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Expansion of Damar: Exporting Handicrafts from Indonesia

Nirajan Raut

Westcliff University

MKT 301: Necessities of International Marketing and Culture

Prof. Paras Dotel

February 20, 2023

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Expansion of Damar: Exporting Handicrafts from Indonesia

Background

Indonesian handicrafts like furniture, home decor, and fashion items are exported by the

firm Damar. The traditional craft skills and natural resources in Indonesia is such that the firm

has been successfully operating its business, importing the product into United States (McMillan

& Dosunmu, 2002). They operate a workshop in Bali and collaborate with local artisans to

produce premium, environmentally friendly goods for the global market. The company, which is

a general partnership and is completely controlled by its president Dewi Soemantoro and Ronald

has the annual earning that ranges from $ 20,000 to $ 30,000. The company's sales revenues and

customer base have grown faster than projected in Damar's initial business plan, despite the fact

that it hasn't yet reached the break-even point.

The operation of the firm is interesting in itself. The whole workforce of the company is

made up of Soemantoro's relatives in Indonesia. With her experience in western Europe, and

being resided in the United States for past 18 years, her international experience was trying to be

capitalized through the Indonesian family. The firm was doing pretty well as it began in cottage

industry. In fact, the company did not have to issue a letter of credit for any import purpose. The

connection Soemantoro had, and some strategies of participating in fashion show has helped

Damar earn customers in the market. Moreover, the family being well known to both Indonesian

and American culture, they could really understand the need of the customers and supply

accordingly. With all this in place, the company still has some concerns regarding expansion of

production in Indonesia, financing from beyond the family and delays while transporting the

goods. This paper aims to discuss the alternative strategies to strike these concerns, while as well

covering the effectiveness of current approach.

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1. Alternative Expansion Strategy in the United States

Cottage industry, throughout the globe has contributed significantly in the GDP of

country it is operating in. The US Small Business Administration reported that the median

income for Americans who work for themselves was $51,419 in 2019 (US Census Bureau,

2021). Given the earning of Damar International, there obviously seems to room for

improvement. Therefore, they can go on with alternative expansion strategies to tap in to the

cottage industry’s earning and beyond. Some of the possible strategies has been discussed as

below:

1.1 Raise Investment to manage Supply Chain

In the United States itself, the company is operating in small scale. There workforce in

Indonesia is based on the communication from the president. Therefore, there is huge doubt

about whether or not the company will be able to address the raising demand in the coming days.

Therefore, they can look options to raise investment, not only to manage the supply chain but

also the operational activities by hiring artisans. Moreover, the investment can be raised from

available venture capitalist, rather than individual investors, from the country as they tend to

help in the management process as well (Ţurcan, 2008). This way, they can gain some capital to

spend in the supply chain and operational management. Moreover, an experienced investor can

as well contribute in bringing in new customers, reducing the customer acquisition cost for the

company.

Their earning is enough to attract new venture capitalist. Another option can be bringing

in angel investor from the market they want to operate in. Typically, an angel investor may

provide money in exchange for equity (stock in the firm) or convertible debt, which is a loan that

may one day be converted to equity (DaSilva, 2017). Someone who has understood the market
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can really help in bringing in new business to business as well as direct to consumer access in the

company. Moreover, with president capable of speaking different language, her capability of

bringing in angel investor is positive. Other option to invest into hiring the artisans and meeting

the demand is debt financing. This way, they would not loose the stake in the company as well as

raise the necessary capital. All of these are directed towards two important aspect, first bringing

in efficient supply chain management in the company via capital investment and second,

bringing in connection to sell the product and increase sales volume.

1.2 Strategic Partnerships

As of now, Damar has done really well with collaborating with boutiques. Not much of

companies operating in the cottage industry has the privilege to get that level of exposure.

Nonetheless, more strategic partnerships can be done so as to expand into the US market.

Exclusive partnerships, joint ventures, or licensing contracts can help achieve this. Under

exclusive partnership, normally no competitors are allowed to interfere between the vendor and

the partners (Rojas & Zapata, 2021). With two businesses coming together to serve to the

targeted customers, exclusive partnerships can help Damar International to tap into the new

customer base in the competitive pricing. Moreover, they can worry less about competitors

taking the market. In fact, if they as well manage to strike into the proper supply chain

management, the expansion can be guaranteed.

