Global Business Guide Indonesia

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Manufacturing | Indonesia’s Sportswear Industry: Strong Growth from Exports and Domestic Sales

The sportswear industry in Indonesia has seen an increase in export sales and foreign investment in recent years. The relatively stable global demand, especially in developed countries, has helped fuel the growth of the industry as the majority of sportswear products manufactured in Indonesia are exported overseas.

Indonesia's Sportswear Industry
The demand for sportswear products in the Indonesian domestic market, which was generally overlooked by both local and foreign sportswear manufacturers has continued to strengthen in recent years
 

The domestic market is also becoming an area of increased focus as the country’s growing middle-class comes to the fore. Moreover, sports have increasingly gained popularity in Indonesia along with the rise of a young and more health conscious population. Sports in Indonesia have now evolved beyond just physical exercise to becoming a source of entertainment and a lifestyle. This has boosted demand for various sportswear products especially in urban areas.

Growth in export markets

Indonesia has been able to maintain its position as one of the leading sportswear manufacturers in Asia, particularly in the apparel and footwear sectors (See Indonesia’s Footwear Industry: A Preferred Production Base for Global Brands), despite fierce competition from China and Vietnam. Most of the sportswear products manufactured in the country are for export markets. These products are typically outsourced by foreign companies that own brands such as Adidas, Nike, Converse and much more which are destined to be sold in various global markets.

Overall, Indonesia’s sportswear industry posted positive growth in 2015 and 2016 amid the global economic slowdown. According to data from the Ministry of Industry, the value of the country’s footwear exports in 2015, of which 90% of the total is sports footwear, was up 9.7% to $4.5 billion USD. This helped Indonesia climb to 6th position among top global footwear exporters after China, Italy, Vietnam, Germany and Belgium, with a market share of 3%.

There are six major export destination countries for Indonesia’s sports footwear products namely the United States, Belgium, Germany, United Kingdom, Japan, and China. The US accounts for 28.2% of Indonesia’s footwear exports, while exports to China had doubled to 7% in 2015 due to increased demand following a 50% reduction in import tariffs (See What China’s Slowdown Means for Indonesia: A Trade Perspective).

Meanwhile, the export value of the textile and textile products industry in 2015, of which sports clothing accounts for a significant portion of its total output, reached $12.28 billion USD or accounted for 8.17% of total exports (See Indonesia’s Garment and Textile Sector; Short Term Woes). The sector contributes 1.22% to Indonesia's GDP with an export surplus of $4.31 billion USD.

Increased domestic demand

The demand for sportswear products in the Indonesian domestic market — which was generally overlooked by both local and foreign sportswear manufacturers especially in the high-end segment — has continued to strengthen in recent years. Sports, especially football, badminton, basketball, futsal, hiking, cycling, and running, have always been popular with Indonesians. Many Indonesians are also avid fans of European soccer clubs such as Manchester United, Liverpool, Real Madrid, Barcelona and Juventus.

The growth of Indonesia’s middle-class with more disposable income has brought about greater awareness of healthy lifestyles, which has made running a more common activity.

With the growing number of middle-class consumers in the country, sport has become part of Indonesians’ everyday lives. This has created demand for various sportswear products and has enabled the sector to post a 9% value growth in 2015.

In general, low-priced sportswear products still dominate the domestic market. These products are mostly manufactured by local companies (See Indonesia SMEs: Increased Government Support to Overcome Challenges). Some local distributors also import cheap Chinese products to compete with local products.

Most recently, however, premium, multinational branded sportswear products, both locally-made and imported ones, have begun to gain market share in the domestic market as more middle-class consumers with greater disposable incomes adopt healthier lifestyles which include regular sports activities. These consumers have tended to prefer branded and fashionable products over cheap and generic ones.

Mitra Adiperkasa (MAP), the first and the largest sportswear retailer in Indonesia, reported increased sales over the last one year. Sports apparel and equipment, footwear and children’s fashion products contributed 30% to the company’s total revenue.

Currently, MAP has partnered with 50 sportswear product brands and occupies 70% of sports equipment market share, particularly sports footwear, in the country. The company plans to open 100 new Sports Station outlets until the end of 2016 which will bring its total number of outlets to 400.

Meanwhile, Trans Retail Indonesia which operates Transmart and Carrefour recorded a 19.03% increase in sports equipment and bicycle sales in the first quarter of 2016. Going forward, the company plans to introduce more bicycle brands to its stores.

Another sportswear retailer, Masari Group, relies on Under Armour apparel sales to boost its revenue. Apparel accounted for 70% of Under Armour sales in its outlets, followed by shoes and other sports accessories.

