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Indonesia 2011: Booming (Bicycle) Tiger

Sales & Trends

At the end of last year, bicycle component maker Shimano announced price increases. At the beginning of the year more news from Shimano led to European industry concerns. The Japanese parts maker announced that delivery delays, especially for mountain bike components from the entry-level to medium segment (Acera/Alivio), could be expected. This delay was explained by skyrocketing demand in China, Indonesia and South America. Indonesia? Bike Europe sent international editor Jo Beckendorff to report first-hand on this emerging Southeast Asian tiger.

Indonesia 2011: Booming (Bicycle) Tiger

JAKARTA, Indonesia – At the end of last year, bicycle component maker Shimano announced price increases. At the beginning of the year more news from Shimano led to European industry concerns. The Japanese parts maker announced that delivery delays, especially for mountain bike components from the entry-level to medium segment (Acera/Alivio), could be expected. This delay was explained by skyrocketing demand in China, Indonesia and South America. Indonesia? Bike Europe sent international editor Jo Beckendorff to report first-hand on this emerging Southeast Asian tiger.

Indonesia – according to Wikipedia, it’s not only the largest island country in the world, but by territory size and population also the largest country in Southeast Asia. With a population density of 126 people per square kilometer and an overall population of more than 240 million living on 6,044 of the country’s 17,508 islands, it is the fourth-largest populated country in the world. This population is increasing by 1.5% per year.

Largest Muslim population in the world
With approximately 200 million Muslims Indonesia is also the country with the largest Muslim population in the world. Java – home of the Indonesian bicycle industry, is one of the largest Indonesian islands. With nearly 1,000 people per square kilometer it has also a very high population density. To give you an idea: One of the most densely populated EU countries is Netherlands with 402 people per square kilometer. The EU overall population rate is 116 people per square kilometer.

This high population density also means that there is a huge sales potential on this emerging market. The new chairman of the Indonesian Bicycle Industry Association AIPI Rudiyono forecasts a bright future. Even if there are chaotic road and traffic conditions all over the place and if this (over) populated nation is not a bicycle paradise there is a young urban scene adopting recreational cycling activities as a leading leisure and lifestyle activity.

Brightly colored single speeders
Take a look at the country’s metropolis of Jakarta for example. For oversea visitors the number of brightly colored single speeders is a big surprise. According to bicycle producers we talked to, the demand sprang up within weeks and could not be satisfied immediately. And as soon as this boom popped up last year it was gone. Nevertheless Jakarta’s urban jungle is full of youngsters cruising on these cool single-speeders.

Yustian Nimara – international marketing manager of Polygon International – is not that surprised, “Indonesia is a unique country. Some products can become a very quick success. Take for example smart phone supplier Blackberry. Today Indonesia is – behind USA – the second-largest Blackberry market in the world. Therefore I was not that surprised by that single speed hype. We got a good piece of this market.”

Tiger on the move
Rudiyono also points to most promising development of Indonesia’s emerging market, “According to the latest economic forecasts the per capita gross domestic product (GDP) will increase over the next two years from US$3,600 to US$4,000 annually. Some forecasts even say US$5,000 per year.”

This can be compared with the Indonesia’s 2007 per capita GDP of US$1,200, says Nimara in a later interview. This also means the more money Indonesian ‘Joe Cools’ get in their pockets the more topics such as leisure time, health, and environment are playing an important role.

Indonesian bicycle history
Originally it was the Dutch bringing bicycles to Indonesia. Following three and a half centuries of colonialism the Dutch left Indonesia in 1949. From the 1930s through to the ‘60s, the bicycle was the most frequently used transportation vehicle in our country according to Rudiyono who notes, “After the beginning of car mass production in the 70s the share of bicycle use dropped to a scary 0.1%.”

Three bicycle producing family businesses keep the market in their hands: P.T. Terang Dunia Internusa (in the western world better known as United Bike) based in Jakarta on West Java and the two producers P.T. Insera Sena (Polygon International) und Wijaya Indonesia Makmur Bicycle Industries (Wim Cycle) near Surabaya on East Java. All three are not only acting as producers but also serve their dealer network as distributors of some other (overseas) premium brands. When it comes to bicycles, nothing happens in Indonesia without some involvement from these companies.

Indonesian bicycle market increased at a yearly rate of 20%
According to industry observers, over the last three years the Indonesian bicycle market increased at a yearly rate of 20%. When it comes to bicycles there is an air of excitement all over the country. “There is a rapid upgrading over the last five years”, says AIPI chairman Rudiyono, “and this time it’s going upward for both local market and export sales. Not only unit-wise the Indonesian bicycle industry shifted a few gears up, but also quality-wise. The industry is prepared and ready for future growth.”

