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IB Assignment: Steps to launch a product in an overseas market

GROUP 5 Abhishek Kumar Apurv Jain Hema Koppala Shaurya Vikram Singh B Sri Harsha 11DM006 11IT009 11FN041 11FN096

Indonesia is an archipelago comprising approximately 17,508 islands, 33 provinces with over 238 million people, and is the world's 4th most populous country. Indonesia is a founding member of ASEAN and a member of the G-20 major economies. The Indonesian economy is the world's seventeenth largest economy by nominal GDP and 15th largest by purchasing power parity. Indonesia's estimated gross domestic product (nominal), as of 2010 was US$706.73 billion with estimated nominal per capita GDP was US$3,015, and per capita GDP PPP was US$4,394 (international dollars). June 2011: At World Economic Forum on East Asia, Indonesian president said Indonesia will be in the top ten countries with the strongest economy within the next decade. The Gross domestic product (GDP) is about $1 trillion and the debt ratio to the GDP is 26%. The industry sector is the economy's largest and accounts for 46.4% of GDP (2010), this is followed by services (37.1%) and agriculture (16.5%). However, since 2010, service sector has employed more people than other sectors, accounting 48.9% of the total labor force; this has been followed by agriculture (38.3%) and industry (12.8%). Agriculture, however, had been the country's largest employer for centuries.

The inflation rate in Indonesia was reported at 3.79 percent in December of 2011. From 1997 until 2010, the average inflation rate in Indonesia was 13.26 percent. The inflation rate fell to 3.79 percent in December 2011. Further economists predict an inflation rate of around 3.5 percent in January 2012.

As an Emerging Market:
Indonesia is the only major emerging stock market to have posted any real gains in 2011, a year in which the broad MSCI emerging stock market index lost 20 percent and underperformed developed markets in a flight from risk. But for Indonesia, which many say should turn the BRIC club into BRIIC; last year was one of surging growth, with the worlds largest coal exporter helped by rising commodity prices. Indonesia won back a coveted investment grade rating last month; its first since the Asian financial crisis of 1997.

1. ENERGY: 1.1. Electrical Power shortages (as in 2005).
1.2.8% demand increase per year.

1.3. Demand for sub contracts - 13 future projects.

2. TELECOMMUNICATION EQUIPMENT AND SERVICES: 2.1.Forecasted growth rate- 30% to 40 %. 2.2.Imports account for 90% of this market. 2.3.Market size estimated at more than $5 billion.

3. INDUSTRIAL CHEMICALS: 3.1.Total Import- $8.1 billion(in 2006) 3.2.FDI(in 2006)- $101.6 million

3.3. Opportunities in Organic chemicals, Raw materials and Plastic

products. 4. ENVIRONMENT TECHNOLOGIES: 4.1.Market estimated at more than $ 25 million.

4.2. Major issues: Deforestation, Sewage, Water pollution (Ground Water

Contamination). 5. RETAIL INDUSTRY: 5.1.Opened to foreign investment in 1998

5.2. Foreign retailers account for only 8% of outlets but capture 40% of total
retail sales. 6. FRANCHISES: 6.1.Home to 250 foreign and 50 local franchises.

6.2. Best prospects in- Food and Beverages, Education, Business Aids.
6.3.Estimated future growth of 5%. 7. INFORMATION TECHNOLOGY:

7.1. Growth rate forecasted at 15%. 7.2. Imports account for around 80%. 7.3. Prospects-PCs and High end servers.
On the basis of the above information, we decided to use the issue of WATER POLLUTION AND GROUND WATER CONTAMINATION and launch our Packaged Drinking Water in Indonesia.

