Philip Morris Comes to Indonesia: What Does a Company Get for $5 Billion?

An interview with Tjandra Aditama

Dr. Tjandra Yoga Aditama is director of medical & nursing care at Persahabatan General Hospital in Jakarta, and a lecturer and research coordinator at the University of Indonesia. He is the third chair of the Indonesia Smoking Control Society, and involved with numerous other organizations focused on pulmonology, tuberculosis, and medical management. In March 2005, Philip Morris International announced that it would take over the Indonesian tobacco company Sampoerna, in an effort to expand sales in Indonesia, the fifth largest cigarette market in the world. Dr. Aditama has spoken out about the public health impact of a stronger Philip Morris presence in Indonesia.

Multinational Monitor: What is the profile of the tobacco industry in Indonesia?

Tjandra Aditama: About 80 percent of Indonesian tobacco sales are kretek cigarettes, a local clove cigarette. These kretek cigarettes started as a kind of home industry and have become a very big industry in the country.

There are several very big companies producing kretek cigarettes — including Gudang Garam, Sampoerna and Djarum. They are usually among the 10 biggest taxpayers in the country. And they have very good political linkages because they have been around many, many years.

MM: Did these companies have any kind of relationship with the Suharto regime?

Tjandra: Not directly, because these companies are family owned. These families live mostly in central and east Java. So the board of trustees of the company usually consists of the family owners and perhaps some relatives. The big companies are openly traded, so everybody can buy a share, but I think most of the shares are still family owned.

But during the Suharto regime, Tommy Suharto — the president’s son — had a monopoly on clove trading. All of the clove trading had to go through his company before going to kretek factories.

MM: What happened to his company after the regime fell?

Tjandra: Even before the regime fell, the clove company lost its monopoly. There were too many protests from the clove farmers for the monopoly to continue, so I think the monopoly did not last for very long. Tommy still had a role, but the farmers were able to sell directly to the kretek companies.

MM: What is the health impact of the kreteks as compared to western cigarettes?

Tjandra: The kreteks have higher tar and nicotine content. They also have eugenol, a clove oil that works as a local anesthetic. So when you inhale from a kretek, it anesthetizes your throat so you can inhale the smoke deeper into your lung. There are also proven impacts to the teeth.

MM: What are the smoking rates in Indonesia?

Tjandra: For males, it is about 60 percent and for females it is below 5 percent. So in total, about 30 percent of Indonesians are smokers. If you are talking about 200 million people, there are about 60 million smokers in the country. Based on surveys we have conducted, most of the smokers are not smoking large amounts — about seven to 10 cigarettes a day on average.

MM: Are there different smoking rates between urban and rural areas?

Tjandra: There is some difference urban and rural. About 4 percent of women are smokers, but a survey I conducted in Jakarta showed about 12 percent of women there to be smokers.

MM: Can you describe Philip Morris’s recent moves in the country?

Tjandra: In March, Philip Morris announced it would purchase Sampoerna, the number three kretek producer in Indonesia, for $5.2 billion. At that time, people were quite shocked, because Sampoerna is running strongly.

After the announcement, all of the media attention was focused on economic issues — the purchase was treated as so-called proof that foreigners believe in the Indonesian economy.

MM: And what do you think the impact will be on sales and health in Indonesia?

Tjandra: There are several impacts we are worried about. First, because Philip Morris is an international company with very good marketing experience, I am afraid they will use this experience to increase the market in Indonesia, especially for women and young children. Secondly, I am afraid that Philip Morris will lobby the government to weaken the already weak tobacco control policy. Indonesia has not signed the FCTC [Framework Convention on Tobacco Control] yet and there is no sign the government will go for accession.

I do not know about their internationalization plans, which has been a major concern of many tobacco control advocates. I do not know whether they will sell kreteks to other countries.

But based on Philip Morris’s strong marketing experience, I am concerned that Sampoerna will now use stronger marketing tools to sell cigarettes within the country. If only 30 percent of Indonesians are smokers, that means 70 percent are still an available market for them to target.

MM: What are tobacco control regulations in Indonesia like?

Tjandra: We have had three different government regulations. The first regulation I think was adopted in 1999. It was quite good. But after farmer demonstrations, it was replaced by a weaker one. Then after further demonstrations, a third regulation was adopted.

Still, the current regulation has some useful provisions. For instance, you cannot advertise on primetime television. There are also restrictions against selling cigarettes in school and on religious premises. And there are rules limiting smoking public areas.

But the regulation itself is not very strong — especially for advertising, which should be totally banned. A second problem is implementation of the regulation, which is weak.

Starting this year, a new regulation for Jakarta only will ban all smoking in public places. We do not know whether this will be implemented or not, but I am optimistic. Jakarta is relatively small and the governor is quite strong; he can push that the regulation actually be implemented.

MM: What do you recommend as the way forward for tobacco control in Indonesia?

Tjandra: The best way for tobacco control policy will be FCTC accession.

Accession is the best approach. But I have three other options.

One is to adopt a new regulation, a new tobacco law, that follows the content of the FCTC. An academic paper for such a law has been drafted by some people in Parliament. It is still too long to be made into law, but it is a start. If we cannot accede to the FCTC, then adopting a national tobacco law is the best alternative.

The second one, is to really implement the regulation that already exists. If this regulation can really be implemented, I believe there would be a positive impact on smoking in the country.

The third option is to continuously educate the people about the impact of tobacco in terms of health, economic burdens and social impacts.

MM: Among the different components of a comprehensive approach, what are the one or two things that would be the most important to do in Indonesia?

Tjandra: Number one is to give health education — meaning continuous education to the people that tobacco is harmful. This is the most important one, now. People still say, “Are you sure there are health issues? There are a lot of people smoking, and nothing is happening to them.” This health education has to be increased and continuously maintained.

The second priority is to make public spaces tobacco free.

After that, we should go for a total ban on advertising. But there will be a lot of challenges to enact an ad ban. Education and smokefree areas will be easier to achieve.

MM: Why do you think that Philip Morris decided to enter the market in such a big way?

Tjandra: As I mentioned, for Indonesians, the first question is not why Philip Morris would buy Sampoerna, the first question is why Sampoerna would sell to Philip Morris.

For Philip Morris, they want to make a profit and they know Sampoerna is a good business, and that there is still room to expand in Indonesia.

MM: You went to the recent Philip Morris shareholder meeting. What did you tell CEO Louis Camilleri?

Tjandra: I told the CEO several things. First, I said that you have strong marketing experience — don’t pollute our environment with your marketing strategies to women and young adolescents. Second, I told him that we in Indonesia already have a weak tobacco control policy — don’t lobby to make this already weak policy weaker. And third, I said that he has an international company which operates in several countries that have ratified the FCTC — so even though Indonesia has not acceded to the FCTC, in doing business in Indonesia, I asked him to use the FCTC content to restrain the company’s marketing and other operations.

For example, there should be no “mild” cigarettes sold. Sampoerna has a very popular brand that calls itself “mild,” a descriptor the FCTC says should be banned. So Philip Morris/Sampoerna shouldn’t use this term any longer.

By way of another example, the mandatory warning that we have now is only small and it is not colorful and it is not pictorial. Philip Morris has to use large, graphic warnings in other countries that have implemented the FCTC, so, I asked, why don’t you use the same regulation in Indonesia?

MM: And how did he respond?

Tjandra: He said he would not answer item by item. Instead, he just said that actually I should be happy because Philip Morris has entered Indonesia. It was quite strange — I do not know why he said that.