Investment in Indonesian Manufacturing

With news that Foxconn, the world’s largest consumer electronics manufacturer, plans to invest $1 billion into an Indonesian manufacturing plant, many are wondering why they chose Indonesia over other Asian countries. This news has caused many to take a closer look at Indonesia’s manufacturing sector and the future of its economy. With major clients such as Apple, Dell and Microsoft, Foxconn’s bet on Indonesia isn’t one that should be taken lightly.

Foxconn has been under pressure to increase it’s number of factories, due to strikes in both Brazil and China, where it currently has facilities. When looking for a new country for manufacturing, Foxconn looked into countries such as Vietnam and Malaysia, but ultimately settled on Indonesia due to its growth rate (6%), natural resources, and its overwhelming need for jobs. The company said the new Indonesia manufacturing plant would create 1 million jobs, which Indonesia desperately needs to continue to grow. With a large pool of cheap, unskilled labor available (some workers cost a little as $100 a month, compared to $400 per month in China and $580 a month in Brazil), Indonesia became an obvious choice for Foxconn’s expansion. However, cheap labor doesn’t come without problems, as issues surrounding land acquisition, infrastructure and law enforcement are still unresolved in Indonesia.

The Indonesian economy has recently been ranked as one of the top emerging global markets. While manufacturing slipped elsewhere in June, the Indonesian manufacturing actually expanded last month. IMF chair Christine Lagarde recently called the Indonesian economy “solid,” though he warned of challenges ahead, due to global uncertainties.

While manufacturing has grown, some investors have started to grow weary of Indonesian markets. Just like China, investors are concerned that the Indonesian economy could be slowing, as stocks and government bonds are falling, and the rupiah has slid against the dollar. While it is considered one of the world’s hottest emerging markets and had record levels of foreign investment this year, some investors are worried about the government’s lack of response to the recent economic slow down. The Indonesia economy has stayed relatively strong during the global economic crisis, but economists warn that it will soon become susceptible to international prices, as they have recently slipped into a trade deficit.

While speculation about the Indonesian economy does create uncertainty in the minds of many investors, there have been many conflicting reports about the future of their economy. Foxconn’s recent investment may help to reinstall some confidence in the Indonesian market, but economists will be watching the Indonesian economy for months to come.

If you are importing from Indonesia, your production should continue on smoothly. If you are looking for a country to manufacturer your products, you should consider looking into factories in Indonesia, as many offer low prices. However, don’t forget to perform quality control! We’ll be paying close attention to see how Foxconn’s investment in Indonesia plays out.