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Besides a development lab, the factory also has a QC lab. Photo credit: Hertz Flavors.
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Sascha Pages, Hertz Flavors managing director sales, APAC. Photo credit: Hertz Flavors
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The main entrance of Hertz Flavors’ brand new Indonesian factory. Photo credit: Hertz Flavors
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The factory is also fully equipped with administrative offices and meeting rooms. Photo credit: Hertz Flavors
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A production hall, depicted here still bare of machinery. One significant detail are the large windows, which help create a more pleasant working environment for production staff. Photo credit: Hertz Flavors
When Hertz Flavors holds a grand opening ceremony for its brand-new Indonesian factory on November 28, it will be a true milestone for the well-known German flavor manufacturer. While other flavor houses, serving a myriad of different industries, do indeed run production facilities in Asia, the Hertz factory is a definite first as far as a European company entirely dedicated to making tobacco flavors set-ting up a full-blown facility in the region is concerned.
Indonesia wasn’t picked out of a hat, of course. The country only trails behind China as the world’s second largest tobacco market. And Indonesian consumers’ love of kretek cigarettes also makes the nation one of the highest consumers of tobacco flavors. Operated as a joint venture with a local partner and registered as PT. Hertz Flavors Makmur Indonesia, the factory is located in the Ngoro Industrial Park near the twon of Mojokerto, some 35 km from Surabaya.
A long time in the making
Tentative plans for the Asian venture already emerged years ago at Hertz Flavors’ German headquarters in Reinbek, a town just outside of Hamburg.
“The plans existed for quite a long time, but we had to wait for the right timing to finally get going,” said Sascha Pages, the firm’s managing director for sales in the APAC region. While the factory already started producing prior to the grand opening, it started out with less elaborate tasks. “We began with rather simple processes, importing key flavors from our main factory in Germany and diluting them here in Indonesia to the ratios ordered by our customers,” Pages divulged. But since then, the facility has moved on and now also has moved into manufacturing flavors from scratch, and which follow the respective recipes obtained from Germany. “Pretty soon it’s going to be on the best way to have quite a library of all kinds of flavors that have been manufactured on site.”
Tobacco flavors remain sole focus
Similar to the Reinbek facility, the Indonesian factory will remain exclusively focused on tobacco and, possibly, shisha flavors. “That’s where Hertz Flavors is originally coming from and that’s where we are staying,” insisted Pages. He added that the Indonesia location was built specifically “for the APAC region, which to Hertz Flavors is a key market.” Accordingly, when operated with two work shifts, the facility’s annual maximum capacity has been so generously calculated that it is “more than enough to supply Indonesia as well as the wider region with ease.”
However, Pages stressed that if the need arose that capacity could be further increased by introducing a third work shift. “Although we are far from reaching capacity at this moment, we have already created a quite significant impact on the market,” he added.
Built for the future
“This factory has been set up for the future,” said Pages. That not only holds true for the production capacity but also the very structure of the super modern, sleekly designed facility itself, too. Pages told Tobacco Asia that a large proportion of construction materials ranging from double-glassed windows all the way to steel piping and even much of the actual machinery was imported from Germany.
“That building will still stand in 100 years and perhaps even will become a much-visited future tourist attraction, who knows,” Pages joked, tongue in cheek. “But seriously… our intention was to build something that not only is a representation of our company but in the same manner is testimony to the excellence of German engineering. We wanted to create a German factory in the heart of Indonesia.” Pages cited the historically strong economic ties between German companies and Indonesia in terms of knowledge transfer and investment. “We are proud to be here.”
Advantages for all sides
The Hertz facility is going to provide plenty of local jobs, too. While Pages admitted that presently local employees number only around 20, it’s going to reach at least 110 by the end of 2022. Being in Indonesia will help solve logistical headaches for Hertz Flavors as well. Regional customers always had to cope with lead times of at least 4-6 weeks, while shipping to Asia from Germany could easily take up to three months.
“There’re lots of benefits with the new factory, as manufacturers in Indonesia and the region can now cut down on that lengthy lead time,” Pages explained. “Shipping will be much faster and less costly.” Another advantage is savings on export and import duties. “We are going to source most raw materials right here in Indonesia, which we then will no longer have to export to Germany for processing. At the same time, ready flavor batches won’t have to be back-imported into Indonesia.”
Hedging against stagnant EU and US markets
Showcasing German engineering. Fostering closer economic ties. Providing local jobs. Improving lead and shipping times. Saving cost. These are all good and decent goals to achieve. But Hertz Flavors also aimed at strategic aspects with its de-cision to move into Indonesia.
In the wake of the rise of vaping, the company over a decade ago established its Flavoriq offshoot in Dubai, which exclusively serves the e-juice market. And now the Indonesian facility not only expands the firm’s global footprint geographically, but it also hedges the company against an increasingly stagnant and sluggish European market by shifting a sizeable proportion of the business into the APAC growth region. What about North America?
While the firm, currently working with local agents, “might establish some sort of a representative office there in the future,” Pages nevertheless pointed out that North America is basically facing the same downturn as Europe. “And if the US is going ahead with its plans to ban menthol flavors as well as flavored cigars, there is going to be a big drop in business for flavor companies.”