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Jakarta Post

More brand aggregators to work with local SMEs

For small Indonesian firms, roll-ups are big deal.

Vincent Fabian Thomas (The Jakarta Post)
Jakarta
Thu, February 10, 2022 Published on Feb. 9, 2022 Published on 2022-02-09T17:35:27+07:00

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Brand aggregators may be the next big thing to help local small businesses sell their products at home and abroad.

At least four such firms have announced their commitments in the last year to roll up small and medium enterprises (SMEs), particularly those with a strong e-commerce presence, providing an alternative to the government’s SME programs.

Indonesia’s Tjufoo and Open Labs have respectively committed Rp 1.8 trillion (US$125.18 million) and $100 million, while Hypefast announced it had 25 brands under its belt. Meanwhile, Singapore’s Una Brands has committed $35 million for Indonesian acquisitions.

Brand aggregators work by acquiring small businesses in exchange for supporting the business, including brand development and market expansion. Some aggregators allow founders to remain in charge of operations.

“With brand aggregators, it’s very possible that SMEs will get a greater chance at punching through overseas markets,” Bambang Brodjonegoro, head of people’s economic empowerment at the Indonesian Chamber of Commerce and Industry (Kadin), said on Feb. 2.

Brand aggregators around the globe saw strong growth last year, with the United States’ Thrasio attaining decacorn status after raising $1 billion, benefiting from the rise of e-commerce and reduced borrowing costs amid the COVID-19 pandemic.

Riding the same favorable current, Indonesian brand aggregators also started upping their game last year, promising to address limitations in capital, technology, market access and skilled workers hindering SME growth.

Read also: Singapore's Una Brands commits $35 million to roll up Indonesian brands

Indonesia recorded 65 million micro, small and medium enterprises (MSMEs) in 2019, according to data from the Cooperatives and SMEs Ministry.

However, the data also shows that MSME goods only made up 15 percent of total exports in 2021, with big companies contributing the rest. This is smaller than MSME contributions in Singapore (41 percent), Malaysia (18 percent) and Thailand (29 percent).

The ministry also noted that MSME loan disbursement was relatively low at 19.8 percent of all loans, half the figure in Singapore and Thailand.

Hypefast founder and CEO Achmad Alkatiri said on Feb. 4 that beyond capital and expertise, it also provided an ecosystem that included centralized warehousing, cross-border financial services and digital capabilities.

The company also had support teams in Singapore, Thailand and Malaysia to help promote the products of Indonesian brands to foreign markets.

Achmad said these support services allowed brands to operate more efficiently and sustainably so they could become more profitable.

“In future, Hypefast will provide access to financing of up to $10 million for local brands with more potential in [product] categories like health and beauty, women’s and men’s, mother and baby,” he said.

Read also: Open Labs to spend $100M to acquire more local brands

Nailul Huda, who heads the Center of Innovation and Digital Economy at the Institute for Development of Economics and Finance (Indef), said the SME roll-up trend was likely to continue because brand aggregators filled a gap untouched by banks and venture capital firms.

He added that only a few MSMEs would actually benefit from brand aggregators, however, since they only targeted mature businesses. This was reasonable, Nailul explained, as aggregators had to deliver certain returns to investors.

Hypefast, for instance, only targeted brands with annual earnings of more than Rp 6 billion, while Open Labs targeted small businesses with earnings of Rp 3 billion per year. Una Brands targeted businesses that made more than Rp 4.8 billion in annual earnings.

In comparison, 99.89 percent of small businesses made less than Rp 2.5 billion in annual earnings, according to the ministry’s 2019 data.

Brand aggregators’ roll-up requirements also apply to medium-sized enterprises, which only comprise 0.1 percent of all Indonesian MSMEs.

“Most of the market is medium-sized businesses. I think they [aggregators] won’t go with micro or small-sized businesses for now,” said Nailul.

Hypefast's Achmad said the company was currently focusing on businesses that had achieved product-market fit, but was still open to working with brands of any scale, depending on a business’ assessment results.

Indonesian MSME Association chairman Ikhsan Ingratubun said on Feb. 7 that brand aggregators were an alternative to the government’s SME support programs.

While Ikhsan disagreed with the general idea that small businesses struggled with branding, he agreed they needed help in overseas promotion and sales, noting that most SMEs offered agriculture, fashion and handicraft products.

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