31 July 2017
Overseas Firms Keen to Carve Out Share of Indonesian Manufacturing
- Photo: Made in Indonesia: An ever more tempting option for cost-effective manufacturing. (Shutterstock.com)
- Photo: Taiwan’s high-tech contingent at the Jakarta expo.
- Photo: Soldering on: Imported production equipment.
- Photo: Inatronics 2017: The only Indonesian trade event dedicated to the electronics and components sectors.
Driven by a surge in mobile-phone production and supportive government policies, Indonesia's burgeoning electronics manufacturing sector is proving something of an irresistible lure for many of the world's leading high-tech companies.
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 hugely supportive central government legislation – has prompted electronics companies across the wider Asia-Pacific region to look closely at what the country now offers.
Nowhere was this more apparent than at the recent Inatronics event, Indonesia's only trade show dedicated to the electronics and components industries. Overall, it was clear that many of the exhibitors – with the majority of them making their debut at the event – were keen to expand their operations in the country, with finding local partners and distributors high on the agenda of many attendees. With Indonesia's manufacturing industry having grown by 5.04% in 2015 – higher than the national economic growth rate of 4.79% – it was easy to understand their enthusiasm.
Among this year's first-time exhibitors was AiT Semiconductor, a Taipei-based manufacturer of analogue and mixed-signal integrated circuits. Although the company currently has no distributors/partners in Indonesia, Product Marketing Director Titan Fanching believes the country represents a potentially huge market for his business.
Explaining his enthusiasm, he said: "Indonesia has huge potential for us, largely on account of its rapidly expanding manufacturing sector. We are keen to look at opportunities here, but first we need to find the right partner."
Local partners, thankfully, 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 its drawbacks, with many local businesses unhappy about the influx of overseas companies.
Sharing his own concerns, Baharuddin, a Marketing Supervisor with SolderIndo, an Indonesian manufacturer of soldering products, said: "Competition is very tough right now. 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 a par with the best produced by any of the Japanese companies, while our prices are still a little lower."
Another Indonesian exhibitor looking to find new growth opportunities within the country was DMC Teknologi Indonesia, a subsidiary of DMC, the Tokyo-based touch-screen giant. Citing the company's location as one its key assets, Henri Hendarmin, DMC's Marketing Manager for Indonesia, said: "Overseas manufacturers looking for touch-screen suppliers will find it easier to do business with us because we are local. 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 within 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, it is a legal requirement for all smartphone importers to manufacture at least 20% of any imported model in Indonesia. Any company failing to comply runs the risk of having its import licence revoked. Prior to the imposition of this requirement in 2013, there was no real phone manufacturing industry in Indonesia. Then, the following year, 15 companies – including Samsung and China's Oppo Electronics – applied to the Industry Ministry for production licences.
Assessing the impact of the policy, Michael Goh, General Manager of Evolution Marketing & Engineering, a Malaysian company specialising in supplying industrial equipment to the electronics sector said: "The Indonesian government is really quite strict when it comes to phone manufacturing. 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."
Forefronting product quality was also the approach being 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. Expanding on its offer, James Yu, the company's General Manager, said: "Our products are not cheap as our quality is high. We are not willing to compromise on product quality just to bring cheap equipment to the market."
With little competition in Indonesia, Yu is optimistic that the company's AP&T brand will be a huge success in the country, saying: "Once people come to realise the importance of eliminating static electricity, I am confident they will start using our products."
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 with quite a different agenda. In the case of Singapore's Semiconductor Technologies, for instance, it was Indonesia's medical, oil and gas sectors that had the most appeal.
Maintaining that introducing the SemiTEq brand to Indonesia was his primary objective, Director Umasangar Pillai said: "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."
In the case of Malaysia's Infinite Power, it was the potential of Indonesia's rail and mining sectors that had bought it to Jakarta. Acknowledging this, Senthil Subramaniam, the company's Chief Executive, said: "Indonesia's rail and mining sectors are developing rapidly, as is its power sector. Inevitably, then, 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. Otherwise, you would never get quite so many people attending events like Inatronics."
Inatronics 2017 took place from 17-19 May 2017 at the PT Jakarta International Expo Centre.
Geoff de Freitas, Special Correspondent, Jakarta