Is Indonesia the new ‘promised land’?

Australian companies looking to the South Pacific for future growth.

With China’s slowing growth and Europe in a state of acute economic pain, managers of some of Australia’s biggest and hungriest companies are weighing their future growth prospects in the South Pacific, and particularly in fast-growing nations of Indonesia and the Philippines.

Several companies have recently acknowledged being in the process of kicking tyres on deals that would give them exposure to the region, which had GDP growth of more than 6% in 2012. The most recent is private hospital operator Ramsay Health Care Limited (ASX: RHC) which revealed last week that the company is in negotiations with listed Malaysian multi-national Sime Darby Berhad (KLSE: 4197) regarding a “possible transaction”.

The transaction in question is believed to be a joint venture between Ramsay and Sime Darby’s healthcare division which would combine existing hospitals owned by each party in the region and potentially spin the venture off into a new company, valued at an estimated $482 million, according to the Wall Street Journal. The aim is to take advantage of strong growth for private health care in the region and take advantage of a significant cash injection by the Indonesian government to support the country’s over-burdened healthcare system.

Ramsay is the second company of late to be outed by media rumours.  Last month Sky City Entertainment Group (ASX: SKC) reviled the company was considering plans to expand into the Philippines after media speculation.  Like Indonesia, the region is growing its population and economy steadily with strong domestic demand and growth in neighbour countries.

Another big fish after a bite of the region is Commonwealth Bank (ASX: CBA).  The bank with a current market capitalization of $112 billion is reported to be amongst the bidders for Rabobank’s Indonesian division which has been put up for tender, a deal worth $380 million.  This would expand CBA’s current presence in Indonesia, which includes more than 80 branches and around 84,000 customers.  Indonesia would be an ideal site for CBA’s expansion plans as the Australian market reaches saturation.

Joint ventures or integration with existing operations can provide a safety net of sorts for companies wanting a significant presence in the region which sports many cultural differences including a large Muslim population.

Foolish takeaway

As Indonesia grows bigger and richer the country is on its way to becoming a serious global economic player.  With a population of 240 million people, getting in early could give companies a first mover advantages to capitalize on the strong domestic growth before the competition can.

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