Preamble: This study has been
undertaken on the request of Pakistan Tobacco Board (PTB), who had informed that research
and development activities in Pakistan have helped the growers to produce surplus tobacco
for export. In this report we have tried to assess the nature and size of market demand,
identify various market segments and distribution channels, and to recommend strategies
for Pakistan's penetration of the Indonesian tobacco market.
Introduction to Pakistan Tobacco: Tobacco is one of Pakistan's
important cash crops, grown in districts of Mardan, Swabi, and Mansehra on commercial
scale. Pakistani tobacco is mainly "Flue Cured, Virginia" type and is used in blended
form in international strong brand cigarettes like Marlboro, 555, Kent, Benson and Hedges,
Gold Leaf etc. The total production of tobacco in Pakistan during last 5 years is given in
table No 1.
Quantity in M.
Year Source Pakistan Source Economic
Tobacco Board (PTB) Survey of Pakistan
1992-93 79,000 102,000
1993-94 80,000 100,000
1994-95 73,000 81,000
1995-96 54,000 80,000
1996-97 55,000 85,000
The production figures of PTB and ESP do not tally. On average
ESP figures are higher by 20,000 MT from PTB figures. The exact surplus available for
export is not known, but from the historical trend i.e past average annual exports, it
seems that Pakistan has 2,000 to 3,000 MT surplus tobacco available for export every year.
However, private sector sources estimate that this year Virginia tobacco production will
be 60,000 MT and the surplus available for export will be 20,000 MT, valued at US$ 46
million at the rate of US$ 2.30 per Kg i.e. the prevailing international price. Surplus
will increase if sound export market is developed and farmers get a good price.
Introduction to Indonesian Market: Indonesian tobacco industry is well
developed. Indonesia is a large producer, importer, and exporter of tobacco and
cigarettes, and therefore a good prospective market for Pakistani tobacco. Almost all
famous international brands cigarettes are manufactured by multinational corporations
(MNCs). Indonesian annual production of cigarettes is 245.7 billion pieces, while
Pakistan's annual production is 48 billion pieces. Table-ll shows the Indonesian
production, import and export of Tobacco during 1997.
Quantity M. Tons. / Value Millions US$
Product Production Import Export
Qty Value Qty Value Qty Value
Tobacco 139,639 419 52,000 206.6 72,205 254.3
During 1997 Indonesia also exported cigarettes worth US$ 127 million.
Table-ll and the export of cigarettes reflects that Indonesia's total international
trading of tobacco and cigarettes in 1997 was US$ 588 million, with a positive balance of
US$ 174.6 million.
The core objective of Indonesian tobacco policy is maximum revenue
collection and export of cigarettes. Indonesia has succeeded in attracting Foreign Direct
Investment (FDI) in cigarette manufacturing, which has helped her exports. The
simultaneous import and export of tobacco is explained by the need for blending various
tobaccos for the desired flavour for international brands cigarettes.
Product Specifications: Market demand in Indonesia is for "Flue
Cured Virginia" type having H.S. No.240120100.
Market Segmentation: Indonesian market for tobacco can be segmented on
the following variables:
Geographic: Geographically, cigarette manufacturers are concentrated in
two regions which are almost 2000 Km apart.
East and Central Java: 90% of cigarette manufacturing is in Central and
East Java (in a 200 Km radius). Important cities in this region are Surabaya, Bojonegoro,
Kudus, Kediri, and Malang, which are centers for tobacco manufacturing and trading. They
have been marked red in the map, at annexure-A.
Sumatra Island: 10% cigarette manufacturing is in Sumatra Island, where
the city of Medan is important centre for tobacco trading. It is suggested that Pakistani
exporters should focus on Central and East Java, because of the large market size, many
manufacturers clustered together and greater concentration of buyers and suppliers in one
Size of Firm
As for the "Size of the Firm" variable, the market for
tobacco can be divided into three segments. This segmentation strategy will provide
target- oriented, useful information to Pakistani exporters, for targeting their choice
segment. The three segments are as follows:.
Large Enterprises: There are four important firms in this segment:
Pt Gudang Garam: It is a local Indonesian company which enjoys
Indonesian market leadership. Its annual production is 85 billion pieces, with 34% market
share. Company leaf manager (person responsible for sourcing tobacco) is Mr. M.P, while
C.E.O is Mr. Susilo Wondigo. They import Tobacco directly in minimum lots of 50 MT i.e. 5
containers of 20 ft size. Head Office, and Factory is in Kediri: Tel 62-354-681551 Fax No.
62-354-81555 Jakarta office Fax: 62-21-4212024.
