rea IPMI wstrrur pencemsancan manasemen inconesia P.T. GREAT GIANT PINEAPPLE COY. (A) As Esther Satyono, Marketing Manager of Great Giant Pingepple Coy. IGGPC). flew from Lampung, Sumatra to Jakarta in August 184, she thought about the decision she must soon make on GGPC’s basic marketing strategy to penetrate export ‘markets. GGPC’s plantation in Sumatra wouls soon begin producing. its cannery wes built and the cenning equipment would soon be installed. Now “all” Esther had to do Jwas sell GGPC's canned pineapples on world markets. She was due to leave on her tirst selling tip in early September. Esther thought, “The good news is that we are all ready to go. The bad nens is shat we're not sure where to 90, how to get there, for what to set when we do errive.” 2 ‘This wes @ crucial decision for Esther and GGPC. GGPC would be 100% export-oriented - there was no market in Indonesia for the type of pineaople GGPC produced in either fresh or canned form. Four other Indonesian compenies had invested in pineapple plentations for export in the recent past. All had failed. Gunung Sewu (Thousand Mountain}, GGPC and the Go family (This section is based on Reference Book on Indonesia's Major Business Groups, 1st Eaition, Datatrust. Inc., Jakarta, December 1986.) GPC was a subsidiary of the Genung Sewu Group, one of the larger corporate groups in Indonesia, owned by Mr. Go Swie Kie. Genung Sewu was comprised of over fifty comasnies with operations in real estate, property and housing cevelopment, construction contracting, office building management, industrial estate development pepe aces Nes art Hoe! ath ore ‘This case was prepared by Professor Donald J, Lecraw, The School of Business Adminiatavion, The University of Western Ontario and faculty membars from the Institut Pengembangen Manalemen Jnconesia Pld wien fencing provided by USAID through DSP | under the supervision of 2 Stearing Commirese from Bappenas. The case is intended a5 9 basis for class discussion rather then te iste eiener etfeczve or inaHectve hancling of an adminsvative situation. Conriah 1990 oy leat Pengeengen Mansmen dons Renae 199,Francisco. Upon graduation, Esther joined Venus Markating Pre, Led., an importer distributor of perfumes, cosmetics, and toiletries in Singapore, as a Sales and Pramation Supervisor. Qver the next eight years Extner was successively promoted to Marketing Manager, Regional Sales Training Director, and to Regional Marketing Director. In this position, she headed five deparuments. In July 1983, Esther resigned her position at Venus and retumed :o Jakarta. She had reached a crucial decision point in her career: she wanted to work in Indonesia to use the education and experience she had gained abroad to manage an Indonesian company in order to contribute to the development of Indonesia’s manufacturing Sector and to participate in Indonesie’s drive to penetrate export markets. Esther believed that Indonesia could do more than export natural resources in unprocessed form; it could become known as a producer and exaorter of high quality orocessed and manufactured products. -— Esther had known the Go family socially.and, in August 1983, she was invited by Mr. Husodo and Mr. Setiawan to join GGPC as Marketing Manager. Her first job would be to find out where and how GGPC should marker its canned pineapples. Commercial procuction was due to commence in October, but, as yet, GGPC had not déveloped a marketing plan, nor had it lined uo customers abroad for its output. Esther's response to this proposal had been positive - with the proviso that after five yeers of working without 2 vacation, she was due to leave for the U.S, for four ‘months. If GGPC could wait until January 1984, sne would join the company at that time. In the meantime, while in the U.S., Esther could start to learn about the world pinespple market. Mr. Husodo and his close friend and business associate Mt. Setiawan had agraed 10 this proposel, Of nor raturn to Indonasia in January 1984, Esther had started an iacensive study of the economics and technology of pineapple production and cf world markets tor canned pineapple. Thus Degan a pariod of intense work, du: also of intense frustration for Esther. GGPC's offices were in 2 cur-down building: rats scurried around the offices. Estner didn’ even nave a permanent desk: she had to migrate from dask to desk degending on who’ was out of the office for the dey. Worse, despite promises of [ts imminent arrival, as yet, tare was no machinery in the canning plant in Lamaung. Nonetheless, Esther saw the benefits to all concerned if GGPC could be successful: benefits to its flele and procuction workers, to. the Lampung region, and to Indonesia as a whole ‘ Time dragged on until, in June 1984, Esther went ta the owners of GGPC and asked why there seemed to te no action toward buying .and installing the canning equipment and starting production. Sha was finally cold that cha problem lay in arranging 8 benk loan for the equipment. Not inciuding the cost of the land, the Gunung Sewu Group had