UTE: Serious play

It’s safe to say that by now, the global business community is well aware that Indonesia is a promising future market. But few understand how rapidly the ‘tiger’ economy is actually growing.

Home to the world’s 16th-largest economy, the archipelago nation can draw on a stimulating mixture of domestic consumption and productivity growth, alongside a wealth of natural resources such as coal and gold. According to global consulting firm McKinsey, the country could become the world’s seventh-largest economy by 2030 – overtaking both Germany and the United Kingdom. 

One company contributing to that rush for development is UTE, a subsidiary of PT Astra International, the conglomerate representing Toyota, Peugeot, Daihatsu, BMW, Isuzu, Komatsu, Scania and Nissan Diesel in Indonesia. Since 1983, UTE has grown from a small-scale mining component business to become a $150 million corporation employing more than 700 people. But who would have thought the business philosophy behind it all is based – in part – on a plastic toy?

“One main inspiration when it comes to product design is Lego,” says UTE President, Loudy Irwanto Ellias. “The trailer industry is all about mass customisation – the ability to produce many different products from a relatively small amount of common components that are readily available. We wanted to harness that concept and use it to our advantage.”

In other words, UTE’s trailer manufacturing business, sold under the brand name Patria, is all about simplifying a product that is complex by definition – a concept going back all the way to Leonardo da Vinci, who mentioned early on that “simplicity is the ultimate sophistication.”

But there is a second dimension to the Lego allegory. The re-invention of the Danish toy company over the past decade has become a prime example of how to future-proof a business by listening carefully to what the market is asking for and having the courage to make swift decisions if need be.

In a way, UTE and the Patria brand went down the same way. Starting off supplying the mining industry, the company soon realised there was a market for a custom-designed forklift and application-specific coal mining equipment – so they realigned the business objective. When the local industry slowed down due to a sluggish commodity market, Patria evolved again – now developing equipment that was in demand overseas, for example side-tippers, heavy-duty dumping equipment or even water tanks, all while exploring the booming forestry and agricultural industry as a new target market.

The result is a self-perception that is somewhat different from the global competition. “We are an engineering solutions provider that is very close the actual target market,” says Ellias. “We are renowned for offering a customised product based on our clientele’s individual requirements, taking into account the application at hand. We don’t just build something people may or may not need.”

It’s not the typical ‘one-size-fits-all’ approach that is still prevalent in Asian manufacturing, but somewhat of an “invitation to play,” as Ellias has it. “We have both all the building blocks required and the know-how, and we are here to create something from it.”

It’s a Lego mentality, cast in steel and fuelled by the rapid development of Indonesia as an international marketplace. After all, the country has an attractive value proposition. Over the past 20 years, labour productivity has improved notably; and productivity and employment have risen in tandem in 35 of the past 51 years, according to McKinsey.

Today, some 700 people help keeping the Patria philosophy of smart engineering and individualised service alive. After taking the leap to the global market, the company is now ISO certified and produces around 3000 units a year for the industrial and construction industry; as well as the mining and resources segment. Specialty equipment for forestry and agriculture is also in the mix. But, the executive team is already thinking about refining the portfolio again.

“We always monitor the market and try to understand what will be needed next,” says Ellias, indicating that Patria branded cement mixers are already on the road in Indonesia as well. But it’s not just UTE’s ability to stay close to the market and manage mass customisation that is making for the company’s on-going success, it’s the commitment to provide sustainable value added for the stakeholders involved. “You need to make sure you actually help people achieve their goals,” Ellias explains. “You need to create a win-win situation.”

To Ellias, that commitment is particularly important now that the coal industry is suffering from a slow-down due to the plunging coal price. “The current situation directly affects our heavy equipment business, so to reach our 2012 numbers again, we need to be flexible. That’s what we are all about.” At the moment, Patria’s market share in the mining segment is somewhere around 80 per cent nationally, but in the ‘classic’ road transport market, the brand is still relatively small, leaving enough room for improvement – preferably though homemade innovation.

Maybe that is also we does not refer to the staff as employees, but as “outstanding individuals” that help both company and country grow. Most of them are Indonesian born and educated, ensuring the product that is truly Indonesian made.

“We believe Indonesia has abundant resources when it comes to skilled labour and building materials,” he says. “But above all, we are very proud of the ‘Made in Indonesia’ label, also because the local Government has recently been promoting the use of local products.”

According to the Government’s TKDN regulation (Total Konten Dalam Negeri – Local Total Content), about 40 per cent of the materials used in each product have to be locally made. “It’s a unique econo-political situation and we are certainly proud to see so much local content involved in the process, but it’s also a balancing act for thriving global business like us,” Ellias explains.

“As a company we follow many international standards for every product. For mining products, for example, we follow the Australian and New Zealand Design Rules – but some of the local components just don’t meet them. As a result, we have to import those components from abroad and balance it out with locally made equipment.”

While that effort is somewhat of a burden to the business, the result is likely to justify it. By focusing on overseas business and exploring new business segments, Ellias is confident the Patria brand will be able repeat the 2012 result in the current season as well – all while sticking to local products and intelligence.

The ‘Lite’ series of the current mining portfolio – above all, the to-selling side-tipper range – is now supposed to balance out the hole created by plunging local demand. The oil and gas sector is also under observation at the moment, as well as the maritime market. New dump vessel and tipper vessel models are already underway.

“We need to keep moving,” says Ellias, knowing that it’s not just Government regulations and the unstable coal market price that will challenge the business in the time come, but also the growing international competition urging into the more than promising Indonesian market. But Waylay does not shun the comparison.

“We always benchmark our business against world-class heavy industry companies, both in the heavy equipment and maritime segment. And right now, we strongly believe the reasons why customers purchase our products is because they are more efficient and superior in terms of quality,” he adds, revealing that the concept of Total Cost of Ownership is key to decision-making in Indonesia. “We do not only provide products that have an increased hauling capacity, but also provide a longer service life.”

In that sense, the 242-million people nation is all but an “emerging and developing country” – even though the International Monetary Fund’s 2012 World Economic Outlook Report did classify it as such. “Just look at the standard spec of a local trailer,” says Ellias, cementing the impression that the commercial road transport industry is already at eye level with the international standard. “The Indonesian market mostly uses modern air suspension systems to minimize tyre wear, and we also use the latest in axle technology as well. On top of that, we recommend our clientele to use ABS technology in every vehicle as well.”

According to UTE, the importance of the articulated trailer as a transport tool will keep growing, and with it the development of new technology. “We are optimist that the Indonesian trailer market will continue to grow, especially in the mining sector. After all, the average distance we need to cover is greater than 60km, so road transport is the only feasible alternative,” he says.

Unfortunately, decisive variables such as road conditions, legislative framework and administration are still to be improved to catch up to the standard already created on the technology side. Overall, though, Ellias is convinced the G-20 nation is on a good way – and the company is working closely with local authorities to tackle well-known problems such as excessive bureaucracy and corruption, access to capital, and infrastructure bottlenecks.

Already, inflation has fallen from double into single figures, and Government debt as a share of GDP is now lower than in the vast majority of advanced economies*. In addition, the expanding consuming class is likely to deliver a welcome injection of growth and create potentially lucrative new markets that will need a comprehensive logistics strategy to meet demand.

On the business side, UTE will adjust to that development by focusing on continuous diversification and strengthening the Patria brand. “In ten years’ time, we may look at a whole new business,” says Ellias. “It will be Patria Heavy Industry, consisting of dedicated Heavy Equipment, Maritime and Energy Divisions that are well established both domestically and internationally. Just wait and see.”

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