Kaviratne, 58, didn't let the violence deter him from his business plan. Four years later, Unilever is reaping the rewards. Taking advantage of the cheap Indonesian rupiah and fire-sale prices for local corporate assets, the Anglo-Dutch consumer products company has expanded two factories and snapped up four leading Indonesian brands. It has also found innovative ways to get its products into the hands of Indonesia's poor. The result: Unilever Indonesia's net profits have leapt fivefold in the past three years, to $89 million, while sales are back to pre-crisis levels. This year, profits will jump more than 50%, predicts ABN Amro. "This is the best job in Unilever," boasts Kaviratne.
Few executives may be as boosterish as Kaviratne. But clearly, consumer spending in Indonesia is stabilizing after years of upheaval. And savvy multinationals are profiting. While still far off the robust growth before the 1997 crash, household consumption surged by nearly 6% last year--and leapt by 9.2% in the last quarter. Retail sales rose 20% in 2001. And Indonesians aren't only buying daily necessities. Sales of motorcycles grew 82% in 2001, for example. "People are beginning to buy bigger-ticket items," says Farquhar Stirling, the Jakarta-based managing director for ACNielsen.
Behind the spending is pent-up demand--and growing consumer confidence that Indonesia's economic woes have bottomed out. Although growth in 2003 is expected to be just 3.5% for the second year in a row, not enough to keep up with its expanding population, economists expect it will be in the 6% range by 2007. In January, Indonesia's minimum wage rose by 40%, the first significant rise in five years. Meanwhile, lower tariffs due to the ASEAN Free Trade Agreement, which took effect on Jan. 1, have made imports more affordable.
Among the biggest winners are multinationals like Unilever that have taken quick advantage of more liberal investment rules. In 1999, H.J. Heinz Co. bought control of ABC Central Food Industry of Jakarta, a condiment maker, for an estimated $200 million. French retailer Carrefour, which entered in 1998, now has seven hypermarkets in Jakarta selling groceries and household goods, and plans to expand. Analysts say Gillette, Nestl?, and Energizer also have healthy sales.
Even some multinationals that left in frustration are coming back. Ford Motor Co., which once had big plans for Indonesia but pulled out in 1998, exceeded targets by selling 100 Thailand-assembled Ranger pickup trucks the first week after opening a Jakarta showroom in late March. Ford's incentive to reignite its local marketing effort is clear: Indonesian car sales hit 300,000 units last year, from just 59,000 in 1998, and tariffs on imported vehicles dropped to just 5% on Jan. 1 from a range of 70% to 150%. Also, Ford was able to buy out its old local distributor. Executives from other multinationals are checking Jakarta out, too. "Indonesia is back on everybody's map," says a Western diplomat who briefs foreign business delegations.
Even though it hasn't regained its pre-crisis luster, Indonesia remains a market of 220 million. And ACNielsen estimates 10 million Indonesians earn at least $5,000 a year. So Indonesia still ranks as one of the world's most promising emerging markets. "Even if demand stays at 300,000 cars a year, Indonesia is still a place we'd want to be," says Ford Motor Indonesia brand director Scott McCormack.
Of course, Indonesia is no investors' paradise. Meddlesome officials have thwarted attempted acquisitions by Standard Chartered PLC bank and Mexico's Cemex--and made life hell for multinationals in industries like mining and telecom. For companies well-positioned to compete in the new environment, though, it's a different story.
Few have played Indonesia as deftly as Unilever, whose local affiliate is publicly listed. Some of its brands, such as Pepsodent toothpaste and Blue Band margarine, enjoy market shares of 70% or more. Unilever claims at least one of its brands can be found in 95% of Indonesian homes. The company has been in Indonesia for 70 years, but the big push came when India-born Kaviratne, who served a previous stint from 1984 to 1990, returned in 1998.
One of his best moves was to seize on a January, 1999, law making it easier for foreigners to buy consumer goods and retail companies. First, he snapped up Yuhan, whose Moltos fabric conditioner has 70% of Indonesia's market. The steep devaluation of the rupiah had made it hard for Yuhan to buy raw materials sold in U.S. dollars. Yuhan also had Superpell, a popular floor cleaner, and Trika, an ironing spray. Unilever then paid $120 million for Bangso, Indonesia's top-selling soy sauce. And it formed a 50-50 joint venture with Kimberly-Clark Corp. to produce Huggies diapers and Kotex feminine napkins locally. These deals added 10% to Unilever Indonesia's sales.
Freer trade is another key. Under AFTA, most products manufactured in the Association of Southeast Asian Nations' 10 member states can be shipped to any other at a 5% duty or less. So in late 2001, Unilever shut factories making Lipton teabags in Australia and Lux and Lifebuoy bath soap in Malaysia, moving production to Indonesia. Besides being closer to Indonesian customers, the plants also take advantage of the country's low $60 average monthly wages to export elsewhere in ASEAN. Unilever Indonesia expects to boost exports from 5% of total sales now to 14% by 2004, says ABN Amro analyst Kim Kwie Sjamsudin.
Unilever also has used smart pricing. To make sure all Indonesians could afford at least some of its products, Unilever introduced tiny, single-use packets of Sunsilk shampoo and Rinso detergent for about 4 cents each. These products come wrapped in damp-resistant paper, which is "infinitely cheaper" than plastic, says Kaviratne. Unilever sold 2.9 billion sachets of Rinso and 3.8 billion of Sunsilk last year. It also built a network of nearly 20,000 distributors and 2 million retailers--including bicycle-powered ice-cream carts and roadside stands--to blanket the far-flung island nation.
Given Indonesia's reputation for risk, few multinationals would want to expend that kind of energy to wring profits out of the troublesome archipelago. That may be what separates the winners from the losers. "The 100-meter sprinters get into trouble here," says Kaviratne. "It's the long-distance runners that succeed." As Indonesia's recovery gains steam, other investors may be regretting they didn't enter the race. By Michael Shari in Jakarta