The global economic crisis hit Indonesia’s apparel industry hard as demand from traditional export markets significantly declined. The course of 2010 and 2011 has seen a strong recovery from the sector with rising consumer purchasing power resulting in increased opportunities for premium and greater added value products. The crisis also provided Indonesia with a platform to reposition itself as an alternative import source for key apparel markets such as the USA and Europe as wages continue on an upward trend in China. In addition, the strengthening of the Indonesian Rupiah against the US Dollar has served to bolster the recovery and boosted industry performance.
Indonesia’s garment and apparel sector is highly concentrated on the island of Java, particularly that of West Java and the island of Batam which is a free trade zone. The sector employs 1.3 million people as of 2011 making it one of the most important elements of the country’s manufacturing industry. Some 61% of manufactured garments are exported to international markets as various leading international apparel brands use Indonesia as a manufacturing base for their global exports. Exports of textiles and garments rose by 19.7% yoy to $12.1 billion USD at the end of 2011 (Ministry of Trade) with a target of $13-13.7 billion USD set for 2012. Despite the crisis, the USA remains Indonesia’s largest market for garments and textiles accounting for 36% of total exports followed by the EU with 16% and Japan with 5%. The most popular export items from 2007-2011 were woven clothing, underwear and knitted or crocheted clothing which together made up nearly 60% of the total value of textile exports over the aforementioned period (Source: ASEAN Quality Textiles and Garments). An interesting trend to note within Indonesia’s garment production has been the distinctive step towards increased output in more value added items such as suits, jackets, dresses and trousers for both men and women while more basic items such as shirts and vests have only risen slightly or stagnated (Comtrade Statistics 2001-2008).
The textile and garment sector offers both challenges and opportunities as the Indonesian government looks to the sector to be a major engine of growth to 2030 (See Challenges in Indonesia’s FTG Industry). One of the sector’s key strengths is the rare presence of both an upstream and downstream industry; both of which are well developed (See Overview of Fibre, Textiles & Garments). The vertical integration as a result of this, from the raw materials to finishing creates highly streamlined supply chains and a one stop solution for international buyers and sourcers. Many of Indonesia’s largest listed textile and garment manufacturers have also been active in raising funds through the capital markets during 2011-2012 for investment into new plants as well as for the acquisition of companies to complement their upstream or downstream activities even further. In addition, Indonesian textiles companies have been quick to align themselves with international industry standards by making the necessary investments to achieve certifications such as ISO 9001 as well as gain recognition for sustainable and environmentally friendly business practices. This has enabled the market to attract leading global fashion brands by assurances of quality, best practices and quick response times.
Investment in Indonesia’s textile and garment industry grew from 149.88 trillion RP in 2010 to 151.77 trillion RP (16.54 billion USD) in 2011; investments mainly came from local manufacturers as well as from the entrance of foreign players to the Indonesian market. The number of textile companies also rose from 2,880 to 2,980, a 3.5% increase (Indonesia Textile Association). The expansion of the sector and the growth in investment signifies global confidence in the industry as numerous textile manufacturers have come to select Indonesia as an alternative manufacturing and sourcing base to China. While still posing infrastructure and logistics related challenges, Indonesia has proved itself to be a serious player within the global textile and apparel industry. Efforts such as the government’s program to upgrade machinery coupled with the unique attributes that its labour force has to offer being largely young, low cost and easily trained have not gone unnoticed by international investors. Collectively in 2011, new training centres such as the Indonesia German Textile Centre and the government’s restructuring program have created 61,000 new jobs, increased production capacity by 19%, boosted productivity by 9% and increased energy efficiency by 22% (Indonesia Textiles Association).
Labour strikes in the first quarter of 2012 which took place at industrial areas in the Greater Jakarta area such as Tangerang and Bekasi as well as in Riau and Papua raised alarm among investors. Industrial workers took to the streets and blockaded toll road entrances causing lengthy traffic jams to bring the issue of the minimum wage to the forefront of public attention. The matter was initially sparked by a challenge from the Indonesia Employers Association (APINDO) to the decision to raise the minimum wage in the West Java area by 20-30%. This issue highlighted the need for restructuring of Indonesia’s manpower laws that were last reformed in 2004 and which are often regarded as being too in favour of workers and unfriendly to businesses. Yet, at the same time, such regulations are also seen as being poorly enforced and thus offering little worker protection leading to ongoing disputes and friction between employers and workers. The textile and garment industry as a labour intensive industry was of course impacted by the labour unrest, however less so than other industries as salaries in the sector rose by 13% in 2010 and again by 1.7% in 2011 (IFT). In addition, the strikes were mainly concentrated in the Greater Jakarta area where living costs have risen considerably and manufacturing wages in general have not kept pace with inflation. Many of the country’s largest textile and garment manufactures have already taken steps to hedge against the high operational costs of Jakarta and established additional production centres in areas such as Yogyakarta and the region of Central Java where workers unions are also less active.
Having sustained the volatility in market demand as a result of the Asian Crisis in 1998 and the global financial crisis in 2008; Indonesia’s garment and textile industry has emerged as a more robust industry. The drop off in demand from traditional export markets such as Europe saw the demise of weaker players in the sector that had failed to reposition themselves in a changed economic landscape. Surviving industry players boast international certifications, up to date technology at their disposal and a highly competitive labour force in terms of cost and productivity. Key issues continue to plague the sector such as weak infrastructure and unresolved labour disputes which impact the manufacturing sector as a whole; yet the industry’s advantages of having both a developed upstream and downstream sector compensate for this and illustrate the potential that the sector holds once the government can fully tackle the infrastructure bottle necks and manpower legislation.
Global Business Guide Indonesia - 2013
Contribution to GDP: 24.2% (2011, Non Oil & Gas)
Real Sector Growth: 6.6% (2010-2011)
Number Employed in the Sector: 15 million
Average Employee Salary: 1,369,000 RP/month (Q1 2012)
Main areas: Automotives, Electronics, Textiles, Footwear, Food & Beverage, Palm Oils, Metal Products, Chemicals
Main Export Markets: China, Japan, USA, India, Singapore, Malaysia, EU.