An insider’s view of the valve market in Indonesia
Every country has its own particular rules and customs when it comes to buying and selling industrial products such as valves and actuators. In an interview with Valve World, Mr. Zulkarnain (director of local engineering company PT. Bemi Energi) kindly outlines what foreign companies ought to know if they want to tap into the extensive business opportunities in Indonesia.
At the current time, domestic valve manufacturing capacity is quite limited in Indonesia, according to Mr. Zulkarnain. This has nothing to do with a lack of basic technical knowledge or engineering skills, he notes, but seems to be due to a lack of willingness to invest in the necessary research and development. “What we are seeing is that local valve manufacturers are more likely to practice reverse engineering or simply to reproduce European or American brands. This is what has happened in neighbouring countries as well, where most valve manufacturers compete on price and delivery times.”
Other reasons why local manufacturers have not developed more of a presence could be the lack of government support and also the fact that many Indonesian consumers still tend to put more trust into western brands which are perceived to offer better quality. “We can see from the approved manufacturers’ lists of various engineering companies and end users that there are only a few approved brands outside of Europe, America and Japan,” he comments.
Of course some Chinese valve makers have become quite successful in Indonesia, where they can compete thanks to access to inexpensive materials and low labor costs. “In fact, quite a number of Indonesian manufacturers cooperate with Chinese valve companies to promote their valves. For certain projects it is quite clear that Chinese-made valves have been widely used. But this depends very much on the preference of the end user or the engineering company involved in the project. Some are very strict on the material that they are going to purchase or have other specific requirements.”
However, Mr. Zulkarnain indicates that this situation might change in the future. “To improve the position of Indonesian manufacturers the government of Indonesia has implemented so-called Rules of Local Content in some of their project tenders. In certain projects for example the minimum required local content could be thirty-five per cent. So for example the basic valve might be purchased overseas and then tested and painted in Indonesia.”
Valve manufacturers should take the tropical climate in Indonesia into account when considering sealing materials.
The background sketched above by Mr. Zulkarnain explains why engineering companies like Bemi are in close contact with valve makers around the globe.
“Many local engineering companies prefer to buy valves from European or American sources as there is more transparency regarding materials as well as more complete documentation and certificates.” An additional advantage for European manufacturers, continues Mr. Zulkarnain, is that they have the proven ability to produce tailor-made valves for specific applications. “For example, I have been involved in a project for Pertamina where we needed valves that could only be made in Europe and America. That’s why Pertamina may prefer to procure directly from Europe or America even though the prices and delivery times are lagging behind what the Japanese and Koreans can offer.”
However, Mr. Zulkarnain warns that it isn’t always plain sailing for companies in Europe or America. “A disadvantage for these companies is the longer delivery time as well as the higher prices that they have to charge. “As you know the Japanese and Koreans are also very present in our market and are known to have good quality products, competitive prices compared to Europe and America and also unbeatable delivery times. In some cases if the engineering company or the government has an urgent request they may well approach the Korean or Japanese manufacturer directly to handle the project.”
There is another potential hurdle which foreign companies need to carefully consider before attempting to do business in Indonesia, continues Mr. Zulkarnain. This concerns the need to have local representation. “The presence of agents helps to prevent monopolies from forming in our country and helps to overcome the language barriers and communication problems that can easily exist between local end users and foreign suppliers. Furthermore, time difference has always been an issue with local end users and engineering firms who want to be able to easily and quickly visit or talk to their suppliers. By the time the Europeans have started their day, our business hours have almost finished. The Indonesian market is highly competitive, so as an overseas supplier you need a local agent who can provide an immediate answer to customer inquiries.”
Moreover, a local agent helps overcome the bureaucratic issues in Indonesia, continues Mr. Zulkarnain. “The business culture is quite different here than to say Europe, as everything depends on whom you know rather than what you know. Here, building a relationship will deliver more orders than simply focussing on quality or pricing, etc.”
Additional considerations which often frustrate foreign companies are the rules and regulations related to shipments and custom duties. Comments Mr. Zulkarnain: “Even if overseas suppliers are able to supply valves directly to Indonesia they will quickly discover that the custom regulations are not the same as elsewhere. The result can easily be a catastrophic situation where the cost of the items is driven up by extra customs duties. This is why the import procedures are best left to a local company.”
