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Sampoerna Continues to Create Multiplier Effect in Indonesia
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s a company that has been operating in Indonesia for 111 years, PT HM Sampoerna Tbk. (Sampoerna) has been realizing its commitment to creating value and contributing to Indonesia’s economy through job absorption and continuous investment. Today, Sampoerna is regarded as one of the major employers and investors in Indonesia, with a sizeable footprint across the value chain.
According to data released by the company, Sampoerna provides direct and indirect employment to more than 90,000 workers in Indonesia. Moreover, President Director Vassilis Gkatzelis went on the record to say that the company is adding a total new workforce of tens of thousands of workers this year. Sampoerna is optimistic that this will increase employment opportunities in the formal sector for the local community while creating a strong multiplier effect for economic development and becoming one of the key growth drivers in numerous regions.
Vassilis said that the company he leads strives to create a positive impact for its key stakeholders, believing that business should be stakeholder-oriented, focused on how to contribute and generate value for the broader ecosystem in Indonesia.
“We are delivering on our commitment through the advancement of scientifically substantiated smoke-free products, job opportunities for highly skilled workers, the purchase of local tobacco supplies, micro, small and medium enterprise [MSME] development, research and development [R&D] capability expansion, the operation of a digital hub as well as expansion of exports to more than 30 market destinations,” Vassilis explained.
Pioneering industry transformation
Sampoerna and its parent company, Philip Morris International (PMI), has been investing continuously in Indonesia. Since 2005, PMI’s total investment in Indonesia has amounted to US$6.4 billion. According to Vassilis, this is a testament to its confidence in Indonesia’s business climate.
“We are committed to developing the tobacco industry value chain and realizing industry downstreaming as an effort to foster inclusive and sustainable economic growth,” he said. “One of the concrete manifestations of this commitment is our latest production facility in Karawang, West Java. It is PMI’s first manufacturing facility for innovative smoke-free tobacco products for IQOS in Southeast Asia and only the seventh in the world.”
The result has been clear. Since its inauguration in January 2023, this production facility has generated a multiplier effect through R&D capability expansion, job opportunities for highly skilled workers, purchasing local tobacco supplies, MSMEs development that includes digitalization and capacity-building for traditional retailers, operating a digital hub and increasing export performance. “This investment proves Indonesia’s place on a global level as an important export hub for PMI,” Vassilis said.
Smoke-free tobacco products are Sampoerna’s way to lead the transformation of the tobacco industry in Indonesia. By leveraging science and technology, the company can use its strategic position in the value chain to ensure sustainability in the industry. They are clear that these products are not risk-free and only intended for adult smokers.
“Our message is simple: If you don’t smoke, don’t start. If you smoke, quit. If you don’t quit, change,” Vassilis said. Smoke-free products are the answer to this change. Since 2008, PMI has invested US$12.5 billion in the development, scientific substantiation, manufacturing, commercialization, and continuous innovation of smoke-free products for adults who would otherwise continue to smoke.
PMI’s IQOS is one such product. It is a heated tobacco product that does not involve burning and can emit significantly fewer and lower levels of harmful and potentially harmful constituents compared with cigarette smoke.
Based on its research, the vast majority of harmful compounds found in cigarette smoke and associated with smoking-related diseases are generated by combustion. Therefore, products that eliminate combustion, such as heated tobacco products, are a much better alternative to continued smoking.
IQOS has been introduced in Indonesia in a targeted way through the IQOS Club, and so far, the company has witnessed notable progress in the Jakarta urban area, with a 3.5 percent market share among tobacco products in the fourth quarter of 2023, an increase of 2.0 points versus the same period last year. With the growing members of IQOS Club, Vassilis said that Indonesian adult consumers are more aware of a better choice to smoking cigarettes and more willing to make that switch.
Preserving company’s roots
Amidst its transformation, Sampoerna has not forgotten its roots as the King of Kretek. The company still protects the sigaret kretek tangan [hand-rolled Kretek cigarette/SKT] business that requires the dexterity of the hand-rollers since the company’s inception 111 years ago.
“We are upholding the history that has built Sampoerna into who we are today, which is our legacy in the SKT segment. We started producing SKT in 1913 from a small business with humble beginnings, and we still do today,” Vassilis said.
While the overall industry’s cigarette volume was declining last year, the labor-intensive SKT segment recovered and went up to reach 28 percent share of market in 2023. The recovery is supported by the government's excise tax policy for tobacco products, especially since 2021, which considers employment absorption.
In line with these signs of SKT segment recovery, Sampoerna has created additional employment for tens of thousands of new workers for SKT production facilities that will be spread across Java. The company has officially expanded its partnerships with local cooperatives and entrepreneurs to open five new locations of Third-Party Operators [TPOs] to produce Sampoerna’s SKT products in East and Central Java throughout the first quarter of 2024, each of which has added thousands of new job absorption.