Until now a large majority of the imported bicycle products to Indonesia came out of China (according to the Indonesian Federal Statistical Office BPS – 91%). This is all entry-level products. But over the last year this emerging market is also more and more interesting for international premium brands. Take Specialized for example. Three years ago United Bike started as an exclusive distributor. Some assorted models for the Indonesian market are even assembled by United Bike.

What are European bicycle brands doing?

According to Specialized vice President Bob Margevicius, “In 2011 our Indonesian distributor bought 2,000 units. For 2012 it has been 10,000 units.” It seems that Specialized and some other US brands made it late, but not too late, into Indonesia. The only open question is: What are European bicycle brands doing? As this promising tigers wakes, they seem to still be asleep.

Detailed market figures on the current bicycle market Indonesia are difficult to grasp. The numbers we received varied a lot. According to AIPI the national overall production capacity in 2010 was 1.8 million units. Taking the additional new factories of United and Polygon into account we could estimate a production capacity of 2.3 million units. But since at the present time both new factories are not running at full capacity, we estimate current Indonesian production is closer to about 2 million units.

Exports into EU market
It’s also not that easy to get clear numbers on bicycle exports from Indonesia into the EU market. The major problem is the Indonesian statistics and it is here and there mix of (motorized) two-wheelers and bicycles. Therefore we try to make it simple. According to estimations 20% to 30% of the current Indonesian complete bicycle production is for export. This would be equivalent of 400,000 to 600,000 units – with a rising trend. Compare this with Eurostat figures. According to them 2010 bicycle imports from Indonesia into the EU market have been 550,432 units (2009: 436,418 = +26.1%!).

According to a statement by Indonesian industry vice-minister Alex Retraubun in 2010, bicycle imports have been 5 million units. While saying this he urged the home producers to increase Indonesian production to fulfill home market demand. If the mentioned 5 million figure is correct the yearly overall shipment of 6 million units Rudiyono was talking about should be about right. The fact is that the import flood out of China is slowly dropping, while home production is increasing. Nevertheless to become more independent from bicycle imports Indonesia has to do something about the limited number of parts makers currently based in Indonesia.

Starting bicycle lobby activities
Representatives of the Indonesian bicycle industry – aside from the complete bike makers, two longtime Taiwanese parts makers with Indonesian production lines, P.T. Xerama Bicycle Industries (alias Marwi-Indonesia) and Chin Haur Indonesia as well as a handful of Indonesian parts producers – are having serious talks with the government and the national bicycle lobby group Indonesian Bicycle Committee KSI. First to react was the Jakarta city government. According to a draft of the city council, separate bicycle lanes are in the pipelines – something that at the present time doesn’t exist.

Moreover, on Sunday some larger downtown roads are closed for everyday traffic and opened to cyclists. Each Sunday morning from 6 to 10am more Indonesians join these organized by KSI car-free zone Bike Rides. This idea spread from Jakarta into other larger cities and became a national institution. Over here everyday riders on traditional transportation and Dutch bicycles meet single-speeders, mountain and road bikers. Bike Ride participants dress in everyday wear, functional bike wear and even in self-designed costumes.

Bicycle standards contra Chinese imports
The national government went even a step further. According to AIPI the government brainstormed ways to upgrade the quality and security of bicycles. In October 2010 the industry ministry announced ‘compulsory national standards for bicycles, parts, and components to be fulfilled by all inland and overseas producers.’ The national SNI norms are also made to protect the home industry from the flood of cheap bicycle imports out of China.

The standard also led to an upgrade of the national production – not only for the national market but also for export. It also explains why the Acera/Alivio demand is skyrocketing. No one could really foresee the rising demand of upgraded bicycle in Indonesia, China, and South America all at same time. And when strolling through the production of Polygon and United you get the feeling that sooner or later it will pass both entry level and medium components groups, shifting to medium and high-end components.

GSP Advantage
This up-shift will also make bicycle imports from Indonesia to the EU more and more attractive. They are already increasing over the last couple of years. The reason is easy to explain: The world is searching for production alternatives to China – especially suppliers from the EU market. Bicycle imports from China into the EU are still impacted by a 48.5% anti-dumping duty. Bicycle imports out of Indonesia pay no additional (anti-dumping) duties. They are even benefiting from the so-called generalized system of preference (GSP in short) charge reduction status. In line with this GSP ruling, imports of Indonesian-made complete bicycles into the EU market currently pay a reduced import rate of 10,5% instead of the standard 14% – depending on “the mounted amount of parts and their origin”.

The EU repeatedly reviews the progress of economy of least-developed countries. At the present time the Indonesian government is not expecting to lose its lower (GSP) tariff facility. If so “Indonesia’s export products may significantly decrease their competitiveness”.
 

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