Abstract
Astra Agra Lestari Terbuka is a multinational company that owns palm tree and rubber plantations, which are found in the tropical regions of Indonesia.
Its head offices are located in the capital city of Jakarta. According to Reuters, the land occupied by the company’s plantations is said to be around 266,704 hectares.
The company is one of the largest palm oil producers in Indonesia and in the world in extension. With its three subsidiary companies located in Indonesia, London, and Tokyo, Astra Agra Lestari Terbuka is regarded as the best palm oil producer in the world.
Globally, Astra Agra Lestari Terbuka has the largest market share compared to its competitors in the region. It is believed to supply around 1.20 million tonnes of crude palm oil products.
The current paper addresses several aspects of the marketing plan for the company’s palm tree plantation. Background information on the company is provided, in addition to a critical literature review.
The current situation and trends in the market is analysed, with information on the market trend, market size, industry analysis, and competitor analysis provided.
The SWOT analysis, mission and objectives, marketing strategy, action plan, and contingency plans for the marketing plan were also analysed.
Introduction
In this essay, the author will assess the marketing plan proposed for Astra Agro Lestari Tbk, an oil manufacturing company. The company operates its own palm tree plantations, which act as the biggest source of raw materials for its production processes.
It has a milling capacity of 300 tonnes of crude palm oil per day (Astra Agro Lestari Tbk PTY [Astra Agro], 2012).The company enjoys the full support of the government.
The main reason for this support is the fact that it generates significant revenues in the form of foreign exchange for the government. The revenues are from the company’s foreign operations. Astra Agro also pays huge taxes to the government.
In addition to this, the company has directly employed 26,473 individuals on a permanent basis as of 31st December 2011. More individuals are employed indirectly by the company.
According to Reuters (2012), Astra Agro Lestari Tbk produced a total of 1.27 million tonnes of crude palm oil in 2011.
Compared to the company’s production in 2010, this was an increase of 12.9%. In 2010, the company had produced 1.11 million tonnes of crude palm oil (Astra Agro, 2012). 95.3% of that (equivalent to 1.20 million tonnes) was consumed locally.
The rest, which is 4.7% of the total production and equivalent of 59.42 thousand tonnes, was exported to other countries (Reuters, 2012). The company is one of the largest contributors to the region’s corporate social responsibility initiatives (Vega-Lopez et al., 2006, pg. 57).
In this essay, the author will provide the reader with a brief background on the company and the current trends that have both negative and positive impacts on the company. An analysis of the competition in the market will also be provided.
The researcher will provide a SWOT analysis of the company, especially with regard to the changes in the market. The market dynamics almost locked the company out of the industry (Solis, 2011). The 2008 global financial crisis was especially significant to this company.
Another area of interest, which the author will focus on, includes an action plan for the company. The author will draft a suitable marketing strategy that will ensure that the company does not become irrelevant in the market by failing to meet the demands of the consumers.
All this will be captured in a contingent plan, which will work as a back- up plan in case the espoused blueprint fails to work.
Astra Agro Lestari Tbk PTY.: Background Information
Astra Agro Lestari Tbk came into existence on the 3rd of October, 1988 (Astra Agro, 2012). Its intended area of operations, as per its article of association, comprised of plantation operation, general trading, manufacturing, transportation, consultation, and allied services.
The company heavily invested in subsidiaries, which were engaged in the business of crude palm oil, rubber plantations, and such other industrial activities (Brown & Michaels, 2005).
It is important to note at this juncture that the palm tree existed in the region from as early as the 18th century. It was introduced by the Belgians. Astra Agro Lestari Tbk saw the need for economical, clean, and healthier cooking oil, which was not addressed in the local market.
Crude palm oil was used traditionally, but it had never been produced on a large scale before. The country had never imported this product in the past (Vega-Lopez et al., 2006). The participation of this company in this lucrative niche market has proven to be a worthy investment.
Crude palm oil has revolutionised many aspects of the cooking oil industry. Apart from emerging as the most preferred cooking oil in the world, palm oil has seen an increase in agricultural research focusing on this field (Faessler et al., 2007).
