[ Rattan Agency]

1. [Rattan Agency] Business Plan

2. Investment Summary (c) Ade Cahyat 2003

3. Vision, Mission and Objectives (c) Ade Cahyat 2003

4. Corporate Mission “To develop and sell consistently high value and eco-friendly rattan products and to recognize that commitment to social responsibility is a long term competitive advantage” (c) Ade Cahyat 2003

5. Company Aims and Objectives • SEP is committed to pursuing commercial rattan opportunities • SEP will co-operate with its partner, P3R to obtain its supply of resources from sustainably managed rattan gardens • SEP will reward honesty, hard work and achievement, placing a strong emphasis on unity, professionalism and respect for others • SEP will work closely with its partner, P3R, on research and development projects to optimise the cost of its rattan products, to reduce dangerous chemical residues produced by existing processing techniques and to raise average product quality • SEP is committed to becoming an asset of the rattan farmers and craftsmen by providing long-term corporate shareholding opportunities once sustained profitability has been secured (c) Ade Cahyat 2003

6. SEP Positioning What role are we playing in the industry? Forest Land Garden Resource Base SEP Rattan Farmer Harvesting Local Village Collector Local Large Trader Samarinda Trader Java Trader Processing Semi-Finished Local Craft Maker & Subsistent Use Home Industry Furniture Factory Manufacturing Rattan Product Trader Java/Bali Product Trader (Processing) Exporter Ikea Distribution Domestic Consumer Overseas Consumer End User (c) Ade Cahyat 2003

7. SEP Positioning What role are we playing in the industry? • SEP will assume the role of processor, aggregator, marketer and distributor and buy directly from farmers and sell directly to furniture manufacturers and craftsmen. • Initially SEP will purchase wet rattan directly from farmers, process (wash, smoke and dry) the wet rattan and sell the dry rattan directly to domestic and oversea customers. • SEP will also process/split dry rattan into core and peel (semi-finished rattan) and sell it to craftsmen and furniture makers. • In the long term, SEP will contract craftsmen to make and sell crafts to rattan product traders. (c) Ade Cahyat 2003

8. Traders Local Communities Employees Customers Farmers SEP Contractors P3R SHK Media Funders Government Direct link Major stake-holders In-direct link Financial Institutions Partners/ Advisors Minor influences Potential shareholders Stakeholders Who has a stake in the company? (c) Ade Cahyat 2003

9. Stakeholders Who has a stake in the company? • There are many stakeholders in SEP aside from the obvious customers and suppliers • Some stakeholders such as customers and the farmer suppliers have direct contact with the company and have a high degree of influence on the future success of the company • Others have in-direct contact and either relatively high influence on SEP such as funders and NGO partners, while some such as local financial institutions are of lower importance but still warrant consideration (c) Ade Cahyat 2003

10. Marketing Plan (c) Ade Cahyat 2003

11. Product Overview What is rattan? Unpeeled rattan Rattan garden harvesting (c) Ade Cahyat 2003

12. Product Overview What is rattan? Rattan crafts Rattan furniture (c) Ade Cahyat 2003

13. Product Overview What is rattan? Lampit Hanging chair Stool Baskets (c) Ade Cahyat 2003

14. Product Overview What is rattan? • Rattans are climbing palms that grow throughout the Southeast Asian region, with 160 species on the island of Borneo. • Since the plant needs trees to survive, rattan products offer significant advantages over timber products in terms of sustainable development in the Indonesian forest. • Rattan can be cultivated or harvested from the wild. Cultivated rattan (from “rattan gardens”) accounts for less than 15% of total Indonesian commercial production but 100% of SEP’s product line. • Raw (wet) rattan is washed, dried, and smoked to produce round rattan (dry). This is then put through a machine to produce rattan core and peel, which are called semi-finished products. • Rattan’s finished products include furniture, baskets, lampit (mats), and wicker. (c) Ade Cahyat 2003

