Kamis, 05 Juli 2012

Sampoerna: From Surabaya to the world

CEO Speak in Interview format

A living legend and model for many Indonesian companies, PT HM Sampoerna, which produces among other things A Mild, Sampoerna Hijau and Dji Sam Soe, the king of kreteks, continues to strengthen its position as a market leader in the country's cigarette industry. To get a view on the 93-year-old company, which was established in 1913 by its founder Liem Seeng Tee, a Chinese immigrant, and acquired by Philip Morris in May 2005, The Jakarta Post's Ardimas Sasdi and contributor Lily G. Nababan interviewed Sampoerna's president director Martin King recently. Below is the excerpt of the exclusive interview with the president of the company, which in the past rarely gave a chance to journalists for an interview.

Question: When Philip Morris acquired HM Sampoerna you were in Beijing and had never been to Indonesia. What was your response when you were assigned to become the number one man at the newly acquired firm?
Answer: Actually, I put my hand up for the job. I volunteered. I heard that we were considering acquiring Sampoerna and I went to my boss at the time and said I would sure like to have the opportunity to go to Indonesia to work for Sampoerna.
So it was you who took the challenge though you knew you had never been to Indonesia?
I had read a lot about Indonesia but had never set foot in Indonesia prior to coming here for this job.
PT HM Sampoerna has been in operation for more than 90 years, an outstanding achievement for an Indonesian company. What are the factors that have enabled the company to survive various changes over such a long period?
Sampoerna's success is based on three principal factors. The first factor is the Company's guiding philosophy, called ""Three Hands,"" which was established by the Company's founder. ""Three Hands"" represents the Manufacturer, the Trade, and the Consumer. The manufacturer is the first hand. We are committed to producing the highest quality products and providing these products to the trade at a fair price, and support them with quality marketing. The second hand is the trade-the wholesalers and retailers-- who receive a fair margin, and are willing to support these brands. The third hand is the adult smoker who is willing to purchase our brands knowing they are of the best quality at a reasonable price.
The second factor is the company's willingness to anticipate and adapt to change. Sampoerna is a company that has never been comfortable with the status quo. It is constantly striving for excellence, which is the meaning of the Sampoerna Credo ""Anggarda Paramita.""
The third factor is the ""can-do"" attitude of our employees. Our employees don't sit around waiting for things to happen; they pride themselves on making things happen.
Since acquiring Sampoerna, we haven't changed those success factors. Our focus has been to add value by bringing on additional resources; for instance in areas such as information technology and updated financial systems, and also by sharing the experience that PMI has gained from more than 50 years working in more than 160 countries around the world. In taking this approach what we have created is a world-class Indonesian company with a truly global perspective.
How will PT HM Sampoerna withstand the turbulent challenges in business brought by about by free trade, tight regulations on smoking in public and trends toward a healthy lifestyle?
First of all, let me be clear on one point. Smoking causes disease, and so we believe that tobacco should be regulated, particularly as regards kids smoking.
We anticipate that there will be more regulations in the future, but we don't view these regulations as a threat, but rather as an opportunity. A balanced and comprehensive tobacco control law can address the health issues associated with smoking, ensure that young people don't have access to tobacco products, and also provide stability and predictability for the industry. As part of the industry association Gappri, we want to play a constructive role in that process.
Does Sampoerna have to spend extra budget with the restriction on smoking?
Let me say first off that the smoking restrictions that are in place in Jakarta are very reasonable. These regulations don't ban smoking but clearly spell out where people can and cannot smoke. For instance, smoking is banned in hospitals and schools; which is very reasonable. In office buildings, malls and other public places, there are designated areas for smokers to go so that they can enjoy cigarettes and not bother others around them.
One thing we would like to see is passage of one comprehensive national law because today there are many different regulations, which vary from city to city and from region to region. A comprehensive national tobacco law would establish one consistent standard across the country, and this would make things a lot simpler in terms of compliance as well as from an administrative and enforcement standpoint.
Has your sales volume been affected by these smoking regulations?
That's difficult to say. There are so many factors when it comes to sales -- from excise taxes, to the overall state of the economy, to disposable consumer income. Having said that, Sampoerna is performing, well, and we have been able to increase our market share in a very challenging environment.
How many percent?
According to AC Nielsen, our total market share was up by about 2 share points in the first half of 2006, on top of a market share gain of about 2.8 share points in 2005. Our sales have increased in line with our market share growth.
You have been one and a half years at the helm of Sampoerna. What's been the direction of Sampoerna under your leadership?
In May of last year, when the acquisition was completed, we sat down with the new Sampoerna management team, which comprised a mix of many of the leaders from Sampoerna before the acquisition and some additional new people that came in from Philip Morris International. We examined everything, including the brand portfolio, sales strategy, pricing strategy, and capacity, and we developed and approved a three-year plan. The plan combined the best of Sampoerna and the best of PMI, into one very concrete strategy designed to combine the full synergies of Sampoerna's local strengths and culture with the global resources and experience of Philip Morris International. We have stuck to that plan and so far it seems to be working.
