I got this post about the Asian effect and MCD
A Sputtering Indonesian Market Collapse Leads U.S. Firms to Reconsider
Expansion Plans
By Keith B. Richburg
Washington Post Foreign Service
Monday, April 13, 1998; Page A20
JAKARTA, Indonesia-Members of the U.S. Congress home for Easter recess
and wanting to gauge American views on the Asian economic bailout might
well hear concerns about the price of french fries at a Jakarta
McDonald's. Or the cost of a Washington state apple at a central Java
supermarket. Or the soaring cost of the Georgia cotton needed to keep a
Tangerang textile factory alive.
Before the current financial crisis erupted here last year, erasing more
than 70 percent of the value of the local currency, Indonesia was
gaining importance as a trade partner and buyer for American products.
>From shampoo to fast-food chicken, from construction cranes to
California grapes, Indonesia -- with its 200 million people and a small
but growing urban consumer class -- was seen as one of the most
promising of the "emerging market" economies.
But the country's dramatic financial collapse has forced U.S. companies
to reassess that view and, in some cases, delay plans for expansion. No
one predicted the suddenness and extent of Indonesia's economic free
fall -- and now few are anticipating a recovery any time soon.
"It's not a pretty picture," said James Castle, a vice chairman of the
U.S. Chamber of Commerce in Jakarta and head of a business advisory
group that bears his name. He said consumer-oriented American businesses
"took advantage of the new buying power that the growth of the '90s had
generated. That buying power has just been savaged."
Castle said he has seen the effect of the crisis in the chamber's
membership roster, as many companies begin sending home their expatriate
staff members. Chamber membership is already down 15 percent this year,
he said. And while no statistics are available, other, anecdotal
evidence seems to confirm that American workers are leaving in droves.
"The current crisis has forced all companies to re-look at consumer
behavior," said John Murphy, managing director of Coca-Cola Indonesia.
For Coke, he said, "the key buyers are moms and teens, and they are
readjusting their spending habits accordingly. They have seen a sharp
decline in their purchasing power."
One of the hardest hit is McDonald's Corp., recently reported to be
closing more than a dozen of its 100-plus outlets here. "In the past
decade, McDonald's had made great strides here -- a lot of investment, a
lot of success," Castle said.
McDonald's, however, was badly hurt by large import costs, which soared
when the local currency, the rupiah, collapsed. For one thing, Indonesia
does not grow its own potatoes, so McDonald's imports them to make
french fries. Chicken is also expected to disappear here soon, with 90
percent of the poultry farmers already out of business because of the
high price of imported feed.
"They're really in a pickle here," said a U.S. agricultural analyst. One
of the changes at McDonald's has been to remove french fries from its
"value pack," which now includes just the burger and the soft drink.
Others in the food and beverage business are finding creative ways to
cope. One Italian restaurant recently opened with no menus -- "they
didn't know what the prices would be or what would be available," one
patron said. Instead, the staff brings out small portions of each dish
for customers to sample.
The local construction industry also has been hit hard. During
Indonesia's economic boom years of the '90s, new office buildings,
shopping centers and luxury apartment complexes sprouted across the
Jakarta skyline faster than the available space could be filled. Now
many stand unfinished or unoccupied, and construction work largely has
ground to a halt while the government and the International Monetary
Fund try to kick-start the economy. And that has badly affected
U.S.-based Caterpillar Inc., which supplies heavy equipment not just for
construction work here but for forestry, mining and the oil-and-gas
industry.
American agricultural exports to Indonesia also have suffered, as credit
here has largely evaporated. In 1996, the United States exported some
$888 million in agricultural products to Indonesia, according to
Commerce Department figures, but in 1997 that number dropped 8.69
percent, to $811 million, largely because of a drop-off at year's end
because of the crisis.
An agricultural analyst here estimated that this year, sales of American
consumer-oriented products, including fresh fruit, poultry and beef,
would drop off by at least half and likely more. Until the crisis began,
Indonesia had been the United States' second-largest Asian market for
apples and its eighth-largest foreign market for grapes.
The largest U.S. exports to Indonesia are cotton, used for textiles, and
soybeans, used for a local staple dish called tempeh. While soybean
imports largely have been protected under a state monopoly that is to be
abolished under the IMF agreement, cotton is down about 20 percent,
industry analysts say.
The irony for Indonesia, they say, is that with U.S. cotton prices now
at a low, textile-producing countries like Indonesia should be building
up their stocks.
The restaurant industry is considered particularly vulnerable, with one
food analyst predicting that "10 to 15 percent of the restaurants are
going to close down." Franchises and chains, like McDonald's, Wendy's,
Planet Hollywood and the Hard Rock Cafe, are expected to fare better.
"The independents are going to be hit harder," the analyst said. "They
really don't have any idea how to respond."
c Copyright 1998 The Washington Post Company |