Pt Djarum Kudus: Djarum Kudus annual production capacity is 39.6
billion pieces with market share of 16.15% . The Head office and factory is in Kudus. Mr.
Sultan Pao (Tel 62-291-31494) is responsible for sourcing tobacco. They prefer to buy in
bulk in minimum consignments of 20 MT. The company imports directly. Their average monthly
import is 20MT. Fax No.62-21-5346893 and 5346892.
British American Tobacco (BAT): It is the largest multinational using
Pakistani type Flue Cured Virginia Tobacco in Indonesia. Its annual production capacity is
11.2 billion pieces, having 4.56% market share. 50% of their cigarette production is for
export market. Company HQ and factory is in Solo: Tel: 62-271-780343 and 782345. Fax
No.62-271-781668. Its leaf manager is Mr. Moesamto. The leaf manager suggested that
Pakistani flue cured product is acceptable and offers from exporters from Pakistan with
consistent quality and steady supply are welcomed. BAT also buy through their agent cum
importer i.e. Mr. Buyung S. Boentoran (director) Pt. Detabak International Tel:
62-31-5663672 and 5663673 Fax: 62-31-5663674
Pt. Bentoel: Its annual cigarettes production capacity is 17.1 billion
pieces. Its brands are Bentley and Marlboro. Its market share is 6.96%. The office and
factory are in city of Solo. Tel NO: 62-271-780343. Their Jakarta telephone is
62-21-2312280 Fax: 62-21-3800712.
Medium Size Enterprises
Rothmans: Its annual production capacity is 7.2 billion pieces, having
2.93 % market share. Its popular brands are Dunhill, Kansas, Blue Ribbon and Pall Mall.
Mr. Bella Tel 62-21-3101580, and 3911422 Fax No.62-21-324349 is responsible for purchase
Philips Morris: Philips Morris imports blended tobacco from their
subsidiary in Malaysia. In Indonesia they have only cigarette manufacturing factory.
Tobacco blending is done in Malaysian subsidiary. It is advised to target their Malaysian
subsidiary. Malaysian subsidiary Tel: (606)-7663000 Fax (606)-7611355.
PT Samporena: Its annual cigarette production capacity is four billion
pieces, having 1.63 % market share. It has also factories in Viet Nam and Myanmar. The
tobacco sourcing for those factories is also done from Indonesia. Person incharge of
tobacco is Mr. Rhee. Telephone No.62-21-5266287 Fax No: 52-21-6266647
NV. Sumatra Tobacco Trading Company: This is one of the agarette
manufacturing companies out side Java. The factory and the company head quarter are in the
city of Medan, in Sumatra. Its annual production is 14.2 billion pieces, with 5.78% market
share. Its famous brands are Jet, Hero, and United. The company telephone numbers are:
62-61-515214, 517139, 322235 Fax: 62-61-524968 and 535842. Contact person is Miss. Lima.
Small Enterprises: The small size cigarette manufacturers are 135 in
number. They have a total 26.8% market share. Their main raw material is local tobacco.
However, they also use some imported tobacco, primarily for blending. Since their
financial resources and tobacco consumption is limited, they cannot afford to import or
buy full container. Their average annual consumption of 10 MT is purchased in small lots.
Nature and Size of Market Demand
90% market demand for imported tobacco is Virginia of various grades,
both in processed and unprocessed form. Indonesian cigarette consumption has shown average
4.5% growth rate during last 5 years i.e. per capita annual consumption has increased from
720 cigarettes in 1992 to 885 cigarettes in 1997. In 1998 due to economic crisis tobacco
import has declined as per table No. TV.
M.Tonnes / Value in million US$
Product 1997 1998
Quantity Value Quantity Value
Tobacco Un-processed 47,108 157.8 17,152 76.0
Tobacco processed 5,032 48.8 2,639 8.5
Demand for imported unprocessed tobacco is eight hems higher than
demand for processed tobacco. The reason for decline in demand for imported tobacco is
that due to the banking crisis, firms could not open LC against 100% advance cash deposit.
As a result, the export of cigarettes and tobacco also declined and companies had to rely
on local tobacco to a greater extent.
