Indonesia: Room for One More?

Since then, it established a wholly-owned subsidiary, PT Anugerah Lubricant Indonesia, and invested in a local warehouse to serve as a hub for lubes made by its toll-blenders in Singapore as well as additives imported from the United States and Europe.

Bardahl Asia Pacificwas set up in 2006 as a regional head office and produces a wide range of lubricants and greases for automotive, off-highway, marine and industrial applications, many of these specially formulated for the 26 countries to which it supplies lubes in the Asian market, according to the companys website.

However, the companys recent foray into Indonesia is not its first. We stopped selling lubricants in Indonesia about 11 years ago, Fletcher said during an interview with LubesnGreases. Our then-distributor decided to pursue distribution of their own branding and [Bardahl was] unable to find or locate distributors. As a result, the firm currently only holds about 1 percent of the Indonesian lubricants market, Fletcher noted.

Because its such a competitive market, Indonesias lubricant companies often only appoint distributors that will carry their brand exclusively. Some even go further, with separate distributors between product ranges, said Hutomo Hadi Saputro, an associate consultant at Ipsos.

For example, passenger vehicles and motorcycle lubricants are under separate authorized distributors in the case of Shell, or between automotive and industrial lubricants in the case of ExxonMobil, he added.

Resellers also sometimes have different selling and purchasing contracts in the various parts of Indonesia, an archipelago nation with fragmented infrastructure spread across 17,508 islands. Indonesia is a vast country, Fletcher said. We foresee that logistically it will be a challenge.

Climbing over Barriers

Bardahls origins begin in 1939 when Ole Bardahl, a Norwegian immigrant who settled in the predominantly Scandinavian community of Ballard in northwest Seattle, purchased a small chemical company and began developing formulas for additives. The company remains a family-run enterprise, with Evelyn Bardahl McNeil serving as chairman and her husband, Hugh McNeil, serving as president and CEO.

Today, Bardahl supplies lubricants and additives to over 90 countries and operates eight blending and packaging facilities in the United States, Brazil, Argentina, Italy, Belgium, Singapore and the Netherlands. Bardahl also has offices in France, Spain, South Africa, India and the United Kingdom.

The companys wide product slate includes additive treatments for engine oils, transmission fluids and fuels; passenger car, heavy duty diesel and motorcycle engine oils; gear oils; hydraulic and metalworking fluids; turbine oils, marine diesel engine and outboard motor engine oils; greases for numerous applications; and products for radiators, cooling systems and other components, its website boasts.

The main products that Bardahl supplies to Indonesia are passenger car motor oils, motorcycle engine oils and some industrial oils, said Fletcher. The company sells its lubes in Asia-Pacific under the Kiwami, Premo C60 and Pulsar brands for passenger car motor oils, Power and Dizel brands for heavy-duty diesel oils and Moto brand for motorcycle oils.

In Asia-Pacific, the engine oils meet industry specs from the American Petroleum Institute, the Japanese Automotive Standards Organization and the National Marine Manufacturers Association. The company also has around 20 approvals from original equipment manufacturers such as BMW, Hyundai, Porsche, Volkswagen, Volvo, Cummins, Detroit Diesel, Daimler, GM, Mack and Renault.

With 21 Indonesian distributors located from Sumatra to the easternmost province of Papua, Fletcher acknowledged that supply can be difficult. We will have to ensure that products are delivered to customers in various parts of the country in a timely manner while managing the warehousing, logistic and shipping costs in order to keep our prices competitive.

Indonesia has other costs that influence pricing, Ipsos Hutomo said, such as its many requirements for certifying and registering products. Fletcher concurred. Our lack of local experience in terms of setting up our own operations was another challenge, he said, citing processes such as registering Bardahls myriad products with local agencies, setting up the foreign-owned company and understanding the countrys taxation structure.

Although Bardahls imports from Singapore wont be subject to tariffs, they will be prone to other costs, such as a 10-percent sales tax and a 10-percent duty for insurance and freight.

Surveying the Market

Regardless of whether theyre imported or not, lubricant margins are known to be tight in Indonesia, Hutomo said. And price is the most-considered factor for end-users. Indonesian consumers are not typically aware of the long-term cost savings of using a more expensive lubricant product, or of what differentiates one lubricant product from another, he added. Proactive education of products cost-saving benefits and maintaining customers trust is key.

In Indonesias commercial market, fleet owners are sometimes deemed passive when it comes to learning about lubricant brands and products, Hutomo added. The lubricant distributor should take the first step in establishing and maintaining a relationship with potential customers. In the passenger car segment, workshop mechanics influence consumers choice of lubricants, as the typical Indonesian driver is less knowledgeable when it comes to maintenance.

Bardahl, on the other hand, is more optimistic about Indonesian consumers. [Indonesia has] a well-educated society whose drivers really understand the need for quality products, ensuring the extended life of their vehicles and industrial equipment, Fletcher said.

Local technical certifications and product registration can be a challenge, too. Indonesia plans to establish lubricant requirements under the Indonesian National Standard (SNI) to ensure compliance with quality and technical specifications. SNI is only applicable for lubricants sold in Indonesia, not those produced locally for export.

However, Hutomo noted, industry experts doubt that SNI will be implemented this year because of Indonesias bureaucratic and lengthy decision-making processes and the limited infrastructure to support testing and validation of lubricant quality.

These standards are defined by multiple parties like government bodies, technical teams, certain lubricant producers and lubricant and consumer associations, he said. When SNI is implemented, obtaining certification of products may spell extra cost and delays in product launching, as it may also involve the approval of various agencies.

Looking to the Hills

Still, to gain a foothold in the countrys aftermarket segment, Bardahl said it needs to establish better brand presence with a hands-on approach. Fletcher noted that the company has been doing local demonstrations of its products performance, such as a 10,000-kilometer motorcycle tour, for consumers and mechanics.

We are going to do another [motorcycle] tour covering four countries with that same group of bike riders again next year. Well be crisscrossing Indonesia, Singapore, Malaysia and Thailand, said Fletcher.

Once a demonstration is satisfactorily proven, we create customer loyalty as well as an aid to future marketing tools for us, he continued. In addition, basic and advanced training on Bardahls products is done regularly for consumers and mechanics.

With a local team and company on the ground, Bardahl hopes to gain a good understanding of what the market wants, what the consumers expectations are, offering the right products at the right price with reliable services, said Fletcher.

The company is also working to sell more of its products manufactured in the United States instead of solely distributing oils produced in Singapore. We are looking very hard at supplying lubricants from the U.S. to the Asia-Pacific region. We have good quality base oils and production in Singapore, but Made in America does add a little value to it, he explained.

In terms of volume, Fletcher estimates that Bardahl Asia Pacific holds between 10 and 15 percent of the companys total global sales, but hes aiming for 70 percent within the next five years. Weve really got an expansion program going on. We opened up a new office in China, and in Indonesia we basically control our own destiny without having to rely on set distributors.

Kiara Candelaria contributed to this article.