| Indonesia based PT Astra International TbK (Astra) began as a small agricultural-based trading business in 1957, manned by four employees with big dreams. At the end of 2007, the conglomerate was worth USD7.7 billion comprising of extremely diversified business from automotive manufacturing/distribution to finance-- hemmed together by strategic alliances.
Their businesses are complementary, yet there are those that differ completely from the “norm” of Astra, seamlessly diversifying the risks of externalities in the environment. Similarly, their partnerships and marketing programs have contributed to the success they have today. Astra International attributes their massive progress to human capital management – with many awards to their name, the company has successfully encouraged their employees to vie for the right career paths within the company.
Image source: www.astra.co.id
Business Models
Astra’s Complementary Business Models Act as a Wider Wing Span
Astra’s complementary businesses can be automatically seen through their sales of cars and the accompaniment of financing and insurance. Car sales have represented approximately a fifth of their revenue for the years 2006 and 2007.
The automotive business was not the original business focus of Astra International during their years of infancy. However, with close monitoring of opportunities in the market, Astra International successfully tapped into the production and distribution networks of automobiles to cater to the growing demand for four-wheelers in the market.
In the mid-90s, a few years prior to the Asian economic slump, the Indonesian automotive industry was growing by an annual average of 20%. Even after the 1998 drop in sales, the car industry recovered quickly and expanded by 149% the following year.
The car industry is perceived as a lucrative sector in Indonesia, and paired with its financial services Astra International’s presence is depicted as a one-stop shop for automotive purchases.
The complementary business models do not end there. The heavy industry is further supported by Astra’s heavy equipment subsidiaries that engage in construction and mining. Their insurance and banking services are also extended to allow contractors a hub of financial facilities. The heavy equipment industry is further complemented by their specialist subsidiaries. These companies are already involved in telecommunications, utilities and logistics.
Astra therefore offers smart partnerships to their subcontractors by providing the equipment, financing and infrastructure expertise all under one mother company.
Astra’s Diversified Business Models Hedge against Externalities
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As in the case of the 1998 Asian recession, Astra International effectively hedged itself against the risk of losses through their heavy-equipment business lines. The construction sector is also a vulnerable one when it comes to recession in Asia, due to the dependency on financing in this region.
Astra was able to mitigate losses through their original business focus of agribusiness. Their focus on Crude Palm Oil allowed the company to target both the domestic and international markets – reducing reliance on revenue from a single market.
Agribusiness is an important sector of the Indonesian economy and has had a range of strong governmental policies implemented for its support. With Indonesia’s rich natural resources Astra International strategised wisely by not forgoing their seeds of their own agricultural trading. The Asian crisis, which caused severe deterioration in the heavy industries’ revenue, was the stepping stone for the agribusiness sector to flourish due to the devaluation of the Rupiah – the agricultural industry expanded rapidly and provided a window for affordable exports. Effectively, Astra International’s diversified business models were able to mitigate external risks. |
Image Source:
www.astra.co.id
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To celebrate Astra’s entrepreneurial roots, the company also offers financial assistance to small and medium enterprises (SME) in-line with governmental policies that support the development of a healthy SME industry. The SME industry is an important component of the economy. According to the Bali International Consulting Group, 99.95% of enterprises in the economy comprise of 41 million SME players – not surprisingly, a large segment of these units are agribusiness-based corporations.
Partnership and Marketing
Astra Engages in Smart Partnerships to Eliminate Competition and Outsourcing
Astra International would not have such an intriguing set of business lines without their partnerships and acquistions of companies throughout their years of operation.
By just looking at their automotive-based business model, one will see that Astra International engages in the whole process of manufacturing, distribution, sales, financial services, and after sales services for all of their cars. By self-developing all the procedures from the manufacturing to the after-sales, Astra has successfully created barriers of entry into the market through their economies of scale and expertise. Furthermore, they have the upper hand of bargaining power. Their fully horizontal intergration of different business focuses eliminates outsourcing of services and intervention of third parties that can compromise Astra’s quality of products and services.