Generous government support

In spite of strong growth, Indonesia’s sportswear industry still faces a number of domestic challenges which hamper its competitiveness. These challenges include complicated licensing procedures in the regions outside of West Java, a significant increase in labour wages (See Labour Pains in Indonesia) in the last few years , the lack of domestic raw materials supply (See Indonesia’s Rubber Industry: Increased Competition and Falling Prices), and expensive energy costs (See Will Indonesia Become a Net Importer of Natural Gas by 2020?).

The apparel and footwear industry have been made a priority sector by the Indonesian government as they employ nearly 3.5 million people and accounted for almost 15% of the total workforce in the manufacturing sector. To improve the investment climate in these two sectors, the Indonesian government has established a special desk on textile and footwear investments (See Indonesia's Textile Industry – Testing Times Upstream) to facilitate and mediate problems faced by investors in both sectors.

Furthermore, the government through the Ministry of Industry provides incentives to companies so as to encourage the restructuring of machinery and equipment exceeding 20 years of age in order to improve the competitiveness of the textile and footwear industries, allowing them to invest in modern production methods (See Indonesia Introduces New Tax Incentives for Pioneer Industries).

Moreover, to further improve the Indonesian sportswear industry’s competitiveness, the government also provides an income tax facility in addition to other incentives such as expediting the licensing process of investments in the industrial zones (See A Look into Indonesia’s Special Economic Zones), slashing import fees for capital goods, an interest rate cut for exporters, and introducing a fixed formula for annual wage increases (See Indonesia Moves to Address Minimum Wage Woes).

Good prospects remain

Despite the various constraints, foreign investors, especially from China, South Korea, and Taiwan are still interested in investing in the Indonesian sportswear industry. They generally manufacture sports apparel and footwear for global brands such as Nike and Adidas.

Investment in the apparel sector in 2015 reached 575 trillion IDR or up 16.9% compared to 2014. The sector contributed 5.05% to total foreign investment in Indonesia and 3.07% to total domestic investment and is expected to generate employment for 101,000 workers.

Pan Brothers Tbk, for example, invested $34 million USD to construct four new plants for its subsidiary, Eco Smart Garment Indonesia, in Klego, Sambi and Boyolali, which will employ 12,000 workers. These plants will manufacture products for brands managed by Mitsubishi, Adidas, Nike, Calvin Klein, Hugo Boss, Prada, Ferrari, and many others.

The largest garment company in Indonesia plans to spend another $26 million USD to construct three more plants in Central Java which will bring its total number of factories in the country to 20. Some 99% of the company’s products are exported to Europe, Japan, the United States, Australia, Canada, and other countries which generated total sales of $338.8 million USD in 2015.

Another noteworthy investment in the sportswear industry came from France. Decathlon, a giant sporting goods and apparel retailer that has more than 1,000 stores worldwide, plans to invest $500 million USD in 2016. The company will open a sports department store which will also serve as a production base for its overseas stores.

Meanwhile, footwear investments in Indonesia in 2015 reached 19.67 trillion IDR. Some of these new factories have commenced operations in 2016 with an average installed production capacity of 10 – 15 million pairs per year and are employing up to 77,000 workers.

One of these new aforementioned factories is owned by Pou Yuen Indonesia in Cianjur, West Java, which will employ 13,000 workers over the next five years.  The production capacity for producing its Adidas sports shoes is 10 million pairs per year. Another new addition is a factory owned by KMK Global Sports which manufactures shoes and sandals for famous brands such as Nike, Converse, and Hunter. The factory has a production capacity of 2 million pairs every year.

Going forward, Indonesia’s domestic sportswear market will gain more importance due to the country’s middle-class consumers which are expected to double to 140 million by 2030 (See Indonesia’s Economic Outlook in 2017: Remain Cautiously Optimistic). Some 43% of the population is below the age of 25 with an average age of 28 years old and thus offer growing potential for future sportswear sales.

Moreover, the rise of e-commerce in the country may benefit sportswear manufacturers and retailers too (See Indonesia’s Retail Sector; E-Commerce, the Next Growth Driver). Many predict that e-commerce will occupy 20% market share in the retail sector over the next four years (See Indonesia’s 14th Economic Policy Package to Kick-Start E-Commerce Industry).

This optimism is underpinned by the country’s huge internet and smartphone users (See Indonesian Telecommunications – An Increasingly Mobile Market) which are the fourth-largest and third-largest in the world at 78 million and 65.2 million respectively (See Indonesia and the Internet; Online & On the Move).

In fact, the Indonesia E-commerce Association (Idea) forecasts that domestic e-commerce transactions will triple from $8 billion USD in 2014 to $25 billion USD in 2016. For those brands seeking to enter the Indonesian market, Indonesia’s burgeoning e-commerce platforms and specialised sportswear retail outlets offer the opportunity to reach a targeted and youthful audience that is seeking brands that can deliver on functionality as well as style.

Global Business Guide Indonesia - 2017

icone share

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.