Investment Opportunities in the Rubber Industry Amid the Domination of the Motor Vehicles Market in Indonesia

Increase in the Number of Motorized Vehicles and the Quality of Tires in Indonesia

Motorized vehicles are a mode of transportation that is inseparable from people’s activities, especially in Indonesia with a population of 257.77 million people, as recorded in data from the Central Statistics Agency (BPS) in 2022. As of last December 31, the Indonesian National Police (Polri) recorded that the number of motorized vehicles in Indonesia reached 152.51 million units. Based on this number, 126.99 million or 83.27% were motorcycles and 19.31 million were passenger cars. The large number of motorized vehicles is of course greatly influenced by the purchasing power of the Indonesian people, which then encourages motor vehicle manufacturers to compete to meet the increasing demand in Indonesia.

The Indonesian government has targeted Indonesia to become a resilient industrialized country in 2025 by referring to 3 (three) main missions of the national industry, namely 1) economic growth above 7%, 2) increasing investment attractiveness and national competitiveness, and 3) job creation and poverty reduction. The rubber industry is one of the industries being encouraged by the government to help increase national economic growth and sustainable development because until now the potential for rubber commodities in Indonesia is still very promising. This can be proven from the fact that Indonesia occupies the first position as a country with the largest rubber production area in the world and produces natural rubber of the highest quality. Based on data from FAO, Indonesia is also the largest rubber exporting country in the world with a total contribution of 34.30% of the world’s natural rubber exports.

Abdul Aziz Pane as Chair of the Indonesian Tire Entrepreneurs Association (APBI) also stated that Indonesia’s tire export segment is in the middle class, which has met world-class quality standards such as those in the Middle East, America and even Europe. This is because the type of Indonesian natural rubber that is produced for tires is SIR 20 TSR (Technical Specified Rubber) rubber which originates from the sap of the Hevea Brasiliensis tree. The sap is then coagulated, refined and heated to be used as a raw material for making tires and hose tubes for engines without any chemical admixture. Meanwhile, the types of rubber produced by other countries, namely Thailand and Vietnam, must first go through a mixing process with several chemicals in order to achieve the quality of natural rubber from Indonesia.

Tires Industry

Indonesian Tire Companies Dominate the Market

Tire companies in Indonesia are increasingly improving their performance in the automotive world. Various types and brands of vehicles are increasingly diverse, and that encourages tire companies in Indonesia to increasingly produce their best quality. Increasing public demand has also challenged tire manufacturers to create new variants for consumers in Indonesia. Here are some of the biggest tire companies in Indonesia that produce good quality tires:

PT Gajah Tunggal Tbk
PT Gajah Tunggal Tbk is the largest tire manufacturer in Southeast Asia, producing and distributing high quality tires for SUVs, light trucks, off-road vehicles and motorcycles. Even in 2021, PT Gajah Tunggal Tbk’s net sales reached Rp. 11.19 trillion, or up 16.47% from 2020, which is of course a great achievement.
PT Bridgestone Tire Indonesia
PT Bridgestone Tire Indonesia is the largest rubber and tire company in the world, which is part of the Ridgestone Corporation, headquartered in Tokyo, Japan. The company produces tires for passenger cars, commercial trucks & buses, light trucks & vans, forklifts, inner tubes and tubes.
PT Goodyear Indonesia
Compared to the two previous companies, PT Goodyear Indonesia is the oldest tire producer. The company is engaged in the development, distribution and sale of tires, including aircraft tires and other related components.
PT Hankook Tire Indonesia
PT Hankook Tire Indonesia is the largest tire manufacturer in Korea, which was founded in 1941. As the number 1 tire manufacturer in Korea, this company has achieved sales of USD 4,800,000,000 per year.

There are still several tire manufacturing companies in Indonesia with world-class sales and quality achievements. Regarding the domination of several Indonesian tire companies in the international market, the Ministry of Industry (Kemenperin) as the regulator encourages the natural rubber processing industry sector to be more productive, competitive and able to diversify products, one of which is through Foreign Investment (FDI). This strategic step can simultaneously spur the downstream program and strengthen the domestic manufacturing sector. Apart from that, the government is also making other efforts to facilitate the rubber industry by increasing rubber prices, one of which is through international diplomacy with natural rubber producing and consumer countries that are members of the International Tripartite Rubber Council (ITRC) and The Association of Natural Rubber Producing Countries. (ANRPC).

Strategy and Business Focus on the Indonesian Tire Market

The business opportunity for rubber commodities is very promising because the raw material for synthetic rubber is still limited and the need for natural rubber is increasing (2.5%/year), and Indonesian natural rubber has the technical specifications needed by the tire industry and various other industries that produce materials derived from rubber. The government continues to accelerate the development of the rubber industry, one of which is by attracting Foreign Investment (PMA). A number of manufacturers from China, the United States and Eastern Europe have shown interest in investing in the rubber tire industry in Indonesia.