alreacy invested over Rp. 3 billion ($3 milion) in GGPC in re-operating expanses. The owners felt chat GPC should be able to obsain a loan for the purchase of the equipment, now that tha project was finally ready to go ahead after so many years of research and expenditures. As yet. however, no bank had been willing to make a loan to what was perceives as highly nsky venture, Afterall, four pineapple canning companies had recently gore bankruot. If GGPC mer the 3costs) Types of Canned Pineapple ‘There were five basic types of canned (rings), and chunks. Although pieces and also sold at the lowest prices. They essentiz commodity products, at prices 15% bein. Pineapple chunks, rings, and tidbits were ifficult to produce to international were vary epchese "Pes of products, correct and consistent clos coe ony flavor Beverse Coreen (htY vatlation slong any af these simencians wots coe den Consumer reaction. Consaquenty, buyers were very conta twine sourcing decisions and very risk averse in their selaction of sources Grades of Canned Pineapple of 2red pineapple products sold in three grades: A, 8, and C. Grade 8 Products sold Frou a eemium over Grade C praduets and Grade A pradune ole tn 7.5% Prange, ver Grede 8 products, Esther had atked the Taimoreee Production fad replied that Co ind srades af pinaspple were the easiest to proces They Gand eed het GGFC could preduce Grade B pieces (30% of eugene ns at least Sake.C shees (70% of output, 100% of te time. They had ponene cut, however, that GGPC could produce Grade B quality slices 80% of the time, i.e., $0% of the 5 008 Would be of Grade 8, bur they could not determine which core contained Grade A 20e! whieh contained Grede C. The produeson manages tak aes, GGPC would be foolish to sell Grade 8 output as Grade C products at Grade prices. They pointed completed en's in Taiwan sold their products as Grade 8 sed, if the buyers conmanaat oS Grade C was not possibie since they could not kro once can/case tna GGSC gon Sate). The production managers werd offended at amy suggestion Grate goa 3 QUBUC fOr which they were responsible, wosldn't be good enough for Grade 8 and might be sold as Grate c TRC had gore even further. It did not want to buy eny Grade C slices from GGPC For ere de ecu have to be sold at low prices and TFC's buyes oes only locking Bf Siede 8 produers. TPC, nawever, was unwiling 19 take Goecre output as Grade 8 since i would contain an unacceptably high ammount of Grace product. Hence,No name products were 3 relatively new innovation in the processed food industry. They sold at 10% discounts from house brands and largely competed on the basis of price. Their target consumer group either couldnt citterentiate on the basis of quality, didn't care about quality difterentials, or couldn’: afford to buy more expensive products. No Neme praducts were often sold by supermarket chains at a loss and were used simply to get customers into their storas, whare it was heped they would aiso buy other more expensive and higher margin products. No name products comprised about 5% of the marker. Major Consuming Country Markets for Pineapple Products The country markets for gineapple products can be divided into seven areas: North America (the United States and Canade), Germany, France, the U.K., Scandinavia. depen, and Australie. Together these seven areas accounted for 80% of world canned pineapple consumption. Dole and Del Monte had a §2% - 54% market share in North America, the largest single market for canned pineapples. Countries Producing and Exporting Pineapple Total world-wide production of canned pineapple in the mid-180s varied trom 34 to 38 million standard cases per year. In 1984, the largost canned pineaople exporters were tha Philippines, Thailand, Melaysia, South Aftice, and Taiwan. (Note, in the tables at the end of the case, no statisties are given for Taiwan, since itis not a member of the United Nations.) Hawaii's production was largely gold in the Us. ‘Over the previous decade, there hac been a marked shift in the division of worldwide production end vade in cenned pineapples. Capacity constraints in Hawaii, Taiwan, South Africa. and Malaysia nad lec to stagnant production in these mejor producing areas. Political and insurgency problems in the Philipgines had limiced production there. In these countries, the aree under cultivation for pineapples had not increased significantly. To fil tne cemanc-supply gap, production an exports of pineansles from Thailand had grown rapidly over the past decede. Sy 1984, Thailand was the second largest producer and exporter of canned pinaappies, and it was projected to take over the lead within the next few years. In 1984, eleven companies were producing canned pineapple for exportin Thailand. Esther believed that if GGPC were ever to become comperitve in tha world cannad pineapple market, it would have to bbe able to deliver its product to the target market et a lower cost (et comparable quality, volume, and deivery schedule} in competition with this emerging giant of the Industry