‘In uncertain times, think long-term’

Despite current uncertainty on the global business scene and slowing domestic growth, Indonesia’s Astra International group believes it is more important than ever to focus on the long-term.

Speaking recently at a Leadership Dialogue forum at NUS Business School, Astra group president Prijono Sugiarto said the conglomerate’s strong core values, respected brand, professional management and focus on quality that would see it through the current downturn.

By focusing beyond short- and medium-term worries, he said Astra was committed to its vision of being a pillar of the Indonesian economy and would continue to invest with that in mind.

“I think we should really pave the road ahead. We cannot just say ‘this is a crisis, we should stop investing’,” he said. “So long as we know that there is good return, payback is OK, and that it can even strengthen our future, why should we stop?”

Finding synergies

Astra International
Corporate-Builing-2
Headquartered in Jakarta, Astra International is one of Indonesia’s largest conglomerates with more than 200,000 staff across 192 companies.

Founded in 1957 as a family business it now operates across six core businesses: automotive, financial services, heavy equipment, agribusiness, information technology and infrastructure.

It is currently the largest automotive producer and distributor in Indonesia (two- and four-wheeled) and has partnerships with brands such as Toyota, Peugeot, Daihatsu, Isuzu and Honda.

In 1990 the company listed on the Indonesian Stock Exchange

In July Astra which employs more than 200,000 people across its diverse portfolio of 192 companies announced an 18 per cent drop in net profit for the first half of the year, hit by falling demand in its core automotive, plantation and mining arms.

But Prijono said the firm has strong leadership in place and a culture that encourages managers to see challenging business situations as opportunities rather than something to be feared.

With that in mind, he said, Astra was focused on constantly improving cost efficiency, finding new synergies between its various companies, and seeking innovative ways to promote capital productivity.

“I think we have – and I am not trying to be arrogant – some of the best management in the country,” he said.

Astra is one of several benchmark publically listed Indonesian firms to see double digit falls in profits this year, although others such as state-run bank BNI have been hit significantly harder, seeing profits slashed by around half.

The downturn comes amid declining growth in Indonesia generally, pushed to its lowest level in six years by falling private consumption and a slide in international demand for commodities.

Around two-thirds of the country’s exports are commodities, the overwhelming bulk of which go to China. But Prijono said Astra had long been aware that China’s appetite was not infinite and was prepared for changing circumstances.

“We understood that the situation would eventually come when China was hit and that is basically the case,” he said. “That is why we need to consolidate.”

“I think we’re more than ready to weather the storm. Our balance sheet is strong. In the past we had a debt to equity ratio of 12 times, now we have practically no debt with 1.9 per cent leverage, basically.”

‘Communciation is key’

In the current climate Prijono said it was easy for firms to become distracted or panicked by short-term worries, but in Astra it was important for top management such as himself to ensure clear and constant communication about the group’s aims and direction.

ThinkAloud4“Communication is the key. We communicate to managers on top of what we communicate to the GMs and directors so that they understand the vision of the company. You cannot hide anything – they know, they read the papers.”

A central part of Astra’s strategy for “weathering the storm” he said was capitalising on the synergy between Astra’s various business arms – such as between its finance operations and its automotive suppliers and sales divisions.

Prijono said there were more than 60 initiatives active across the group involving different Astra-owned businesses supporting each other, and more in the pipeline.

“This is what we call operational excellence. We control and we review every month, and this is important.”

Car production centre

CARPLANTAnother focus of the firm he said would be on growing Astra’s international presence, particularly in its automaking division and making Indonesia a regional centre for car production.

“Currently Indonesian car exports are about 200,000 a year and 80 percent of that is from Astra,” he said.

Turning to the broader economy, Prijono said that fears of a repeat of the Asian Financial Crisis in the late 1990s or the 2008 crisis were unfounded and that Indonesia was now more resilient.

“There is a big difference between 2008, 1998 and today – they are three different animals,” he said.

“In 1998 the banks were not well capitalised. Today they are. In 2008 commodity prices were still OK. Today they are down, but Indonesia’s banks are better capitalised.”

He also rejected suggestions that the slowdown in the business climate meant it was time for firms to hunker down and avoid anything too adventurous. Instead the current situation meant innovation was all the more important.

“Innovation doesn’t always mean spending money,” he said. “Innovation can be as simple as making a suggestion or it can be big spending on capital – we have to be selective on that of course.”

Most-admired business

Astra, which has been named Indonesia’s most-admired business three times in a row by Fortune magazine, most-recently in 2014, has invested heavily in developing business leaders, encouraging modern management techniques and new ideas.

As part of that process the former family firm has established a systematic process to identify, attract, reward and retain the best leaders, sending several managers on external training programmes at institutions such as NUS Business School and Stanford in the US.

Prijono said this was central to Astra’s focus on making the firm an “asset to the nation” and a commitment to the principles of kaizen, or continuous improvement, adopted from its Japanese partners such as Toyota and Daihatsu.

“Whatever we do, we have to be better and better and better. That is a foundation for all us to run Astra as a business.”

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