Global Business Guide Indonesia

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Manufacturing | Indonesia's Furniture & Homeware Sector

Indonesia has an established reputation within the furniture and handicrafts sector within the regional and global market due to the country’s strong historical traditions in woodwork and artistic crafts such as batik. The country’s abundant natural resources as the world’s largest rattan producer and with access to a variety of wood types like teak have served as the basis for Indonesia’s extensive furniture and homeware industry with exports reaching $2.2 billion USD in 2011 and expected to reach $2.7 billion USD in 2012 (ASMINDO, The Indonesia Furniture Industry and Handicraft Association). The industry faces solid growth prospects from not only its traditional export markets but increasingly from the ASEAN region as well as the domestic market. Indonesia’s domestic furniture and homeware sector has been growing steadily in line with the growth of the middle class and consumer purchasing power as well as home ownership among those of productive and working age. Furniture and homeware imports have been rising presenting new opportunities to foreign brands while simultaneously local retail brands have matured and are gaining notoriety at both ends of the market spectrum thereby making their mark on the furniture and interior design industry.

Indonesia's Furniture & Homeware Sector
Indonesia has become a highly attractive market as a manufacturing base for furniture companies due to the country’s competitive labour wages in addition to the wide availability of skilled carpenters and wood carvers.

Indonesia’s furniture industry has long been viewed as an export orientated industry only, however with private consumption largely driving the country’s economic growth the potential in the domestic market is now taking centre stage. Indonesia’s domestic sales in furniture and homeware are worth over $700 million USD annually according to ASMINDO and retail sales have grown by 12.1% CAGR from 2004-2009 (Datamonitor). The industry displays interesting cyclical trends such as a peak in sales prior to the Ramadan month of fasting and the Idul Fitri holidays as it is customary to receive family and friends frequently throughout this period and therefore a necessity to ensure that home decor and furnishings are at their best. The custom of gift giving also contributes to sales in homeware and accessory products at this time significantly. Such cultural attributes combined with the increasing affluence of the middle and upper class make the market attractive for both local and international furniture brands as well as increasingly lucrative for offshoot industries such as interior design, lighting, landscaping and artwork.

Indonesia has approximately 4,000 companies within the furniture industry with the majority of these being MSMEs focused on traditional handcrafted wood and rattan furniture (ASEAN). Within the low cost, mass produced furniture sector it is local brands which prevail including Olympic Furniture, Ace Hardware and Informa that offer flat-pack furniture through their nationwide retail branch networks. While still dominant, locally made goods and brands are now facing increased competition from Chinese producers as a result of the China - ASEAN Free Trade Agreement. The entrance of Swedish furniture giant IKEA in 2014 will also make a significant impact on the current furniture retail landscape and will heighten competition even further in the sector. At the other end of the market for the middle to upper income bracket, changing lifestyles and consumer tastes coupled with improved buying power have led to an increase in the value of imported furniture from developed markets. Local distributors such as Medici have brought in American and European brands such as Henredon Furniture which is a subsidiary of Furniture Brands International; the largest furniture retailer in the USA. International brands for the upper end of the market have increased their presence in the past decade such as Da Vinci of Singapore and are now competing directly against locally luxury furniture retail brands such as Vivere, Hadiprana and Vinoti Living. The sheer diversity of consumer preference among the Indonesian market offers plenty of space for competition and a variety of furniture styles. Local Indonesian designers are competing effectively by providing high quality materials, sleek contemporary design and often a unique local touch which draws on the artistic traditions of Bali and Java to bring a distinctive style to the market.