Big companies are famous for continuous innovation, a thing that allowed them to survive tough competition. Innovation made by Sampoerna in the past years?
The combination of Philip Morris International and Sampoerna has resulted in a number of innovations; in sales, IT and product development to name just a few examples. Here in Indonesia, Sampoerna has an unparalleled distribution network whereas Philip Morris has a very good distribution system and sales force in many other countries around the world. To take advantage of this potential synergy, we recently received approval from our minority shareholders to enter into cross licensing arrangements with Philip Morris International and its subsidiaries, which will allow us to capitalize on the individual strengths of each company, both here in Indonesia and in other countries, including Malaysia, Singapore, Brunei, and Brazil. That's one example.
Another example is in the area of sales information technology. Since the acquisition, Philip Morris International has shared with Sampoerna the latest hand-held technology which will allow us to gather and process information much quicker and much more efficiently, and that will yield dividends.
In the area of product development, we have just launched Dji Sam Soe Filter. This is a product that combines the traditional taste of Dji Sam Soe kretek, ""The King of Kreteks, in a filtered format. It's a product that our consumers have been asking for, and a product that will allow us to compete in the full flavor filter segment, which is the largest segment in the market
Does Philip Morris have any plans in the near future to acquire another Indonesian cigarette company?
I'm not at liberty to comment on the future plans of Philip Morris.
Your challenge in the first months of your tenure?
Our biggest challenge, early on, was to open up communication channels, and to make sure that every employee knew what the plan was and had the opportunity to ask questions. This allowed us to get critical understanding and buy-in from all our employees and gave them confidence in the future.
It is typical for employees to be somewhat traumatized following an acquisition and a change of ownership. Employees are always naturally concerned about their jobs, their future and the kind of environment they will be working in. We introduced a number of new communication tools to address these concerns, including large Town Hall meetings and smaller department meetings as well as through our internal magazine.
We continue to communicate with our employees and, as I said, this has given our people a better sense of the future, as well as the confidence that, even with the change in ownership, Sampoerna is still Sampoerna with the same culture, tradition and spirit.
So no problem with work ethos?
None at all..
Did you receive support on the changes you made or has there been any resistance?
Initially there was a healthy amount of questioning and a healthy amount of skepticism and push-back. This resulted in some very good discussions. Through these discussions, we modified our plans to take into account some of the feedback. And even though this process might have taken a bit longer, it resulted in a better plan. We continue to use the same plan we developed immediately after the acquisition, although we are continually adapting it and improving it, based on employee meetings and discussions.
Is there any brand produced by Sampoerna in the past year?
We haven't introduced any entirely new brands for the simple reason that we have a tremendous existing brand portfolio. In the premium hand-rolled kretek segment we have our flagship brand Dji Sam Soe, which we established in 1913, and which is still going strong. In the mid-priced hand-rolled segment we have Sampoerna A Hijau, which is a leader in that segment. In the machine-made kretek segment we have A Mild, which leads its segment. We also have Marlboro which is distributed by our sales and distribution subsidiary PT Panamas and which has a 50 percent share of the white cigarette segment. Overall, we have the best brand portfolio in Indonesia.
What did you do while you were in China?
My primary focus was to negotiate an agreement between Philip Morris International and the Chinese National Tobacco Company to produce Marlboro under license in China, which we were successful in doing.
In China, the challenge was to negotiate a deal to gain limited market penetration and lay the foundation for long-term constructive relationship with the Chinese National Tobacco Company. Sampoerna is an entirely different challenge. In acquiring Sampoerna, we acquired a very large and successful company with more than 40,000 employees and a strong culture which had been developed over 90 years.
Can you tell us about some changes in the field of human resources management after the acquisition?
The changes have been evolutionary rather than revolutionary. We have taken some very good practices, that had been developed prior to the acquisition, and we evolved these practices by combining some of the best practices of Philip Morris International. We continue to hire the very best people, and we work hard to make sure that Sampoerna maintains its strong image so that people want to work here. We continue to pay and compensate our people well, and continue the practice of linking compensation to the performance of the individual and the company. Again, we haven't made any drastic changes, but rather evolved the existing system along the lines of international practices"" and world class management..
And on marketing?
We look at the entire portfolio to make sure that each of our brands offers the best quality at a fair price, and to ensure that the marketing for each of our brands remains relevant to adult smokers. The A Mild campaign is a good example of what I'm talking about. The A Mild campaign right now is cutting edge. And that is not something new. A Mild has always been cutting edge. Our focus has been to push it higher and better. Always improving. That is the mark of Sampoerna.
Sampoerna has the biggest market share in Indonesia. What is your program to maintain the share and the growth?
Our market share for the first half, according to AC Nielsen, was 23.5 percent, which, combined with the 3.8 percent market share of Marlboro, gives us the leading market share in Indonesia. We have performed well in a very challenging environment, marked by high inflation, lower consumer purchasing power and two excise increases in less than one year. Our focus is to continue to grow our market share.