Bottled Water Big Business in Indonesia

Even though Indonesia water resources accounted has for almost six percent of the world water resources or about 21 percent total water resources in the Asia Pacific region, in fact clean water is becoming serious problem in Indonesia. Based on data shows that water consumption tends to increase significantly, total water demand in 2000 is approximately 156,000 million m per annum. It is predicted that the figure will be doubled to 356,575 million m per annum by 2015. However the availability of clean water in term of quantity tends to decrease due to environmental degradation and pollution. The rate of water resources degradation accounted for 15-35 % per capita annually. In the recent, at least 80 percent of 250 million Indonesian has no access to piped water. Due to difficulties and limited access to clean water large number of people still using river for drinking water, bathing, and washing. There was an indication that people in the village uses river as drinking water resources tends to decrease from 22.8 percent to 22.5 percent during period 1999-2002. However, during the same period, there was an increasing trend people using river for washing and bathing from 65.2 to 66.2 percent.

Indonesia Soft drinks Market Value, 2000 - 2010, US Dollars (m)

In Indonesia, over 100 million people lack access to safe drinking water. The consensus is that Indonesia is witnessing a major behavioral shift toward dependency on bottled water. Of course this turn to the bottle is primarily occurring in the middle classes but the Asian Development Bank estimated this class grew to 43 percent in 2009, which in a population of around 245 million is no small figure. In the same year, Indonesia consumed 15.7 billion liters of bottled water, making it one of the largest total consumers in Asia, second only to China. Before bottled water became a serious market in Indonesia, people boiled their water. For those connected to the piped network, you could boil it a couple of times and be satisfied that it was drinkable. Outside of the network, water would probably be sourced from a local well, and it might need to be boiled then sit overnight for the sediment to settle before it could be consumed. These days, things are both better and worse. In major cities like Jakarta, the water has become increasingly contaminated a consequence of urbanization, increased pollution of surface water sources, the leaching of sewage into groundwater, increased salinity from rising sea levels, and over extraction by unregulated neighborhood wells and industry. At the same time, people who can afford it now have the convenience of bottled water being sold on every street corner and in every shopping center in gallons, liters and small compact bottles a trend that has emerged only within the past 15 or so years. The French company DANONE dominates the Indonesian market, accounting for around 60% of all bottled water sales with its majority owned Aqua brand; but Nestle, Coca-Cola and PepsiCo are also players and all signs point to market expansion. A huge host of small local companies has also appeared in the last 10 years, offering more competitive prices. In 2010, membership of Indonesias Association of Bottled Water Companies reached 183 local and foreign owned businesses. Some small-scale entrepreneurs set up re-filling stations that provide treated water sourced from either mountain springs, their own well, or sometimes from a source connected to the piped network. So selling water is big business now in Indonesia whether you are a large company or a small private vendor.

When there is such little public trust in government to provide clean water, no wonder business is booming. Even people who are connected to a piped water supply only use it for showers and washing dishes, they cook with bottled water. So homes that are being supplied with treated water through their pipes are also regularly purchasing bottled water for their everyday consumption probably from one of Aqua-DANONEs 11 springs and 15 factories. The Aqua brand is growing fast, and with net profits raising by 16% in 2009 the company has plans to expand its bottling factories (and therefore the natural springs it uses). This kind of investment in the outer districts of Indonesia is welcome it provides jobs, and revenue via company taxes and the tariffs charged for using spring water. With the consumption of 15.70 billion liters of water in 2009, Indonesia has emerged the seventh-largest bottled water (mineral and non-mineral) market in the world. In Asia Pacific, Indonesia is the second largest in terms of total bottled water consumption, and the third largest in per capita bottled water consumption. Owing to the rising presence of contaminants in the water and relatively low entry barriers, the Indonesian bottled water market is expected to register double-digit growth rates until 2016. Apart from favorable economic factors, the market will also get a boost from the rising spending power of young urban consumers and improving health and safety awareness in the country. Large population in the urban cities of Indonesia and enhanced health and water safety awareness are the key drivers of the market, says the analyst of this research. Bottled water in Indonesia is a safer alternative to tap water for consumption, and the majority of the population considers it more affordable than residential water treatment equipment.