Market Demand Forecasting
Indonesian tobacco harvesting months are August/September. This year
the Industry sources predict that due to non-availability of fertilizers and pesticides,
the production will be lower. Also, this year too much rain has not been good for the
crop, and production is less than average. On the other hand, the demand for cigarettes is
increasing at the rate of 4.50% per annum and hence the demand for imported tobacco will
Due to its strong cigarette manufacturing industry, both for local
consumption as well as for export, Indonesia will be an important market for tobacco. The
need for blending of various types of tobacco for quality cigarettes makes the import of
In the short (one year), medium (two to three years), and long term
(four to seven years) Indonesia will be important market for tobacco. The decline in
imports during 1998 was not due to any decline in demand, but due to economic crisis where
the companies imports and exports activities greatly declined. Indonesian economy is now
on the way to recovery. Interest rates have come down from 40% to 20%, currency has
stabilized within the IMF prescribed limits, inflation has come down from above 60% to
less than 15%. The improvement in economic fundamentals and peaceful election has restored
the business confidence and there are strong indications that the economy will come out of
the crisis within a year or so.
Current Prices: Tobaccos from various countries have different flavours
and prices. The most expensive is US Flue Cured priced at US$ 8 per Kg, followed by
Brazil, and Zimbabwe. Pakistani Tobacco is a close substitute of Brazilian or Zimbabwe
tobacco. Current C&F price for Pakistani Flue cured tobacco of various grades is in
the range of US$ 2.15 to 2.30.per Kg. Japanese, Korean and Chinese tobacco is considered
lower in quality and price.
Pakistan's Logistical Competitiveness: Table No. IV shows the
logistical competitiveness of Pakistan.
Countries Time from Opening of Freight US$/ MT
L/C to arrival of
Pakistan 30 days 40
Brazil 60 days 60
Zimbabwe 50 days 55
China 25 days 38
Since tobacco is a relatively higher value product, the freight
component is not as critical in international competition, as in case of fruits and
vegetable or other bulk commodities.
There are two important distribution channels for tobacco marketing in
Large and Medium Size Cigarette Manufacturing Companies: 60% of tobacco
is imported through this channel. Manufacturing companies prefer to import on d/p basis
i.e. delivery against payment. The detail of this channel is already given under
Segmentation i.e. in paras-3.2.1. to 3.2.3.
Agents-cum-importers: Tobacco has mostly specialized importers, having
strong links with industry. They are mostly concentrated in Central and East Java i.e.
Surabaya, Malang and Semarang. The important wholesale market is Malang from where the
daily rates are fixed. The list of major importers is given in box. Importers supply to
industries, as well as to the wholesale market.
Conclusion: Indonesia is a potential important market for Pakistani
tobacco. The important question is whether Pakistan has potential to be regular exporter
of tobacco. For that, steady supplies and competitive prices are a pre-requisite.
There are only a few multinationals like Pakistan Tobacco Company (PTC)
a subsidiary of BAT and Laxon Tobacco which have modern tobacco processing units in
Pakistan. If Pakistan is to be a serious player in international tobacco business, it will
have to induct through realistic policies more multinationals for Foreign Direct
Investment (FDI) in this industry.
Recommendations For Private Sector
Market Entry and Penetration Strategy: Our recommendation to Pakistani
tobacco exporters for entry to Indonesian market is to have a longer term vision of the
market, and for that they would need to cultivate strong relationships with Indonesian
cigarette manufacturers. A start can be made by supplying a few containers at very
competitive prices and timely delivery. A strong supplier-buyer relationship could lead to
the cigarette manufacturers from Indonesia being induced to getting involved in tobacco
processing with in Pakistan. The cigarette manufacturers blend various tobaccos for
getting desired flavor and prefer to have steady supplies of that specific grade of
tobacco, which after blending with tobacco from other sources produces the desired flavor
for their brand, which thereafter becomes their trade secret. However, for that sort of
long-term marketing relationship, Pakistani exporters will first need to prove that they
have the capacity to supply adequate quantities on regular basis and competitive prices,
and can fulfil their commitments. For that purpose, only such firms will succeed and make
more profits, which can prove their long-term commitment to their product and market. For
new entrants, a long term contractual relationship with cigarette manufacturers in ASEAN
can materialize, only on basis of export of tobacco at competitive prices, steady
supplies, consistent quality and fair business practices.
Market Entry Pricing Strategy
For new entrants, it is recommended to quote very competitive
price-even to export first container at break-even price. Market entry price should be
lower than the prevailing market price. The manufacturers, having regular import from
Brazil and Zimbabwe will opt to import from new suppliers, only if good quality is offered
at very competitive price.
Recommendation for General Trading Companies
Tobacco marketing is specialized business. General traders (dealing in
many commodities) will have serious handicaps. Tobacco distribution channels are totally
separate from other agricultural commodities like rice, sugar, etc. General traders will
have no synergy by adding tobacco to the list of their commodities. They will have to
allocate separate marketing and sourcing staff for tobacco.