Such studies have led to the development of new varieties of this plant, which have made mass cultivation of the plant and large scale production of palm oil feasible (Gunther, 2012).
As a result, there has been an increase in palm oil production and expansion of the market that is served by this product.
The by- product is used as manure because it contains high levels of nitrogen compounds. The locals in Indonesia have benefited from the activities of this company. The locals provide raw materials to the company in exchange for payment.
They are also the sole beneficiaries of corporate social responsibility programs undertaken by the company in the region (Astra Agro, 2012).
Astra Agro Lestari Tbk has adopted a diverse marketing strategy to achieve high ratings in the market. To this end, the company engages the services of reputable marketing firms based in the foreign countries within which the company is operating.
The company also makes efforts to understand the market dynamics, including the size of the market. Taking consumer satisfaction as a priority and adapting to the current trends in the market has also worked for the company.
Such key marketing strategies have enabled the company to remain relevant and increase its market share.
Achievements aside, Astra Agro Lestari Tbk has had its fair share of problems and challenges facing its business. Most of them are caused by numerous indigenous and exogenous factors within and without the company.
Such factors include financial constraints, employee dissatisfaction, unfavourable government policies, unfavourable foreign exchange rates, and negative economic developments (Kotler & Lane, 2006). The author will critically examine these factors under critical literature review subtopic below.
Critical Literature Review
As earlier mentioned, Astra Agro Lestari Tbk is viewed as a successful global company when it comes to the production of crude palm oil. Operating in the international market has exposed the company to many opportunities, as well as criticisms (Brown & Michaels, 2005).
The company has a tradition of exploiting opportunities arising from the market, which has helped it achieve its goals and objectives.
By intensively using numerous marketing techniques, the company was able to dominate the local market.
The vigorous marketing strategy adopted involved advertising, responding to customers’ inquiries in an appropriate manner, and ensuring that the customers are supplied with high quality products at all times (Guidry, 2011).
Marketing research also came in handy at this juncture (Homburg et al, 2009). In terms of availability of raw materials, the company was able to meet the needs of its customers using raw materials sourced from the plantations, as well as those supplied by the locals.
It dawned on the company’s management that the company’s stock was running out. A decision was made to expand the plantations and increase the production levels.
The decision and plan to expand was faced by various problems, given the complex legal frameworks that govern land acquisition in the area. In an effort to increase supplies, local farmers were urged to embrace the cultivation of palm trees.
The locals were supplied with high quality seeds, which had higher yields than the traditional ones (Gunther, 2012). The price of the raw materials has also improved to further encourage the local farmers.
Still, this was not enough. Consequently, the management at Astra Agro Lestari Tbk sought permission from the government to use land set aside for forest to expand the plantations. According to government regulations of 2001, forest fires are banned.
The development was criticised. Many people, especially conservationists, felt that the safety of the rainforests was jeopardised (BirdLife International, 2004). Activists raised the alarm on the safety of the wild animals.
The animals were displaced from their natural habitat. The decreasing forest cover in the country was also a source of concern (Brown & Michaels, 2005).
Due to the unprecedented international demand for crude palm oil, Astra Agro Lestari Tbk increased the prices of the commodity in the market. The increase was especially spurred by fears of shortages in the supply of stock in early 2009.
This affected the company’s aggregate sales, which shifted downwards, making the price of the company’s shares to drop in the stock market. The losses incurred in the market led to a stagnation of the company.
The negative developments were coupled with the deterioration of the foreign exchange rates. As a result of this, it emerged that the company was making losses from its international operations.
The Euro crisis worsened the situation because customers in the international market were cutting down on their budgets (Heikkila, 2011). The customers were purchasing less crude palm oil products.
All of this was compounded by indigenous problems within the company. Lay-offs and retrenchment of workers became necessary given that operating costs had to be reduced. This led to pandemonium among the employees, who threatened to take industrial actions.
Some of the suppliers were disappointed by the failure of the company to raise enough money to settle its obligations. Owing to this, a strategy was formulated by the management.
