Challenges and Solutions for PT. HM Sampoerna in the Indonesian Tobacco Market

This article discusses the challenges faced by PT. HM Sampoerna, the largest tobacco company in Indonesia, due to policy changes, government regulations, macroeconomic indicators, microeconomic factors, and social factors. The article provides solutions to overcome these challenges, such as launching nicotine gum, introducing a three-layer filter, increasing the distribution network, and increasing the font of 'warning' word on packing. The article also highlights the supply and demand of tobacco and the labor economics of tobacco in Indonesia.

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PT. HM Sampoerna
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Business Environment 1
Contents
A solution of challenges..................................................................................................................2
Policy changes.............................................................................................................................2
Changes in government regulation..............................................................................................3
Changes in national and global macroeconomic indicators........................................................4
Microeconomics factors...................................................................................................................4
Supply and demand of Tobacco..................................................................................................4
Labour economics of Tobacco.....................................................................................................5
Social factors...................................................................................................................................6
References........................................................................................................................................8

Business Environment 2
Solution of challenges
In the Indonesia market, the company conducted the external market analysis in which the
analysis of the major factors has been done that affects the working of the PT. HM Sampoerna.
The company is known as the largest company in Indonesia who deals in tobacco. The company
manufacture kretek type clove cigarettes and with the typical brand name in Indonesia that is
Sampoerna 'A' Mild. The factors that majorly affect include policy changes, changes in
regulations of government and changes in national and global macroeconomic indicators
(Amuna, Al Shobaki & Naser, 2017). In Indonesia, this has been found that there is very tough
competition among the companies who are dealing in the market. It is essential for the company
to find out the solutions so that they can easily survive in the market of Indonesia. The solutions
related to the issues are discussed below: -
Policy changes
The changes in the policy of the tobacco industry are generally brought by the WHO (World
health organisation) in Indonesia. The decision which affected the company is taken by the
WHO and the National Agency for Food and Drug organization. They decided to enforce bans
on tobacco advertising, promotion, and sponsorship, raise taxes on tobacco and started protecting
people from the use of tobacco (Indonesia-investments, 2018). The decisions were taken to warn
the people about the use. Solutions of this effect are: -
 The launch of Nicotine gum: - PT. HM Sampoerna should launch the gum which helps
the users of cigarettes in reducing the consumption of tobacco. This gum offers a range of
nicotine gums and patches that allows the users to quit the cigarettes. This will help the

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company by showing that they are willing to reduce the excessive consumption of
tobacco and also supports them in generating profit (Sack, 2017).
 Three-layer filter: - Company can introduce the three-layer filter in their cigarettes
which will reduce the quantity of tobacco. This will help the customers to reduce the
effect of tobacco along with this the company will be able to support the policy
introduced by the government (Rosser, 2015).
Changes in government regulation
In the year 2012, Susilo Bambang Yudhoyono (SBY) president of Indonesia signed for the new
regulations for the tobacco. According to this regulation the companies who deal with the
tobacco are not authorised to promote their products. Moreover, the companies need to put
packaging message need to evident and have a message about "WARNING". This leads to an
effect on the sales of the company and on their working. The solutions to these issues are: -
 Rise in distribution network: - Company is not authorised to promote the product due to
which they decided to increase the number of the distribution network. The rise in the
distribution network will generate the awareness related to the product. This is the way
through which the company can easily achieve their motive for the profit. In addition, this
is the way through which the company can easily meet the changes in the government
regulation.
 Increasing the font of ‘warning’ word on packing: - PT. HM Sampoerna Company
displays that warning symbol on the products that contain tobacco. Considering the same,
the company should write those warning letters in bold with the high font. The company
will be able to meet the changes in the policy done by the government. In addition, they
can make the people aware of the consumption of tobacco is injuries for them.

