As Western retailers scour the globe for sourcing alternatives to politically perilous Bangladesh, all eyes are looking at Indonesia. The US, EU, China, South Korea and Vietnam, among others, are all investigating moving more of their manufacturing to the Southeast Asian nation, with particular focus on the Central Java area of the country.
Central Java has proven especially attractive for a variety of reasons: a regulatory environment congenial to business, a well-developed infrastructure which includes accessible highways, recently modernized airports, and a seaport convenient for trans-oceanic shipping.
Also, much of Indonesia’s textile and garment labor force is concentrated in Central Java. Jakarta and Batam Island also boast dense hamlets of factories. And as an added bonus, Batam Island is merely 20 kilometers away from Singapore, renowned for its tariff-free and low tax environment.
The EU, US and Japan already import a considerable amount of Indonesian products each year, especially apparel. More than 36% of all the ready-made garments produced by Indonesia are destined for US shores, with another 16% headed to the EU and 5% percent for Japan. The total value of Indonesia’s exports to the US reached nearly $12.5 billion in 2012.
And while Indonesia is certainly benefitting from the push to locate viable alternatives to under-compliant Bangladesh (not to mention increasingly expensive China), its spokesmen are quick to dispel the notion that this is the principal driver behind its burgeoning success. Ade Sudrajat, chairman of the Indonesian Textile Association, said: “The recent incidents in Bangladesh are not a major reason for shifting international buyers to Indonesia. Indonesia is still maintaining its position in the global apparel market because we are promoting more democracy than economy.”
Surya Tjandra, a labor law expert at Jakarta’s Atma Jaya University, told the Christian Science Monitor: “We’re much better than Bangladesh in many ways; we have one of the best minimum wages in Asia, and we’re relatively free to form trade unions.”
However, Indonesia is not without its challenges. While its massive supply of low-cost labor has been a point of attraction for Western retailers, low wages have ignited civil unrest, with workers taking to the streets in huge numbers protesting their alleged exploitation. Only months ago, 12 province governors were compelled to increase minimum wages by an average of 19%, in response to persistent strikes that were stymieing business. In 2012, there was a similar adjustment of the salary structure, raising the minimum wage by as much as 40%, depending upon the province in question. This pegs the minimum wage somewhere between $80 and $160 dollars per month in Indonesia, compared to $75 in Cambodia.
But many see signs of progress, as Indonesia struggles to balance the need for discounted labor and the demands of workers. Since 2011, Indonesia has been a participating member of the International Labor Organization’s Better Work program. According to the Better Work website, there have been discernible advances made. “Still in its early years, the programme has been successful in encouraging the participation of enterprises and international buyers, taking the lead in engaging with Korean multinational suppliers, which make up a large percentage of investors, and innovating worker outreach with a pilot social media project.” It has also promoted the Freedom of Association protocol, an accord designed to support workers’ rights, signed by international buyers like Adidas, Nike and New Balance.
Indonesia also faces stiff competition from China and rival ASEAN nations, and has found China’s fiber, textiles and garment exports particularly difficult to counter, especially after the passage of CAFTA. These disadvantages have only been exacerbated by inadequate sovereign marketing. According to the Global Business Guide of Indonesia: “Branding and marketing of Indonesian made textiles has been conducted poorly in the past and domestic brands have not taken a strong footing among Indonesian consumers. Foreign apparel brands have flourished in the upper end of the market as have the imports of cheap garments from China that are on trend. With a reorientation of the sector towards higher quality goods and greater focus being placed on innovation and creativity; Indonesia has a strong base for further developing its textile garment, textile and fibre industries.”
Finally, Indonesia’s breakneck growth has made it difficult for its textile machinery and technology to keep pace. Some industry experts estimate that more than 70% of its textile machinery is technologically outdated. The problem has become so widespread the government initiated an ambitious textile machinery restoration program intended to modernize its aging technology.
The potential for Indonesia is undeniable, though, with its 260 million people, investment-friendly business environment and laser-like focus on textile and garment production. The government has also demonstrated a twin commitment to political reform and infrastructural modernization. While it doesn’t want to be pigeonholed as an alternative to Bangladesh, there are certainly new opportunities in the wake of the Rana Plaza tragedy for it to assert itself on the global economic stage.