Growing market share is the main concern of any company. And everyday you fight so that consumers will choose your brand over the competition's brands. And you do it with better quality, better marketing and by developing a better image for the overall company. This is something you have to nurture, build, work at and develop. It is not free or easy.
At Sampoerna, we focus on the consumers and try to listen to what they want and provide products that meet their expectations. I don't spend a whole lot of time worrying about what the competition is going to do next; what their plans are and so forth. I focus more on what we can do to be successful, by listening to our consumers and providing them with the best quality products to meet their preferences.
Is Sampoerna's marketing and distribution network good enough to support the managerial goal to widen the market?
Our goal is to compete for market share in a relatively flat market. We think we have the right tools to do this. But we are never satisfied and are always trying to improve our marketing and to create new ideas to ensure our campaigns remain relevant to our consumers.
Sampoerna is also known for its philanthropic activities, especially in education. What is the policy of the new management toward the Sampoerna Foundation?
We continue to support the Sampoerna foundation. Just a few months ago we made a donation of almost Rp 48 billion, and in 2005 we also made a very large donation. We are committed to improving education in Indonesia, and the Sampoerna Foundation has a proven track record in making a difference in the area of education. So we will continue to support the Sampoerna Foundation and work closely together with them.
We are authorized by our shareholders to donate up to 2 percent of our profits to the Sampoerna Foundation.
The direct benefit of supporting Foundation?
Our support for the Foundation is part of our overall approach to doing business in Indonesia.
Beyond our work with the Foundation, we also work directly with communities to provide educational opportunities for young people; to develop and train the labor force in the regions and the communities around our factories; create jobs; support infrastructure improvements, and aid in disaster relief. For instance, Sampoerna has its own Search and Rescue Team (SAR), which is equipped with ambulances, fire trucks and boats. The team is comprised of employee volunteers, doctors, paramedics and firemen. During the recent earthquake in Yogyakarta and Central Java, our SAR team was one of the first relief teams on the ground, providing immediate and critical assistance to survivors. The SAR team was on the ground for more than a month.
In total, we donated more than Rp 20 billion to relief and reconstruction efforts in Yogyakarta and Central Java. The SAR team and our support for the Sampoerna Foundation are only two of many examples of how we are trying to do our part to give something back to the community. While I cannot make an exact calculation on the return to the company, I am convinced it is the right thing to do, and that is why we do it.
Your view on the managerial skills and capability of Indonesians, especially those who work for Sampoerna.
Our Indonesian employees are very capable. Many of them are in the most senior positions at Sampoerna, and many more are being developed to lead the company in the future. That is something I am committed to.
We have several people right now in senior positions. Six of our high potential Indonesian employees are currently on international assignments in Philip Morris' Asia Pacific regional headquarters in Hong Kong as well as in our parent company's international headquarters in Lausanne, Switzerland.
The whole point of these assignments is to allow our Indonesian employees to get experience outside of Indonesia and to develop their skills so, when they come back to Indonesia, they can take key positions here.
Similarly, we have brought some of our most experienced people in from Philip Morris International to share international best practices with Sampoerna. They will stay for a limited time and, when they leave, people within Sampoerna will take up their roles.
What we are creating is a cycle of learning, by developing people and using the combined synergies of Philip Morris and Sampoerna to grow people and to assume bigger roles.
Sampoerna is a model for many companies. In what aspects Sampoerna can be used as a model?
One of the main reasons that Philip Morris was interested in Sampoerna, and was willing to pay a premium price for the company, was that this is a company that has always been well managed. Sampoerna has always remained on the cutting edge as regards best practices; strong management, and people and brand development. These are the attributes of any successful company.
To build a good name is easier than to keep a good reputation. Your view on this?
One way you maintain your success is to continue to reinvent yourself. If you just sit back, the world will pass you by. The surest path to destruction is to resist change. If you don't change you become extinct. You have to keep changing, and keep evolving in order to remain successful. If you take the attitude that you have achieved perfection then you are on the path to ruin. This is something Sampoerna has always understood throughout its history. Sampoerna has always reinvented itself; it has always changed; always developed new approaches; new concepts; new brands; new methods of production; new technology, and talented people. Always.
You mentioned a can-do approach. What does it mean at Sampoerna?
""Can-do"" is part of the culture here. We employ people who have this mindset, and we further develop these instincts through our practices so that it becomes part of the culture and the character of the people in Sampoerna. Our employees do not know how to say, ""I can't do it."" It is all (can).
Never ""tidak bisa"" (cannot do).
How is it in practice?
When we come up against a problem, and we sit down to figure it out, someone will invariably say, ""Well, a problem, but here is a solution; we can fix it."" No one gives up. People are always willing to consider another angle, another way to solve a problem. Sampoerna is a very empowering culture to be a part of because you can never say ""I can't do it."" You always say, maybe this approach will take a little longer, but I can still do it.

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