On diversification and potential for increased productivity
On diversification and potential for increased productivityHow do you evaluate the regional and global competitiveness of Indonesian textile and garment manufacturers?
ANNE PATRICIA SUTANTO: In 2018 the Indonesian Textile Association completed its 20-year roadmap for the textile and garment industry. One of the short-term goals of this roadmap, which takes into consideration the government’s export revenue target of $75bn from textiles and garments by 2030, is to establish an understanding that manufacturers are opposed to neither textile imports nor foreign direct investment in the sector. The government, however, is cautious about other countries overloading the Indonesian market with foreign goods. The different areas of Indonesia should not be in competition with each other, but instead competition should be fostered between manufacturing countries in the region. This is because each region of Indonesia has strengths and weaknesses which vary depending on the industry.
As the garment sector becomes more automated, it may be beneficial to manufacture in a special economic zone outside of Java. However, due to the labour-intensive nature of the industry, remote areas do not yet offer strong fiscal incentives for businesses – incentives such as reduced tariffs and tax holidays. The sector is equally open as its counterparts in Bangladesh, Vietnam and other countries in the region, and as such, Indonesian manufacturers face regional and global competition from other markets. Two key factors that determine the competitiveness of any industry are innovation and creativity. Players in the textile sector have agreed to increase collaboration, in turn raising levels of innovation and creativity, and making the industry more competitive in the global market.
In what ways will new technology boost manufacturers’ productivity?
SUTANTO: The government has realised that the labour-intensive garment industry will constitute a pillar of growth for Indonesia over the next 20 years. This is why the government is accelerating free trade agreement (FTA) negotiations and is urging local regents to improve the ease of doing business in a variety of industry segments. A number of provinces, notably Tangerang and Central Java, have already accomplished this, and others will soon be doing the same.
The textile and garment segment is one of the five priority sectors under the Making Indonesia 4.0 roadmap. This roadmap does not exclusively entail automation; rather, it is about changing our nation’s mindset towards digitalisation. Pan Brothers, for example, started utilising enterprise resource planning software and initiated internal changes. We will be able to complete this digitalisation process between 2018 and 2021, while operating 25 factories and employing 37,000 people. This digitalisation process is emblematic of a wider industry trend.
The key is not reducing the labour force, but instead capitalising on human resources. Therefore, from an industrial standpoint, what we would like to see is a shift towards manufacturers seeking expansion both horizontally and vertically, rather than reducing the number of employees. Productivity would be further enhanced through vocational training. Consequentially, the quality of vocational training institutes must improve if Indonesia seeks to be a top nation in terms of productivity, as this would require growth of over 6% per year. As such, the textile association has collaborated with the government to improve the quality of vocational schools in order to meet industry needs, though this improvement is expected to take some time.
To what degree has the textile and garment segment been affected by recent macroeconomic developments such as rising wages in China and the US Generalised System of Preferences (GSP) eligibility reviews?
SUTANTO: In the textile and garment sector, disruption occurs whenever new US tariffs are enforced, therefore any change to Indonesia’s GSP status could negatively impact the sector. Currently, however, tariffs facilitate exportation to the US, and Indonesia is the fifth biggest exporter to the country. The reason we seek to reach Industry 4.0 by 2021 is because we anticipate that demand for textiles will increase tremendously within the next five years. Rising wages in China have also had a positive impact, but the sector is still characterised by a lack of fabric production, weaving nets and dying capacity. This is why a 2030 target of $50bn is more pragmatic than the government’s $75bn target. At the same time, we have not yet negotiated FTAs. As Indonesia diversifies its export destinations towards non-traditional markets, increases in GDP contribution from the textile and garment sector can be expected.
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