Other alliances that contribute to their success include business partnerships with international players such as Komatsu, Fuji-Xerox, General Electrics and CMG.
Aggressive Marketing and Negotiation Strategies have Led to Market Leadership
Their lucrative automotive sales can be largely attributed to their sole distributorship of several major players (including the market leader) in the Indonesian market. Astra dominates the local automotive industry by a staggering 51%. Approximately 40% of their total revenue can be attributed to their car and motorbike sales.
Through their aggressive marketing and negotiation strategies, Astra had already been appointed as the sole distrbutor for Toyota in 1969. Toyota cars’ market dominance and leadership was reflected as 39% in 2006 and 35% in 2007. Astra is also the sole distrbutor for Daihatsu. Other brands that add credibility to their portfolio and an increase in market share are Isuzu, Lexus, Peugeot, BMW and Nissan Diesel.
Similiarly, Astra is the sole distributor for Honda motors. Honda Motors is also the market leader in the 2 wheeler market, with a market share of 46%.
Strong Diversification Strategies Encourage Outreach to Consumers
Astra’s diversfication strategies can be seen as the stronghold which supports the society they operate in by diversifying into retail banking (in addition to their insurance services). By acquiring a controlling stake in Permata Bank, Astra is able to reach out to 1 million consumers – for personal and business-related banking. Permata Bank is one of the largest banks in Indonesia with over 280 branches nationwide.
Human Resource Management
The company has multiple awards under its belt. In relation to human capital, Astra International has been recognised as the winner of the 2006 Indonesian Most Admired Knowledge Expertise (MAKE) Study Award and the 2006 HR Excellent Award for Management and Training. With the sheer size of Astra International and 115,000 employees to their name, President and Director Michael Ruslim believes in “returning to the core of humanity through effective communication to cultivate respect and trust” within the organisation.
Ruslim himself won several awards in 2006 as Best CEO (Swa Magazine), 2006 Most Admired CEO (Warta Ekonomi), Best Managed Overall Company Large-Cap, Best Company for Disclosure and Transparency (Asiamoney Magazine).
Image source: www.astra.co.id
Building Trust through Commiunication
Human Capital in Astra International rests on the strong leadership qualities of Michael Ruslim and his policies that have led to the company’s success. He strongly advocates periodic assessments of achievements within the branches.
“We know this is time consuming,” he said, speaking to Harian Kompas (an Indonesian daily), “but interaction is vital to be better acquainted with the employees.” He also emphasises the need to build familial ties between staff. The 1998 Asian recession was difficult for him, as Astra International’s human capital was downsized by 25%. But due to the trust and continuous communication he had maintained with his staff, he was confident that his employees “understood the reality of their displacements.”
“It was none of their fault,” Ruslim explained, “they were good employees and had served the company for many years.”
His human resource management techniques also involve transparency. Transparency eradicates speculation, rumours and unwarranted divisions within the organisations.
Creating Leadership for the Future
Ruslim’s humanitarian approach to leading Astra’s employees is seen in his own humility and drive to dispel the stigma of laziness and slow-productivity amongst Indonesian labourers. “Six months before an expansion [in the company], Astra International recruits employees to be trained [to replace those who move on towards the expansion].” Ruslim certainly encourages his employees to proactively look for career developments according to their potential.
Their personal drive has led to Ruslim’s confidence that “anyone in Astra can lead – Astra will definitely be as successful as it is today, regardless of who becomes the leader. Astra’s success is based on effective teamwork. We have a pool of executives for a successful future.”
Conclusion
Indonesian conglomerate, Astra International, can attribute their success to their diversified business focuses that not only complement each other but outweigh each other with respect to revenue, and risks in the occurences of revenue-stricken periods. Their smart-partnerships with leading international specialist corporations have allowed them to gain economies of scale and create barriers of entry in their respective industries. Yet, the human aspect of Astra International can never be discounted. Through strong leadership qualities and human resource policies, the huge family of 130 companies has worked together toward the common goals of the corporation.
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