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em>Over the past few years, Switzerland-based Nestle S.A., the world’s largest food and beverage company, has become one of the major players in Indonesia’s food and beverage market.

In 2010, the company invested US$100 million to boost the production capacity of its factory in Kejayan, East Java, making it one of the 10 biggest Nestle milk factories in the world. The Jakarta Post’s Linda Yulisman talked with Nandu Nandkishore, the executive vice president of Nestlé S.A. for Asia, Oceania, Africa and Middle East, and Nestlé Indonesia president director Arshad Chaudhry, about their business prospects in Indonesia. The following are excerpts from the interview.

Question: How important is Indonesia in Nestlé’s global operations?

Answer (Nandu): Across the globe, some of Nestlé’s best performances came from emerging markets. Of course, among the many emerging markets, one of the more interesting emerging markets is Indonesia, which performed very well last year. In Indonesia we have a business worth more than 1 billion Swiss francs [$1.09 billion].

How do you see growth opportunity in this country?

It is fundamental. If you look at Nestlé’s businesses worldwide, 40 percent comes from emerging markets. If you look at the Nestlé business in Africa, the Middle East and throughout the Asia-Pacific, it is about 25 percent of Nestlé’s business worldwide. But, if you look at the population in the zone — Africa, Middle East, the Asia-Pacific — the population is 75 percent of the globe.

So the growth of the business for us means that the 25 percent has to grow over time to get closer to the population. Within the zone, we have many growth engines, and of course, the important growth engines are China, India, Africa, Indonesia, and the Middle East. In this context, Indonesia is a very important engine of growth. We have a strong market position in Indonesia. We have a trusted brand.

(According to the firm’s data, Indonesia’s growth for its popularly positioned products, including Nescafé, was 18.4 percent last year.)

How do you see Indonesia’s future market?

We see it very positively. We continue to invest. Today Indonesia is only a little more than 1 percent of Nestlé’s total business worldwide and this is expected to triple in size over the next 10 years. That is the objective.

How big is your business in Indonesia compared to other countries in ASEAN?

Within ASEAN, Indonesia is among the positive growth markets. Seven years ago, the size of our Indonesian business was smaller than Malaysia and Thailand. Today it is bigger than both, although it’s still smaller than the Philippines. But from the way it is growing, it will someday also overtake the Philippines. You have more than 200 million people with a GDP growth rate of 6.5 percent every year.

You still import raw materials for your production in Indonesia. Why isn’t the company using local materials for your local production?

Arshad: Our basic long-term strategy is to maximize local sourcing for materials. We [Indonesia] are a resource-rich country. Naturally, we would like to source our raw materials from here. That is why we located our factories closer to material suppliers.

At this point, there currently is a shortage of production — milk, for example. Overall, Indonesia imports about 70 percent of its milk needs. We, on the other hand, import about 50 percent, and so, we are slightly better than the country average. But, we are not there yet. That is why we continue coming back to this question. We are working with farmers to improve the productivity of the animals and creating conditions which would encourage farmers to acquire more cows and thereby increase production.

We continue to work on it. We increase milk production every year, but not at the speed to catch up with current needs. In the case that it is not available, we will import. Likewise, we will be using all local cocoa when we start our production in Karawang.

We are very interested in crops as well, because we produce infant cereals and these cereals use red rice and mung beans. Ours are currently produced in Malaysia. But, when we start our production here next year we will help the farmers to produce the quality of mung beans and the red rice that we need. So wherever we need to achieve those quality standards, we are helping the farmers to meet the standards and we will purchase the product. Wherever possible, either by providing better technical assistance to farmers or helping them in other ways to improve the productivity of local materials, we will do that. This is part of our strategy.