By / Kathryn Sloane, Director of Growth, APAC, SGK (Singapore)

On the surface, there’s nothing surprising about a global brand expanding into one of the world’s developing nations. But with recent slowdowns in the super-hot economies of China and Brazil, Indonesia, despite its slowing growth rate, merits a second and third look for brands looking for a country with a big upside. Coca-Cola certainly is one such brand: earlier this year it announced plans to spend $700 million in the world’s fourth-largest nation over the next three years

And yet Indonesia could be suffering from a general “expansion fatigue” or lack of “bandwidth” among potential entrants. This is a pity, according to The Australian business newspaper: “Those already doing business in Indonesia cannot speak more highly about the country and the opportunities ahead, but outside the converted, the level of interest is minimal and the ignorance is startling.”

With that in mind, let’s take a look at the pros and cons of an Indonesia strategy today. As it turns out, the key factor could be a brand’s ability to structure its entry to maximize technology and human capital that’s already available.

The Gauntlet >>

Indonesia has been a democracy for only 15 years, and it faces a potentially unpredictable national election next year, which could turn into a referendum between the current government, with its ties to the old regime, and a younger generation with more idealistic and humanitarian leanings. Even ahead of the election, there is uncertainty about policy: there is pressure to loosen some of the recent tighter – some say nationalistic – regulations on taxation and investment by foreign companies, and pressure for more secular values overall.

Some of the government’s policies can be linked to general global trends, such as an investment slowdown over worries about U.S. monetary policy. This slowdown is one cause of four quarters of slowing economic growth in Indonesia, which recently dipped below 6 percent.

And from a branding and logistics perspective, Southeast Asia’s biggest economy and most populous nation (estimated at 251 million people), serves up distinct challenges. Made up of more than 17,000 islands and 300 ethnic groups, its mind-boggling diverse and geographically enormous: it takes 12 hours to fly from one end to the other. This requires brands to make smart decisions on scope, master difficult logistics and have a sharp understanding of peoples before launching. We’ll expand on this shortly.

The Potential >>

With its large population and young labor force, Indonesia is in the midst of a consumer-spending boom that analysts say could last for years. In March 2013, the Boston Consulting Group projected that middle-class and affluent consumers in Indonesia would double to 141 million by 2020 – more than the entire population of Thailand.

Not surprisingly, Indonesians are experiencing a surge in pride, and brands want to tap into it. Of the top 10 brands in Indonesia, six are homegrown. Aqua (the world’s largest water brand by volume) and Indofood (the world’s largest instant noodle manufacturer) both commemorated their 40th birthdays this year by celebrating Indonesian progress.

News like this encourages a virtuous cycle for brands. A recent study by Havas Media Group found 71 percent of Indonesians feel that large companies should help solve social and environmental problems, and 62 percent say that brands can improve the nation’s quality of life and wellbeing.* Aqua – a local brand acquired by Danone in 2000 and now a leader – developed a comprehensive community outreach program that is fully integrated and totally aligned with the brand in its message of promoting a better Indonesia.

Furthermore, the private sector is plugging the gaps left unfilled by an infrastructure that’s failing to keep pace with their growth. Retailers like KFC and 7-Eleven are providing space for youth to come together socially (which has led to KFC becoming the biggest seller of music in Indonesia).

The Window >>

Even though inflation is at its highest level in more than four years, retailer Mitra Adiperkasa (which sells more than 100 international brands) has said Indonesia’s upper and middle classes could accept a 10 percent price hike.** Its consumers are consistently rated among the most optimistic worldwide. And why not? The monthly minimum wage has risen 44 percent in 2013.

For these reasons and more, Indonesia is where many global brands make their first move into Southeast Asia. And there’s some flexibility here, too: the country already has many strongly established brands that multinationals like Danone, Asahi, Suntory, Coca-Cola, Unilever, Heineken and others have bought into and learned from rather than localizing their global brands.

And brands that embrace Indonesia are finding patterns that match those of other developing nations, which allows for leveraging previous insights. For instance, as in Brazil, personal grooming products are booming. L’Oreal opened its biggest factory in the world in late 2012 in the wake of 30 percent sales growth.

Consumers now shop for a very wide selection of personal goods at new stores of all sizes. Crabtree & Evelyn, Kiehls, Victoria’s Secret and Sephora are among those opening flagship stores. And these aren’t just women shoppers: L’Oreal’s sales to men recently showed 300 percent gains. And the Muslim fashion industry represents an attractive opportunity for brands, worth an estimated $96 billion (U.S). For Indonesia, already a leading name in Muslim fashion, the goal is to become the center of the Muslim fashion world by 2020.

The Grass Roots >>

But now let’s get back to the matters of scope, logistics and understanding. In an effort to race to market, too many brands are neglecting the brand experience itself. They’re forgetting the reality of the shopper experience and creating packaging and above-the-line communications that play by Western rules. So they don’t create critical impact in the multitude of traditional trade channels.

Although 80% of sales are made in the traditional general trade (small shops and vendors), families still window shop in the modern trade as a “day out.” Successful brands entering Indonesia are working with partners who understand how to leverage the power of a “spliced” general- and modern-trade shopper strategy.

Brands must enter having done full due diligence and with a commitment to continuous research and analytics. Focusing on traditional consumer groups in the staid environment of Jakarta isn’t enough. You need to dig deeper to realize the full breadth of opportunities that changing Indonesian need-states represent. And then handle them deftly because of this country’s vast diversity and its implications for product mix, branding and messaging.

If The Australian is right that the world’s fourth-largest country is actually an overlooked gem for ambitious global brands, the key might not be paying attention but paying expert attention, up close, right now.

*Summary from Meaningful Brands 2013 research from Havas Media Group, August 7, 2013

**“Higher Prices Start To Pinch Indonesian Consumers,” SoutheastAsiaRealtime blog, The Wall Street Journal, September 3, 2013.

As Director of Growth, APAC, Kathryn Sloane leads growth for SGK, driving business and market development initiatives for the APAC region. Hailing from Melbourne, Kathryn has lived and worked in various parts of the world including Sydney, London, Hong Kong and Singapore. Kathryn has more than 16 years experience (8 of those in Asia) in strategic brand consultancy, marketing and business development, for clients such as 3M, Campbell’s, Danone, Diageo, FrieslandCampina, Philips and Unilever. She is an active member of the marketing community, working closely with the Design Business Association and the Britcham Marketing Committee. Prior to joining SGK, Kathryn worked with Design Bridge, Pearlfisher and Blue Marlin. Website: www.sgkinc.com. Email: [email protected].