It is not just the different culture that overseas manufacturers need to be aware of. “The climate in Indonesia is tropical,” states Mr. Zulkarnain. “So here we live and work in humid, wet and sometimes very hot weather. This means that manufacturers may need to reconsider their options for sealing materials, to ensure valves will perform well in the long-term. Moreover, they should also appreciate that working in the tropics means having to take things slowly. That’s the best way to avoid making mistakes. The job might take a bit longer, but it will be finished in the end.”
Trust is key
Turning to how Bemi fulfils the role of intermediary between foreign valve makers and local customers, Mr. Zulkarnain says the main requirement is to deliver complete solutions. So for example a new-build pipeline project would normally involve specifying and delivering the valves, pumps and piping. For maintenance related activities Bemi typically purchases items that meet the client’s own specifications but may suggest alternative solutions with advantages in terms of pricing, quality or delivery.
To achieve these aims strong agreements have been established with Bemi’s principals and at the same time the company is registered on vendor lists for Indonesian oil and gas companies. “This means we are a reliable partner for our end user clients, offering them the best choices for valves in terms of pricing, deliveries, after-sales service and terms of guarantee, ” says Mr. Zulkarnain. Providing the user with product options is another of BEMI’s strengths. “For example, we can propose alternative products that are comparable to their normal brand. That can be most helpful to keep projects on track if the regular supplier has quoted a long delivery time,” he comments.
At the end of the day, Mr. Zulkarnain says he has plenty of challenges in his work but enjoys finding satisfactory solutions for all the parties he works with. “Our job is to understand the needs of both valve makers and valve users, to ensure they can communicate with each other, and of course to wrap up all those last-minute technical clarifications to keep the project on schedule. This is therefore a very dynamic environment but one in which my colleagues and I thrive. I personally really enjoy all the interaction with people from differing backgrounds. Each has his or her own personality, interests and technical knowledge and it is important to take the time to get to know each other. Winning people’s trust is everything in Indonesia.”
“Many local engineering companies prefer to buy valves from European or American sources as there is more transparency regarding materials as well as more complete documentation and certificates,” Mr. Zulkarnain
From aviation to oil & gas
Bemi’s reference list includes a huge variety of markets. Examples of recent projects Mr. Zulkarnain has completed or is currently working on include:
* Fire water system in Muara Karang, a location in Java, Indonesia. “The project included accessories such us valves, pipe & pump. The user asked me to check the product in the field, to study the BOQ of the project, to take up discussions with manufacturers in Europe, and finally to provide advice, a quotation and ultimately delivery.”
* Oil & gas project at Pertamina’s Balongan Refinery. “The project involves transfer pump packages as well as knife gate valves in sizes 24’, 36’ and 42’. The challenge is that the currently installed valves date from 1972 and are an obsolete, Japanese-made brand. We are therefore having to find an alternative solution that fits the required specifications as well as being listed in Pertamina’s approved vendor list. This is quite a complicated application, involving crude oil, actuators and environmental considerations. Our suggestion to the client is to consider using conduit gate valves instead. The price may be higher but there are some good advantages, such as the fact the disk always stays between the seats, the seats are spring loaded, the seats are replaceable PEEK material which is very erosion resistant, the valve can be used at higher differential pressures and leak rates are normally lower.”
* Petrochemical plant “We have just recently completed a project for a seawater firepump application in which bronze valves were needed. The challenge was meeting the client’s complex requirements, for bronze valves with UL/FM certification plus extra testing.”
* Aviation Industry. “This repeat project in Balikpapan was for airport hydrant valves. This requires specific materials and certificates for the aviation industry. As we are already handling the complete pipeline project for this expansion project we were asked to include the valve package as well. The application and requirements are very different than the normal valves which we supply to other industry.”
Meet Mr. Zulkarnain
After graduating from high school Mr. Zulkarnain moved to Singapore to study economics (he comes from a family of entrepreneurs so he describes this as “being a natural choice”). Determined to continue his studies he then relocated to Amsterdam. Here he turned his attention to engineering;
“another logical choice given that the family business is rooted in machining and automobiles”. These joint studies have given him an inside knowledge of both engineering and business, which has proven very useful for his future career with BEMI. His work involves dealing with valve manufacturers and valve users and includes visits to suppliers and customers world-wide such as to witness Factory Acceptance Tests.