What’s the Situation?
Consumers in Indonesia and Malaysia have been upset at the United States’ support for Israel throughout the Gaza War. Recently these resentments have boiled over into a full scale boycott on US goods.
Who Has Been Affected?
The franchises targeted by the boycott include major name vendors, such as Starbucks, McDonalds, KFC, Unilever and Pizza Hut. All these brands have observed neutrality on the conflict and are actually franchised out to in-country corporations which are majority owned by Indonesian investors and private equity groups. Currently the boycott has driven operators to significantly cut planned expansions and the impacts have even reverberated up to the capital markets.
For instance, Map Boga Adiperkasa, the primary in-country operators of Starbucks, and QSR Brands, the primary operator of KFC and Pizza Hut, are each about a quarter owned respectively by the American investment groups General Atlantic and CVC Capital Partners. Both General Atlantic and CVC Partners have been in discussions to sell the stakes they’ve held in these organizations, only to have to put them on pause plans due to the impact of the boycott on sales. Ironically, one of the largest impacts’ of the boycott may be to slow down the transfer of brands moving from partial American ownership to complete domestic, Indonesian ownership.
How Should Investors and Exporters Plan for the Future?
Currently there are no signs of the boycott fading out - but there are also no signs of it spreading. Right now the risks seem relatively limited. Starbucks, KFC, and Pizza Hut are highly recognizable American brands that are purchased at point of service. It’s no coincidence the boycott is almost completely oriented around fast food chains. They’re easy to target and easy to avoid due to there being so many alternatives.
Most American businesses operating in Indonesia are not like this. They don’t hold world famous brands and often aren’t purchased at point of service - a medical device will be sold to a hospital or laboratory and paid for via insurance, for instance.
The largest growth areas for investors and exporters follow this pattern. Indonesia’s amazing aquaculture investment opportunities are many layers removed from the customers who buy fish - in Indonesia and outside - primarily from ordinary grocery stores with no hint of association with American corporations. Exporters taking advantage of Indonesia’s huge investments into industrial policy will be mostly selling core components to manufacturers. The finished goods are not just not associated with the United States, they’re sold under some of the country’s most popular homegrown brands.
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