Rubber industry globally


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  • Rubber industry globally

    1. 1. GROUP 6: RUBBER INDUSTRY; TARGET COUNTRY- INDONESIA• Parag Chaubey• Shashank Bhargava• Rishi Raj Gupta• Anil Kumar• Raj Kumar Pandey
    2. 2. RUBBER INDUSTRY- GLOBALLYThe International Rubber Study Group (IRSG) has forecast a surplusproduction of natural rubber (NR) in 2012. Global NR production is forecastto rise 4.8% to 10.9 million tonnes in 2011 and 7.8% to 11.8 million tonnesin 2012 as a consequence of new production available from trees planted inthe mid 2000s. Global NR consumption will touch 11.1 million tonnes in2011 and 11.7 million tonnes in 2012. Consequently, the deficit of 159,000tonnes in 2011 is expected to swing to a surplus of 81,000 tonnes in 2012 Source:
    3. 3. DIFFERENT TYPES OF RUBBERNatural rubber, coming from latex, is mainly poly-cis-isoprenecontaining traces of impurities. Although it exhibits many excellentproperties, natural rubber is often inferior to synthetic rubbers,especially with respect to its thermal stability and its compatibilitywith petroleum products.Synthetic rubber is made by the polymerization of a variety ofpetroleum-based precursors called monomers. The most prevalentsynthetic rubbers are styrene-butadiene rubbers (SBR) derived fromthe copolymerization of styrene and 1,3-butadiene. Other syntheticrubbers are prepared from isoprene (2-methyl-1,3-butadiene),chloroprene (2-chloro-1,3-butadiene), and isobutylene(methylpropene) with a small percentage of isoprene for cross-linking. Source:
    4. 4. TOP RUBBER PRODUCING NATIONS1. Thailand (3,166,910 m/t)2. Indonesia (2,921,872 m/t)3. Malaysia (1,072,400 m/t)4. India (819,000 m/t)5. Vietnam (659,600 m/t) Source: FAOSTAT data, 2010 production volumes
    6. 6. INDIAN RUBBER INDUSTRY- KEY HIGHLIGHTSKey Indicators Values World Ranking in Area under rubber 5th World Ranking in NR Production 4th (Thailand, Indonesia, Malaysia and India) World Ranking in NR Consumption (China and 2nd India ) Relative share of India in global production of NR 8.50%Relative share of India in global consumption of NR 9.60% Share of Kerala in planted Area 76% Share of Kerala in production 90% tyre and non tyre sector consumption ratio 62:38 Source::
    7. 7. INDIAN RUBBER INDUSTRY (CONT..) Source::
    9. 9. KEY ISSUES FACED BY INDIAN RUBBER INDUSTRY•Increasing cost of Labor•Demand for Rubber is increasing, however, the growth ofNatural rubber is very low•Rise in prices of natural rubber produced domestically•Approximately 90% of production limited to the state ofKerala Source:
    10. 10. THAILAND•Thailand has developed into the world’s largest producer and exporter of naturalrubber.•Abundant resources of natural rubber, cost- effective workforce, and strategiclocation in the Asia-Pacific region.•Thailand offers rubber investors an ample water supply, a low incidence of poweroutages, and a reliable transportation infrastructure for smooth operations. Source: Internet
    11. 11. INDONESIA•Indonesia, the second largest rubber producer in the world.•Abundant natural rubber, inexpensive labor, power and friendly governmentpolicies.•Invited investment in rubber plantation through lease of land.•Indonesia rubber businesses are flourishing because of solid government policiespromoting the industry. This includes the lower tariffs resulting from the country’sfree trade agreements with trading partners such as China, Australia, New Zealand,and ASEAN states.
    14. 14. WHY INDONESIA? AN INDIAN PERSPECTIVEEarlier, the Indonesian governments policies did not favour investment by foreignerswhile land prices were exorbitantly high for outsiders willing to invest in the country.But now with Indonesia inviting investment in rubber plantations through land lease.•Indonesia can gain from Indias expertise in the production of rubber components and otherlatex products•With an expanding economy and increasingly favorable investment climate, Indonesia standsas a key economic entity in the ASEAN region. Its abundance of natural resources and aflourishing manufacturing sector have ensured a successful relationship with the boomingIndian economy in areas of trade and investment.•Indonesia is presently Indias second-largest export market in ASEAN (second only toSingapore).•In the area of investment, there are more than twenty major Indian manufacturing jointventures in Indonesia. Major Indian companies that established themselves in this phaseincluded, the Lohia Group (Indorama Synthetics), Ispat Group (Indo Ispat), Aditya Birla Group(having four units in textiles and yarns) and Tolaram Group among others.•The recent upturn in the Indonesian economy and the accompanying political change hasencouraged a greater emphasis on investments in new industries.•With both countries facing daunting infrastructural and energy challenges, there istremendous opportunity for investments on both sides Source: Various websites on the Internet
    15. 15. SOCIO-CULTURAL ENVIRONMENT IN INDONESIA•Building relationship in Indonesia for business purposes is very important.•Showing loyalty and trust is very critical•Showing interest in long term investment relations is very important•Joint venture in manufacturing•70% of production comes from small industries (Rubber)•Neighborhood councils (expediting bureaucratic processes in obtaining approvals)
    16. 16. POLITICAL ENVIRONMENT•Crisis in 1197 & 1998•Power shift from autocratic to democratic in 1999•Strong and consistent growth since 1999•Low export rule recently to strengthen local consumption•Strong growth in 2008 despite fuel, food and global financial crisis•Improve trade relations with India recently. Indonesia was not friendly to foreigndirect investment earlier.
