Indonesian Textile Industry

Topics: Investment, Indonesia, Macroeconomics Pages: 7 (2345 words) Published: September 24, 2014
Indonesian Textile Industry
Sarju Patel
Jones International University
Leading from a Global Perspective
Dr. Miro Smriga
June 25, 2014

Indonesian Textile Industry

Executive Summary
Expansion of our textile manufacturing capabilities in emerging markets is a key strategic imperative for our organization. After careful review, it is recommended that we expand textile manufacturing to Indonesia. Investment in Indonesia does pose risks; however, these are outweighed by the numerous benefits that Indonesia offers for foreign direct investment (FDI). Indonesia offers a growing middle class, a stable political situation, strong domestic demand, as well as conservative macroeconomic policies. It is the world’s fourth most populous nation with approximately 235 million people where roughly half of the population is under the age of 30. In addition, English is the most widely spoken foreign language in Indonesia and it is commonly used in business. The strong economic performance of Indonesia has brought it recognition from global investment banks such as Goldman Sachs and economic analysts including the Economist as one of the world’s most important and dynamic economies. Indonesia is an open-market economy with a free foreign exchange regime. It also has abundant natural resources and commodity products. Indonesia belongs to numerous international organizations including the World Trade Organization (WTO), World Customs Organization (WCO), and the World Intellectual Property Organization (WIPO). The Indonesian textile industry is expected to remain a major contributor to the economy in the future. One of the leading reasons is that Indonesia has some of the lowest wages among ASEAN member countries and a literacy rate of about 90%. The Indonesian textile industry is one of the oldest and most strategic industries of the country, contributing significantly to national growth. Indonesia’s textile and clothing industry provided approximately 1.1 million jobs in 2012. It accounted for 7% of the country’s total exports in 2013 and almost 2% of national GDP. One of the key strengths of the Indonesian textile market is the presence of both an upstream and downstream industry, both of which are well developed. Forecasts by HSBC indicate that the industry will become Indonesia’s largest export sector by 2030. While significant potential exists, Indonesia struggles with numerous issues. There is inadequate infrastructure in much of the country, vague and conflicting regulations, excessive bureaucracy, and rigid labor laws that include limitations of the hiring of expatriate employees. In addition, corruption continues to be of significant concerns. However, many of these issues can be mitigated with proper planning and execution. A key component of this is the structure of the foreign direct investment. Most foreign companies enter the market by setting up an Indonesian limited liability company (PMA). The textile industry does allow a 100% wholly owned entity by a FDI company. However, it is advised that seeking a joint venture with an established and trusted Indonesian partner who can assist in navigating the bureaucracy will provide greater success. Otherwise, to mitigate the issues that exist, it will be imperative to hire reliable and trusted lawyers, consultants, and accountants. Established foreign investors and history have both shown that companies can be successful in Indonesia as long as a long-term view is established. The need for the Indonesian textile industry to become more efficient provides our company opportunities to provide “know how” and capital investment. In addition, the robust economic growth and rising purchasing power of the population make Indonesia an attractive market for textiles and clothing for the foreseeable future.

Textile Industry
The Indonesian textile industry, encompassing the production of fabric, apparel, and leatherwear, is expected to remain a...

References: 2013 Investment Climate Statement - Indonesia. (2013, January 1). U.S. Department of State. Retrieved June 24, 2014, from
"Acicis – Dspp"
Business Culture in Indonesia. (2013, January 1). Doing Business in Indonesia. Retrieved June 24, 2014, from
Economy Rankings
GBG Indonesia. (2014, January 1). GBG Indonesia | Global Business Guide Indonesia. Retrieved June 24, 2014, from
Hill, Cameron (28 March 2014)
Indonesia - Cultural Etiquette . (2014, January 1). Indonesia - Cultural Etiquette - e Diplomat. Retrieved June 24, 2014, from
Industry Profile
Investing in Indonesia. (2014, January 1). . Retrieved June 24, 2014, from
Political and Economic Environment
U.S. Relations with Indonesia. (2014, February 3). U.S. Department of State. Retrieved June 24, 2014, from
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