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Country Profile: Indonesia

Indonesian textile industry meets global competitive challenges with a strategy of restructuring modernization and expansion.

By Michelle Mendieta Mitchell, Assistant Editor

T he archipelago of the Republic of Indonesia — comprising 17,508 islands between the Indian Ocean and the Pacific Ocean, of which 6,000 are inhabited — has experienced a number of transformative events within the last decade. The Asian financial crisis of 1997-99, recent political shifts and the December 2004 tsunami — which killed more than 100,000 people and caused more than US$4 billion in damage — are among events that have left their mark on the republic and its textile industry. With a strategy of restructuring, modernization and expansion to maximize its competitiveness, Indonesia’s textile industry is taking steps to ensure it can weather the challenges of an ever-expanding global economy.

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Industry Infrastructure

Indonesia’s textile industry is vertically integrated and involved in almost every sector of the textile supply chain — from the production of man-made fibers, particularly polyester, nylon and rayon; man-made and cotton yarn spinning; and weaving and knitting; to dyeing, printing and finishing; and apparel manufacturing. According to the Indonesian Textile Association (API), based in the republic’s capital city of Jakarta, the textile and apparel sector consisted of 2,661 enterprises in 2004. In that year, there were 28 companies in the man-made fiber subsector; 204 in spinning; 1,044 in weaving, knitting and finishing; and 861 in apparel manufacturing. In 2005, a majority of those companies — 57 percent — were located in the region of West Java, followed by Jakarta, 17 percent; Central Java, 14 percent; and East Java, 6 percent. Other regions with textile-related companies were Bali, Sumatra and Yogyakarta.

As the largest employer in Indonesia’s industrial and manufacturing sector, the textile industry in 2005 employed 1.8 million workers in directly related large- and small-scale operations and 3.7 million in indirectly related operations. Apparel manufacturing — the fastest-growing segment, according to API — employed the most workers, more than 353,000 in 2004; followed closely by the weaving, knitting and finishing sector, with a total of nearly 344,000 workers. Textile industry workers altogether comprised 1.9 percent of total employment in the republic.

According to the 2005 International Textile Machinery Shipment Statistics report of the Switzerland-based International Textile Manufacturers Federation (ITMF), the textile industry’s installed spinning capacities in 2004 were 7.8 million short-staple spindles, 103,000 long-staple spindles and 90,000 open-end rotors. When comparing the republic to other industries in Asia and Oceania, Indonesia’s short-staple capacity in 2004 ranked fourth — behind mainland China, India and the Philippines, in that order. The industry’s long-staple and open-end capacities were seventh and fifth, respectively.

In 2003 and 2004, the weaving segment’s capacities numbered 29,000 shuttleless looms, 197,000 shuttle looms and 34,000 filament weaving looms. In comparison to other industries in Asia and Oceania, the republic’s shuttleless capacity in 2004 ranked fourth — behind mainland China, Thailand and Taiwan, which ITMF reported separately from mainland China — and the country’s shuttle capacity ranked third — behind China and Pakistan.

In the man-made fiber subsector, the Jakarta-based Indonesian Synthetic Fiber Makers Association (APSyFI) reports total manufacturing capacities of 500,000 tons for polyester staple fiber, 825,000 tons for polyester filament yarn and 30,000 tons for nylon filament yarn. APSyFI represents 14 man-made fiber manufacturers in the republic.

A majority of the goods produced along Indonesia’s textile supply chain last year were consumed domestically. API notes fiber production totaled 752,000 tons, with 559,621 tons and 192,379 tons going to domestic use and exports, respectively. Of the 1.6 million tons of yarn produced in the spinning industry that year, 51 percent was used domestically and 49 percent was exported. In the weaving and knitting sector, 63 percent — or 591,451 tons — of goods produced was used domestically; 344,748 tons were exported. Finally, the apparel and other textile product segment exported 63 percent of the 690,860 tons of goods it produced and found domestic buyers for 273,238 tons of end-products. By far, most of the yarn and fabric consumed in Indonesia was produced in the country.

