Business Strategy and Enterprise Modelling

Individual Assignment
Indofood and Pinehill Case Study

By: Muhammad Rheza - 29320449

GENERAL MANAGEMENT 12
MASTER OF BUSINESS AND ADMINISTRATION
SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2021
 Indofood and Pinehill Acquisition
PT Indofood CBP Sukses Makmur Tbk or known as Indofood is one of the prominent
and top players in food and beverages consumer products. Indofood also stressed on its
numerous categories of food and beverage including instant noodles, snack, dairy products,
food seasonings and many more. In Indonesia, Indofood already engage with consumers in
all segments. From those categories, many of each its brand has been the market leader
with its extensive distribution network in domestic area. Other than that, Indofood has its
vision to keep expanding its business not only in Indonesia or domestic area but also
penetrating to the international market. One of the strategies to achieve this manner is
acquiring a company namely Pinehill Company Limited on 27 August 2020 with the value of
transaction was US$2.998 billion. Pinehill is a global producer of instant noodles which is
aligned with one of the Indofood popular brands, Indomie. Pinehill also has its manufacturing
facilities in global coverage area such as in Africa, Middle East, and Southeastern Europe.
The objective of this acquisition is making Indofood to be the global’s largest instant noodle
producer with its competitive advantage toward distribution channel across the world.
In February 2020, Indofood received an offering of acquisition project between
Pinehill Corpora Limited, related party and Steele Lake Limited as target company. Full
shares are established under the offer in this acquisition. Pinehill has its 4 subsiddiaries
engaged in instant noodle industry covering in Saudi Arabia, Nigeria, Turkey, Egypt, Kenya,
Morocco, Serbia, and Ghana. One of the mandatory agreements is that using “Indomie”
brand trademark in selling the product. Upon the completion of the transaction, the target
company will be recognized as Indofood’s subsidiaries entity. On this issue, Pinehill
successfully strong positioning Indofood’s brand with its expanded and growing consumer
across main countries. Other than that, it also growing to the nearby countries accounted for
335 million consumers. One of the Pinehill strength that needs to be highlighted is the strong
and potential for growing its distribution channel, financially robust, and its production facility
that will occasionally boost Indofood’s international growth and deliver higher values for
shareholders.
Indofood maintain its market leadership in domestic and international areas by
enabling product innovation and above-mentioned acquisition which strengthen Indofood’s
performance. However, from this acquisition it is calculated that this transaction categorized
as high-risk investment. Debt to Equity ratio of Indofood significantly increase from roughly
48% to 195%. The value of transaction also rated high enough to compare with Pinehill
annual profit. To cope with this situation, Indofood add a clause if in 2020 and 2021 Pinehill
must atleast has its profit minimal for 128.5 million USD. If it is not achieved by Pinehill, then
Indofood has the rights to make an adjustment on its total value of acquisition based on
current Pinehill profitability. Besides, there are spreading rumours that there is affiliation
transaction between the 2 parties of acquisition. Currently, based on Indofood Annual Report
(2020) total value of sales grew for 23.3% CAGR of its EBIT along with the domestic and
international sales growth. Overseas market expansion conducted by Pinehill also targeted
to be more focused on driving company growth through maintaining strong export sales.
There are efforts initiated by Pinehill and supported by Indofood which is to increase product
availability coverage by strengthening distribution towards the penetration of international
markets through e-commerce and food counter. Marketing activities was also done in
international market in Cambodia, Vietnam, Turkey, Australia, Malaysia. Saudi Arabia and
Egypt was also involved in launching new variant of Indomie supplied by Pinehill.

Vertical Integration
In the perspective of vertical integration which a particular company participate in the
industry value chain described as the transformation of raw materials to a finished goods. In
this case, Indofood acquiring Pinehill which also an instant noodle industry having 12
production facilities all over the world. Indofood interrupt the industry value chain globally
through acquiring Pinehill and cover from backward vertical integration and forward vertical
integration. Backward vertical integration means that Indofood penetrate the new market
internationally using the infrastructure and assets provided by Pinehill and in contrary
Pinehill would benefit the brand “Indomie” as the most popular instant noodle brand at least
in Asia area. Forward vertical integration works when Pinehilll use its distribution channel to
enlarge the indomie brand market as in Middle East the market share of Indomie is relatively
low compared to Asia.