    17. 17. SETTING UP A BUSINESS UNIT IN INDONESIAThe investment law requires that a foreign owned enterprise operating wholly or mostly in Indonesia as aseparate business unit must be organized under Indonesian law and domiciled in Indonesia. Branches arenot normally permitted, except for foreign banks and oil and gas companies. Types of Business Organization in Indonesia1. Perseroan Terbatas (PT): Limited Liability Companies (PT) can include, and are classified as private and public companies. They are governed by the 1996 Corporation Law. PTs are managed by a Board of Directors. Non-Indonesian citizens may not be directors or foreign investment commissioners in a PT.2. Representative Offices: Foreign representative offices are typically formed to facilitate transactions between local and foreign buyers and suppliers. A Representative Office facilitates making such transactions easier but a Representative Office cannot perform operating activities characterized by a PT.3. Join Ventures: Foreign direct investment companies may be in the form of Joint Ventures between foreign and domestic capital owned by Indonesian citizens or organizations, or through straight investment.4. Badan Usaha Milik Negara (BUMN): These are companies owned by the government.5. Perusahaan Dagang (PD): These entities are known as private trading companies, most of which are sole proprietorships.6. Limited Liability Partnerships (CV): This legal designation only applies to the silent partners in a given partnership.7. Firma: These are unlimited liability partnerships, more commonly known as disclosed partnerships. Source: “PKF- Doing Business in Indonesia “. Independent article on the internet
    18. 18. SETTING UP A BUSINESS UNIT IN INDONESIA (CONTD..)Foreign entrepreneurs can set up a foreign direct investment company in Indonesia(commonly known as Penanaman Modal Asing, or PMA) either by setting up:•A limited liability company which is 100% foreign owned or•A limited liability company through a joint venture with Indonesian partners•There is a disinvestment requirement which is imposed on a 100% foreign ownedcompany. Within 15 years from the commencement of commercial operations, theforeign shareholder is required to divest at least 5% of the shares to an Indonesiancitizen or legal entity.•In the case of a joint venture, the Indonesian partner is required to hold at least 5% ofthe shares while the foreign owner can have 95% shareholding in the company. Source:
    19. 19. ROLE OF INVESTMENT COORDINATING BOARD (BADAN KOORDINASI PENANAMAN MODAL, BKPM)The BKPM is serving under and directly responsible to the President of the Republicof Indonesia. It is chaired by the Chairman of the Investment Coordinating Board.The services provided by BKPM are:1. Investment Licensing and ApprovalBKPM provides guidance to investors in applying for new investment,expansion of investment and change of investment projects.2. Investment Monitoring RepresentativeBKPM undertakes the monitoring and evaluation of progress of investmentprojects. In addition, BKPM also provides guidance to investors inovercoming problems and constraints encountered during implementation ofprojects.3. Investment Information Services a) BKPM provides information on government policies, laws, regulations andother related information with respect to investment. b) BKPM periodically publishes Investment Statistics and other publicationssuch as a Brief Guide for Investment and Investment Procedures in Indonesia. c) BKPM maintains a website giving current information on investment in Indonesia. Source:
    21. 21. MRF (MANOROMA RUBBER FACTORY)•India’s largest tyre manufacturing company•Exports to more than 65 countries•MRF offers mainly Tyres & Conveyor belts•A total sales volume of Rs. 9716.54 Crores for the period Oct’2010 to Sep’2011•The total cost for MRF for calculation year Oct’10 to Sep’11 was Rs. 9234.54 Croresthus giving an operating profit of roughly Rs 813.74 crores•Raw materials costs for this period (primarily rubber) was roughly Rs. 7615.20Crores. This is around 78% of the total sales revenue. Source:
    22. 22. MRF APPROXIMATE RAW MATERIAL UTILIZED •In our period of study, the total raw material costs for MRF were Rs. 7615.20 Crores. •Average market price of natural rubber in India was Rs. 190.03 per kg. •This means that MRF must have utilized approximately 40 crore kg’ s of natural rubber. •Average market price of Natural rubber in Indonesia is Rs. 123 per kg. •With this stat the raw material costs for MRF if a manufacturing unit is set up in Indonesia will come down to Rs. 4952.08 Crores Source:
    23. 23. LABOR COSTS COMPARISON•The total employment costs for MRF in the year Sep’10 to Sep’11 was Rs 446.75Crores. If we divide this total cost by the average cost of labor in India (as above),the number of labor utilized comes out roughly 81837333 hours.•The cost of this labor in Indonesia at the rate stated above would be roughly Rs.260.24 Crores. This is a considerable difference in manpower costs. Source: Various sources from the Internet
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    26. 26. TAX STRUCTURE25 percent of tax on corporate earnings.Residents get a wavier of 50 percent on the same.20 percent in case of permanent establishment.Withhold tax.VAT(10percent) and zero percent in case of exporting taxable goods. Source: Various sources on the Internet
    27. 27. ConclusionWe infer that given the constraints faced byMRF in India, it would be a feasible andeconomically beneficial option of setting up atyre production unit in Indonesia to meet thegrowing demand for tyres and tackleconstraints like rising raw material costs,limited natural rubber production domestically.
    28. 28. THANK YOU