Regarding industry imports, Indonesian spinners imported 98 percent of the cotton they spun into yarn in 1995. The US International Trade Commission in its 2003 report, “Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market” notes that domestically produced cotton accounted for less than 4 percent of the country’s domestic consumption.

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  Economic Impact

To be sure, Indonesia’s textile industry continues to be economically relevant domestically and globally. According to API, textile and apparel exports made up $8.6 billion, or approximately 3 percent, of the republic’s 2005 gross domestic product, which totaled nearly $280 billion using the official exchange rate. That was a 12.5-percent increase over 2004 and a 22.3-percent increase over 2003. Last year, the industry had a trade surplus of $7 billion after importing goods worth $1.6 billion. Second only to the mining industry, the textile and apparel sector is one of the largest net exporters in Indonesia.

Globally, Indonesia ranked 11th among leading textile exporters and captured 1.6 percent of total market share in 2004, according to API, which cited the World Trade Organization (WTO). It also ranked ninth among top apparel exporters, with 1.7 percent of total market share. The republic also continues to be a leading textile and apparel producer in the Association of Southeast Asian Nations (ASEAN) region.

The top four destinations for the industry’s products in 2005 were the United States, importing 36 percent of Indonesia’s textile and apparel exports; the European Union (EU), 16 percent; Japan, 5 percent; and the United Arab Emirates, 4 percent. According to API, Indonesia’s textile exports to the United States have increased from $2.4 billion in 2003 to $3.1 billion in 2005. Furthermore, the republic is the United States’ fifth-largest textile and apparel supplier in value terms, the office of the US Trade Representative reports. In the US Department of Commerce Office of Textiles and Apparel’s Sept. 8, 2006, Major Shippers Report, Indonesia accounted for 3.93 percent in million dollars and 2.96 percent in million square-meter equivalents of total textile and apparel imports into the United States.

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Facing Challenges, Looking Ahead

As is the case with textile manufacturers worldwide, Indonesia faces new competition in the global textile industry, especially in the US and EU markets. According to API, China has dominated the US market with its low-end products, but Indonesia’s “real competitor[s]” are India, Vietnam and Bangladesh for apparel; Thailand and Brazil for fabric; and Pakistan for yarn. In an effort to prevent illegal transshipments of textiles and apparel through Indonesia into the United States, the two countries recently signed a memorandum of understanding, pledging cooperation to prevent such transshipments. In the EU market, Indonesia lost market share and contended with competition from China and Eastern Europe. Domestically, the industry lost 39 percent of market share in 2005 from 2004, primarily to illegal imports, but also a small portion to growing legal imports.

Further challenging the industry and causing decreased utilization is its aging machinery, especially in the spinning and weaving sector. API notes that in 2005, the fiber, spinning, weaving and knitting, and garment sectors utilized 69 percent, 67 percent, 54 percent and 57 percent, respectively, of their installed capacities. Also in that year, 66 percent of weaving machinery was more than 20 years old, 26 percent was 10 to 20 years old and 8 percent was less than 10 years old. Regarding spinning machinery, 35 percent was greater than 20 years old, 60 percent was 10 to 20 years old and 5 percent was less than 10 years old. Indonesia’s Ministry of Industry determined that half of Indonesia’s textile production plants are more than 15 years old.

In light of these challenges, API reports the industry is adopting a strategy of restructuring and modernizing existing capabilities — including upgrading 2.5 million spindles in the spinning sector and replacing 200,000 shuttle looms with shuttleless looms — and adding 20 man-made fiber manufacturing units, 2.4 million spindles, 63,500 shuttleless looms, 16,600 knitting machines, 221 finishing units and 179,000 sewing machines. API expects the strategy will boost exports to $14 billion by 2010, add 469,000 workers to the labor force and cost an estimated $5.19 billion, requiring financial backing from the banking sector. The goal is to increase production capacity throughout the textile supply chain. The industry also is touting its strengths — such as low fixed labor and energy costs, and its integrated structure — and maximizing the advantages of quotas affecting Chinese textile goods, free trade agreements and trade preference initiatives — including the new EU Generalised System of Preferences, ASEAN Free Trade Area and the Japan-Indonesia Economic Partnership Agreement, currently under negotiation — in an effort to remain competitive.

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November/December 2006

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