Indonesian Economy: Asia Pulp and Paper

Indonesian Economy Asia mush and Paper A neat scheme analysis of APP mission , vision and scheme Indonesian Economy Asia build and Paper A short strategy analysis of APP mission , vision and strategy Summary Introduction2 I. smart set overview3 II. APPs monetarys, surround issues and mattel4 1. APPs fiscals 2. purlieu issues 3. Mattel III. The challenges and recomanded strategy7 1. The challeges 2. Recommandations IV. APP, a high society to watch9 Conclusion10 References IntroductionCorporate governance refers to the control of the firm, its monomania structure, and the revealing quality. It was widely discussed in relation to the Asian crisis in 1997-98, because poor firm performance was assumed to be related to bad corporate governance . In particular, the East Asian economic model was utter to reveal a crony capitalism, with the presence of numerous family-controlled groups, a high ownership con centimeration, a weak public governance, and poor monitoring of bank loa ns .The group Asia Pulp & Paper (APP) expanded imposingly in the 1990s and became the largest slop and penning producer in Asia outside Japan, and one of the top hug drug producers in the orbit. It attracted investors from all over the ball in a context of Asian miracle, and because the giant figure hoagys built in Indonesia were assumed to produce at the lowest cost in the world .Surprisingly, the group announced a debt standstill on $13 billion in 2001, the largest default for a private group in an emerging country At the same time, it was revealed that the industrial capacities had expanded at a much immediateer pace than the forest plantations, thus representing a high risk that operations would not be sustainable. Available studies showed the apparent lack of rationality in the decisions of the group, and the critical situation it faces from both(prenominal) financial and wood come forth points of view.However, another explanation would be more convincing, which is based on the rattling rational behaviour of the ultimate owners of the group. This rationality being related to their ability to increase their control of the decisions and accounts compared to their go financial investments, to finance the expansion mainly with debts in order to reduce their own risks and to maximize their short profits, ,to benefit from a lax public governance context and a free access to pictorial forests for supplying fiber to the bod mills.APPs trajectory has not been clean of obstacles , so with the tools provided by the theory strategy and organizational management we re going to try to find the good way to manage that company . This is important because APPs default has attracted much attention so far, and the resolution of the case will impact on the willingness of foreigners to invest back in Indonesia. I. Company overview Asia Pulp and Paper (APP) has its roots in 1972, when the company Tjiwi Kimia was founded by Eka Tjipta Widjaja as a small caust ic soda manufacturer.In 1978, Tjiwi Kimia commenced musical theme ware of 12,000 haemorrhoid/year. In December 1976, Indah Kiat was formed as a joint venture between CV Berkat (an Indonesian company), Chung Hwa Pulp Corporation and Yuen Foong Yu Paper Manufacturing Company Ltd. from Taiwan. In April 1979 Indah Kiat Tangerang mills Paper Machine 1 and 2 started with a production of 100 rafts/day of wood free news report. By March 1984 Indah Kiat Perawang mills Pulp Machine 1 started producing bleached hardwood kraft anatomy with an initial capacity of 250 tons/day.In May 1986 Sinar Mas Group acquired 67% of Indah Kiats total shares. Chung Hwa and Yuen Foong Yu had 23% and 10% shares respectively. In 1987 the firstly cast coating railcar installed at Tjiwi Kimia, and in April 1990 Tjiwi Kimia was listed on the Jakarta and Surabaya Stock Exchange. In 1991 Tjiwi Kimias PM 9 started operation with an annual capacity of 207,000 tons. The undermentioned year Indah Kiat acquired P T Sinar Dunia Makmur, a manufacturer of industrial newspaper located in Serang with a 2. roduction capacity of 900 tons/day. jiwi Kimia commissioned the carbon copyless Paper graft in March 1993, an experiment The company Pindo Deli under control of APP in Feb. 1994, and by 1997 its paper machine 8 and 9 would both collect begin operation with production capacity of 240,000 tons per year. In 1998, paper machine 11 started tissue production in Pindo Deli with annual production capacity of 400,000 tons started to operate. APP-mainland China began investing in China in 1992, with an emphasis on the Yangtze and Pearl River Deltas.APP-Chinas pulp and paper mills now include Ningbo Zhonghua, Goldeast Paper, Ningbo Asia, Gold Huasheng, Gold Hongye, and Hainan Jinhai Pulp and Paper. APP-China was registered in Singapore in October 1994. APP-China employs over 37,000 people and created 5,000 naked jobs in 2009 II. APPS Financials, Environment issues and Mattel 1. APPs financials Growth of the pulp and paper assiduity in Indonesia mainly came from leverage, which drove returns on equity ever higher. International financial institutions had compete a central role in supplying the finances for APP. Its assets totaled US$17. billion, of which shareholders had financed 25 per cent (the most important shareholders being the Widjaja family, and the American fund managers, Franklin Templeton Investments and Capital Group), bondholders 38 per cent and banks 20 per cent. everywhere 300 international financial institutions, including many leading financial institutions (e. g. , investment banks in the U. S. , The Netherlands, Switzerland and Germany) and export computer address agencies were among those heavily involved in providing and guaranteeing this finance over the 10 years prior to 2001. Among the private financial institutions were Barclays Bank,NatWest, Morgan Stanley Dean Witter, Credit Suisse First Boston, Goldman Sachs, Franklin Templeton, Capital Group, Merr ill Lynch, Bank of America, Deutsche Bank, ABN Amro and Bank of China. The use of financial mark-up practices that is, the artificial pompousness of the cost of an investment project had allowed some pulp and paper products to secure much larger amounts of support for their projects than they actually needed. In fact, financial institutions queued up to invest in the Indonesian pulp and paper companies because they perceive that they had a competitive advantage due to their access to cheap raw material re parentages.The situation sullen difficult for APP in April 2001 when it announced that it had failed to include a US$220 million loss on 2 currency swap contracts in its financial statements, quickly followed by an official announcement that earlier financial statements for 1997 to 1999 should not be relied upon. A confidential 2,000-page report from KPMG released in July 2001 listed questionable transactions and accounting entries do in 1999 and 2000 by APPs cardinal Indo nesian entities, and noted $1. 