Cheng Shin to Set Up Tire Factory in Indonesia

Cheng Shin Rubber Ind. Co., Ltd., Taiwan's largest and the world's ninth-largest maker of rubber tires with 2012 sales of US$4.6 billion, recently announced it plans to invest NT$2.36 billion (US$78.7 million) in a new tire factory in Indonesia. The new facility will be Cheng Shin's third tire production base in Southeast Asia, after others in Vietnam and Thailand.

The company's new plans have drawn the attention of major international players already operating production lines in Indonesia, including Kumho and Hankook of South Korea, Pirelli of Italy, and the Indonesian company Giti, industry sources said.

Wu Hsuan-miao, Cheng Shin's vice president, reported that his company plans to buy a 27-acre plot in the Suryacipta Industry Zone near Jakarta for its rubber mixing and tire production factories. Products from the factories will be marketed in Indonesia and other ASEAN countries, as well as other markets in the Middle East and Africa.

Industry insiders familiar with Cheng Shin's investment plan said that the Suryacipta Industry Zone is still under development, and that Cheng Shin has not formally procured a land in the zone or set up an Indonesian subsidiary. The investment plan is, however, expected to go ahead without major hitches.

Cheng Shin's internal information indicates that the company is scheduled to purchase the factory land in mid-2014 and start work on its factories by the end of that year. Types of tires to be produced at the new plant, and its production capacity, are still under planning.

Some eight million powered two-wheelers (PTWs) are sold in Indonesia every year, creating a very big demand for PTW Original Equipment (OE) and aftermarket (AM) tires. Most PTW makers there already have long-term tire suppliers, however; Honda Indonesia, for example, gets PTW tires from its reinvested Suryara company, and Pirelli is building a tire factory that is scheduled to kick off mass production by year-end.

Most industry sources believe that Cheng Shin will initially produce PTW tires for the replacement market in Indonesia, and gradually expand into passenger car radial tire products.

Cheng Shin in China

To further develop its business in China, Cheng Shin's board recently resolved to invest an additional 300 million renminbi (RMB, or Chinese yuan) to increase the capitalization of its Chinese subsidiary, Cheng Shin Rubber (Xiamen) Ind. (in Fujian Province), from 650 million RMB to 950 million RMB in preparation for capacity expansion in the future. Currently, the Xiamen facility has a daily capacity of 60,000 bicycle and PTW tires.

Following the announcement of the Indonesian investment plan, Cheng Shin's possible investment in production factories in India and northern China has drawn the attention of the industry. T.J. Lo, Cheng Shin's vice chairman, confirmed that the company plans to set up a new plant in northern China, but said that the details are still being mapped out.

Cheng Shin's six existing Chinese plants—including two that have opened in the past 18 months—are in central China. These plants, plus a new test facility, make Cheng Shin one of the largest tire companies in China. Its recent investments there include US$150 million in a 9.2-million-sq.-ft. tire proving ground adjacent to its Maxxis International tire plant in Kunshan, Jiangsu Province, and US$600 million in passenger car radial tire plants in Chongqing and Xiamen, each with a daily production of 30,000 tires.

Potential Market

With a total population of about 250 million people, Indonesia is the fourth-largest nation in the world in terms of population. According to Taiwan External Trade Development Council (TAITRA), the country has an open market, comprehensive industrial supply chains, high political stability, and an expanding economy. Indonesia's gross domestic product (GDP) in 2012 was US$846.8 billion, placing it No. 111 in the world.

TAITRA notes that the average monthly salary of Indonesian workers in the manufacturing industry is US$229, cheaper than Thailand, Malaysia, China, India, and the Philippines. With the largest consumer market in the ASEAN area, the nation's economic growth rate has been higher than that of the world as a whole and of the emerging economies since 2008, with the exception of 2009 when growth fell to 4.6% due to the global recession. In 2013, Indonesia's economy is expected to grow by 6%.

Taiwan was the 10th-largest source of foreign investment in Indonesia in 2012, accounting for 2.7% of the total. Most Taiwanese auto-parts makers operating there are clustered in areas such as Tangerang and the industrial zones of West Java Province; while textile makers are concentrated in Bandung, Jakarta, and Semarang.

TAITRA points out that the transportation vehicles and parts, machine tools, and general consumer products sectors are now booming in Indonesia.