Corporate giants mull wage-hike impact

Administrations in 25 provinces, regencies or cities have increased their local monthly minimum wages for next year. The Jakarta administration, for example, has upped the monthly minimum wage by 44 percent to Rp 2.2 million (US$229) in 2012.

Elsewhere in Greater Jakarta, officials in Bekasi, West Java, have increased the minimum wage by 54.7 percent to Rp 2.1 million, while Bogor has raised its minimum wage 70 percent to Rp 2 million.

Sancoyo Antarikso, the spokesman for PT Unilever Indonesia (UNVR), said that "it was too early to comment" on the real impact the wage increase might have on the company.

Unilever, a giant consumer goods manufacturer, saw its net sales in the first nine months of 2012 rise by 17.4 percent year-on-year to Rp 20.3 trillion, while its expenses as of September hit Rp 9.9 trillion, an 18.3 percent year-on-year increase.

Sancoyo said that the company would await word on the moves made by business associations to fight the wage hike.

"Apindo [the Indonesian Employers Association] and Kadin [the Indonesian Chambers of Commerce and Industry] have requested that the wage increase be suspended," Sanyoco said.

The associations have said that they would support the local business associations who have plans to file suit against local administrations at district administrative courts and the Constitutional Court to stop officials from raising the minimum wage, claiming that businesses cannot pay workers that much money.

However, other businesses, specifically retailers, have said that while increasing the minimum wage might increase labor costs, retail sales might also increase when workers who have more money exercise their augmented purchasing power.

For example, PT Ramayana Lestari Sentosa, a retailer targeting the middle and low segments, previously pointed out that it expected stronger purchases from their target market if the minimum wage is increased, provided that inflation remained under control.

Similarly, Franciscus Welirang, a director at PT Indofood Sukses Makmur (INDF), said that the company still had to review the effects of the increased minimum wage.

PT Indofood, through subsidiary PT Indofood CBP Sukses Makmur, produces foodstuffs such as instant noodles and snacks. The company earned Rp 37.2 trillion in net sales in the first nine months of the year, 43 percent of which was contributed by the CBP group.

"Indofood's factories are located in several provinces, and hence, the impact of the minimum wage hike would vary," he added.

Satria Hamid, deputy chairman of the permanent committee at Kadin, said that "significant increases" in minimum wage would be exacerbated by planned increases in electricity rates and fallout from new regulations that would restrict production of certain import items.

"Those in retail will have to re-calculate and become super-efficient," he said.

Satria added that the rise in wages, coupled with increasing prices for other cost components, would trigger inflation that would effectively lower the real rise in income.

However, Satria said that the potential for improvement for retailers remained, given the large numbers of young people in the country and the expansion of the middle class.

"These demographics need retailers, but the potential will remain positive, as long as the government can provide the right market stimulus through regulations," Satria said.