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Changes in national and global macroeconomic indicators
Tabacco product brings the vast changes in the economy of Indonesia. In the current year, the
market revenue of the product in the market is approx. US $22.688m for tobacco. Along with
this, it is expected that the revenue for the year 2018-2022 will rise. This shows the positive
impact on the PT. HM Sampoerna Company. The company should launch new products such as
flavoured cigarettes for their customers. This will help the company to generate more profit
which ultimately contributes to the economy of the country. After the rise in changes in policy
and regulations by the government, this is expected that the social factors get influence (Djajadi,
2015). The change in the social factors or trends leads to the changes in the preference for the
tobacco-related products.
Microeconomics factors
The microeconomic factors affect the particular industry and their working in the market. The
factors that majorly affect the company in Indonesia are: -
Supply and demand of Tobacco
The supply and demand of the product are dependent and independent variable that can affect the
industry or company directly.

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(Source: Davis, 2018)
The kretek cigarettes are mainly popular in the market of Indonesia. This is the only reason due
to which more than 85% of people who smokes prefer kretek cigarettes. Considering the supply,
the machine-rolled kretek cigarettes contribute approx. 75% of the total supply in Indonesia
while on the other hand; the hand-rolled cigarettes are sold approx. 20% (Indonesia-investments,
2016). This shows that there is a rise in the supply of cigarettes because the demand of customers
is increasing. This provides the benefit to the company as they mainly deal in the kretek
cigarettes.
Labour economics of Tobacco
The labour economics shows the supply of the labour services and the demand for the labour
services in the market of Indonesia. The analysis shows that there are thousands of children are
working in Indonesia farm which is a hazardous condition for them (Human Rights Watch,
2016). The companies who deal in tobacco should ensure that children’s are not doing the work
in farms. This shows that to meet the demand of the customers the farms are involving the adults
along with their children’s so that they can cultivate and sell maximum tobacco. In the Indonesia

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market, the farmers and company can easily contact the children’s who are ready to work in a
hazardous condition.
Social factors
The policy that brought about by the government of Indonesia brought the changes in the
preference of the people towards tobacco. This is the reason this has been found that there was a
decline in the production of cigarettes by the companies in the year 2015. The data is clear from
the image that is given below: -
(Source: Indonesia-investments, 2016)
In the Indonesia market, it is difficult for the government to control the use of tobacco in the
market because the demand for the product is high in the market. According to the research, the
Indonesian households tend to sacrifice the essential good spending on housing, health and
education.

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The company who produce the products with tobacco contribute a huge amount of profit
percentage on the corporate social responsibility. In this CSR activity, they ensure that they
provide the benefit to the people who work in the farm and are in need (Trihastuti, 2014).

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References
Amuna, Y. M. A., Al Shobaki, M. J., & Naser, S. S. A. (2017). Strategic Environmental
Scanning: an Approach for Crises Management. International Journal of Information
Technology and Electrical Engineering, 6(3), 28-34.
Davis, M. (2018). Macroeconomics: Factors Of Consumer Decision-Making. Retrieved from:
https://www.investopedia.com/university/microeconomics/microeconomics3.asp
Djajadi, D. (2015). Tobacco diversity in Indonesia. J Biol Res, 20, 27-32.
Human Rights Watch. (2016). Indonesia: Child Tobacco Workers Suffer as Firms Profit.
Retrieved from: https://www.hrw.org/news/2016/05/25/indonesia-child-tobacco-workers-
suffer-firms-profit
Indonesia-investments. (2016) Tobacco & Cigarette Industry Indonesia. Retrieved from:
https://www.indonesia-investments.com/business/industries-sectors/tobacco/item6873
Indonesia-investments. (2018). M Sampoerna. Indonesia-Investments. Retrieved from:
https://www.indonesia-investments.com/business/indonesian-companies/hm-sampoerna/
item204
Rosser, A. (2015). Contesting tobacco-control policy in Indonesia. Critical Asian Studies, 47(1),
69-93.
Sack, D. (2017). Nicotine gum can help you quit smoking and chewing tobacco. Retrieved from:
https://expertbeacon.com/nicotine-gum-can-help-you-quit-smoking-and-chewing-
tobacco/#.W1l3INUzbIU

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Trihastuti, N. (2014). CSR of Tobacco Industries in Indonesia, the Concept and Its
Implementation. JL Pol'y & Globalization, 22, 92.