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The rapid growth of Indonesia’s manufacturing sector

The rapid growth of Indonesia’s manufacturing sector has attracted electronics companies across the wider Asia-Pacific region




The rapid growth of Indonesia’s manufacturing sector – a development buoyed partly by the arrival of several big-name mobile-phone manufacturers and partly by highly supportive central government legislation – has attracted electronics companies across the wider Asia-Pacific region.

Indonesia’s manufacturing industry grew 5.04 per cent in 2015 – higher than the national economic growth rate of 4.79 per cent.

Nowhere was this more apparent than at the May Inatronics event in Jakarta, Indonesia’s only trade show dedicated to the electronics and components industries.

Overall, many exhibitors – with the majority of them first-time participants – were keen to expand their operations in the country and find local partners and distributors.

Among this year’s first-time exhibitors was AiT Semiconductor, a Taipei-based manufacturer of analogue and mixed-signal integrated circuits. “Indonesia has huge potential for us, largely on account of its rapidly expanding manufacturing sector,” said Product Marketing Director Titan Fanching. “We are keen to look at opportunities here, but first we need to find the right partner.”

Overseas Competition

Local partners are not thin on the ground. According to the Indonesian Ministry of Trade, by 2014 the country was already home to 235 electronics and home-appliance manufacturers. Within the next two years, the value of the domestic manufacturing sector is expected to exceed US$20.3 billion. This expansion, however, has not been without drawbacks, with many local businesses unhappy about the influx of overseas companies.

“Competition is very tough right now,” said Baharuddin, a Marketing Supervisor with SolderIndo, an Indonesian manufacturer of soldering products. “This is largely because so many Japanese, Taiwanese, Chinese and Korean electronics manufacturers have entered the market.

“Despite this, I believe that the sheer size of Indonesia’s manufacturing sector means that there is enough room for both the new and established electronics companies to thrive. For our part, our point of difference lies in the quality of our products, all of which are on par with the best produced by any of the Japanese companies, while our prices are still a little lower.”

Local Manufacturing

Another Indonesian exhibitor looking to find new growth opportunities in the country was DMC Teknologi Indonesia, a subsidiary of DMC, the Tokyo-based touch-screen giant. “Overseas manufacturers looking for touch-screen suppliers will find it easier to do business with us because we are local,” said Henri Hendarmin, DMC’s Marketing Manager for Indonesia. “We manufacture here. That is definitely one of our advantages.”

Touch-screens are also an integral component of smartphones, another sector that is well-represented in Indonesia. Indeed, the protectionist policies adopted by the Indonesian government have obliged many overseas handset manufacturers to establish manufacturing facilities in the country.

At present, all smartphone importers are legally required to manufacture at least 20 per cent of any imported model in Indonesia. Any company failing to comply runs the risk of having its import license revoked. Prior to the imposition of the requirement in 2013, there was no real phone manufacturing industry in Indonesia. The following year, 15 companies – including Samsung and China’s Oppo Electronics – applied to the Industry Ministry for production licenses.

Soldering on: Imported production equipment

“The Indonesian government is really quite strict when it comes to phone manufacturing,” said Michael Goh, General Manager of Evolution Marketing & Engineering, a Malaysian company specialising in supplying industrial equipment to the electronics sector.

“The rule is, if you want to sell mobile phones in Indonesia, you must manufacture in Indonesia.

“It suits us as we sell a variety of equipment to manufacturing companies, particularly in the mobile-phone sector. Our philosophy, which seems to work here, is to sell reliable, high-quality products at a relatively low price.”

Focusing on product quality was also the approach taken by Shanghai Anping Static Technology as it seeks to make inroads into the Indonesian static elimination market, an essential requirement for many high-tech manufacturing facilities. “Our products are not cheap as our quality is high,” said James Yu, the company’s General Manager. “We are not willing to compromise on product quality just to bring cheap equipment to the market.”

With little competition in Indonesia, Mr Yu is optimistic that the company’s AP&T brand will be a huge success in the country. “Once people come to realise the importance of eliminating static electricity, I am confident they will start using our products.”

Other Promising Sectors

While the majority of exhibitors at Inatronics were focused on the opportunities offered by Indonesia’s growing phone-manufacturing sector, there were a number of businesses, such as Singapore’s Semiconductor Technologies (SemiTEq), for instance, that targeted Indonesia’s medical, oil and gas sectors.

“While we offer a range of measurement tools for the semiconductor and solar sector, we believe our Molecular-Beam Epitaxy [MBE] systems, manufactured in the US by SemiTEq, are the best fit for the Indonesian market,” said SemiTEq Director Umasangar Pillai.

In the case of Malaysia’s Infinite Power, it was the potential of Indonesia’s rail and mining sectors that brought it to Jakarta. “Indonesia’s rail and mining sectors are developing rapidly, as is its power sector,” said Senthil Subramaniam, the company’s Chief Executive. “Inevitably, we are keen to explore any and all of the opportunities on offer. We are also keen to find local distributors.”

Looking to the longer term, Raymond Foo, the Southeast Asia Representative of the Association of Connecting Electronics Industries, the global industry association for printed circuit board and electronics manufacturing service companies, said: “There is a huge market for electronics in Indonesia, as can be deduced from the many manufacturing companies, both overseas and local, that have chosen to operate here,” he said. “Otherwise, you would never get quite so many people attending events like Inatronics.”

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