Aggressive Investment in Indonesia
Lotte Group has asked Cheong Wa Dae (the Presidential office) to discuss with the Indonesian government to extend tax breaks in order to expand its chemical business in Indonesia.
An official from the government said on November 9, “Lotte is planning to build an ethylene plant in Indonesia. The company will struggle when its tax reductions and exemptions will end next year. So, we will discuss the issue.”
According to Lotte Group, its chemical affiliate Lotte Chemical secured 500,000 square meters of land near the Titan plant owned by Indonesia’s state-run steel maker Krakatau Steel in February this year and it is considering the construction of a large petrochemical complex on the site.
Lotte Chemical is seeking to expand its business in Southeast Asia after it first entered the market by buying out Titan Chemicals Corp., a Malaysian petrochemical company, in 2010 for 1.2 trillion won (US$1.07 billion).
Lotte Chemical Titan has an annual production capacity of 1.1 million tons of olefins, 1.5 million tons of polymer, 100,000 tons of butadiene (BD) and 38,000 tons of biaxially oriented polypropylene (BOPP) in its Malaysian and Indonesian plants.
The government announced on the same day that the Korea Trade-Investment Promotion Agency (KOTRA) and Indo Lotte Makmur, which was established by the group in Indonesia, signed a memorandum of understanding (MOU) to push into the Indonesian e-commerce market. The two companies will create a Korean product section in Indo Lotte’s online shopping mall platforms to help domestic companies sell their products in the country. With the latest MOU, Lotte will be able to accelerate its e-commerce business in Indonesia.
Lotte jointly set up Indo Lotte with Indonesia's second biggest conglomerate Salim Group and officially opened an online shopping mall in Indonesia last month. Each group has 50 percent ownership of the joint venture. Lotte Group will lead the joint venture, while Salim Group is the deputy leader.
Indonesia's online shopping business was worth an estimated 4.2 trillion won (US$3.76 billion) as of 2015, accounting for a mere 0.7 percent of the nation’s total distribution industry. However, the e-commerce market has a high growth potential as the nation’s leading economic indicators are similar with those of Korea in early 2000.
After the Chinese government’s economic retaliation against the deployment of the U.S. Terminal High Altitude Area Defense missile system in South Korea in March, Lotte views Indonesia as an alternative investment and makes an aggressive investment in the country.
In particular, Lotte Group Chairman Shin Dong-bin has served as chairman of Korea-Indonesia Partnership Council (KIPC) from 2013. He left for Indonesia with President Hwang Gak-kyu on the 7th to put more efforts into Indonesian business.
Starting with Lotte Mart in 2008, Lotte Group has established 10 affiliates, including department store, duty free store, chemical, aluminum, logistics, Daehong Communications, information and communications, capital and Lotteria, in Indonesia, steadily expanding its investment in the nation. The group has 8,000 employees in Indonesia and its investments reach 1.2 trillion won (US$1.07 billion). Lotte Group posted 12 trillion won (US$10.73 billion) in overseas sales last year and 15 percent of them were from its Indonesia business. The figure is the third highest after China and Malaysia.