Recommendation for Focused Company
Honest, commodity focused exporters, open to international culture and
having strong linkage with or presence in tobacco growing area, will have competitive
advantage in making entry in the market and having greater market penetration. Such firms
should also succeed in attracting joint venture partnership with importers from ASEAN
region for sourcing tobacco or even for cigarette manufacturing under
Focus on Main trading Centers in Central and East Java.
Exporters from Pakistan are advised to focus on firms in Central and
East Java (area marked in map) where tobacco trading and cigarette manufacturing is
concentrated i.e. the cities of Surabaya, Malang Kudus and Kadiri all these cities
being within a 200 Km radius. The exporters are well advised to focus on these cities for
their visit. Looking for prospective importers in Jakarta will be waste of time and
resources. The best flight option will be from Singapore to Surabaya, which is the second
largest city in Indonesia, and an important air/sea port.
Recommendation for Export of Cigarettes from Pakistan
Existing Pakistani cigarette manufactures are advised to go for joint
ventures with strong international brand cigarettes manufacturers for benefiting from
their brand goodwill for export. Cigarette is a highly branded product and Pakistani local
brands cannot compete at international level. Cigarette marketing also involves high
Recommendations for EPB and PTB
Tobacco is a non-traditional export product of Pakistan. In Indonesia,
there is little information about Pakistani tobacco. Similarly, established exporters of
tobacco from Pakistan are not easily traceable. Presently, it seems that the main tobacco
exporters are cigarette manufacturers. Their core business is cigarettes manufacturing and
tobacco export is not their priority business. They, therefore, treat tobacco export
enquiries as incidental. Pakistan needs strong entrepreneurial class for international
tobacco marketing. EPB Peshawar and PTB can help in organizing and promoting the
entrepreneurial class through seminars on Tobacco export.
Visit of Indonesian Tobacco Sourcing Managers
EPB and PTB should sponsor a visit for the Tobacco sourcing managers of
top four Indonesian firms to Karachi, Mardan and Peshawar, when the new crop is harvested
so that importers can have a fair idea of Pakistani crop and varieties.
EXPORT PROMOTION BUREAU WEB PAGE:
It is suggested that EPB web page needs to be updated and its scope
enlarged. It will be useful if the whole range of products which have any chance of export
from Pakistan are included in EPB web. page. Tobacco and Cigarettes exporters are not
included in EPB WEB Site at present.
Export Promotion Bureau (EPB) and Pakistan Tobacco Board (PTB), which
also has export promotional role may coordinate efforts to identify some key Pakistani
exporters of tobacco and its product and put them on EPB web.
LIST OF TOBACCO IMPORTERS OF INDONESIA.
S.No. Name & Address of Company Telephone Fax No.
1. Indonesian Institute of Tobacco 62-21-8710323 62-21-8702781
2. Cigarettes Manufacturers 62-21-323481- .62-21-323481 Association of
Indonesia, (GPPRI) 334400
3. Pt. Trias Sentosa Tbk 62-31-8543213 62-31-8543373
Jl. Raya Waru nr. IB, Surabaya -
4. Gudang Garam, Pt. 62-354-681551 62-354-81555
Jl . Semampir II/1,
5. Djarum Kudus, Pt. 62-291-31494 62-291-31718-
Jl. Jend. A. Yani 28, 31053
Kudus 59317. 62-21 -5346893 and 5346892
6. Bentoel, Pt 62-21-2312280- 62-21-3800712
Jl. Cideng Tmr-21 365306(62-271-
7. Nojorono, Pt 62-291-39161-
Jl. Jend. Sudirman No.86B
8. Panamas, Pt 62-21-6511620 62-21-834903 Jl. Agung Tmr 13 Bl N-3/7
9. HM Sampoerra, Pt 62-21-5266287 62-21-566647
Jl. Jend. Sudirman Kav.54-55
10 . BAT Indonesia Jl Sudirman 32 62-21-2510666- 62-271-781668
Wismal Dharmala Sakti, Jakarta 2510750, 62-
11. NV Sumatra Tobacco Trading 62-61-515214 62-61-524968-
Company 517139-322235 535842
12. Gentong Gotri Pt. 62-21-5521875
Gentong-17, Jl. Bouraq 22 Tng 62-21-5512441
13. Inecco Indonesia Jl. Lombok 44 62-370-
14. Rokok Suku, Jl . Kali Besar Tmr- 62-21 -6922254
15. Phtilips Morris 606-7663000 606-7611355
16. Rothmans 62-21-3101580 62 21-324-349 - 3911422
17. Pt Detabek International 62-31-5663672 62-31-5663674
(Contact Person Mr. Buyung S. and 5663673.