Plug in, switch on: The market for electronics is growing quickly

Both manufacturing and retail is growing in Indonesia, due to a burgeoning domestic market and increasing cost competitiveness. But to make the sector competitive with rivals from ASEAN and other Asian countries, the government needs to improve the investment regime. “The country’s overall atmosphere for investment is positive, garnering the attention of a number of electronics manufacturers that are considering expanding their operations in Indonesia,” Kim Weon Dae, president director of LG Electronics in Indonesia, told OBG. “Numerous players, aggressive campaigns and the continuous development of new products have all helped to result in a heightened competitive environment within the industry.”

A NEW BOOM: The latest sign of an Indonesian boom comes from Toshiba, which announced in October 2011 it would invest $39m to establish a washing machine factory in Eastern Jakarta. Construction of the 18, 000-sq-metre plant was to begin in December 2011, with late 2012 targeted for the start of production. Increased consumption of electronic goods in Indonesia and around ASEAN is one of the key drivers of the investment. Toshiba has traditionally sold to its own domestic market, but hopes to have half of its sales come from outside Japan by 2015. Toshiba expects sales of washing machines in South-east Asia to increase by more than two-thirds by 2015. Indonesia’s nearly 240m consumers, combined with a per-capita GDP that now is topping $3000, are a major contributor to demand. As Hisao Ishiyama, president director of Toshiba Visual Media Networks told OBG, “The real sector growth with an undoubtedly major market impact will come from the newly emerging and rapidly growing middle-class.”

In November 2011, the Indonesian Electronic Producers Association (Gabel) forecast domestic sales of around Rp28trn ($3.36bn) for electronic products for 2011, up on an earlier forecast of Rp25trn ($3bn). This was after Gabel recorded sales for the first nine months of 2011 at Rp21.6trn ($2.6bn). Most of the electronic goods on display in Indonesia’s stores are assembled in-country from imported parts. Gabel members reported increased imports of these, up 11% in the first 10 months of 2011 compared to the same period in 2010.

LABOUR: Another factor driving companies to consider relocating to Indonesia is the low cost of labour.

Indonesian minimum wages are set at provincial and district levels, rather than nationally, but monthly salaries can be as low as $78. In comparison, the minimum wage in Beijing was recently raised to $141 per month, while the Thai government has passed a law to set the minimum wage at nearly $10 per day.

But low wages are only a part of the picture, according to Man Gyu Yim, president director of Samsung Indonesia, who told OBG that labour costs represent only 2% of the company’s operating expenses. Indonesian electronics manufacturers tend to import components and export or sell finished products. Investment incentives could help nurture a component manufacturing sector. “There is sometimes a certain complacence on the part of the investment authorities in Indonesia because of their vast natural resources,” he said. “We would like them to put in place more incentives to add value to Indonesia’s mineral wealth.”

STRONG DEMAND: Still, the growth of the domestic market for consumer electronics looks unstoppable.

Smartphone penetration was 38% in November 2011, and is expected to reach 67% by mid-2012, according to Nielsen Indonesia Research. Meanwhile, the sale of flat-screen TVs is expected to outpace those of traditional television models by 2013. Regional integration is also helping attract consumers. “The China-ASEAN free trade agreement has brought even more competition to the market,” Kim told OBG. “Although consumers are very price sensitive, brand recognition, quality and marketing still play a key role in the consumer’s final decision.” Indonesia is at a critical point in its development, with wages low enough to support a competitive electronics industry and a domestic market rich enough to buy its products. Over time, this domestic market will only continue to increase and expand.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Indonesia 2012

Industry and Retail chapter from The Report: Indonesia 2012

Cover of The Report: Indonesia 2012

The Report

This article is from the Industry and Retail chapter of The Report: Indonesia 2012. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart