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Value creation key to Sampoerna’s 110 years of presence, building sustainable future
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Publicly listed PT HM Sampoerna Tbk (Sampoerna) president director Vassilis Gkatzelis (right), accompanied by the company’s director Elvira Lianita (left), reaffirms the company’s commitment to economic value creation and long-term investment for a broader ecosystem in its 110 years of operation and for a sustainable future in Indonesia. He made the remarks in an interview with journalists in Jakarta on May 26
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videnced by its significant and tangible efforts to create value for the Indonesian economy, 110-year-old publicly listed PT HM Sampoerna Tbk. (Sampoerna) continually focuses on value creation in the national tobacco industry and the broader ecosystem to gear up for a sustainable future.
Sampoerna’s president director Vassilis Gkatzelis explained in an interview with media on May 26, throughout its 110 years journey, Sampoerna has taken part in growing Indonesian society and the country’s economic development and will continue to do so as manifested in its long-term investment, which is highly needed to drive sustainable value creation.
The company’s economic value creation spanned many different areas of contribution to society, according to Gkatzelis. Sampoerna has invested US$6.3 billion into the Indonesian economy since 2005. Recently, Sampoerna invested more than $186 million to build a smoke-free product manufacturing facility in Karawang, West Java, which started operation in the fourth quarter of 2022 to fulfill demands for export to Asia-Pacific and the domestic market. Sampoerna also has two cutting-edge laboratories located in Pasuruan, East Java, and in Karawang.
“Our priority is always to address the harm caused by smoking. The best choice is never to start smoking and quit smoking cigarettes or any other nicotine-containing products. But today's science and technology have allowed us to develop, scientifically substantiate and commercialize smoke-free products that are a better alternative to adult smokers who would otherwise continue to smoke,” said Vassilis.
One of these smoke-free products is a tobacco heating device called IQOS. Developed based on rigorous scientific research and advanced technology, IQOS heats tobacco sticks that use real tobacco without combustion. Hence, IQOS emits, on average, 90-95 percent lower levels of harmful and potentially harmful chemicals than conventional cigarettes.
"IQOS is an electronic device that heats tobacco instead of burning it. Therefore, there is no fire, ash or smoke. That’s why this is a better alternative and a very pragmatic approach for adult smokers who would otherwise continue to smoke. So, it's very important for these adult smokers, to give them better alternatives. And this is exactly what we're doing,” Vassilis said.
Established in 1913, Sampoerna has adopted a guiding principle called the “three hands” philosophy to carry out the value creation strategy. This has effectively contributed to its long-standing presence in Indonesia, which is proven through a breakthrough done by Sampoerna in reducing the health impact of cigarettes by introducing better alternatives thanks to the advancement of science and technology.
The main cause of tobacco-related diseases is combustion, or the burning of tobacco. Therefore, the parent company of Sampoerna, Philip Morris International (PMI), has invested more than $10.7 billion into the development, scientific substantiation, manufacturing, commercialization and continuous innovation of smoke-free products that do not burn tobacco.
Vassilis highlighted the products contained nicotine, and while nicotine may cause addiction, it is not the primary cause of smoking-related diseases. “If you don’t smoke, don’t start. If you smoke, quit. But, if you choose not to quit, then change to better alternatives,” said Vassilis.
Gkatzelis mentioned the latest science-based innovation with the most-advanced technology for smoke-free tobacco products, IQOS ILUMA, which uses the Smartcore Induction System that heats tobacco without a heating blade featured in previous generations of IQOS. The technology was introduced on Feb. 9 as a continuation of the company’s IQOS Club in 10 cities in Indonesia.
He also highlighted smoke-free products were not risk-free and specifically intended for adult smokers who decided to continue using tobacco or other nicotine products.
Continuous value creation to the broader ecosystem
Under the company’s “three hand” philosophy, the company needed to take into account three groups of stakeholders: first, adult consumers or adult smokers; second, the company’s employees and business partners; and third, society at large, he said.
Gkatzelis, who started leading the company a year ago, is amazed by Indonesia’s motto, Bhinneka Tunggal Ika (Unity in Diversity), and the spirit of gotong royong (mutual cooperation). He pointed out Sampoerna’s 110-year, long-standing presence in Indonesia was a vote of confidence in the strong potential of Indonesia.
Sampoerna refers to the broader ecosystem when it comes to society at large. “Sampoerna has always been finding win-win solutions, and I think the gotong royong spirit is clearly what has guided Sampoerna all this year,” he said.
Currently, Sampoerna operates, directly and indirectly, a total of 45 manufacturing facilities in the country, including its latest one for smoke-free products. Tobacco is a vast sector in Indonesia that plays a significant role in employment. Sampoerna’s direct and indirect employees are recorded at over 66,000. “Despite the number of challenges during the pandemic, we fully maintained our [number of] employees and we are even increasing our employees,” he said.
“We work together with communities. This includes 22,000 farmers of clove and tobacco farmers, 1,700 suppliers and manufacturing. Besides our own factories, we are also partnering with third-party operators owned by local entrepreneurs or cooperatives specializing in hand-rolled manufacturing,” he explained.
Sampoerna is also partnering with hundreds of thousands of micro, small and medium enterprises (MSMEs), the backbone of Indonesia’s economy, for a broader ecosystem across the value chain. In developing Indonesian MSMEs, Sampoerna has conducted two flagship programs, Sampoerna Retail Community (SRC), which celebrates its 15th anniversary this year, and Sampoerna Entrepreneurship Training Center (SETC).
More than 225,000 traditional retailers within around 7,000 paguyuban (communities) were now a part of SRC, according to Gkatzelis. He added, Sampoerna had a vision to continue expanding SRC and considered them part of a broader ecosystem.
“We work together with them to manage their stores, to digitalize them. We have provided them access to our AYO SRC digital ecosystem. We are connecting them with wholesalers and digital banking services that are directly linked to leading banks, we help them integrate, increase their business and we see a significant turnover of retailers who are joining the SRC,” he said enthusiastically.
Explaining how the sustainability of Sampoerna’s community empowerment programs such as SRC and SETC had been delivering values, he said MSMEs represented a core priority. “SETC has trained more than 67,000 people in different areas of entrepreneurship. We try to deliver much broader values from what we do in our day-to-day operations,” he said.
Future orientation
Gkatzelis was upbeat about Indonesia’s GDP at 5.03 percent in the first quarter of 2023 despite the world’s volatile and challenging geopolitical situation.
He expressed an appreciation to Indonesia for its Group of 20 leadership, ASEAN chairmanship and for playing an increasing role in the global arena.
“We trust the Indonesian economy for domestic and export market. We’ve also established hubs for exporting goods to 40 destinations,” he said.
“By working in the agriculture sector, like tobacco and clove, Sampoerna is also showing how Indonesia really provides end-to-end values, not only for the domestic market but also using the market as a hub for the export of finished goods and services. These are our efforts to also support the government's priorities in encouraging investment, increasing exports and the industry downstreaming,” he said.
Sustainability did matter, according to Gkatzelis. “Our sustainability platform is called Sampoerna Untuk Indonesia. Every time we act, we try to create sustainable value for the long term. So, 110 years of Sampoerna’s presence is important, but we need to create values for the next 110 years. This is always the future orientation of what makes the company sustain its value for creation. That’s why we continue to innovate; we believe in science, technology and we always ask our key stakeholders,” he said.
Asked how people contribute to value creation, Gkatzelis pointed out Sampoerna had a very diverse and very energized workforce that really applied the “three hands” philosophy.
“These people not only serve Indonesia but also provide services to other countries, both exports of goods and services in IT, digital, human resources and finance. We have people across all aspects of the business, including in smoke-free products. Our people are what enable value creation,” he concluded.
