Maximizing International Trade Agreement: The Role of Distribution - - PowerPoint PPT Presentation
Maximizing International Trade Agreement: The Role of Distribution Services in Supporting Indonesia Economic Growth By: Ms. Siti Tri Joelyartini Mr. Geovani Kusuma Ms. Ria Devika Hayuningtias Presented in Trade in Sevices Forum 23 November
Maximizing International Trade Agreement: The Role of Distribution Services in Supporting Indonesia Economic Growth
By:
Presented in Trade in Sevices Forum 23 November 2016, Hotel Le Meridien, Jakarta, Indonesia
I. Why Distribution Services? II. Classification of distribution services in international Trade
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Distribution is the critical part of the value chain that links producers (farmers, food processors and manufacturers) to the end-consumers. With a 14.34 per cent share in the country’s GDP in 2010 the value of wholesale and retail trade reached some 331 billion Rupiah. Distribution is a labor-intensive sector in Indonesia. It employs around 17% of total workforce and grows steadily over the last decade and scoring average 7% of annual growth, which is higher than average national growth, 5.8%. Opportunity in distribution sector remained high, especially for micro, small, medium enterprises, since it is relatively easy to set up a business in this sector, for example by establishing small retail shop with limited capital and employee. 4
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DISTRIBUTION SERVICES
Retailing Services (CPC 631+632+6111 +6113+6121) Commission Agents’ Services (CPC 621) Wholesale Trade Services (CPC 622) Franchising (CPC 8929) Other Distribution Services
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Commission Agents’ Services (CPC 621)
On Agricultural raw materials and live animals (CPC 62111) On Food Products, Beverages and Tobacco (CPC 62112) On Fuels, Metals, Ores, Timber, Building Materials and Industrial and Technical Chemicals (CPC 62113) On Machinery, Industrial Equipment and Vehicles other than Motor Vehicles, Bicycles and Motorcycles (CPC 62114) On Furniture, Household Goods, Hardware and Ironmongery (CPC 62115) On Textiles, Clothing and Footwear (CPC 62116) On Pharmaceutical and Medical Goods and Cosmetics (CPC 62117) On Goods n.e.c (CPC 62118)
Wholesale Trade Services (CPC 622)
On Agricultural Raw Materials and Live Animals (CPC 6221) On Food, Beverages and Tobacco (CPC 6222) On Textiles, Clothing and Footwear (CPC 6223) On Household Appliances, Articles and Equipment (CPC 6224) On Pharmaceutical and Medical Goods and Cosmetics (CPC 6225) On Miscellaneous Consumer Goods (CPC 6226) On Intermediatts, other than agricultural; On Waste and Scrap and Materials for Recycling (CPC 6227) On Machinery, Equipment and Supplies (CPC 6228)
Retailing Services (CPC 631+632+6111+6113+ 6121)
On Food, Beverages and Tobacco (CPC 6310) On Pharmaceutical and Medical Goods and Cosmetics (CPC 6321) On Textiles, Clothing, Footwear and Leather Goods (CPC 6322) On Household Appliances, Articles and Equipment (CPC 6323)
On Hardware, Paints, Varnishes and Lacquers, Glass, Construction Materials and do-it-yourself Materials and Equipment (CPC 6324) On Office Equipment, Books, Newspapers and Stationery and Photographic, Optical and Precision Equipment (CPC 6325)
Other Specialized Retail Sales of Non-Food Products (CPC 6329) Wholesale Trade Services of Motor Vehicles (CPC 61111) Retail Sales of Motor Vehicles (CPC 61112) Sales of Parts and Accessories of Motor Vehicles (CPC 61130) Sales of Motorcycles and Snowmobiles and Related Parts and Accessories (CPC 61210)
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INDONESIA’S COMMITMENTS FOR DISTRIBUTION SERVICES
Indonesia’s commitments at The 9th Package of ASEAN Framework Agreement on Services (AFAS 9) :
venture up to 51%
venture up to 51%
Indonesia’s commitments at ASEAN-Japan CEP:
For the above-mentioned subsectors, FDI is only permitted to operate in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua but only operate in capital regency. It shall establish distribution supporting facilities. Foreign investors have the obligation to cooperate with at least 100 Indonesian SMEs yearly and all wholesalers shall maintain 80:20 configuration (80 is for local products). Mode 1 and Mode 4 are still unbound.
electrical appliances, office machineries, construction machineries supplied by a Japanese company in Indonesia, Mode 3 commitment shall be reviewed 10 years after the agreement enters into force. Mode 1,2,4 are still unbound
6310), FDI is allowed through joint venture up to 35%. Mode 1 and 4 are still unbound
Indonesia has not committed the Distribution Services Sector at: Multilateral Fora ASEAN-China TIS ASEAN- Australia-NZ FTA ASEAN-India TIS ASEAN-Korea ATS
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Direct Job Creation
dominant: a major contribution to job creation because of the ease of creating a small retail outlet. Impact Importance for Manufacturing Competitiveness
goods and services distributed. The competitiveness of producers of manufactured goods is also impacted by their access to efficient and competitive distribution services. Development
services The Development
Economy
contribution in the
* multiplier effects * infrastructure services
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Retail Structure in Indonesia
(according to its management system)
Traditional Retail
product prices. Modern Retail
system;
fixed price that is imprinted in every product. 12
Before the 1960s, traditional retail was in form of independent retailers 1960 – 1990, modern retail came up in various formats such as mass merchandiser and grocery 1990 – 2000, the development of Convenience Store, High Class Department Store, Branded Boutique (High Fashion) and Cash and Carry 2000 – 2010, the era of e‐retailing. The electronic‐based retailers or e‐retailing began to develop such as Multipolar Group with LIPPOSHOP, Sanur, Click and Drag and Gramedia on‐line 2010 – Present, it is the era of e‐retailing and specialized market enlargement Source: Document 2013/SOM2/GOS/WKSP/009
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Source: Euromonitor
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Source: Ueno, A. et al. (2014), “Services Trade Restrictiveness Index (STRI): Distribution Services”, OECD Trade Policy Papers, No. 173, OECD Publishing, Page 16.