Horizontal Integration
Horizontal integration is more like acquiring a competitor in the same industry value
chain to promote a firm’s strategic position in the market. If there are going to be an
acquisition, there is also 1 rule regarding the horizontal integration which is if the targetted
company to be acquired is more valuable inside the acquiring company than as a continued
standalone company. In this case between Indofood and Pinehill, Indofood categorized as a
better performer in instant noodle industry throughout the years. It is also a much bigger
company than Pinehill and has a large market share towards its indomie brand that could
really be beneficial for Pinehill in achieving growth and penetrate to Middle East,
Southeastern Europe and Africa using the license inside an acquiring firm that is Indofood.
This horizontal integration would enable both company in gaining and sustaining a
competitive advantage for Indofood and Pinehill respectively.
Product and Service Diversification
Diversification incorporates the series of products and services that a company offers
or a different markets and geographic location. In terms of products and services, besides
instant noodle industry, Indofood is already a widely diversified company in especially in
consumer branded products. Focusing on Indomie brand, Indomie as instant noodle has
many different variants of flavours. For example, in Saudi Arabia and Egypt they have Fried
Indomie with Red Chilli Flavours which is not available in any other country. This shows that
Indomie match its diversification strategy to meet market needs. Other than that,
geographically Indofood already has a strong brand and a leading market in instant noodle
industry in domestic area and partly Asia. Its strategic initiative of acquiring Pinehill also a
form of diversification in terms of the market area. Pinehill coverage to high potential market
geographical area are including Saudi Arabia, Nigeria, Turkey, Egypt, Kenya, Morocco,
Serbia, and Ghana. Through this acquisition, Indofood will have its global presence to be a
world leader in instant noodle industry in a long-term manner by also pursuing growth in
domestic market.

BCG Growth-Share Matrix

BCG Growth-Share is one of tools to guide in planning corporate portfolio. This
allows the corporate executive restructuring the business through a strategic move
according to which side of the matrix. Before recognizing how is the position of Indomie
product in each of the countries, it is important to look at how is the revenue statement data
collected from First Pasific Analysis (2020) from instant noodles and related products
assuming as its market share and then projecting its market growth. Below are shown in
Figure 1,2,3, and 4 processed data into graph from First Pasific Analysis (2020).
Figure 3 Top 3 revenue growth 2017-2019 Figure 4 Revenue YTD April 2019-2020

Based on the figure 1, we can see that in 2017-2019 the total revenue generated
from instant noodle product in Nigeria & Ghana is showing the largest market share followed
by Saudi Arabia and Egypt. Thus, it can be concluded that Indomie’s market share is
expected high in 3 of those countries. However, figure 4 shows that only Saudi Arabia that
has expected increase in growth as in April 2020 with CAGR approxiamately 29%; whilst
Egypt and DUFIL (Nigeria and Ghana) expected to slightly decrease. It may also be
impacted by the existence of Indomie’s variant product that limited in Saudi Arabia market
which is red chilli fried indomie. To sum up it can be assumed that the Saudi Arabia
indomie’s market categorized in Star that has high relative market share and high market
growth. Egypt also categorized in Star as it shows a significant growth in 2017-2019 driven
by the aggressive marketing activities such as Food Innovation Event, Madinity, Maker Fair,
Music Scene and Sharea Misr. Other than that, the data slight decrease in figure 4, is still in
the Q1 2020. Red chilli fried indomie also available in Egypt might even catch the interest of
the new market in Egypt.
DUFIL (Nigeria and Ghana) categorized as Cash cow which has slight decrease in
current revenue. However, it is considered stable knowing that Indomie has been the
popular instant noodles throughout the years in Nigeria.
In figure 2, we can see that Turkey is the largest contributor to the revenue and has
the biggest growth of all countries with 73.21% CAGR followed by Egypt and Serbia 58.70%
and 58.11% respectively. Serbia growth from 2017 is also driven by the existence of new
Indomie plant in 2016 which increased its production capacity.
Meanwhile in Marocco and Kenya are the lowest revenue compared to other
countries. It can be seen in Figure 2 that there is still slight growth from 2017-2019 as the
noodle factory in those 2 countries are relatively new. However, the per capita noodle
consumption in Morocco and Kenya are somewhat growing. In addition, below are shown in
Figure 5 is information concerning revenue by location of customers.
 Figure 5 Revenue by location except Indonesia
Source: ICBP Financial Statement Q3 2021