6 billion in provender for doubtful debts, reclassification of receivables as good as a $672 million in derivative losses from versatile APP units. Other transactions, including $457 million in guarantees for non-APP companies, brought the total amount in the questionable category to $4. 41 billion. 2. Environment issues APP-China invested over 300 million RMB in environmental conservation facilities and activities in 2009 alone, and had invested over 5 billion RMB in environmental protection by 2009. APP-China inn 2009 also achieved 100% treatment of its solid untamed from its six major pulp and paper mills.APP-China was honored in 2009 with the Award of Contribution to Low Carbon Business (Multinational Corporation) at the first meeting of the Low Carbon Forum hosted by the National charge of the Chinese Peoples Political Consultatative Committee (CPPCC) and the China Association for Science and Technology. APP-China also received the Green Chin a Campaign-2009 Scientific schooling of Forest Plantation Special Award by the China Green animal foot and the State Bureau of Forestry, Center for Economic Development Research.Further, APP-China received the 2009 Scientific Forest Plantation Development Award by the China Green Times. In November 2007, Forest Stewardship Council (FSC) decided to rescind the rights of APP to use their logo, following pressure from other FSC Stakeholders, and a new policy approach by FSC Board of Directors. A investigation published in March 2008 by an environmental coalition called Eyes on the Forest showed usher of a new road built by APP, heading through the Kampar peninsula, one of the worlds largest contiguous tropic peat swamp forests, with more carbon per hectare than any other ecosystem on Earth.The investigation found tracks on the new road of the critically endangered Sumatran tiger, whose wild population has been reduced to less than 500 individuals. APP claimed that it was constructi on this state-of-the-art, paved highway for the benefit of the local communities, though satellite imagery shows that the road does not go anywhere near the two settlements. 3. MattelOn June 8, 2011, Greenpeace launched Barbie, Its Over, an international campaign criticising Mattels use of Asia Pulp & Papers products in its packaging, specially in its line of Barbie products. Within two days of the campaigns start, Mattel ordered its packaging suppliers to stop purchase from Asia Pulp & Paper pending an investigation into Greenpeaces deforestation allegations, and further ordered its suppliers to report on how they source materials.Asia Pulp Paper welcomed Mattels response, believing that Mattels investigation would conclude that its packaging materials are more than 95% recycled paper sourced from around the world. On October 5, 2011, Greenpeace announced that Mattel stated that it would no longer purchase pulp and paper products from Asia Pulp Paper due to the effects that it s logging practices had on the Sumatran tiger population III. Challenges and recommanded strategy 1. The challenges The schema Group has identified many significant challenges facing the ndustry, including * loss of demand for its products due to the consequences of the global financial crisis in late 2008 and early 2009 * increased consumer and business use of digital communications, resulting in a decrease of the growth in consumption of paper-based communication, including newspapers * increased competition from cheaper imports, often using fibre from unsustainable sources, resulting in an nettlesome international playing field * projected shortages in available wood-based fibre to provide feedstock for existing pulp and paper facilities, especially due to limits on timber plantation establishment * escalating costs of key industry inputs, especially electricity, and limitations on the ability of the industry to capitalise on its innate energy generation might * level of inve stment has been lowthose mills lacking investment are facing closure slice others which have continued or increased investment have execute automated and more expeditious * he growth of China, India and other emerging economies such as Indonesia, which is significantly altering the traditional supply and demand dynamics for paper products * the low level of RD by Australias pulp and paper companies affecting the level of innovation and international competitiveness they can achieve * government and connection responses to climate change, affecting all industries in Asia, including the pulp and paper industry 2. Recommandations Recommendations can be sorted into four major themes innovation, investment, sustainability and productivity. The first recommendation is fundamental to the entire strategy and stretches across all four themes. It deals with the governments commitment to the long-term viability of the pulp and paper industry in Asia and its workers.Asian Government( China, Japan, Singapour,indnesia) fuck off a clear public statement supporting the value and long-term viability of the Asian pulp and paper industry, recognising the industrys commitment to good environmental outcomes and its key role in the provision of economic and social opportunities for thousands of Asian, many in