Participants find it easy to set up plants due to the low grade of technology and investment required; but once they enter the market, they will have to be wary of counterfeiters. They also face competition from water refilling station operators that sell questionable-quality water at competitive prices. Additionally, Indonesian authorities are introducing the use of Air Rahmant (low concentrate of sodium hypochlorite) and Sodis (solar disinfection) that eliminates biological contaminants in water, lowering the demand for bottled water. Bottling plant owners can still feel optimistic due to an expanding middle class population, which translates to higher sales. Furthermore, the rise in the prices of tap water and fuel has caused consumers to turn to bottled water. Companies that are willing to invest in multiple manufacturing facilities and systematic logistics for distribution in this archipelagic nation are likely to succeed. Interestingly, the Government is making efforts to decrease its reliance on imports and instead, depend on local production, notes the analyst. This has created numerous job opportunities and is likely to attract more investments to the bottled water market.

Procedure for setting up a Bottled Water plant in Indonesia

Following is a list of common procedures required to start up a company:
1. Screening procedures: - Certify business competence - Certify a clean criminal record - Certify marital status - Check the name for uniqueness

- Notarize company deeds - Notarize registration certificate - File with the Statistical Bureau - File with the Ministry of Industry and Trade, Ministry of the Economy, or the respective ministries by line of business - Notify municipality of start-up date - Obtain certificate of compliance with the company law - Obtain business license (operations permit) - Obtain permit to play music to the public (irrespective of line of business) - Open a bank account and deposit start-up capital - Perform an official audit at start-up - Publish notice of company foundation - Register at the Companies Registry - Sign up for membership in the Chamber of Commerce or Industry or the Regional Trade Association 2. Tax-related requirements: - Arrange automatic withdrawal of the employees income tax from the company payroll funds - Designate a bondsman for tax purposes - File with the Ministry of Finance - Issue notice of start of activity to the Tax Authorities - Register for corporate income tax - Register for VAT - Register for state taxes - Register the company bylaws with the Tax Authorities - Seal, validate, and rubricate accounting books 3. Labor/social security-related requirements: - File with the Ministry of Labor - Issue employment declarations for all employees - Notarize the labor contract - Pass inspections by social security officials - Register for accident and labor risk insurance - Register for health and medical insurance - Register with pension funds - Register for Social Security - Register for unemployment insurance - Register with the housing fund 4. Safety and health requirements: - Notify the health and safety authorities and obtain authorization to operate from the Health Ministry - Pass inspections and obtain certificates related to work safety, building, .re, Sanitation and hygiene 5. Environment-related requirements: - Issue environmental declaration

Obtain environment certificate Obtain sewer approval Obtain zoning approval Pass inspections from environmental officials Register with the water management and water discharge authorities

Following are the regulations specific for Bottled Water Plants

Indonesia is a member of Asia Middle East Bottled Water Association (ABWA); hence all the plants have to follow the guidelines of ABWA. Bottled water is a highly regulated product, subject to international, national and industry standards. The Indonesia Food and Drug Administration (FDA), under the Federal Food, Drug and Cosmetic Act (FFDCA or the Act), regulates bottled water as a food product. This includes packaged water sold in smaller containers at-retail outlets as well as larger five-gallon containers distributed to the home and office market. Like all food products except meat and poultry (which are regulated by USDA), bottled water is subject to FDAs extensive food safety and labeling requirements, which include: - Food adulteration and misbranding provisions; - Nutritional labeling provisions; - General Good Manufacturing Practices (GMPs); - Bottled water GMPs; - Bottled water standard of identity; and - Bottled water standard of quality, which is as stringent as the Indonesia Environmental Protection Agencys (EPA) standards for public water supplies.

Average Time (in Days) Required for Setting up a Business

DATA RELATED TO STARTING A BUSINESS Rank Procedures (number) Duration Cost (GNI per capita) Paid in Minimum Capital (GNI per capita) YEAR 2010 161st ( world) 9 60 days 26% 59.7%

According to a World Bank report, the average time taken to start a business in Indonesia is high in comparison to other countries within East Asia and the Pacific Rim as well as OECD countries, despite the relatively fewer procedures to be followed.