Another way can be licensing contracts. Here, it is clear that the company’s finance is

limited to family and friends. Therefore, if they are not willing to get in the additional

investment, they can license their business model to some other company. One party (the

licensor) grants another party (the licensee) the right to create, use, sell, and/or display the

licensor's protected property. This type of contract is also referred to as a license agreement or
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licensing agreement. First up, they ought to select their unique, yet high selling products from its

product line and license them under the government of the United States. This now becomes the

patented product. Now, they can have a licensing agreement with another vendor, who will sell

their product to the targeted customers but in a new market. This way, they can expand their

brand throughout the United States. By using current networks and infrastructure, partnerships

can enable Damar to reach a larger audience and gain access to insightful market data.

1.3 Niche Market; New Regions

Currently, Damar is having more than expected sales in California only. The strategy is

simple, target the niche market and sale the entire export to them. Now, same niche market can

be found in other region of US as well. So, the same strategy can be used to target one market at

a time. For instance, if they want to expand into SanFransisco, they can use any one the strategy

mentioned in 1.2 or 1.3 and go into the new market. Their, without much of promotion, they can

use the same strategy to target the small yet niche market to expand into. The expansion process

through this strategy might be slow, but can be effective in the long-run and is less capital

incentive, which addresses the current financial position of the company.

1.4 Enter the Digital World

The digital media in present time is just enormous. The customer base that a business can

get exposure to one simple use of online media has grown exponentially in the recent decade. It

is stated that 92% of the population in the United States uses social and digital medias (Kemp,

2021). In case of Damar, it is stated that they are working conventionally in California only. The

sales numbers are higher than expected. In order to expand into the other market, they might not

be sure if there will be the exact same demand. With the limited financial resource, they ought to

know if it is worth it to expand to the given market. Therefore, they can use social media to
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generate data about the possible demand of the products they are offering, with very low

investment. According to the engagement of the people in the digital media, they can decide

upon whether or not to expand. Also, if they decide to expand in the new market, they can

choose the product line that has high probability to succeed. Therefore, starting off to

maintaining their digital presence and getting data in order to decide whether or not to expand

would be another expansion strategy.

2. Expansion Alternatives: Indonesia and France

The production facility of Damar is located in Indonesia. Given that the artisans are from

the rural Indonesia, it can be pretty clear that the products offered by the company is deeply

rooted in the Indonesian market. Therefore, they ought to choose international market for gaining

new market and generating revenue. Whatsoever, their expansion process can start from

Indonesia itself. It is pretty clear through the case that Damar International does not have the

full-time artisans or they do not have in house individuals who are making the product. In order

to expand to the new market and meet the expected demand, they ought to have some of them in

house. In this regard, the expansion alternative in the Indonesian market could be establishing a

production facility along with hiring some of best artisans to meet the expected demand.

If they are able to expand to a new production facility with a proper organizational

culture, they will have their production amount increased. It is a matter of fact that, increase in

production helps to decrease the manufacturing cost for the organization. Also, their freight

charges can be reduced with the expansion. This can help them decrease some cost while

expanding into new market and provide them with the competitive advantage in pricing. Damar's

products may cost more if the expansion increases production costs, which could reduce their

ability to compete in the U.S. market. This is a possibility as they are only outsourcing this from
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the family members of the president currently. Therefore, proper market research and financial

projections need to be done before going on with the decision.

In case of France, the same system as they have done with Indonesia is being

implemented. In Indonesia, the president has family and in France, her good friend is residing.

Whatsoever, proper research in the customer base needs to be done. As given in the case, 30% of

the sale is generated from the Batik accessories. Given the income of the company and the

market it is operating in, we can assume that there is proper customer retention. Whatsoever,

once they start importing from France the handmade silk blouse, they might be dividing their

own revenue source into some different product, but with additional cost of importing.

Moreover, since they are planning to expand into bigger form of cottage industry, it can be

important for them to create a brand image. While doing so, having multiple product lines being

imported from different countries and different materials, there can be some difficulties. These

factors need to considered before importing from France.