It was necessary to come up with a strategy to ease the pressure on the company. The previous strategic plan was able to cushion the company from bankruptcy and insolvency.
Current Situation and Trends in the Market and within the Company
Overview
Astra Agro Lestari Tbk was able to maintain its operations after it acquired a plant equipped with state of the art machinery. The plant increased the production capacity of the company.
After successfully regaining its position in the market, the company listed its shares on the local capital market in 2010 (Astra Agro, 2012).
It is important to note that in addition to the positive developments within Astra Agro, there was also the stabilisation that was recorded in the foreign exchange sector during this period. The stability made it possible for Astra Agro Lestari Tbk Company to improve its production.
Current production levels can be described as sufficient. The company has enough stock and an increase of 12.9% in the volume of sales was recorded in 2010 (Reuters, 2012).
The company is seeking to expand its production capacity as it expects its market share to increase in the near future. The company also seeks to increase its profit margin through the adoption of aggressive marketing strategies.
Trends in the Market
Today, key players in the global market have turned their attention to the Asian countries for affordable and high quality supplies.
Even though many people may question the quality of the products from countries in this region, the persisting doubts have not affected the growth of this market. Such a development puts Astra Agro Lestari Tbk in a good position to market its palm oil and other related products.
The shift in the global market has been greatly influenced by the emergence of China as a global competitor.
Apart from the shift, consumers are now turning to natural products and others that are recommended by physicians (Gunther, 2012). This has made it easier for the company to market its products on a large scale.
Market Size
Currently, Astra Agro Lestari Tbk PTY is serving the largest segment of the palm oil market compared to other companies. It has the highest number of customers in the local Indonesian market as compared to the competitors (Kurtz, 2010).
This has come in handy considering that Indonesia exports approximately 59.42 metric tonnes of palm oil. Malaysia is a major competitor in the exportation of palm oil.
Astra Agro Lestari Tbk still needs to expand its market since the core markets are be found in the European continent and in some of the countries from Southeast Asia.
Industry Analysis
An analysis of the cooking oil industry indicates a bright future with increased growth for Astra Agro Lestari Tbk Company. The growth can only be achieved when improved seed breeds are developed.
The reason behind this is that the increased demand for the product requires increased utilisation of land. More land, which is excised from the rainforests, will be converted into plantations.
As a result of this, the research and development department is faced with the challenge of hastening the quest for improved breeds (Astra Agro, 2012).
Another issue with regard to industrial analysis is the need for clean and healthier cooking oil. Oil palm was introduced in the market as a result of recommendations from the doctors. The doctors’ recommendations mean that the industry is still fresh and vibrant (Solis, 2011).
Competitor Analysis
An analysis of the competition in the market reveals that the competitors are very strong. It is a fact that the company has a strong base in terms of the number of customers and the high quality of palm oil in the market.
But the competitors are not exactly lagging behind. The company also enjoys an upper hand in the market given that it is the market leader.
Internationally, the company faces stiff competition from various multinationals, including those operating from Malaysia, Nigeria, China, and other countries.
On average, the company has a stronger customer base index and market share compared to competitors on the international market (Reuters, 2012). In 2011, there was an increase of up to 7.8% in the price of the raw materials.
The price settled at 7,576 Rp per kilogram of crude palm oil. There was also a 12.9% increase in sales volume, especially in the foreign market (Reuters, 2012).
SWOT Analysis of Astra Agro Lestari Tbk PT
Strengths
The strength of a company lies squarely on the quality of its products (Project Management Institute, 2003).
Astra Agro produces the highest quality of palm oil products in the local and international markets compared to other companies. In addition, the company boasts of a high milling capacity compared to the competitors.
Weaknesses
On the flip side, the company is facing fierce criticisms from environmentalists, especially with regard to the expansion of the plantations in the rain forest.
The company’s actions have invited the wrath of various groups and international organisations, whose main concern is conservation of natural habitats (Astra Agro, 2012).
Another hurdle that the company faces is the lack of adequately skilled engineers. The problem has forced the company to start training its own engineers. In the meantime, it is relying on other countries for qualified engineers.