Indonesia’s furniture industry has been traditionally identified with competitively priced rattan of adequate export quality while the country’s main raw rattan export markets such as China and Europe have secured their position in high end rattan furniture. In November 2011, the decision was taken by the Ministry of Trade to ban the export of rattan as a raw or semi processed material from January 2012 in an effort to conserve the country’s rattan resources and encourage further development of an upstream industry. The policy was heavily criticised by industry bodies such as the Association of Indonesian Rattan Producers (APRI) which claims that the domestic market does not have the capacity to absorb all of the country’s rattan production and will inevitably harm the industry which directly and indirectly involves some 17 million people mainly concentrated in East Java. However, the Ministries of Trade as well as Forestry and Industry justified the decision on the basis of Indonesia’s lagging competitiveness in the global rattan furniture market illustrated by the fact that exports of finished rattan furniture have been in decline since 2005 reaching $60.32 million USD in 2010 which dropped by a further 26% in 2011 due to weakened global demand (Ministry of Trade). So far, the rattan export ban showed a positive impact with rattan furniture exports up 15% from January to August compared to 2011; yet the second half of the year has proved less positive as demand from USA and Europe remains depressed highlighting the need for Indonesia to diversify its target export markets.

Wood furniture is a traditional mainstay of the Indonesian furniture sector making up 58.1% of the industry’s total exports in 2010 (ASMINDO). Central Java and Jepara in particular are the main centres for the wood furniture industry with teak, mahogany and reclaimed wood being the most popular materials for the local and international markets. Illegal logging and deforestation have been major challenges facing the sector in the past as it starved the industry of raw materials and a lack of traceability in the timber industry cut off export markets in Europe and North America. To remedy the situation, the Decree of the Minister of Forestry No. 68/2011 obligates the furniture industry to have a timber legality verification certificate (SVLK) and all timber exporters must comply by March 2013. This new certification process makes it easier for furniture importers and distributors from Europe to prove the origin of the timber and is an important step given that the EU accounts for 33% of all Indonesian timber exports (ASMINDO).

Indonesia has become a highly attractive market as a manufacturing base for furniture companies due to the country’s competitive labour wages in addition to the wide availability of skilled carpenters and wood carvers. Access to raw materials is another draw given that the country is responsible for 85% of all rattan produced worldwide, has extensive timber production for woods such as teak, bamboo and plywood as well as other useful natural materials such as water hyacinth. These attributes coupled with the country’s artistic heritage make it ideal for furniture designers and manufacturers wishing to construct prototypes and try out new techniques. International furniture manufacturers have begun to take notice and most recently in February 2012 four Chinese firms announced their plans to set up production facilities as well as Taiwanese manufacturer Woodworth which is investing up to $40 million USD in the country. While many international firms have come into the market as a production base for their own brand, the potential of the domestic market on the medium to long term should not be overlooked. When approaching the country from the angle of domestic consumption, entering in partnership with a local partner with knowledge of the Indonesian local tastes and design trends as well as distribution channels is highly recommended to effectively tap into the retail market.

The furniture industry in Indonesia presents significant potential to foreign companies for manufacturing and export. Within rattan for example, while the situation is proving testing for local furniture producers, the rattan export ban offers an opportunity to investors with manufacturing technologies and quality control expertise to set up production facilities in Indonesia and take advantage of the strengthening buying power of the ASEAN, China and India. The country’s abundance of skilled craftsman, particularly in Surabaya and Cirebon, offer the resources to create high quality rattan furniture that can effectively compete in global export markets. The domestic market itself is also very promising; boutique producers of high end contemporary furniture and fittings such as kitchens as well as niche sectors such as leather furniture and European classic style pieces have plenty of space in which to compete as the ranks of the affluent middle class continue to expand. This potential also extends beyond the retail consumer to the interior design industry given the bullish property sector and growing number of hotels, condotels and restaurants throughout the country making now a key time to enter the market and establish a brand position.

Global Business Guide Indonesia - 2013

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Indonesia Manufacturing Snapshot

Contribution to GDP: 20.41% (Q3 2015)
Sector Growth: 4.33% (yoy, Q3 2015)
Number Employed in the Sector: 16.38 million (February 2015)
Highest Minimum Wage by Province: 3,100,000 IDR/month (DKI Jakarta)
Lowest Minimum Wage by Province: 1,482,950 IDR/month (West Nusa Tenggara)
Main Areas: Automotive, Electronics, Textile & Garment, Footwear, Food & Beverages, Metal Products, Chemicals.
Main Export Markets: USA, Japan, China, Turkey, South Korea, Germany, Singapore, Thailand, Philippines, Saudi Arabia, Malaysia.