15. 2,500 2,000 1,500 Rp 1,000 500 0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1997 1998 1999 2000 Rattan Soap Rice Situation Analysis Market Size and Trends Unit Price of Wet Rattan (per kg) Compared with Soap (per piece) and Rice (per kg) Indonesia bans the export of raw & semi-finished rattan Export ban on round Rattan lifted (c) Ade Cahyat 2003

16. Situation Analysis Market Size and Trends • Comparing rattan prices with those of other basic goods like soap and rice, rattan prices are decreasing. • The price of rattan is not rising as fast as inflation, and has been falling in real terms for more than ten years. • Farmers are forced to move from rattan production to other businesses that currently exist on their farms with higher yielding products (timber, palm-oil, etc.) to provide for their basic needs. (c) Ade Cahyat 2003

17. 2002 Indonesian Furniture Exports by Volume Rattan Exports All Furniture Exports Furniture Other 79% 6% Rattan 16% Wood 77% Basket 16% Lampit 0.5% Other 4% *Rattan includes all finished products Situation Analysis Market Size and Trends (c) Ade Cahyat 2003

18. Situation Analysis Market Size and Trends • Furniture is the major use for rattan and accounts for nearly 80% of total rattan-based product exports from Indonesia. • Baskets are the second most important finished product while Lampit mats are relatively insignificant. • SEP will focus on furniture manufacturers as the major customer segment to align itself with the industry, and will consider focusing its craft production on baskets. (c) Ade Cahyat 2003

19. 1,200 1,000 800 600 Indonesian Furniture Exports (US $m) 400 200 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Rattan Wood Bamboo Metal Plastic Situation Analysis Market Size and Trends Indonesian Furniture Export Value (US $m) Export ban on round Rattan lifted Indonesia bans the export of raw & semi-finished rattan Indonesian Economic Crisis *Rattan includes all finished products (c) Ade Cahyat 2003

20. 4.5 4.0 3.5 3.0 2.5 Unit Value per kg (US $) 2.0 1.5 1.0 0.5 0.0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Rattan Wood Bamboo Metal Plastic Situation Analysis Market Size and Trends Unit Value of Indonesian Export Furniture Indonesia bans the export of raw & semi-finished rattan Export ban on round Rattan lifted Indonesian Economic Crisis *Rattan includes all finished products (c) Ade Cahyat 2003

21. Situation Analysis Market Size and Trends • Rattan and wood products are the most important raw materials for Indonesian furniture in both volume and value. Rattan led the market until 1994, but since then, wood has been the market leader and the gap between the two has widened. • The majority of Indonesian furniture that is produced is exported, so this sector plays a dominant role in defining market opportunities for unfinished and semi-finished rattan products. • Both rattan and wood furniture exports are growing slowly on an annual basis. • There is a strong correlation between the volume and value of wood and rattan-based furniture Indonesian exports. • The unit price of rattan has been declining since 1997. • Compared with the unit price of wood, rattan prices are much more sensitive to market forces. (c) Ade Cahyat 2003

22. Situation Analysis Current Local Value-chain Some disintermediation Farmer Local Collector Large Traders Samarinda Traders • Own multiple rattan gardens • Farmers own on average 2.25ha of Sega and can produce 4 wet tonnes every 36 months • Plant and maintain • Decide what rattan species to plant based on land • Big & small harvests • Hire helpers to harvest rattan (pay out 50% of revenue) • Ask traders for price and quantity before harvest to decide when/how much to harvest • Timing of pmt by collector depend on market • Have other sources income (breakdown unclear) • Buy rattan from farmers • Wash, smoke and dry rattan • Transport rattan to large local traders • Compare prices of Large Traders and sell to highest bid (limited bargaining power) • Need to sell all inventory Transport via boat or truck • Sell 1 - 4 tonnes/trip • Freq. of trading depends on distance from Large Traders • Buy in mix • Paid 20% on delivery and 80% 2 wks later (may make a trip just for money collection) • Buy rattan from Local collectors or farmers • Wash, smoke and dry rattan • Sometimes re-processing is needed if upstream processing has been poor • Transport and sell rattan to Samarinda traders • Use combination of truck and boat for transportation • Frequency of trading depends on distance from Samarinda • Don’t keep track of how long inventory has been there • 6 Samarinda traders • Buy based on warehouse capacity • Sometimes do processing (c) Ade Cahyat 2003

