Apparel Sourcing Intelligence - Worldwide

Indonesian businesses count cost of “declining competitiveness” as garment exports fall

For a country many saw in 2012 as a real alternative to China, the fall in Indonesia’s garment exports from double-digit growth at the beginning of 2013 to a year on year fall by July-August looked surprising.  Many  Indonesian garment makers believed their business environment will deteriorate still further into 2014, though it is unclear how many share the pessimism of their trade association.

 

Ten Korean companies had closed their Indonesian garment factories and moved elsewhere after 40% wage increases in 2012, a senior executive of the Indonesian Employers Association said in January. It was impossible to verify where they had gone, though.  But many blamed uneconomic rises in minimum wages over the two previous years: Indonesia’s Industry Minister MS Hidayat warned in February that 900,000 workers in at least 1,320 companies would lose their jobs in April if colleagues did not postpone recent wage rises.

 

Many companies, though, announced plans during January to relocate in 2013 and 2014 from the area round Jakarta in the west of the island of Java to lower-wage areas to the east in the area known as Central Java, after growing wage disparities as a result of the country’s new minimum wage.

 

417 Indonesian companies had petitioned for their provincial minimum wage to be suspended by the end of 2013, the Ministry of  Manpower announced in early January 2014, as more evidence emerged of growing worries about Indonesia among foreign businesses. But looking at the rest of 2014, The Indonesian Textile Association worried  more about the impact of energy price rise in 2014 than wages or bank interest. Though the country has had Asia’s worst history of political violence over the past 20 years, he showed no concerns that the 2014 elections would create further public disorder