“Competition is quite severe”

Hankook Tire, the biggest tire producer in Korea and seventh largest in the world, are planning to build a new tire manufacturing plant in Indonesia and invest total US$1.1 billion in seven years to 2018. Outside South Korea, Indonesia is the third country as a production based for Hankook, beside Hungary and China. As the world’s second largest natural rubber producer, Indonesia with its abundant raw material availability makes it a great place to build tire factory. To find out more about Hankook investment plan in the country here is the short interview with Hyun Bum Cho, executive vice president of Hankook Tire, South Korean company:

Hyun Bum Cho

Me: What makes you confident to invest in here while there are already so many players in the industry like PT Gajah Tunggal Tbk, PT Multistrada Arah Sarana Tbk, and PT Goodyear Indonesia Tbk?
Cho: Tire industry is a very competitive industry. Whether you go anywhere its still competitive. The competition is quite severe so it wasn’t the competition environment that decided for us to come to Indonesia. It was more of political stability, socio economic stability, and the growth potential is very nice. We like the demographic here, a lot of young people so the future looks very bright.

Me: Why do you choose Indonesia as a place for investment?
Cho: It’s the biggest country in ASEAN market. We want to get to local market, but it going to takes time, as you say there are already Gajah Tunggal, Goodyear, and Multistrada and everyone is here. We want to take time to marketing our brand. It’s more of a long term [investment]. So we are not in a hurry to penetrate domestic market but ultimately we will try to.

Me: What is your marketing strategy in here?
Cho together with JB Park, vice president corporate strategy: We are going to export almost 90% of our production to North America and Middle East region. After that we are going to convert into the Asian market.
Cho: [At the first phase] we will also export to other Asian countries, Europe, US, and Middle East. And then later on we will try to penetrate the Indonesian market. Still, it’s a very big market here.

Me: In terms of incentives, is Indonesian government giving you a better package compare to any other countries in the region?
Cho: Usually the incentive is more standardize, [you can find it everywhere] all around the world. Our investment in Hungary, long time ago, the incentive was very very big. You would not believe. But these days, especially in emerging market, where there are more demand and supply, the incentives are more standardize. Its quite competitive, it’s not smaller than any other country, but it’s not bigger than any other country either. We choose Indonesia because we trust BKPM [Badan Koordinasi Penanaman Modal/Indonesia Investment Coordinating Board] very much. They did a very good job. And as I told you, I like the scale of economy of the country. A lot of people, a lot of potentials, a lot of land. If it is big land a lot of roads to be build, cars to be use, a lot of tires to be use.  So its very simple mathematic or logic.

Me: It is mention in the press release that you are having a strategic alliance with Michelin. So does Gajah Tunggal, what is your comment on this?
Cho: No, officially our strategic alliance with Michelin is over two years ago. So we are no longer associated with Michelin anymore.

Me: You are going to build a new tire manufacturing plant in Bekasi, West Java. Are you going to build also a styrene butadiene rubber (SBR) or synthetic rubber and tire cord manufacturing in here?
Cho: No, we don’t upstream that much. We don’t build our own tire cord [facility] or anything else. But if we build our tire factory here, naturally a lot of suppliers will be coming to us.

Me: So, for some you will take that component from Indonesian companies?
Cho: Yes. Actually we have a lot of suppliers over our value chain. Korean makers in other companies are very interested in Indonesia to come along with us. Simultaneously we are going to look other domestic, Indonesian companies, to be [part of] our suppliers.

Me: You are mentioning about Hankook Tire’s mid-term business goal called the 5-1-1. What is it?
Cho: It’s more of like a slogan. We want to be the fifth [largest in the world] in terms of revenue, and we also want to be the first in productivity and profitability.

Me: So how is your financial performance?
Cho: We will achieve about $6 billion in sales this year. And our operating profit about $600 million-650 million. We have enough cashflow, our debt level is quite low. We will keep investing in emerging countries just like Indonesia.

* Interview took place after the welcoming ceremony of Hankook Tire’s investment plan at the BKPM’s office in January 20, 2011. To see the news: Hankook’s new investment plan.