23. Situation Analysis Current Local Value-chain Local Craft Makers Processing Average Sega Price in Surabaya per kg Rp. 2,600 1,270t dry Local Collectors Rp. 1,000 <4% Rp. 500-700 3,300t wet Rp. 2,200 550t dry Samarinda Traders Farmers Rp. 3,930 3,000t dry 5,500t wet Large Traders Rp. 700-900 2,200t wet Rp. 2,600 1,730t dry Subsistent Uses Processing Holding Price per kg Monthly volume (c) Ade Cahyat 2003

24. Situation Analysis Current Local Value-chain • The current local value-chain begins with the farmers who command a price of between Rp. 500-900 per kg for wet round rattan • Approximately 3,300 tonnes is washed, smoked and dried through small local processing units per month while around 2,200 tonnes pass through large local traders • Local traders sell either to larger local traders or direct to the Samarinda traders • The street price for dry round rattan per kg in Surabaya is approximately Rp. 3,930 • Farmers also sell wet round rattan to local craft makers at Rp. 1,000 per kg. Farmers also use the rattan for their own use. However, the volume is small and less than 4% of the harvest volume. (c) Ade Cahyat 2003

25. Situation Analysis Industry Distribution Chain Forest Land Garden Resource Base Rattan Farmer Harvesting Local Village Collector Local Large Trader Samarinda Trader Java Trader Processing Semi-Finished Local Craft Maker & Subsistent Use Home Industry Furniture Factory Manufacturing Rattan Product Trader Java/Bali Product Trader (Processing) Exporter Ikea Distribution Overseas Consumer Domestic Consumer End User (c) Ade Cahyat 2003

26. Situation Analysis Industry Distribution Chain • Raw rattan can be harvested from “rattan garden” plantations as well as natural forests • Rattan is processed by either local village collectors or local large traders • The chain between harvest and manufacturing may involve as many as four actors mainly due to the long distance and high transportation costs between the supply to customer base • Java traders sell dry rattan to home-based and large furniture manufacturing companies in Java as well as overseas customers • Trade to overseas customers may also involve export specialists • Farmers also sell wet round rattan and/or semi-finished rattan to local craft makers. They also farm rattan for subsistent use. (c) Ade Cahyat 2003

27. Product Overview What products are we selling and when? Short Term Long Term (c) Ade Cahyat 2003 Products at launch

28. Product Overview What products are we selling and when? Short Term • Round Sega is advantageous because of its strength, quality, and abundance in the Kedang Pahu area. • Semi-Finished Sega is easy to pack and offers a much higher price in Surabaya. SEP will focus on producing as much of this product as possible given capacity constraints in the short term. • Round Red Pulut is only produced in Kedang Pahu, so SEP will be one of the few suppliers. The product is known for its high quality and natural color. However, red pulut cannot produce semi-finished products due to a lack of technology, so the potential to add future value is low unless SEP can design a process. (c) Ade Cahyat 2003

29. Product Overview What products are we selling and when? Mid Term • Crafts will be an important product for SEP after two years. Crafts offer the advantage of a use for low quality sega and jahab and are handmade, making the products unique to SEP. The downside is that crafts like baskets are more expensive to ship and are disadvantaged when directly competing with low cost mass production. • Eco-Labeling will offer SEP a unique opportunity with rattan. As the only certified supplier, SEP will be able to differentiate its rattan. However, the value associated with this product relative to its costs and the possible customers remain unclear. Long Term • Other products that grow in rattan gardens such as medicinal plants, cosmetics ingredients and other natural herbs could be a possibility for SEP in the long term, but the variety and value of these products still needs to be researched. (c) Ade Cahyat 2003

