Autoproducers to concentrate on underdeveloped component industry
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.