vulnerable regional communities. asylum A Pulp and Paper effort Innovation Council shloud be established and appropriately funded to build a culture of innovation in the industry. The Innovation Council will recognise Asians competitive strengths in fibre production, product innovation and renewable energy, and focus on long-term issues facing the industry. Investment The asian Government establish a plantation investment model that delivers the re-establishment and expansion of timber plantations to underpin existing processing industries or led to the initiation of new processing industries in asia . SustainabilityThe Australian Government work with industry to suppo rt internationally recognized forest software documentation schemes (including the Indonesian Forestry Standard, the Programme for the Endorsement of Forest Certification and the Forest Stewardship Councils certification scheme) that provide for legal and sustainable forest management which ensures transparency, accountability and global and local consistency of application. productivity Noting the significant price increases associated with the exercise of generator market power in the National Electricity Market, the ministerial Council on Energy should accelerate efforts to improve competition in the wholesale electricity market, including by increase penalties and developing rule changes to limit the exercise of generator market power. The Asian Government should support work force planning and development initiatives that underpin future economic opportunities for the pulp and paper industry and its workforce. IV. APP, a company to watchAPP is a company more in the news than not, and for some good movements it has a well known plan to be the Number 1 pulp and paper company in the world it operates in one of the hottest regions, Indonesia, when it comes to the NGOs focus on deforestation and climate change it has a strategy of entire growth that includes the installation of the biggest and very best and in pulp and paper technology and a strategy of acquisitive growth that will probably put it firmly in the RISI headline news adventure even more regularly next year. With its bold mission to be the number 1, APP is going to have yet another tough year in 2011 as it comes under even closer examination regarding its forestry and plantation operations in Indonesia.Indeed 2010 saw a ramping up of NGO activity aimed against the company, particularly from Greenpeace, in which it published a series of reports highlighting alleged environmental transgressions, as well as naming some of the major brands around the world that were grease ones palmsing the com panys products. APP in return commissioned a series of independent reports, including one by former Greenpeace founder Dr Patrick Moore, refuting the allegations. But perhaps the real reason this company is one of our Five to Watch for next year is its seemingly unstoppable progress, with new expansions in both pulp and paper too numerous to mention, including the start up of the worlds biggest alright paper machine located on Hainan Island, China. peerless of the main areas of interest is where all the fine paper that APP is producing is going to go as duties have now been imposed in both the US and Europe on fine paper coming in from China. Duties are also now being talked about in brazil and India as anti-dumping fears in those countries come to the fore. Another major development on the horizon is APPs aggressive skill strategy abroad through its subsidiary Paper Excellence based in Holland which has already seen it buy up four pulp mills, two in France and two in Canada. Cou ld we see APP making an skill of a major European or US pulp or paper company in 2011? Conclusion APPs trajectory since the early 1990s has been very impressive for several reasons.Focusing at first on Indonesia to develop a pulp and paper empire in order to become one of the top ten producers in the world, the group achieved its objective owing to very lax attitudes on the part of investors both from Indonesia and abroad. The context of the early and mid 1990s, with the so-called Asian miracle and the Indonesian governments official policy of pushing industries with a clear export-oriented stance, and the availability of huge forest areas for conversion, permitted the extraordinarily fast expansion of APPs capacity. This expansion has been mainly based on debts, either through bond event or bank loans. In conclusion, Asia Pulp & Paper seems to illustrate the theories saying that the divergence between ownership and control through pyramid structures corresponds to poor corporate governance and leads to lower firm performance. References Why a Green Logo May Mean Little, Wall Street Journal, 30 Oct 2007 * New APP Logging Road Threatens One of Worlds Biggest Carbon-Storing Forests, Tigers Eyes on the Forest, March 2008 * Logging Road Threatens Rare Peat Dome, Tigers * Peoples Daily Online Forestry regime charges Singaporean paper giant with illegal logging * Asia Times Online Southeast Asia news and business from Indonesia, Philippines, Thailand, Malaysia and Vietnam * a b FSC rules in upheaval after green groups level accusations at APP printweek. com Latest Print manufacturing News, Jobs, Features, Product Reviews, Used Printing and Packaging Machinery * FT. com / Home UK / UK The usefulness of scholarships and tigers * Ethical Corporation Archive APP decision a landmark for Chinas environmentalists * http//www. rainforest-alliance. rg/forestry/documents/app. pdf * wikipedia * APP s Annual report 2010 , from www. freereport. com * http//www. ppimaga zine. com/ppiissue/ 1 . Sumatran Tiger incident During late July 2011 Greenpeace revealed images and footage on their website that showed a critically endangered Sumatran tiger. This tiger had become confine by an animal snare at the edge of an APP concession, and had been there for at least seven days, without sustenance or water. Attempts to tranquilise and rescue the tiger failed due to its poor condition of health. APP denied any responsibility, despite reports to the contrary.