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CNA
a day ago
- Business
- CNA
Commentary: Why Chinese F&B companies are expanding in Indonesia
SINGAPORE: In the past decade, China's food and beverage (F&B) firms have started large-scale investments outside China, driven by domestic market saturation and the Xi Jinping government's 'going out' policy. Southeast Asia has become a prime target for this expansion due to its rapidly growing consumer base, underdeveloped F&B industry, proximity to China, and generally open investment environments. Given the variety of F&B industry offerings, mainland Chinese multinational enterprises (MNEs) are targeting market niches like ice cream and milk tea. Prominent mainland Chinese F&B firms founded in cities like Xiamen and Shenzhen are now expanding in the region, such as Mixue Ice Cream and Tea (Mixue Bingcheng), Naixue (formerly Nayuki, also known as Naicow), Joyday (Yili Product), Chagee and Luckin Coffee. However, they face competitors including earlier entrants from the US, Europe, Japan, South Korea and Taiwan, which benefit from strong brand recognition and deep-rooted consumer trust. A DIFFERENT MODE OF ENTRY The mainland Chinese companies' mode of entry is quite different from American business franchise models, such as Starbucks and Coffee Bean & Tea Leaf, which are typically owned by large local conglomerates. Franchisees in local markets bid for franchise outlets from the master franchise holder: for instance, the franchisee is PT Mitra Adiperkasa (MAP) for Starbucks Indonesia. This model is more exclusive and arguably caters to middle and upper-income segments in urban markets. Meanwhile, mainland Chinese F&B firms offer a low-cost franchise model, extending their reach to non-urban areas. This model disrupts the traditional model, which requires high initial capital and can be highly exclusive. With an initial capital of less than US$40,000, a Mixue franchise business is accessible to many aspiring entrepreneurs in the region. Among the incoming mainland Chinese F&B brands, Mixue is arguably the fastest-growing in terms of the number of outlets in Southeast Asia. Founded by Chinese businessman Zhang Hongchao in the late 1990s, Mixue first entered Southeast Asia via Vietnam in 2018 and Indonesia in 2020. Expansion into other Southeast Asian markets has been more modest, but sharp growth has occurred in economies with relatively lower income per capita and a significant young population (Vietnam and Indonesia). Its growth in Indonesia has been striking – in the first two years, Mixue opened 317 stores; within four years, this exceeded 2,000. In Vietnam, Mixue opened approximately 1,000 stores in five years. SIGNIFICANT BARRIERS Initially, mainland Chinese F&B firms sought to enter developed countries' markets but encountered significant barriers. Regulatory complexity, stringent food safety standards, higher entry costs, and the presence of well-established local and multinational brands hindered the Chinese firms' penetration into developed markets, like Australia, South Korea and Japan. In Japan and South Korea, there is also strong "local brand nationalism" or loyalty, making it harder for foreign brands to penetrate their domestic market. In contrast, certain markets in Southeast Asia offer more receptive business environments. Their ice cream and F&B sectors have considerable room for growth. Mixue's rapid expansion in Indonesia can be attributed to three key factors: its efficient supply chain, affordable product pricing, and the ease of launching a franchise. Mixue's model enables rapid expansion by relying on a network of low-cost, standardised outlets that are attractive to local entrepreneurs. As Indonesia has the world's largest Muslim population, halal certification is a prerequisite for most F&B businesses operating there. In January 2023, Mixue faced protests from Islamic groups in Jakarta, who questioned the halal status of its products and asked for a boycott. In response, Mixue's management immediately clarified that their ingredients did not contain lard or alcohol and emphasised that the company had applied for halal certification in 2022. The Majelis Ulama Indonesia (the Indonesian Ulema Council, MUI), the authority in charge, did not initially respond. This prompted public criticism of bureaucratic delays, which can discourage foreign investment. Shortly after, MUI granted Mixue a halal certificate. MANY OTHER PLAYERS Before Mixue's rapid expansion, a few other players had made inroads into Indonesia. Aice Group, established in Singapore in 2014 by new Chinese migrant Wang Jiacheng, founder and CEO, entered Indonesia in 2015. Aice gained popularity by selling low-cost ice cream products tailored to Indonesian tastes. By 2022, Aice had become one of the largest F&B firms in Indonesia, operating with three large-scale factories in Cikarang, West Java; Mojokerto, East Java and North Sumatra. Meanwhile, Yili Group, a major Chinese player, entered the market through its Joyday Ice Cream brand, thus directly competing with Aice and Mixue. The regulatory climate in Indonesia has largely supported F&B investment, particularly for firms able to adapt to local requirements, such as halal compliance and pricing sensitivities. SHAPING PERCEPTIONS OF CHINA While competition is fierce, some of the Chinese firms have localised their supply chains and adapted branding and distribution models to align with Indonesian consumer preferences. As Chinese F&B brands gain popularity, they might be shaping perceptions of China. In July 2023, a piece in The Jakarta Post commended Mixue's contribution to Indonesia's economy, noting its job creation, affordability, and resilience during economic downturns. The article argued that while 'negative perceptions of China may not be entirely eliminated by popular cheap food', brands like Mixue demonstrate that local communities can view positively aspects of China's presence. This reflects the broader soft power potential of Chinese consumer brands, particularly in a culturally sensitive sector like F&B. The sustainability of the Chinese low-cost franchise model remains to be seen. It is effective for quick market penetration, as evidenced by the rapid growth of retail outlets. However, there is no openly available evidence that such growth is associated with profitability. The Chinese F&B business model will face serious tests related to quality control and market saturation as competition heightens.
