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Indonesia still attractive to Taiwanese and Japanese investors

Publication Date : 09-12-2013

 

Business players from Taiwan and Japan still view Indonesia as an attractive investment destination despite repeated protests by workers demanding an increase to the minimum wage.

Businesspeople from the two East Asian nations are drawn to investing in Indonesia primarily because Southeast Asia’s largest economy has shifted from its labour-intensive industry to a capital-intensive one.

The growing middle class in Indonesia is an added incentive.

YC Tsai, a director with the Taipei Economic and Trade Office Indonesia, said cheap labour was the initial reason why Taiwanese businesspeople came to Indonesia in the 1990s.

“At that time, Taiwanese businesspeople manufactured their products in Indonesia and exported the products to Western markets. They did that because back then, the operational costs in Indonesia were far less than in other countries,” he told The Jakarta Post in a recent interview at his office.

He said, however, that the persistently increasing labour costs in Indonesia during the last few years had forced Taiwanese investors to refocus on strengthening its capital-intensive industry in the country, especially in automotives and electronic gadgets.

According to Tsai, in the past few years, Taiwanese investors had moved their labour-intensive activities from Indonesia to countries like Vietnam and Myanmar as labour costs in those two countries were “more competitive” than those in Indonesia.

The Indonesian government recently increased the minimum wage by between 10 and 15 per cent in major industrial centres such as Jakarta, Banten, West Java, Central Java and East Java, but workers have opposed the increase, saying the rise was not enough to cover their basic needs.

The workers vowed to stage street protests until the government met their demand to raise their wages by up to 50 per cent, which is regarded as unrealistic.

Separately, Jakarta Japan Club secretary-general Yoshida Susumu echoed Tsai’s comments, saying that Japanese investors had “shifted” from labour-intensive to capital-intensive activities recently as they were jittered by uncertainties surrounding labour costs.

“The biggest problem in Indonesia is not the increase in the minimum wage but the unpredictable way in which labour unions are escalating their demands. Due to the uncertainty concerning labour cost changes, we can’t forecast how much money we need to allocate in next year’s budget to cover them,” he said.

According to Tsai and Susumu, the strong purchasing power among members of Indonesia’s growing middle class had helped businesspeople from their respective countries to transform their businesses from labour intensive to capital intensive.

“In the past 20 years, Indonesia has seen a marked increase in the middle-class segment with greater purchasing power. Indonesia has transformed itself from a labour-intensive production hub to a potent target market. So, why would you choose to manufacture your products here and sell them overseas? You can make more money by selling your products locally,” Tsai said.

According to Tsai, thanks to Indonesia’s strong market, some Taiwanese automakers and gadget producers were interested in building factories in Indonesia.

Susumu conveyed a similar sentiment.

“Indonesia is an expanding market for automobiles and this has led to many Japanese companies setting up supply chains and factories in the country,” he said.

Both Tsai and Susumu said that businesspeople from both countries were seeing a profit from selling their vehicles and electronic gadgets.

 

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