30. Competition Competitors and Profiles (c) Ade Cahyat 2003

31. Competition Competitors and Profiles (c) Ade Cahyat 2003

32. Competition Competitors and Profiles • Local Traders and Large Local Traders present similar challenges in terms of competitors. Each has experience and existing relationships in Kedang Pahu. With an organized and coordinated approach, SEP can take advantage of their cash flow problems, weak relationships, high uncertainty, and low focus on the rattan business. • SEP will also compete with Samarinda Traders. Although these competitors offer greater volume than local traders and stronger existing relationships with transportation companies, they are generally inconsistent in product quality and supply volume, offer limited customer service, and have little knowledge of their customers. (c) Ade Cahyat 2003

33. Competition Competitors and Profiles • SEP’s primary competitors are the Surabaya Traders. These traders have experience in high volume, are close in proximity to their customers, and can purchase from suppliers from different geographic locations (which is a significant advantage over SEP). SEP will need to capitalize on these competitors’ lack of quality control due to distance from production areas, high material costs due to lack of vertical integration, and lack of customer knowledge. (c) Ade Cahyat 2003

34. Customer Targeting Which will be our first target customer segment? High Ease of Engagement Low Quality Furniture Co. Small-to-Medium Sized Furniture Makers 2 1 IKEA High Quality Furniture Co. 4 3 Low High Attractiveness (c) Ade Cahyat 2003

35. Customer Targeting Which will be our first target customer segment? • Assessing market attractiveness and ease of engagement suggests that for initial revenue generation purposes, the best customer targets are the small-to-medium sized furniture manufacturing businesses • High quality large furniture manufacturers and IKEA are attractive but are harder to engage in the early stages of company operation since volume, quality and price stability will be hard to achieve before the company reaches critical mass • Low quality furniture manufacturers are easier to engage since they are less demanding on product quality but are likely to squeeze prices as low as possible (c) Ade Cahyat 2003

36. Customer Roll-out Plan How will our customer mix change over time? Customer Roll-out plan Sales Mix Relationship development Bulk sales Customer 100% Small-to-Medium IKEA High Quality Low Quality Ikea Low Quality Small-Medium sized High Quality 0% 1 2 3 1 2 3 Year Year (c) Ade Cahyat 2003

37. Customer Roll-out Plan How will our customer mix change over time? • The first customers are the small-to-medium sized furniture manufacturers. These customers buy in relatively low volumes and will provide an initial revenue flow. • As volume grows, low and high quality large furniture manufacturers will be targeted to shift larger volumes of rattan and drive revenue growth to prove the business model. • Once sufficient quality in supply can be guaranteed, SEP will aggressively target high quality large furniture manufacturers as the primary revenue stream. • IKEA will be a focus of relationship development from company inception but revenue from this customer is unlikely to be generated until company operations are stable and sustainable. (c) Ade Cahyat 2003

38. High High Quality Large High Quality Large Small to Medium & IKEA Suppliers Small to Medium & IKEA Suppliers Volume Small to Medium IKEA Suppliers Small to Medium IKEA Suppliers Low Quality Large Low Quality Large Low Quality Large Low Quality Large Low Phase 1 Phase 2 Phase 3 Long Term Low Quality Medium Quality High Quality Customer Roll-out Plan How will our customer mix change over time in terms of product quality? (c) Ade Cahyat 2003

39. Customer Roll-out Plan How will our customer mix change over time in terms of product quality? • In phase 1, SEP will sell medium to high quality product to small and medium furniture manufacturers, and lower quality product to low quality furniture manufacturers • In phase 2, as quality mix improves and supply volume grows SEP will focus on developing relationships with IKEA and its suppliers, and sell them medium to high quality products. • In phase 3, as quality mix and supply volume stablizes, SEP will focus on developing relationships with high quality large furniture manufacturers and sell them high quality products. At the same time, SEP will sell to IKEA suppliers medium quality products at a reduced price. • In the long term, SEP will focus on selling high quality product to high quality large furniture manufacturers, and medium quality product to IKEA suppliers but with less emphasis and low quality products to low quality furniture manufacturers. (c) Ade Cahyat 2003