To tackle all of these, they can actually have their product branded according to product

line. For instance, Unilever produces ‘life boy’ soaps, along with other various product. The

consumer however knows life boy as a product more than the brand. Therefore, the expansion

strategy for them can be establishing Damar as a sustainable goods importing company and

branding each of their product according to the country they were imported from and the

materials used in it. This way, they can eliminate the possible confusions that can be created

while marketing the product. However, the corporation should take into account that this

development would necessitate a large investment in infrastructure and marketing, as well as

new regulatory and legal challenges. Here, the concept discussed in ‘1’ of this paper can come

handy for the company.

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Nevertheless, if company can successfully market the European sustainable product in

the United States, they might be creating a new market for themselves. The United States, which

imported 11% of its goods from the continent in 2021, was the EU's main trading partner

(EuroStat, 2022). This shows that there is significant demand for the European products in the

United States. Therefore, if Damar International can import goods from France in as low cost as

they are doing from Indonesia, there is a chance that they can tap into new market. Branding and

marketing routes however needs to be considered as explained earlier.

3. Exchange Rate Fluctuation

Damar International is importing in the United States where dollar is used as the major

currency from Indonesia where Indonesian Rupiah is used and it is as well planning to import

from France where Euro is used. Meaning, in the near future, the company will be transacting in

three different currencies. A currency's exchange rate is the price at which it will be converted

into another currency (Leduc, 2001). This exchange rate can change due to different factors in a

market. The economic performance of the company, fluctuations in the interest rate and inflation

rate, capital flows and so on are some of the factors that directly impacts the exchange rate. This

has significant impact on businesses performing in different countries. For instance, if a import

deal is made today in a certain price and certain exchange rate for importing goods after 15 days.

But, after 15 days there is increase in the interest rate because of which the business had to pay

more, it causes losses. There can be a vice-versa situation as well. Nonetheless, there are ways

through which this can be reduced:

3.1 Hedging Instruments: In the above example, we stated that there was a contract for

future. In order to tackle with this, financial institutions have provided us with

different instruments, known as hedging instruments. One of the examples for this
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can be forward contract. If a business is to import from any other country after

sometime, they can use lock in the exchange rate for the day importing was decided.

This process is known as forward contract. By doing this, the effect of currency

changes on its earnings and cash flows can be lessened. Although this can come in

certain costs for the company that they have to pay to banks and financial institutions,

analysis on opportunity cost between the risk of exchange rate fluctuation and

forward contract can be done to decide on whether or not to proceed with the process.

3.2 Pricing Strategy: To reduce exchange rate risk, one can modify its pricing strategy in

reaction to variations in foreign currency prices. For instance, if the Indonesian

Rupiah depreciates compared to the United States dollar, they can raise the price of

the product which will reduce the impact in the profit of the company. Another factor

in this case can be shifting the risk. It is stated that company takes orders and delivers

it to the customers. In this case, they can provide a clarification/disclaimer that the

consumer has to pay in Indonesian Rupiah and according to the same exchange rate

the customer has to pay to the company. Therefore, they will be able to shift the

exchange rate risk to the customers.

3.3 Diversification: While the pricing strategy addressed each product, diversification

can address the multiple. By diversifying their income streams across several markets

and currencies, businesses can lower their foreign exchange risk. For instance, if they

start transacting in the Euro as well, there is a chance that one amount will depreciate

while another appreciates. If other countries are as well included in the product line

the company is offering, this means more exposure to fluctuation in exchange rate.
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Although this might not be 100% profitable, the overall transaction can balance out

the profit and minimize loss.

4. Effects of shipment delays on Damar

When the US Department of Commerce and Indonesian export officials disagreed on

import stamping and labeling, an order was once delayed in US customs for Damar International.