Compared t0 Indonesia, Thailand had a relatively well-developed road end port infrastructure to supportits pineapple industry. Its government specifically targeted the pineapple industry for investment for export production. And, perhans most imporeantly, farmer-landowners in Thailang were very entreareneurial and flexible inmanufacturing sector and increesing domestic value added prior to export for its natural resource products. The Government was also 2 strong supporter of the current producers of tin plete in Inconesia 'n 1984, Indonesie was beginning negotiations to join the General Agreement on Tariffs end Trade (GATT). If mese negotiations were successful, the Government would have to helt its export bonus systam. In thie situation, the Government could allow export: oriented firms to import their inputs duty free (either through e duty ramback system or by posting 2 guaranzes). SGPC would aiso have to overcome the problem of trensporistion cosis. Currently. the port facilities at_Panjang, the port closest to its plantation, were not well Geveloped and did not have the cepebility of handling containers. In any event, the Toads between the port and GGPC’s factory in Lampung could not handle Targe Containerizad trucks. Consequently, GGPC would have t0 lo20 its cases of canned Pineapple onto small tucks, truck them to the por. and load them onto larger Containers on the ship. Leck of containerization facilities, combined with the small volumes that GGPC would export initially, would lead 19 shipping costs that would De about 50% higher then those feced by producersin Thailand. For each dollar of Production costs, GGPC would have to pay $.25 to ship its products to world Markets, compared to $.125 paid by Thai producers. : lndonesia did have some advantages over Thailand, however. Its weather was more constant year round, with less extreme changes trom wet to dry seasons, ftom cold 1 hot seasons, anc from night time temperatures 10 day time temperatures. Pineepples were very sensitive to changes in the weather. if, for example, day and ‘ight time temperatures differed by more than a ten degrees, the plants would go Into Spontaneous tlowering. The plants also could not take extremes of wet and dry soll Conditions. Pineapple production in Indonesia could be undertaken aver the entire twelve months of the year compared to only seven months in Thailand. GGPC would be able to operste for eleven months of the year, with one month off to cleen the factory during Le Baren, the Musiim fasting month. Land and labor costs in Indonesia. were also below those in Thailand. Together these factors lowered GGPC's Production costs by about 12% compared to producers in Thailand, Esther had calculated that if GGPC were to be viable in the worldwide industry over the long run, tne economies of scale in plantations, canning,” infrastructure Gevelooment, conteinenzation, and transportation, and exportmarketing dictatedtnat, ‘over the next five or six years, GGPC would have to eventually achieve a volume of 2t least 3.5 million cases per year, about 8% t0 10%. of the world market. This Output would entail production from 5,200 hectares of land (compared to current land under cultivation of about $00 hectares}, canning facilities of capable of producing 800 tons per day (compered to its current facility of 200 tons per day], and total employment of 5,000 workers. Esther estimated tnat an operation on this scale would require GGPC's total assets to increase from Ro. 11 billon te Rp. 45 billion over the next five years, no: counting the opportunity cost of the additional land that would have to be devoted to pineapale production or the costs of the losses GGPC would incu over the first years of te operations. 2As the plane landed, Esther gathered her papers together and summerized her thoughts. For GGPC to be successful, it would have to overcome huge obstacles in costs, quelity, market acceptance, government regulation and infrastructure development, and in the attitudes and skills within GGPC itself. GGPC's disadvantages would heve te be overcome and all the uncertainties in the government regulatory environment successfully dealt with if GGPC were to become a viable ‘competitor in the world canned pineapple industry in the long term. Otherwise GGPC Would inevitably suffer the seme fate as its predecesso’s in the Indonesian pineapple industry. With that sobering thought in mind, Esther turned to her basic decision: What marketing strategy snould GGPC follow in order to penetrate export markets? "1UBL - 8¢01 ‘soasnerg yoOIseeF} pUE Jory pyEMN ‘OWS | BmES ews Teas Ty. ois Ae wee 16 Tv F450 vineussny ‘vINva90 Wwoniwos BuOUnT ‘onivaivian Misavive voownog wiaworo> aizwu Vana Hino: l DW3A VAUENNOD F (aw 0001) G61 - SLE GTYOM 3HL U3N0 TY "STMdV3Nd JO NOLLINGOUS Zhe, 13‘COG A461 MeOQNEX op811 ‘OVS: s2m0s corey [oover [esrza [scow [ourie [ooer [ar oto'ery | coves | evezay | ove'zer | 6es'00s | sec cee wo | zzoe ‘evo'sfioss foe TW oNJODATO TV OMOTBAIO. 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