40. Customer Value Proposition Why will customer segments want to buy from us? (c) Ade Cahyat 2003

41. Customer Value Proposition Why will customer segments want to buy from us? • Customer value-propositions vary depending on the specific requirements of customer segments • The most important target segment, which is the high quality furniture supplier, values consistent supply in terms of quality and volume as well as the potential co-branding opportunities that exist when sourcing from an FSC certified supplier • IKEA has specifically identified a low chemical residue as important to its purchasing of SEP products (c) Ade Cahyat 2003

42. Sustainable Competitive Advantage How can we sustain a differentiated position? • Competitors will rely on price to undermine SEP’s market position • SEP will create a sustainable competitive advantage by: • Producing a rattan product of consistent quality and volume • Provide high levels of customer service • On-time and accurate delivery • Stable contracts • Potential co-branding opportunities created by FSC labeling and socially responsible production High Customer Service SEP Price-based competitors Low High Consistency of Product (c) Ade Cahyat 2003

43. Sustainable Competitive Advantage How can we sustain a differentiated position? • The current basis of competition in the supply of rattan in Surabaya is price and quality • SEP will provide high quality products at market competitive prices to match existing market demand • SEP will differentiate itself by improving client customer service levels and by providing a consistency of product • SEP has an advantage in consistency of supply due to its close relationship with its suppliers (P3R farmers) and its vertical integration across the distribution chain from Kedang Pahu to Surabaya • This differentiated position will help SEP first capture and then grow market share due to a stronger value proposition than its competitors (c) Ade Cahyat 2003

44. Pricing What is our pricing strategy? (c) Ade Cahyat 2003

45. Pricing What is our pricing strategy? • SEP will have an average cost of Rp.3,460 per kg for round Sega, Rp.6,240 per kg for semi-finished Sega and Rp. 15,610 per kg for Red Pulut. • Taking competitive considerations into account, SEP will aim to achieve an average price of Rp.3,897 per kg across its raw Sega product lines • SEP has considerable pricing flexibility for semi-finished products and will be able to support an average price of Rp.11,000 per kg • Red-Pulut is a niche opportunity for SEP, so the company will be able to support an average price of Rp.19,200 per kg and will still have significant pricing flexibility (c) Ade Cahyat 2003

46. Pricing What is our pricing strategy with respect to quality? Surabaya Prices for Round Sega by Quality Category Average SEP Price: Rp.3,897 (c) Ade Cahyat 2003

47. Pricing What is our pricing strategy with respect to quality? • SEP will price higher quality rattan at a premium to its customers • Kubu rattan (1 and 2) will average Rp.4,080 per kg – a discount of Rp.100 per kg over current industry prices • Soft rattan will be priced slightly higher than the industry average to reflect the enhanced value that consistent quality and stability of supply will bring to customers • Tiger rattan will be priced at Rp.2,000 per kg with the aim of clearing the rattan from the warehouse in Kedang Pahu as quickly as possible • As the company grows and potentially evolves its product line to include rattan crafts, it will phase out Tiger sales and channel Tiger into crafts production (c) Ade Cahyat 2003

48. Very little discount for low volume customers Pricing What is our discount or cash-back strategy for specific customers with respect to volume? High discount to large volume low quality purchasers High Low Quality SEP will discount based on who the customer is and how much they buy IKEA Small-to-medium Discount High Quality None Volume per customer per month (c) Ade Cahyat 2003

49. Pricing What is our discount or cash-back strategy for specific customers with respect to volume? • SEP will discount to incentivize volume purchases and long-term contracts to stabilize demand volatility • High quality rattan will be discounted less than low quality to reflect the higher value placed on quality and FSC certification of this customer segment • Low quality rattan furniture manufacturers that purchase in high volumes will receive the largest discounts as SEP will strive to sell its low quality rattan in high volumes to a small number of regular customers • Small-to-medium sized furniture manufacturers will receive lower levels of discounts due to their higher cost of sales but will be encouraged to buy in large volumes if appropriate (c) Ade Cahyat 2003

50. Kadang Pahu Samarinda Distribution Channel Design How do we get our products to market? (c) Ade Cahyat 2003