Manufacturing tends to generate large economies of scale within firms, industries, and urban areas, creating a virtuous circle between competitiveness and scale. It creates high-quality jobs, significantly boosting productivity and wages.1 Manufacturing is indeed a key driver of the Indonesian economy, since the 1980s, and the sector continues to be a major source of employment for the country by employing 14.4 million people as per the end of 2010.2
By remaining dynamic during a world economic crisis, Indonesia has managed to maintain the development of its industrial sector, which represents 46.9% of Indonesian GDP, particularly thanks to the capital provided by big international firms. Total investment in industry in 2012 should hit 120 billion rupiahs, up 20% from 2011. More than two-thirds of those investments (61.04 billion rupiahs) come from international investors, local investors representing a little less than 39 billion rupiahs in 2011. The sector continues to look promising with companies such as Toyota Motor Corp. and Taiwan’s Foxconn Technology Group mulling investment opportunities, and L’Oréal SA inaugurating its new cosmetics factory located at Jababeka in November.
Thanks to its high growth rate (6%), the abundance of its natural resources and its large and competitive labour pool, Indonesia has become an apparent choice for installation and expansion of industrial structures. The largest industrial concentration is to be found in the provinces of Java, which account for almost three-fourths the country’s manufacturing output (excluding hydrocarbons), with a strong focus on textiles, metal-working, chemicals and electronics. The main export markets include China, Japan, USA, India, Singapore, Malaysia and the EU.3
1Source: “Indonesia Manufacturing needs a shot in the arm”, Vikram Nehru, Senior Associate, Asia Program, Bakrie Chair in Southeast Asian Studies, The Carnegie Endowment
2Source: Global Business Guide Indonesia – 2011
3Source: Global Business Guide Indonesia – 2011
Overall source: Indonesia Investment Coordinating Board – BKPM