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Indonesian Food Giant Struggles to Grow

Indonesia's PT Indofood Sukses Makmur is the world's largest noodle maker, but six years after the Asian financial crisis, the company is still struggling to take full advantage of its position both in domestic and export markets. The company says it is reorganizing and preparing new ventures. In Jakarta, Tim Johnston takes a look at one of the Asian companies trying move into the global market.

PT Indofood Sukses Makmur's products range from cooking oil to spices, but the heart of its operations is instant noodles and the flour that goes into making them. The company makes a staggering 10 billion packets of noodles a year, and commands 80 percent of the Indonesian domestic noodle market, the world's largest after China.

Although market watchers say the company is well run, Indofood has been losing market share to new rivals, and is struggling to turn its dominance at home into a springboard for growth.

Indofood is one of many companies making the move from Asia's developing economies onto the world market. Like many, it is finding the transition tough going.

Michael Chambers is the head of research in Jakarta for the investment bank Credit Lyonnais Securities Asia. "It's a very mixed future because they operate a number of businesses. They appear to be a very well-run operational company with rather limited prospects in the next couple of years," he says.

Much of the problem lies in the company's past. It is controlled by the Salim Group, once the biggest privately owned conglomerate in Indonesia. During the 1980s and '90s, the group benefited enormously from the close relationship between Salim founder Liem Sioe Liong and President Suharto.

But when President Suharto's economic miracle collapsed under the weight of corruption during the Asian financial crisis of the late '90s, the fall of the Salim group was nearly as spectacular. Mr. Liem's house was torn apart by a mob, and later, to pay off debts, the group was forced to sell prominent holdings: Bank Central Asia, Indocement and a string of others.

Indofood is the most high-profile of the remaining assets in Indonesia.

Mr. Liem's son Anthony Salim has run Indofood since the middle of the year.

Franky Welirang, the vice-president director of Indofood, and Mr. Salim's brother-in-law, says they are in the process of changing the management and consolidating the business. "I think, if you see, we changed everybody now, now all young, we have, I think, directors at 40 years old, managers at 30 years old, we have 15 years to go with the people, almost all the first generation gone," he says.

The group is considering spinning off its Bogasari flour milling operation and selling some stock to pay down Indofood's debt, which at mid-year stood at a little over $1 billion. Under current rules, spinning off Bogasari would incur a tax bill of over $100 million, and the company is negotiating with the government to reduce the bill.

But there are other worries. The company reported a 62 percent drop in profit in the first half of 2004, mostly the result of the depreciation of the Indonesian rupiah. Almost all Indofood's receipts are in rupiah, but about 60 percent of its costs are dollar-denominated.

Another area of concern is the potential clash between the interests of the Salim Group and other Indofood shareholders. Mr. Chambers says Asian companies generally have a bad record of maximizing value for general shareholders. "As with a lots of Asian business groups, the concept of making money for shareholders is somewhat alien," he says.

Mr. Welirang says the company is trying to address concerns about its relations with the Salim Group, along with broader worries about the transparency of its operations and finances in general. "In the Indofood, everything we try to be clear cut between what is Indofood and what is Salim. But people (are) still in the doubt. It's very, very, very clear, we are very clear, I think all our people are very clear. We are trying to bring and trying to communicate these things, but its just not reaching enough, maybe," he says.

The recovery of Indofood, like that of Indonesia itself is a work in progress. Analysts say the signs are encouraging, but that it is still too early to say if the company, or the country, is firmly on the right track.