JAKARTA. Indonesian companies are bracing for fiercer competition from their counterparts in Southeast Asia as the country has become one of the most attractive expansion destinations for regional companies in their efforts to take advantage of the opening of the ASEAN Economic Community (AEC) later next year.

In its newly published report, the Boston Consulting Group said that with their larger populations and growing economies, Indonesia, Myanmar and Vietnam had become the favorites of regional companies carrying out expansions ahead of the establishment of the single ASEAN market.

The report, titled Winning in ASEAN, How Companies Are Preparing for Economic Integration, released on Tuesday, was based on a survey participated in by 40-60 respondents across key ASEAN markets.

Among the attractions were growing middle classes and affluent households, as well as abundant natural resources.

However, the three countries were considered the most difficult markets by 40-50 percent of respondents, citing issues such as protectionism, opaque regulations and histories of political instability, scarce talent and limited infrastructure.

But despite such problems, 18 percent of respondents still expected their companies to carry out expansions in Myanmar, while 19 percent expected to expand to Indonesia and Vietnam, the report read.

Meanwhile, not all of the Indonesian companies surveyed were apparently enthusiastic about the AEC, despite taking steps to face the integration. About 6 percent of them said that the AEC would give them significant business opportunities and 39 percent said that it was somewhat of an opportunity. 

On the other hand, 33 percent said that the AEC was to a moderate extent a threat to them and 9 percent said that they would face significant threats when the AEC was fully realized.

“Indonesia is Southeast Asia’s biggest market, domestic companies have the most to lose from foreign competition, suggesting that some business leaders perceive that their companies are at a competitive disadvantage with regard to those organizations,” the Boston Consulting Group says.

Meanwhile, according to the report, 90 percent of Indonesian companies with sales of more than US$5 billion said they expected to expand within the region, while only half of companies with less than $500 million in revenue planned to do the same.

Private pharmaceutical firm Kalbe Farma and state cement manufacturer Semen Indonesia are two local firms that have begun expanding to neighboring countries. At present, Kalbe exports some of its products to Malaysia, Myanmar, the Philippines, Singapore and Vietnam. Kalbe finance director and corporate secretary Vidjongtius said that the integration would provide the publicly listed firm with more opportunities to expand overseas.

“We are hoping to see overseas sales contribute 10 percent of our total revenue by 2020, up from the current 4 percent,” he said.

Semen Indonesia corporate secretary Agung Wiharto said that the major cement maker was ready to face higher competition from other foreign firms. “We have been competing against foreign players such as Holcim and Lafarge for quite some time, so this is not new to us,” he said. (Tassia Sipahutar)

Editor: Sanny Cicilia