Published December 27, 2007

SINGAPORE INTERNATIONAL

Pill popping Indonesia becomes a natural market

Concerns over infectious diseases have raised demand for supplements, reports CHUANG PECK MING

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IT MIGHT seem unlikely for people in a poor country to be gobbling up vitamins when many of them cannot afford as much food as they would like.

But that seems to be the case with Indonesia - and International Enterprise Singapore is pushing more providers of healthcare products here to capture a slice of the market.

‘The growing opportunities in the Indonesian market have certainly not escaped our notice at IE Singapore,’ said Tan Li Lin, director of business services at the government agency that is egging on Singapore companies to go international.

Many market researchers have come to the same conclusion - Indonesia is a large and fast-growing market for healthcare products.

Euromonitor in 2005 estimated that the country is the second biggest market in Asia for vitamins and health supplements. It tipped the market there to expand by 52.4 per cent by 2010.

More recently, in 2006, Business Monitor International (BMI) identified Indonesia as the second fastest-growing Asian market for pharmaceuticals, after China. It projected the market to keep growing at 10-15 per cent over the next five years.

‘BMI has estimated Indonesia’s drug market expenditure at US$1.29 billion in 2006 and it is expected to grow to US$1.48 billion by 2009,’ Mrs Tan noted.

Frost and Sullivan, another market researcher, reported that Indonesia’s total healthcare spending last year came to about US$7.9 billion - 56 per cent more than what Singapore spends.

‘Rising government expenditure on health care is an indication of the Indonesian government’s commitment to develop the health care sector,’ Mrs Tan said.

‘Rising government expenditure on health care is an indication of the Indonesian government’s commitment to develop the health care sector.’ - Tan Li Lin, director of business services at IE Singapore

But she pointed out that most Indonesians still cannot afford pharmaceutical products. Thus the government last year moved to put in place a compulsory national insurance scheme and introduced subsidies to push down the prices of drugs.

‘This caused the prices of generic drugs to drop by 5 to 30 per cent and forced many Indonesian pharmaceutical companies to look for cheaper alternatives abroad,’ Mrs Tan said. ‘This represents an opportunity for Singapore pharmaceutical companies to enter the Indonesian market quickly at a low price and establish their brand first.’

But she also added that Singapore companies may want to ask themselves if they want compete just on price - or they may want to aim at the middle and higher income segment where quality counts more.

Because Indonesia has a young population - only 5.4 per cent of Indonesians are 65 years old or older - Mrs Tan said that pharmaceutical companies there have concentrated on marketing multivitamins and supplements that strengthen immunity. Competition is understandably tough in this market segment.

But she noted that constant concerns about pollution, bird flu and other infectious diseases have also led to a fast-growing demand for supplements that boost immunity and energy.

At the same time, the emerging middle and upper working class is waking up to lifestyle ailments like diabetes, cancer and heart diseases, Mrs Tan said. So drugs and supplements that prevent or cure such illnesses are growing popular.

There is also a rising interest among Indonesians in herbal products which they see as natural and without side effects. And according to Mrs Tan, this is another niche area for Singapore’s traditional Chinese medicine business to corner.

IE Singapore said that providers of healthcare products in Singapore are well placed to break into the Indonesian market.

‘Singapore healthcare products are increasingly in demand beyond the local market because of their strong branding and quality manufacturing - and it is thus important for our players to leverage these strengths to capitalise on this potential growth in consumer base,’ Mrs Tan said.

‘While some of our manufacturers have already established inroads in Indonesia, we also have a sizeable group of manufacturers who are just starting to make headway into Indonesia.’

Among them: Integrated Contract Manufacturing, one of the largest pharmaceutical producers in Singapore; Fei Fah, a manufacturer and exporter of Chinese medical products; and Science Arts, a manufacturer, distributor and retailer of Chinese proprietary medicines.

‘Indonesia is the prime consideration of us as the healthcare business in the country has been growing steadily for the past years, and it has a huge population,’ said Ong Lye Hwee, marketing manager for Science Arts. ‘Generally, they are more receptive to traditional Chinese medicine.’

Science Arts, which deals in Chinese proprietary medicine, has found potential partners in Indonesia and is in the process of registering its products there.

‘Indonesia will serve as a viable platform for Science Arts to penetrate into other South-east Asian markets,’ Mr Ong said.

Singapore dealers in healthcare products who already have a long presence in Indonesia include Haw Par Healthcare (Tiger Balm) and Leung Kai Fook.

‘Tiger Balm is a well established and well known brand in Indonesia for nearly 30 years,’ said A K Han, executive director of Haw Par Corporation. ‘With a population of over 250 million, growing affluence and good brand awareness, Haw Par considers Indonesia one of our key markets.’

Indonesia was one of the first overseas markets for Leung Kai Fook’s flagship product, Axe Oil.

‘To accommodate the demand from the domestic market, we set up a factory in Jakarta in 1970,’ recalled Jimmy Leong, the company’s business development manager. ‘Till today, Indonesia remains as one of our major markets in which we believe we will continue to see growth for the next five years.’

Mrs Tan said that Singapore suppliers of healthcare products can enter the Indonesian market by the acquisition or joint venture route. They can also sell their products through agents or distributors. Or they can offer their services as contract manufacturers.

According to a Frost & Sullivan study commissioned by IE Singapore in March this year, nine in 10 of the Indonesian distributors polled were keen to tie up with Singapore companies.

And this is an invitation that Singapore companies should seize on.