Opportunities
Opportunities with regard to the operations of the company are numerous. The opportunities include the potential to expand the market size because the company has adequate production capacity to meet the needs of a new market (Herriot 2012).
With the current research aimed at developing high quality seed breeds, Astra Agro will emerge as the biggest supplier of palm products in the future.
Threats
One of the biggest threats facing the company is the probable lack of raw materials in the future. The threat is real considering that the company has expanded its plantations to the maximum, to the extent of eating into the rain forest, which has attracted fierce criticism.
Critics are urging consumers to shun palm oil and other products distributed by the company to save humanity from greenhouse gases and to save the habitat of various animals.
The bottom line is that the company can overcome all these challenges if it invests more in research and development to come up with improved breeds of seeds.
The improved breeds will have the ability to effectively utilise the land currently under cultivation. At the same time, the breeds will increase raw materials for the company.
Mission and Objectives of Astra Agro Lestari Tbk PT
The mission of the company is to be the prime supplier of safe and high quality crude palm oil products in the region. To this end, Astra Agro Lestari Tbk PT has maintained the quality of its products over the years, making it a priority.
The mission was achieved considering that Astra Agro Lestari Tbk PT is one of the chief suppliers of crude oil in Indonesia and a key player in the international market.
The objectives are divided into various categories. They include communication, environmental objectives, community responsiveness, non-discriminatory employment, and social responsiveness.
The company has put in place measures to ensure that communication and queries from clients are effectively attended to. The tradition has improved consumers’ trust in Astra Agro Lestari Tbk PT products (Astra Agro, 2012).
With regard to environmental objectives, the company has identified several preservation areas where misplaced wild animals are confined and protected.
However, critics have viewed this with disdain given the wanton destruction of animal habitat orchestrated by this company (Faessler et al., 2007).
Socially, Astra Agro Lestari Tbk PT has initiated various programs, such as sponsoring children’s education and providing healthcare services for workers and for the community.
The company also conducts HIV/AIDS awareness campaigns. It educates the community members on the benefits of family planning and such other issues (Astra Agro, 2012).
Marketing Strategy
Overview
According to Homburg et al. (2009), marketing strategy is a plan developed to assist a company in effectively utilising its limited resources. The effective utilisation turns the resources into opportunities to achieve sales and substantive competitive advantage (Homburg et al., 2009).
The strategy should reflect the basic and long-term forecasts in the market. Such a strategy is vital in underpinning the marketing plans to achieve both marketing and company objectives.
Market Segmentation
Kotler & Lane (2006) define market segmentation as the process of subdividing the market into clusters of consumers on the basis of different parameters. The parameters include income, behaviour patterns, attitudes, age, gender, and occasion among others (Kotler & Lane, 2006).
In the case of Astra Agro Lestari Tbk PT, market segments are developed with regard to behaviour of the customers, income level, location, and gender.
Other factors taken into consideration include the attitude and personality of the customer. Segmenting the market helps the company in formulating the most effective method of marketing the product.
Target Market
Kurtz (2010) terms target market as the most effective way of reaching out to the various market segments. There are four strategies that can be used by this company to this end.
They include undifferentiated marketing, niche marketing (Kurtz, 2010), segment marketing, and individual marketing (Kotler & Lane, 2006).
Undifferentiated marketing can be achieved by using media as a marketing tool. It involves, among others, mass production, distribution, and promotion of the palm oil products.
Niche marketing can be achieved by concentrating on a single market segment. It involves devising strategies to effectively approach the segment. It can be a small market, whose needs are not adequately addressed.
The marketing can address a different location or target group, such as industrial manufacturers who need palm oil as raw material. The group can be identified through shows and exhibitions held in foreign markets.
Market Positioning
Guidry (2011) defines market positioning as the process through which marketers create an image or identity of their products in the mind of the target consumer.
Astra Agro Lestari Tbk PT has already positioned itself as an international brand and a company that is responsive to the welfare of the people who live within or around the plantations. It has achieved this through the provision of social amenities (Solis, 2011).
