Global Business Guide Indonesia

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Manufacturing | Sportswear to be a Winner in Indonesia

Indonesia's economic growth in recent years has relied predominantly on rising household spending, which is why consumer trends matter more in Indonesia than they do in many of the country's more export-focused neighbours. One such trend is Indonesians' increasing liking for sports and fitness, and it is a trend that the global apparel industry is watching with keen interest.

Sportswear to be a Winner in Indonesia

While competition is set to intensify, the Indonesian sportswear market is still under-penetrated and has ample upward potential

 

Ever more Indonesians embrace sports as a lifestyle choice, according to observers. This is happening today amid a proliferation of urban lifestyles and growing exposure to global sporting events like the FIFA World Cup and regional ones like the Southeast Asian Games. Obviously, the country's young population – where the median age is around 28 years – helps to make Indonesia an attractive market for sportswear producers.

Sports and fitness in urban lifestyles

Well aware of how long shifts in the office affect their health, more and more city dwellers in Jakarta and around the country are signing up for gym memberships. Fitness First, Celebrity Fitness, Gold's Gym and others are rapidly expanding as more Indonesians can afford this investment into their wellbeing. Bodybuilding, yoga, Pilates and aerobics are all gaining in popularity. Outside the gym, football has pretty much replaced badminton as the national sport. Millions of Indonesians keenly follow their favourite teams (including foreign ones like Manchester United or Bayern Munich), but they are also taking to the pitch themselves, as evidenced by the growing number of football academies. Football's increasing popularity bodes well for sales of jerseys, footwear and FIFA-approved footballs (See Indonesia’s Footwear Sector – Challenging Opportunities).

Both running and cycling are finding dedicated followers, who often connect with one another through Facebook and Twitter and congregate to take over the streets of the capital on car-free Sundays, when vehicles are banned from some thoroughfares for a couple of hours. Running may well be the fastest-growing sports trend in Indonesia today, with running communities popping up across the country.

A dynamic market

Athletic apparel is one of the most dynamic categories driving apparel sales globally. In Indonesia, sportswear posted current value growth of 10% in 2013 (See Indonesia’s Textile and Clothing Industry). The country’s attraction for the industry is evolving: once seen primarily as a place from where to source sportswear and equipment, the world's fourth-most populous country is emerging as an important market in its own right. This is owed to an expanding middle class with rising disposable income as GDP per capita has risen from $2,984 USD in 2010 to $3,468 USD in 2013 and is projected to reach $5,000 USD by the end of 2014 (World Bank). Within the Southeast Asian region, Indonesia is at the forefront of this trend, with a middle-income segment that is expected to double in size to 140 million people by 2020.

Sportswear brands, led by Adidas and Nike, are well aware of this opportunity. However, global players like Adidas, Nike, Puma and Asics are confronted with local competition in Indonesia. Jakarta-based SPECS Sports designs, manufactures and retails shirts as well as shoes, bags and equipment for popular sports including football, badminton, tennis and running. Its range extends to futsal, the indoor version of football played with smaller teams. Futsal's recent popularity in Indonesia is something global brands need to adapt to. Piero Indonesia builds on Indonesia's craftsmanship in shoemaking, selling a range of casual to sportive shoes for skateboarding and other lifestyle activities, while Eigerindo Multi Produk, better known as Eiger, specializes in adventure sports, with products ranging from hiking boots and rugged sandals to climbing gear and backpacks.

Importing hurdles

Importing sportswear to Indonesia is a cumbersome process that has been criticized for lacking clarity with complicated licensing procedures. Importers have to apply for a number of permits and renew them at regular intervals. In addition to the generally required Importer Identification Number (API) and Customs Identification Number (NIK), importers of apparel or footwear need a so-called Special Importer Identification Number (NPIK) or Registered Importer of Certain Products Number (ITPT). These are obtainable through the INATRADE system on the website of Indonesia's Ministry of Trade, which aims to streamline the process.

Imported goods are subject to import duty and value added tax. Apparel and footwear also belong to a range of goods that require inspection in the country of origin before being shipped to Indonesia. Like in other industries, the authorities have designed the rules in the textile and footwear business to generally favour imports of intermediary and capital goods over consumer products in a bid to spur investment into local production. This is something that sportswear companies will want to be mindful of if they plan a long-time engagement in Indonesia.

Modern retail: challenges and opportunities

New rules for retail in Indonesia have the potential to make life harder for importers in the future. Ministry of Trade Regulation No. 70/2013 mandates that at least 80% of the amount and types of goods sold in modern stores (as opposed to traditional markets or kiosks) be domestic products. The regulation fails to define precisely domestic products. Retailers were given two years’ time to comply with the rule. Exceptions may be granted, however, and as of August 2014, the Trade Ministry was reviewing the controversial regulation. It is therefore recommended to work with experienced local partners such as Mitra Adiperkasa Tbk through its Planet Sports retail outlets and Panatrade Caraka who distribute local as well as international brands such as Mizuno through their FISIK stores.

Online retail, while still in its infancy in Indonesia, has enormous potential for growth. Buying products at the click of a mouse should be readily embraced by Indonesia's internet-savvy generation of young consumers (See An Overview of Indonesia’s Telecommunication Sector), the very generation that is on the radar of sportswear makers. A number of global and local companies already offer sportswear online. While competition is set to intensify, the market is still under-penetrated and has ample upward potential. Sportswear is also likely to outperform overall retail sales in the future.

Global Business Guide Indonesia - 2014

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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.