Autoproducers to concentrate on underdeveloped component industry
Sandy Darmosumarto, The Jakarta Post, Jakarta
An underdeveloped component industry and poor investor confidence has hampered Indonesia's efforts to construct a strong automotive sector and production base for the regional market, despite the country's advantages in terms of large population, low-cost labor, and abundant natural resources.
"The tendency now is to focus on the component industry as a means to establishing a more concrete automotive industry," said chairman of the Association of Indonesian Automotive Industries (Gaikindo) Bambang Trisulo.
He said that the development of the component industry would stimulate growth in the local car industry.
President of car maker PT Indomobil Sukses Internasional Gunadi Sindhuwinata said that the strength of the car industry depended upon the ability of component suppliers to develop their capacity and adopt new design techniques to fit the continuously changing needs of principal companies.
"Without the business of supplying components, we would just be assembling cars. Additionally, we would not be able to design our own components, nor add more value to each output," he said.
Currently, there are two markets that provide automotive components, namely the original equipment market (OEM) and the replacement equipment market (REM).
Component makers in the OEM supply original parts directly to car manufacturers for assembly line purposes. The REM is a larger market which caters for businesses performing after-sales services, such as auto repair shops. Imitated components are also part of the REM.
According to Gunadi, the 18 to 58 percent of components that his company's brands use are locally made. The rest are mostly imported from Japan, with some from Thailand.
Indomobil relies on a total of 162 business units manufacturing its automotive components. Twelve of them belong to the Indomobil Group that makes up the in-house production line.
The remaining units are part of the group's out-house production line, that ranges from small and medium enterprises (SME) to large corporations.
But there are huge challenges ahead in the development of the local component industry.
The implementation of the ASEAN Free Trade Agreement (AFTA) in early 2003, and the established role of Thailand as the regional hub for the manufacturing of well-known brands -- such as Toyota, Honda, Ford, Mitsubishi, Volvo, Mazda, Nissan, Isuzu, Chevrolet and BMW -- may further narrow Indonesia's opportunity to increase the proportion of locally made components in cars sold in this country, as import now becomes easier and cheaper.
Under AFTA, the import tariff on most goods has been cut by between zero and five percent.
Another challenge is providing capital, and luring new foreign investments.
Amid deteriorating investor confidence in local labor, relying on the large domestic market may not be enough for Indonesia to attract investors.
"Principal companies will invest in the country if the conditions in all sectors related to its line of business -- be it communications, labor, transportation, law and order, or security -- constantly improve," Budi Setiadharma, president of automobile company PT Astra International said.
Industry players have also called on the government to support the component industry.
Muhammad Setiono, director of land and air transportation at the Ministry of Trade and Industry, has previously expressed that the government was now starting to focus on the local auto-parts industry, as a step toward strengthening the overall car industry. Setiono, however, did not provide details on what kind of policies would be implemented by the government in their bid to boost the component industry.
But despite all the problems, Indonesia is still deemed by some as an attractive place to develop the automotive industry.
A.K.Hadi, deputy head of purchasing division with Toyota Motor Manufacturing Indonesia said :"Indonesia is still a target country for many investors. We have the potential to find new advantages."
Indomobil's Gunadi added: "The country's potential weapon is in its large population and huge land area." This means wide open spaces are available for foreigners to invest in manufacturing plants.
With rising car sales this year relative to last year, complemented by an expected rise in sales next year, there are many indications that the country's automotive market is responding strongly to the high consumer spending that has characterized Indonesia's economy.
In terms of manufacturing investment, for instance, Honda Motor Corp. of Japan has expanded its operations here by building two new factories this year. The automatic transmission factory is under the management of Honda Precision Parts Manufacturing, while the assembling factory is under the management of Honda Prospect Motor.
The combined value of both investments reaches Rp 1.13 trillion (US$134 million), absorbing 3,000 workers.