Interview: Iwan S Lukminto

What are Indonesia’s competitive advantages as a regional hub for textiles manufacturing?

IWAN S LUKMINTO: The industry is vertically integrated, enjoying a stake in each level of the supply chain, from making yarn, polyester and rayon, to finished fabrics and garments. The requisite materials for textiles manufacturing are also already present within Indonesia, while its regional neighbours are more reliant on importing materials. There are still many opportunities for industry players in the region. The large retail brands no longer want to centralise production in one country, instead preferring to spread their production across the region. Fashion brands (such as H&M) produced everything in China but growing inflation has compelled them to look further afield. Indonesia’s domestic market is also promising and is being driven by a population boom with 50% of its people below 30, together with a growing middle class. To maintain export competitiveness, the industry should be looking to boost efficiency of production through lowering energy requirements and shortening the production process. Despite the challenges, Indonesia’s textiles industry is well equipped with the expertise and human resources to thrive in the ASEAN Economic Community.

To what extent have labour and electricity costs impacted Indonesia’s textiles industry?

LUKMINTO: Electricity in Indonesia is artificially low due to government subsidies, which has fostered a careless attitude towards energy use. It is crucial that we reverse this mentality and encourage energy conservation at every level of the command chain. For example, in Sritex we have introduced a number of energy-saving measures, from undertaking energy audits to identify which machines are energy-intensive and in need of renovation or replacement, to ensuring efficient time management of energy consumption. We know that electricity is artificially low so we have prepared a plan to work towards reducing energy consumption costs. With regard to wages, it is not a zero sum game, and what is crucial is that a healthy dialogue is maintained between employers and unions. But wage increases must be sustainable and they should be accompanied by some measure of productivity growth.

What measures would you like to see from the new government to ensure continued international competitiveness of Indonesia’s textile industry?

LUKMINTO: To maintain growth the government needs to improve infrastructure and expand access to electricity. For firms of our size this is not such an issue, as we have the economies of scale to justify and afford investment in our own power plants, but for small and medium-sized enterprises it is very challenging. It is clear from President Jokowi’s comments at the November 2014 APEC Summit that he has a sound grasp of the challenges ahead, and we are waiting to see the government put their plan into action. We need to see improvements to tax legislation to encourage growth of the private sector and to ease the burden of compliance. There also needs to be consistent application of taxation for all firms to ensure a level playing field.

How can industry stakeholders work together to meet the growing human capacity needs of Indonesia’s textiles industry?

LUKMINTO: The textiles industry was languishing in Indonesia because there was a lack of knowledge regarding how technological advancements could be applied to improve the quality and efficiency of the manufacturing process, while also reducing costs. We must continue to be on the cutting edge of technological advancements while also investing in our own research and development to ensure that the industry continues to evolve. There is a tremendous opportunity for local textile manufacturers to explore and develop the market in Indonesia. Stakeholders need to work together to encourage local producers to work with young designers in the fashion industry to propel the development of new brands and invigorate the industry.