Foreign Direct Investment in the rubber tire industry can support economic growth in Indonesia by:

Increasing Tire Production
Approximately 70% of passenger car tires and 30% of motorcycle tires produced in Indonesia are exported to more than 70 countries, and the majority are exported to the United States. Increased tire production will also be in line with increased welfare through the availability of jobs in tire manufacturing companies.
Increasing Foreign Direct Investment (FDI)
PT Gajah Tunggal Tbk and PT Hankook Tire Indonesia are currently capable of producing tires for heavy mining equipment, but the production capacities of the two companies still do not meet the current demand. The fastest alternative is to import tires from other countries. Although Indonesia can import tires to meet domestic demand for tires, the government limits import activities by applying the National Standard (SNI) to all tires imported into Indonesia, as stated in Minister Regulation No. 5 of 2019 concerning Provisions for Importing Tires, which has been revoked and replaced with Minister Regulation No. 20 of 2021 concerning Import Policies and Regulations.

There are 3 positive impacts from the implementation of these regulations, as follows:
- Encouraging foreign investors to set up tire factories in Indonesia so that Indonesia no longer needs to import tires from abroad;
- Increasing the number of foreign investors to invest directly through Foreign Investment (PMA), so that Indonesia no longer needs to import tires for heavy mining equipment because Indonesia can produce them domestically;
- The presence of foreign investors carrying out Foreign Investment (FDI) can increase the working capital for domestic companies, and that of course can help develop the technology needed to produce tires for heavy equipment.
Investment opportunities for the development of the downstream rubber industry are presented in the infographic of tire export and import data for 2021, as follows:
[Tire Export and Import Data in Indonesia for 2021]
Source: industrikaretdanplastik.weebly.com
Massive Development of the Electric Vehicle Industry
The Indonesian government is intensively encouraging activities to accelerate vehicle electrification. Related to this, several tire manufacturing companies in Indonesia have started to develop tires for electric cars. For information, the development of electric car tires is different from the development of conventional car tires. To produce electric car tires, there are several things that need to be considered i.e. related to fuel efficiency, lighter mass, the use of Low Rolling Resistance technology, and matters that affect power consumption, as well as smart concepts such as the completeness of sensors to detect various things like air pressure and tire wear.

Several tire manufacturing companies in Indonesia that have shown their commitment to this are PT Goodyear Indonesia, PT Gajah Tunggal Indonesia, Hankook Tire and PT Bridgestone Tire Indonesia. The current development of electric vehicles is certainly an opportunity especially for foreign investors in the main component industry sector i.e. tires, which of course have quite high economic value. This also has a positive effect on improving people’s welfare because there will be more jobs that can absorb more workers, especially amid the current growth in enthusiasm for electric vehicles.

Legal Basis Regarding the Tire Industry in Indonesia

Minister Regulation Number 20 of 2021 concerning Import Policy and Regulations;
Minister Regulation Number 78/M.DAG/PER/9/2015 concerning Revocation of MinisterRegulation Number 45/M-DAG/PER/6/2015 concerning Provisions for Importing Tires.
Minister Regulation No. 76/M-IND/PER/9/2015 concerning Compulsory Enforcement of Indonesian National Standard for Tires

***

About ADCO Law:

ADCO Law is a firm that offers clients a wide range of integrated legal services, including in commercial transactions and corporate disputes in a variety of industry sectors. Over the course of more than a decade, we have grown to understand our client’s industry and business as well as the regulatory aspect. In dealing with business dynamics, we provide comprehensive solid legal advice and solutions to minimize legal and business risks.

From Upstream to Downstream, We Understand Your Industry. In complex transactions as well as in certain cases, we are actively engaged with financial, tax, and environmental specialists, accountants, and law firms from various jurisdictions to give added value to our clients. Having strong relationships with Government agencies, regulators, associations, and industry stakeholders ensures that our firm has a holistic view of legal matters.

ADCO Law is a Proud Member of the Alliott Global Alliance (AGA) in Indonesia. Founded in 1979, AGA is one of the largest and fastest-growing global multidisciplinary alliances, with 215 member firms in 95 countries.

As a law firm, we also believe in regeneration. To stay abreast of business changes and stay relevant, our formation of lawyers is comprised of the top graduates from Indonesian and international law schools.

For further details, please contact:

Alvin Mediadi, Business Development Manager, Indonesia

+628 57 234 89625, [email protected]

Maulidza Oemar, Public Relations, Indonesia

+62 877-7528-1922, [email protected]