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12 Services Sectors
No Services Sector Share of Domestic Demand (%) Conclusion Based on I-O Table
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Business Services 102,43 excess demand
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Communication Services 100,24 excess demand
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Construction and Related Enggineering Services 100,04 excess demand
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Distribution Services 84,50 excess supply
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Educational Services 100,64 excess demand
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Environmental Services 2782,73 excess demand
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Financial Services 102,94 excess demand
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Health Related and Social Services 101,98 excess demand
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Tourism and Travel Related Services 100,94 excess demand
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Recreational, Cultural and Sporting Services 95,71 excess supply
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Transport Services 106,54 excess demand
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Other Services not included elsewhere 100,01 excess demand
PRESISI INDONESIA Research Source: Indonesia I-O Table 2010, BPS (2015), processed.
Share of Domectic Demand is a percentage from Domestic Demand towards Domestic Output
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No Business Type of Business Destination Country 1 Metro department store Department store Singapore, Malaysia, China 2 Alfamart Grocery retail Vietnam (*block by regulation) 3 Es Teler 77 Fast Food Restaurant Malaysia, Singapore, Australia 4 J.Co Donuts & Coffee Bakery retail Malaysia and Singapore 5 Edward Forrer Shoes Shoes chain store Australia, Malaysia, Hawaii 6 Ayam Bakar Wong Solo Restaurant Malaysia 7 Bakso Kota Cak Man Restaurant Timor Leste 8 Kebab Turki Baba Rafi Restaurant Malaysia
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Regulations governing the relationship between traditional and modern retail (e.g. location/spatial planning). The regulations governing the relationship between traditional and modern retails is stated in the Presidential Regulation Number 112 Year 2007 and the Minister of Trade Regulation Number 53/M‐DAG/PER/12/2008
Shopping Center, and Modern Store. The Ministry is currently preparing the regulation related to the electronic trade (ecommerce) that will regulate the electronic‐based retail transaction. 20
Several Indonesian regulations play an important role in modern retail expansion: MOT Regulation No. 70/2013 and its amendment, Regulation No. 56/2014, “Guidelines for Structuring and Development of Traditional Markets, Shopping Malls, and Modern Stores/Outlets” : Limits private label items sold in modern outlets to only 15 percent of stock keeping units (SKU). Modern stores must sell a maximum of 80% domestic products, for specialty stores, stand alone brand/ outlet where product uniformity through global value chain is required, have yet to have a production base in Indonesia, and
citizen in Indonesia. Ownership of retail outlets is limited to 150 stores. Companies exceeding this cap must franchise. Retailers operating more than 150 stores prior to regulation’s implementation (MOT 56/2014 implemented September 17, 2014) are permitted to continue operating with that number of stores. Stores that sell less than 80% of locally produced products will be provided a grace period of two years to adapt.
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Presidential Regulation No. 44/2016 Concerning Business Fields that are Closed and are Conditionally Open for Investment : Referring to this regulation, retail sector in various product still requires 100% local capital. Regulation regarding supermarket with sales floor area less than 1200m2 and minimarket with sales floor area of less than 400m2 including Convenience Store and Community Store also requires 100% local capital. As for Department Store (Retail) with sales floor area of 400m2 - 2000m2, requires foreign investment up to 67% and a special permit from the Ministry
a standalone; and (ii) the addition of outlet stores will be based on export performance (performance pay). And the requirement for trade distributor not affiliated with production is 67% maximum foreign capital.
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Opportunity: Creating opportunity for distribution foreign investor especially wholesale services. Challenges for foreign investor in Indonesia: Using domestic products; limitations on ownership; lack of transparency with regard to rule of law.
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Retailing services sector that composed of several sub-sectors with varying characteristics (e.g. food retail, fast moving consumer goods, clothing, ets) requires government awarness, supports and action in order to create more efficient regulations. Reducing services restrictions can boost economic growth in Indonesia. Less restriction in the services sectors and more open services trade and investment will lead to efficient and high quality services. This will give Indonesian services supplier opportunities to enter foreign market particularly in distribution services. Indonesia’s well-established services suppliers who have accessed abroad market have to maintain services standard and quality in order to gain bigger market.
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Government needs to engage with private stakeholders in developing regulations. Government needs to deregulate its restrictive domestic regulations that cause difficulties for foreign services suppliers to be established in Indonesia. Government of Indonesia needs to learn best practices from other countries who have similar circumstances with consideration of stakeholders. Private business and government need to be more active in developing SMEs. Indonesia distribution services suppliers need to improve their competitiveness in order to compete in foreign market. Modernizing retailing services needs to be supported by the government in improving domestic infrastructure, such as telecommunication, internet access, supply chain, delivery and electronic payment systems.
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