With this, Sampoerna currently manufactures its products in seven owned facilities and through a partnership with 43 Third-Party Operators (TPOs) owned by local businesses and cooperatives across Java.
“Later this year, we will also open our own additional SKT factory that will absorb thousands of new workers,” Vassilis said.
Investment in sustainability
Sampoerna’s commitment to contributing to Indonesia is also centered around the sustainability of its operations. Sampoerna believes that sustainability is about inclusive and sustainable growth and impact for all stakeholders and the broader ecosystem.
Therefore, under the Sampoerna Untuk Indonesia program umbrella, the company has been conducting consistent efforts to integrate sustainability into its activities through various initiatives in the Environmental, Social, and Governance [ESG] aspects.
For the environmental aspect, Sampoerna has been implementing various climate actions and utilizing renewable energy, while the social aspect is centered around the continuous effort to improve contribution and positive impact, within operations and beyond, impacting not only employees and partners but also the communities where the company operates. Meanwhile, in the governance aspect Sampoerna consistently upholds integrity and good corporate governance in every activity across its entire value chain.
In line with Indonesia’s target to achieve net-zero emissions, the company aims to be carbon-neutral in direct operations by 2025.
“Since 2017, we have been investing in solar panels in our production facilities in Karawang, West Java, as well as Surabaya and Malang, East Java. We have also been utilizing power from certified renewable energy sources,” Vassilis revealed.
More recently, in November 2023, Sampoerna inaugurated 10,550 ground-mounted solar panels in their Pasuruan production facility, which generate up to seven megawatts peak of electricity, comparable to the electricity for more than 12,000 houses.
Their efforts have not remained unnoticed. Sampoerna is also the first Indonesian company to receive international certification from the Alliance for Water Stewardship (AWS) for water conservation initiatives at their production facilities since 2019.
Furthermore, the social aspect of the ESG initiative stresses that economic growth should be inclusive. Therefore, Sampoerna aims to improve the welfare of the broader ecosystem, spanning the whole chain of the tobacco industry, starting from the farmers of tobacco and clove to the communities that include Indonesian MSMEs.
“Tobacco and clove farmers are at the heart of Sampoerna's business. Our commitment to ensuring decent and safe working and living conditions in all farming areas from where we source our tobacco and cloves is manifested through a partnership program with more than 22,000 tobacco and clove farmers through our suppliers,” Vassilis said.
Aimed to increase productivity and thereby improve farmers' welfare and the quality of tobacco and cloves, the partnership program provides partner farmers with knowledge and training to help them work better and empower their families to generate additional income through community entrepreneurship programs.
Moreover, paying homage to its humble roots and beginnings as a small business producing SKT in 1913, Sampoerna has consistently made investments focusing on empowerment for Indonesian MSMEs.
Through the Sampoerna Entrepreneurship Training Center (SETC) program, the company has provided entrepreneurship training to more than 70,000 beneficiaries in Indonesia since 2007. The assistance provided include entrepreneurship training in various fields, applied research, market access, as well as consulting and networking. This is also in addition to giving small businesses access for exports by conducting business matching programs, offering them to network and directly meet buyers from Japan and China.
“Our commitment to empowering MSMEs also reaches mom-and-pop stores. Sampoerna has been developing the capacity of traditional retailers through the Sampoerna Retail Community (SRC) program,” Vassilis added. “Started in 2008, currently the SRC program has more than 250,000 traditional retailers and 8,200 communities across Indonesia.”
Based on a recent survey by Kompas in 2023, SRC’s economic impact is illustrated by the overall turnover of SRC retailers in 2022 which was estimated at Rp 236 trillion (US$15.06 billion), or equivalent to 11.36 percent of the total national retail trade. In terms of digitalization, after joining SRC, 90 percent of owners have adopted digitalization through the AYO by SRC digital ecosystem, while half of SRC stores have served customer transactions online.
The result is a direct impact of the integrated development programs provided for SRC members, which ranges from education and direct assistance on store and financial management, business development and digitalization. There are also Pojok Lokal (Local Corners) placed in SRC stores to support other MSMEs in the surrounding communities.
In conclusion, after 111 years of presence in Indonesia, Sampoerna continues to create a positive impact on the broader ecosystem. This commitment bas been realized through continuous investment that serves as the company’s vote of confidence in Indonesia. Vassilis hopes that this investment will strengthen Indonesia’s position as an investment destination from within and outside the country. As the company looks to continues its operations for the next 111 years, Sampoerna is committed also to prioritizing sustainability principles in its activities.
