest of the farmers to cultivate their farms and foster social justice, the agrarian reformprogrammustbeinstigatedbythegovernmentassoonaspossible. Futuredevelopments Soonerthanlater,therewillbeaglutofcoconutwaterfromothercountries.Inanycase, thereisaneedforfilipinofarmerstoinvestinfarminputsandforthegovernmentandindustryto invest in farmer training and support. To differentiate and capture themselves in the Western Marketsforvirgincoconutoilandcoconutwater,FilipinofarmerscanapplyOrganicFarming.The Directorate General for Agriculture and Rural Development of the European Commission defines Organic Farming as a form of agriculture that relies on techniques such as crop rotation, green manure, compost and biological pest control. Organic agricultural methods are regulated by the 6

7 InternationalFederationofOrganicAgricultureMovements(IFOAM),establishedin1972.IFOAM expressedthatthegoaloforganicfarmingas: a$ production$ system$ to$ sustain$ the$ health$ of$ soils,$ ecosystems$ and$ people.$ It$ relies$ on$ ecological$processes,$biodiversity$and$cycles$adapted$to$local$conditions,$rather$than$the$use$of$inputs$ with$ adverse$ effects.$ Organic$ agriculture$ combines$ tradition,$ innovation$ and$ science$ to$ benefit$ the$ shared$environment$and$promote$fair$relationships$and$a$good$quality$of$life$for$all$involved..."$ This mission of IFOAM ties up well with the current advantage of the coconut as a value propositionwhichdealsmoreonthehealthandwellnesssideofthemarket.simplyput,filipino farmers must adopt organic methods a number of benefits are incorporated in the organic approach to farming. These include reduced environmental impact, improved economic viability and product quality, fewer personal health risks, a more attractive lifestyle and greater market access. To emphasize on the wider market access benefit, this shift in organic production, some farmers can also choose to switch from supplying bulk wholesale markets to developing strong relationshipswithspecialistretailersandwholesalers,orevendirectmarketingtoconsumers.this changemayhelptostrengthenafarmer spositioninthemarketplaceandcanbequiterewarding through a greater sense of loyalty throughout the farmergretailergconsumer supply chain. The resultforthefarmcanbeamoresecuremarketbase,improvedeconomicviabilityandincreased profits. InvestmentsandDevelopmentsinthePhilippineCoconutIndustry RecentDevelopments Coconut$ Water$ A$ With the shift towards a healthier lifestyle in one of the Philippines biggest marketsforcoconut(usa),therehasbeenkeeninterestfromamericaninvestorsinthephilippine coconutindustrytohelpsupporttheincreaseddemandforcoconutwater.coconutwaterhasbeen consideredasahealthyalternativetosoftdrinks,sugaryjuices,andenergydrinks.$ In the 3 rd quarter of 2011, American beverage company Vita Coco and its local affiliate Fiesta Coco Equity, disclosed their plans to invest $15 million over the next four years in the Philippine Coconut Industry. The investment would not just cover coconut water harvesting but 7

8 alsococonuttreeplanting.fiestacocoownsacoconutplantationinmisamisoccidentalandserves asthesupplierforvitacoco sproducts. 1 CurrentFocus Biofuels$ A$ The Philippine government has undertaken various initiatives that constitute a strong push for the development and proliferation of biofuels such as cocodiesel in the country. One proposalbeingconsideredbythedepartmentofenergy(doe)wouldbetheputtingupofaoneg stop shop facilitating the entry of both local and foreign investors in the Philippine biofuels industry. 2 In addition, the National Biofuels Board approved an increase to a 5 (from 2 previously) biofuel blend in gasoline, in an effort to generate savings from petroleum imports. 3 AccordingtothePhilippineCoconutAssociation(PCA),thisincreasewouldresultinanadditional demand of 21,000 tonnes of coconut for domestic biodiesel per year. Coconut farmers could generate as much as PHP 2Bn in revenues on coconut oil sales for biodiesel production alone. Lastly,TWAInc.,theoilcompanybehindFlyingV,willsetupa30GmillionlitercapacityBiodiesel facilityinvisayastoaccommodatethehigherblendmandate. 4 $ InvestmentOpportunitiesinCoconut Coco$peat$and$coir$A$Oneopportunitythatcancurrentlybeconsideredas lowghangingfruit would becocopeat(dust)andcoir(rope)production.cocopeatisusedbyimporterssuchasjapanfor theirhydroponicstechnology(soilgfreeplanting).despitehaving5timestheannualproductionof SriLanka(161,913MT),thePhilippineswasonlyabletoexportafractionofitscapacity(1,598MT). CocoGcoirexportsamountstoonly6,037MT,from15.2Bnharvestednuts.Intermsofefficiency, thispalesincomparisontosrilanka,whichisabletoproduce120,616mtfromonly2.7bnnuts. ThePhilippinesplanstoincreasecocoGcoirexportreceiptsto$50Mby2016.Inaddition,ithasalso setatargetofbecomingoneofthetopthreeworldexportersofcococoirby $ Recommendations In terms of natural resources, the Philippines has been blessed in the coconut industry. Globally and domestically, there are a lot of opportunities to profit from the processing of raw

9 coconuts. Unfortunately, prioritization of these investment opportunities is mainly driven by foreign players and their product demand type in their home country (coconut water). Local stakeholdershavesetgoalsandtargets,butitremainstobeseeniftheycanachievethesegoals, giventheefficiencyproblemscurrentlybeingencountered.variousgovernmentbodiesinvolvedin thecoconutindustryeitherlackthepoliticalcloutorresourcestodrivechangewithintheindustry. The group suggests the creation of an agrogcentric investment firm/corporation (similar to Malaysia sfelda)whichcanbothdistillanddefinestrategiesforthecoconutindustry,andhave the financial resources to implement and execute them. This corporation would serves as the facilitator of investments and deployment towards initiatives such as aged tree replacement, upgradingofcoconutprocessingfacilities,etc.asaprivatecorporation,itwouldbelessimpacted byhightransactioncostsandredgtapebureaucracytypicallyexperiencedbygovernmentagencies. REFERENCES oil.html#axzz2lxr82bif coconutgoilg html