It can be concluded from Figure 5 that Middle East and Africa market is dominating
the revenue of PT Indofood CBP that driven by the Indomie products sold. It strengthens the
argument of Saudi Arabia, DUFIL and Egypt as Star and Cash Cow. Other countries still
have lower contribution to Indofood revenue, therefore Turkey, Serbia, Marocco and Kenya
still considered as Question Mark.

Core Competences vs Market Matrix

Firstly, in lower-right quadrant, one of the global strategic initiatives by Indofood is
expanding Indomie product in Europe, Serbia, and its surroundings. Indofood’s strategy
towards Serbia is not only because of its geographical expansion but also to reach and
penetrate new market. It is because of the people in Serbia is not used to instant noodle
products and in 2016 Indomie became the preferable meals for the locals popularized also
by Indonesian people who lived in Serbia. This shows that Indomie redeploying its core
competencies as prominent brand within Indonesia people. It is categorized in core
competences vs market matrix that Indomie keep its core competencies in instant noodle
production industry, creating affordable product, top of mind brand of instant noodle product
and distribution channels.
.
Second, in the lower-left quadrant, Indomie has already settled in Saudi Arabia
and Egypt combining existing core competencies with existing markets. In order to improve
a firms current market position, Indomie keep innovating with various taste of the instant
noodle products as its one of the core competencies. Indomie leveraging the market position
by integrating market needs align with the product such as red chilli fried indomie in Saudi
Arabia and Egypt. Besides, in Marocco and Kenya, Indomie also leveraging to improve in th
current market situation. Such as in Kenya Indomie modified its existing core competencies
of packaging into a 5 in 1 package Indomie. Besides, in marocco, Indomie has its initiative in
2015 to build the largest Indomie factory in international market in order to boost production
and as a form of partnership between 2 countries.
Third in upper-left quadrant, Indomie explored new core competencies with existing
market opportunities and extending company’s current market position. Indomie in Nigeria
was advertised using door-to-door marketing strategies convincing people in Nigeria that it is
more nutritional and healthier to consume Indomie products rather than usual rice. It is
obviously distinguished core competencies that Indomie perceived in domestic market which
is providing quality instant food but compromising the nutritional compared to real food.
 Finally in upper-right quadrant, Turkey, Indomie struggled to penetrate in the
market. Initially Indofood partnered with local company as a distributor. However, the
marketing and distribution channel was very restricted. Therefore, Indomie develop new core
competencies by doing continous research how to enter turkey market until they found the
formula which is to target Indomie into retail market rather than traditional market. Indomie
also open new head office in istanbul to promote the product more thoroughly in social
media and through celebrities. Turkey 80% of people prefer using local products therefore
this shows that Indomie penetrating to a new market using new core competencies.

References
Indofood CBP Annual Report (2020). https://www.indofoodcbp.com/investor-relation/annual-
report
Indofoof CBP Financial Statements (Q3 2021). https://www.indofoodcbp.com/menu/financial-
statements
https://www.firstpacific.com/wp-content/uploads/2019/12/FPC-Pinehill-presentation-2020-06-
29.pdf
Rothaermel, F. T. (2012). Strategic Management: Concepts and Cases. Britania
Raya: McGraw-Hill Education.
https://www.republika.co.id/berita/puohsi328/indomie-kuasai-90-persen-pasar-mi-instan-di-
turki
https://www.cekaja.com/info/sejarah-indomie-di-nigeria
Indomie in Marocco activities and event. http://indomiemaroc.com/fr/
Indomie in Kenya. https://indomiekenya.co.ke/
Indomie in Egypt. https://indomie.com.eg/