Owing to the current rise in demand for palm oil both locally and internationally, the company should consider repositioning itself as the ultimate producer and supplier of crude palm oil and products.
It can achieve this through rebranding, which will include improving the way customers perceive the products. It will also include integrating new features into the products (Herriot, 2012).
Market Mix
Solis (2011) terms marketing mix as a business tool used in the marketing of products. He points out that this tool is crucial in the creation of a product’s uniqueness. Kotler & Lane (2006) agree with Solis’ argument regarding the importance of the 4Ps.
The ‘Ps’ include product, price (Kotler & Lane 2006), promotion, and place. To start with, the company will come up with special features to satisfy the needs of the consumers. It can achieve this by increasing the number of products in the palm oil sector.
The price factor will be used depending on the current demand and price elasticity for the company’s product. The price should also be in line with the other marketing mix elements to avoid losses or a drop in sales.
Basic strategies that are used include market skim-pricing in an established market (Arriot, 2010), neutral pricing in areas where there is stiff competition (Rumack, 2005), and market penetration pricing when entering into new markets (Kerin & Rudelius 2010).
Some of the elements of ‘promotion’, such as advertising, personal selling, public relations (Cosans, 2011), and sales promotion, are used in this marketing mix (Kerin & Rudelius, 2010). Paid-for advertisements are preferred in both new and old markets.
Public relations will also be used, for example through the signing of sponsorship deals and trade fairs. Sales staff will play a very important role when it comes to the promotion of the product in the market.
Finally, ‘place’ refers to the proximity of the product to the consumers (Gunther, 2012). It is the location from which the consumer can access the products easily.
The strategy under this marketing mix element involves intensive distribution initiatives, where wholesalers who have access to the company’s stores will be provided with the products they require (Kerin & Rudelius, 2010).
In addition, the company will establish distribution locations, which are convenient to distributors (Heikkila, 2011). The company will promote franchising in regions where distribution of palm oil products proves to be extremely expensive.
Action Plan (Gantt Chart)
The laid down action plan is in accordance with the principles of the Gantt chart, which was developed by Henry Gantt to illustrate the schedule of a project (Project Management Institute, 2003).
Appendix I is a diagrammatic presentation of the action plan for the proposed marketing strategy.
Contingency Plans
According to Herriot (2012), contingency planning involves ‘confronting the unlikelihood of disaster’ (p.34).
It involves addressing factors that may interrupt the normal functioning of a business entity. Herriot (2012) notes that crisis management plan should be predetermined in any business entity.
The company has a contingency plan that will act as a fallback in case of any failures in the normal functioning of the business. In case of decreased demand in the foreign market, the company will reduce the prices of crude oil products to ensure that they do not congest the warehouse.
The policy will also be applied locally. If a venture into a new market proves to be expensive, the company will purchase a local company and use it to distribute its products in that market (Kiserud, 2012).
The management has acquired a comprehensive insurance cover for the factory. This is coupled with regular factory inspection to check faulty systems. Necessary fire equipments have been purchased to deal with fire accidents in the plantations.
The company maintains an optimum level of raw materials and finished goods to ensure that neither production nor supply comes to a halt.
Local companies have also signed a pact with the company to ensure a steady supply in the foreign market in case another company is unable to meet the demand.
Conclusion
Astra Agro can exploit its potential in the future to emerge the largest supplier of palm oil products in the world. The company has increased its net worth by penetrating the international market and maintaining its leadership in Indonesia.
The biggest challenge for the company remains to be environmental conservation. The challenge should be tackled carefully to stop endangering indigenous wild animals and forest, which is on the verge of extinction.
The proposed marketing plan will provide a road map, which will help the company in creating an international image. Rebranding, marketing research, and recruiting more sales persons will help the company to achieve this.
The company will further expand its market by establishing strategic collaboration and acquisition of more subsidiary companies. Performance audit will be carried out after every six months to ensure that the company stays focused on the objectives and goals envisaged.
Training the employees will be encouraged to upgrade their skills and make sure they can adequately cope with the current trends in the oil palm industry.
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