Mon, 28 Jan 2008
From: The Jakarta Post
By The Jakarta Post Jakarta
Although external factors provided some leeway for the country's footwear industry to boost overall output last year, it failed to live up to its potential because persisting operational obstacles continued to undermine its performance.

A high-cost economy, complicated labor laws, a lack of raw materials and a continuous flow of cheap smuggled shoes into the country were among the classic problems the government failed to address last year in a bid to help boost the industry's competitiveness.

The labor-intensive industry grew little last year, despite a chance to boost exports following a decision by the United States and the European Union to slap dumping penalties on major footwear producers in China and Vietnam.

Last year, footwear output rose slightly by 5 percent to an estimated 529 million pairs, worth Rp 29.3 trillion (US$3.08 billion), from 504 million, worth Rp 27.9 trillion in 2006, according to the Indonesian Footwear Association (Aprisindo).

This output is comparable with only 73 percent of the country's overall production capacity, said the Industry Ministry's directorate general for metal, machinery, textile and miscellaneous industries.

With 27 percent of its capacity unfulfilled, footwear producers have realized losses in maintenance costs on machinery, as well as losses in potential revenue.

Aprisindo said the industry's output was expected to increase by around 10 percent to 582 million of shoes, worth Rp 32.2 trillion this year.

Aprisindo executive director Singgih Witarso told The Jakarta Post Indonesia had a great opportunity last year to increase its footwear exports to the U.S. and European countries following the anti-dumping policy.

But he said the high-cost economy resulting from illegal fees, twisted government red tape, insufficient highway and port facilities, and rigid labor laws, had sapped the ability of local shoe producers to compete against foreign rivals.

Most local producers rely heavily on outsourcing orders from branded international footwear giants, such as Nike, Adidas, Kappa and Reebok.

Due to declining competitiveness, many of these companies shifted their orders to other countries believed to have a greater edge than Indonesia.

The impact in 2007 of said problems were immense and forced local footwear giants PT Dong Joe, PT Spotec Indonesia, PT Tong Yang Indonesia and PT Korinesia out of business, leaving thousands unemployed.

Two other major companies -- PT Hasi and PT Nasa -- were forced to pause operations following a decision from their foreign buyers to limit orders.

The country's footwear industry was currently accommodating around 400,000 workers, excluding those working for its supporting industry such as plastic, leather, and molding, according to the Ministry of Industry.

Before the 1998 financial crisis, the industry employed some 850,000 workers.

The Ministry of Industry recently announced plans to provide fiscal incentives and smooth bureaucratic procedures for investors willing to take over local footwear companies wrangling with financial woes in order to keep firms operating and to maintain their workers.

The ministry, however, failed to produce a clear-cut policy to encourage local footwear producers to establish stronger brands for the domestic market, in a bid to offset sluggish orders from international companies.

Singgih said rampant smuggling had discouraged local companies from focusing on establishing their brands for the domestic market.

He said feedback from domestic producers was they could not compete on price with smuggled products, which are not subject to import duties and other taxes.

"Smuggled footwear from China and Malaysia is flooding our market, undermining the competitiveness of our products," Singgih said.

"The government apparently has not reinforced regulations against illegally imported shoes and this gives us more trouble," he said.

Aprisindo said Indonesia's footwear imports during the first seven months of 2007 reached $34.77 million in value.

In 2006, the country imported shoes worth $40.29 million.

The association also said domestic footwear consumption grew just 5 percent per year.

Shoe designer and entrepreneur Yongki Komaladi said local producers should develop creative products at affordable prices, in order to compete with smuggled shoes.

"The illegal shoes win the market because of cheap prices and creative designing," he said.

"Why don't we offer those two things to consumers?

"I believe we can produce nice shoes of good quality at cheaper prices."

Another snag preventing local brands from emerging and becoming popular was a lack of raw materials, especially leather, according to Aprisindo.

Leather is mostly used for producing non-sport shoes, which are more popular in the domestic market than sports shoes.

Between 60 and 80 percent of non-sport shoes contain leather as their primary material.

Bambang Triharto, brand manager of Eagle shoes, said local leather suppliers preferred to sell their products to overseas buyers because they usually charged a higher price. nkn



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