Our assistant Maria researched Indonesia’s export industries, trends, labor costs, and logistical issues. Here is her article.
The current manufacturing sector set-up
Indonesia is popular for its natural resources, such as timber, rubber, nickel and copper – as well as edible products – such as coffee, tea, palm and fish products. In its early years, Indonesia used to earn a lot from oil and gas, but due to the high consumption in the country, it now imports oil from neighboring countries.
Most of Indonesia’s export products come from industrial cities like Surabaya and Bandung. Coffee plants, sugar mills and tobacco plantations are abundant in Surabaya, the country’s second largest city. Bandung, on the other hand, houses Indonesia’s textile industry. These products are the most common export products sent to Japan, China, US, Singapore and South Korea.
Strong pressure to increase factory worker wages
The textile business, one of its primary products for export, is experiencing a stunted growth. Aside from the Indonesia Rupiah being down and its current account deficit widening, the industry is under pressure due to wage increase demands from union groups. Some companies take the safe route of not upgrading their machineries in fear that employees will further ask for a significant increase in salary.
In 2013, Bandung-based PT Trisula International, service provider of popular German luxury clothing brand Hugo Boss, had initially wanted to upgrade their machinery to increase its production by 25%. This bid to expand its business has been postponed because of the persistent requests of militant groups to increase wage by up to 50%.
The current minimum wage for Bandung is Rp 1,000,000.00, or 86 USD. In Jakarta, minimum wage earners receive at least Rp 2,442,301.00, or 211 USD.
The Indonesian Prime Minister, Chatrib Basri, has already reacted to the dilemma, saying that the industry country cannot continue to rely on raw materials and cheap labor, and that it is in the risk of being in the “middle income trap.”
He also said that the garments industry should be able to compete with Bangladesh, by focusing more on design and fashion. It is being feared, though, that the local industry might not be price-competitive enough while not being able to attain the standards set by the high-end market.
A difficult business environment
Indonesia faces another problem, as companies struggle for efficiency. The proliferation of corruption, the lack of education among hired workers, ports that do not serve their purpose, as well as outdated machinery and infrastructure, are just some of the hurdles companies need to overcome.
For instance, Jakarta, being the country’s main port, handles around two-thirds of the country’s overseas trade. It takes ten days to move a container filled with export product within the port, in stark contrast to the one-day move of goods within Thailand’s main port.
Trade in Indonesia is slowly picking up, although it still suffers a balance deficit. This is triggered by a raw mineral export ban imposed by the government to promote processed or finished goods. It is also believed that the deficit is expected by the administration, though the current numbers are far below the government’s expected $800M USD.
Indonesia amidst modernization and urbanization
Indonesia’s central business district, Jakarta, enjoys its popularity as an urban tourist hub. The city mixes both traditional and modern living, with its highly contemporary, Westernized infrastructures and its booming population. Another tourist hub is Denpasar, the capital city of Bali, where long stretches of beach and art centers are located.
The country prides itself of heritage sites as well as attractive beaches. These continue to attract both tourists and foreign investors, as statistics show that the growth of the leisure industry last year saw an increase in arrivals. Indonesian Vice-Minister, Sapta Nirwandar, is optimistic that Indonesia’s regional tourism will grow further this year, as the country will be investing more in improving necessary facilities being used by both local and international travelers. In fact, Indonesia embarked on at least 500 tourist investment projects in 2013. This figure is 42% larger compared to 2012’s facilities improvement.