How Indonesia is moving to lock foreign businesses out of its consumer boom
Head into any high-end supermarket in Jakarta and one product will be missing: Australian eggs. The Indonesian government has banned all Australian eggs and egg products, purportedly to protect the country from bird flu — even though the recent Australian mini-outbreak was limited to ducks.
The Aussie egg ban looks like one of an increasing number of measures the Jakarta administration is taking to protect domestic industry from foreign competition. Some Indonesian lawmakers want the country to declare fatwa on imported meat, fruits and vegetables. And now, according to a detailed report by Reuters, foreign retail chains risk being locked out of Indonesia’s consumer spending boom by new government red tape designed to protect domestic industry.
The new Indonesian rules will curtail the number of outlets foreign chains such as Starbucks can control, and add red tape to imports of foreign mobile phones made by the likes of Samsung. The plan, which limits foreign retail outlets in the country to 250 per chain, is set to crimp growth at Yum Brands’ KFC, Indonesia’s biggest U.S. fast food chain, as well as popular brands such as Burger King and Zara.
Indonesia’s economy grew 6.2% last year. And its people love shopping. Household consumption accounts for 57% of GDP (2011 data). But the malls in the nation’s big cities are dominated by foreign chains. Like many emerging markets, Indonesia lacks strong local clothing or food retail brands. Small domestic fashion retailers lack the sophisticated supply chain necessary to get trends into stores as quickly as Zara. Meanwhile, hygiene practices across the country are poor, and the perceptible lack of cleanliness at many locally-run restaurants makes KFC and Burger King desirable because their franchised outlets tend to appear clean.
The danger in limiting the growth of foreign retail in Indonesia is that the local outlets will take a long time to replace the wide choices and better quality and prices that global brands can offer — especially if the playing field is tilted to artificially favor the homegrown businesses. Ultimately, if there are fewer places where Indonesians want to eat or shop, Jakarta’s protectionism could curtail the country’s consumer boom.
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