BBC News
20-05-2025
- Politics
- BBC News
A Philippines island defying Beijing in the South China Sea
At just 37 hectares, the Philippines-controlled island of Pagasa – or "hope" - is smaller than Buckingham Palace. There is almost nothing 300 or so inhabitants live in a cluster of small, wooden houses. They fish in the clear, turquoise waters, and grow what vegetables they can in the sandy they are not alone in these disputed waters: just off shore, to the west, lies an armada of are all Chinese, from the navy, the coastguard or the so-called maritime militia – large fishing vessels repurposed to maintain Chinese dominance of this sea. As our plane approached the island we counted at least the past 10 years, China has been expanding its presence in the South China Sea, taking over submerged coral reefs, building three large air bases on them, and deploying hundreds of ships, to reinforce its claim to almost all of the strategic sea lanes running south from the great exporting cities on the Chinese of the South East Asian countries which also claim islands in the same sea have dared to push back against China; only Vietnam and the Philippines have done so. The militaries of both countries are much smaller than China's, but they are holding on to a handful of reefs and – also known as Thitu and other names, as it is claimed by several other countries – is the largest of these. What makes it exceptional, though, is the civilian population, found nowhere else on the islands of the South China Sea. From the point of view of the Philippines this, and the fact that Pagasa is solid land, not a partially submerged reef or sandy cay, strengthens its legal claims in the area."Pagasa is very important to us," Jonathan Malaya, assistant director-general of the Philippines National Security Council, tells the BBC."It has a runway. It can support life – it has a resident Filipino community, and fishermen living there."And given the size of the island, one of the few that did not need reclaiming from the sea, under international law it generates its own territorial sea of 12 nautical miles."So it is, in a way, a linchpin for the Philippine presence."Reaching Pagasa is a two-to-three-day boat ride from the Philippines island of Palawan, or a one-hour plane ride, but both are at the mercy of frequent stormy they surfaced the runway two years ago, and lengthened it to 1,300m (4,600ft), only small planes could land. Now they can bring in big C130 transport aircraft. Travelling in them, as we did, is a bit like riding a bus in rush has to be brought from the mainland, which is why our plane was packed, floor to ceiling, with mattresses, eggs, bags of rice, a couple of motorbikes and piles of luggage – not to mention lots of military personnel, most of whom had to stand for the entire flight. A lot has changed in recent years. There is a new hangar, big enough to shelter aircraft during storms. They are building a control tower and dredging a small harbour to allow bigger boats to dock. We were driven around the island by some of the Philippines marines who are stationed there, though given its size it hardly seemed necessaryThe Philippines seized Pagasa from Taiwan in 1971, when the Taiwanese garrison left it during a typhoon. It was formally annexed by the Philippines in the government started encouraging civilians to settle there. But they need support to survive on this remote sliver of land. Families get official donations of food, water and other groceries every month. They now have electricity and mobile phone connectivity, but that only came four years from government jobs, fishing is the only viable way to make a living, and since the arrival of the Chinese flotillas even that has become Larry Hugo has lived on the island for 16 years, and has chronicled the increasing Chinese control of the area. He filmed the initial construction on Subi Reef, around 32km (20 miles) from Pagasa, which eventually became a full-size military air base. One of his videos, showing his little wooden boat being nearly rammed by a Chinese coastguard ship in 2021 made him a minor celebrity. But Chinese harassment has forced him to fish in a smaller area closer to home."Their ships are huge compared to ours. They threaten us, coming close and sounding their horns to chase us away. They really scare us. So I no longer go to my old fishing grounds further away. I now have to fish close to the island, but the fish stocks here are falling, and it is much harder to fill our tubs like we used to."Realyn Limbo has been a teacher on the island for 10 years, and seen the school grow from a small hut to full-size school teaching more than 100 pupils, from kindergarten to 18 years old."To me this island is like paradise," she says. "All our basic needs are taken care of. It is clean and peaceful – the children can play basketball or go swimming after school. We don't need shopping malls or all that materialism."Pagasa is really quiet. In the fierce midday heat we found most people snoozing in hammocks, or playing music on their porches. We came across Melania Alojado, a village health worker, rocking a small baby to help it sleep."The biggest challenge for us is when people, especially children, fall ill," she says. "If it is serious then we need to evacuate them to the mainland. I am not a registered nurse, so I cannot perform complicated medical tasks. But planes are not always available, and sometimes the weather is too rough to travel."When that happens we just have to care for them as best we can." But she too values the tranquillity of island life. "We are free of many stresses. We get subsidised food, and we can grow some of our own. In the big city everything you do needs money."We saw a few new houses being built, but there really isn't room for Pagasa to accommodate many more people. With very few jobs, young people usually leave the island once they finish school. For all of its sleepy charm, and stunning white-sand beaches, it has the feel of a garrison community, holding the line against the overpowering Chinese presence which is clearly visible just offshore."The Chinese at the airbase on Subi Reef always challenge us when we approach Pagasa," the pilot says. "They always warn us we are entering Chinese territory without permission."Do they ever try to stop you? "No, it's a routine. We tell them this is Philippines territory. We do this every time."Jonathan Malaya says his government has made a formal diplomatic protest every week to the Chinese Embassy over the presence of its ships in what the Philippines views as the territorial waters of Pagasa. This is in marked contrast to the previous administration of President Rodrigo Duterte, which avoided confrontations with China in the hope of getting more investment in the Philippines."I think we will get more respect from China if we hold our ground, and show them we can play this game as well. But the problem of democracies like the Philippines is policies can change with new administrations. China does not have that problem."