The issue needed to be solved for several weeks. Although they have not mentioned the exact

amount of loss that they had to bear due to this, shipment delays can have significant impact in

the business (Jain, 2017). In fact, for a trade business, every aspects of the business can be

impacted from shipment delays, from customer satisfaction to financial impact. There are many

reasons due which the company can face issues regarding shipment delays. Carriers declared

record blanked sailings in the first half of 2020 in reaction to significant booking cancellations,

no-shows, and declining container volumes brought on by COVID 19. Due to having to share the

shipping procedure with other businesses, this had an impact on small enterprises who imported

goods in small quantities. Similarly, the events such as Evergreen ship being stuck in Suez Canal

and so on can as well cause shipment delays. Whatever the cause is, the impact can range in

different aspects of the business, such as:

4.1 Customer Satisfaction: Damar International is known to take order from customers

and order it to the Indonesian artisans. Therefore, the business is directly serving to

the customers. Failing to deliver the ordered product in time to the customers can

impact in the customer satisfaction. This causes problems in customer retention. Also,

this can cause negative word of mouth marketing which can increase the customer

acquisition cost. Moreover, one to three supply chain delays or disruptions, according

to 58% of consumers, would cause them to completely stop purchasing from a

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company One to three supply chain delays or disruptions, according to 58% of

consumers, would cause them to completely stop purchasing from a company. This

can be an issue for Damar International, both in customer acquisition and impact in

profit generation.

4.2 Financial Impact: Shipment delays can cause significant financial impact to the

company. First, the holding cost for the company for all those stocks stuck in the

cause can increase. Second, there will be no revenue generation as sales will be

impacted with less stock in hand. Therefore, the company will have negative cash

flow impact. For the ones like Damar International, with low capital, managing the

holding and floating cost due to shipment delays can have major impact on profit

maximization and revenue generation.

4.3 Manufacturing Hold up: If there are number of shipments in hold, the manufacturing

process might have to be halted to match up to the existing customers order first. In

case of Damar International, the artisans in Indonesia might have less order from the

company due to shipment delays. Low work orders for on-call workers can impact the

work flow and the relation with the company might as well be impacted. All of these

at the end has its maximum impact in financial position of the company. Meaning, if

an ’on-call’ employee receives less work from a company, the charge for per-unit

work might increase.

These are some of the impacts that any company, including Damar International can face

if there are shipment delays. Early reservations are insufficient. A company like Damar

International, which depends on prompt deliveries to satisfy client demand and preserve a

competitive edge, may experience serious consequences as a result of shipment delays.

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Therefore, careful planning needs to be done in order to eradicate such risks. Some of the ways

to do so has been explained as below:

4.4 Supply Chain Management: One of the important steps that Damar can take is

improving its supply chain management. Majorly, they can work on supply chain

visibility and proper order tracking. There is software such as customer data platform,

which can help the company track the orders from Indonesia to the United States.

This would provide the business the opportunity to spot any delays early and take

action to lessen their effects. Also, effective supply chain would allow the company

to have sufficient stock if there is to be any possible shipment delays for certain days.

This helps to minimize the risks related to customer satisfaction as well as revenue

generation.

4.5 Contingency Plan: One of the reasons why company faces enormous impact due to

shipment delay is relying on one particular route or one particular supplier (Katherine

Smith, 2008). Same is the case of Damar. Although the company might not be able to

increase the number of suppliers for time being, they can work on finding different

trade routes to have the products delivered effectively. If one trade route delays the

product, they can have other product lines delivered from different trad routes, which

helps them to reduce the impact in profit.

4.6 Extra Lead Time and Customer Communication: This method can be directed

toward lessening the impact on customer satisfaction. The company can communicate

with customers about the delivery time, adding the possible delays in the shipment. If

there is no delay, the order can be delivered earlier than time, which can in fact

increase the customer satisfaction. This depends upon company’s communication.

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Conclusion

Established in 2002, Damar is a firm that sells handmade products from Indonesia,

including furniture, home decor, and fashion accessories in the United States. With the

interesting business model, they have been performing considerably well under the cottage

industry. This paper discusses different expansion strategy that Damar can implement in the US

market. Also, some of the ways to raise capital so as to increase its production facility in

Indonesia, along with expansion in France has been discussed. Basic idea on exchange rate

fluctuation and ways to mitigate it in case of Damar International has been highlighted. Finally,

impact of possible shipment delays and ways to mitigate them has been elaborated.
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