Businessman Reveals Surge in Indonesian Factories Relocating to Vietnam Due to Severance Pay
Jakarta, CNBC Indonesia - A businessman has revealed one of the reasons behind the exodus or relocation of numerous companies to foreign countries, particularly other ASEAN nations. The factor in question is the size of severance payments.
Deputy Chairman of the Indonesian Chamber of Commerce and Industry (KADIN) for Labour Affairs, Subchan Gatot, stated that severance payments in Indonesia are the highest compared to Vietnam and Cambodia.
“Regarding the relocation of industries from Indonesia to Vietnam and Cambodia, nominally, Indonesia’s wage levels are relatively competitive compared to other ASEAN countries, but that is not the only factor investors consider. They also look at the total cost relationship, which is deemed uncompetitive due to the high severance obligations that far exceed those in competing countries. This is how industrial relocation from Indonesia to Vietnam and Cambodia occurs,” said Subchan during his presentation at a hearing with Commission IX of the Indonesian House of Representatives (DPR RI) on the Labour Employment Bill (RUU Ketenagakerjaan), Tuesday (14/4/2026).
Subchan detailed the amount of severance that must be paid to workers with one year of service, which is one month’s salary. In contrast, in Vietnam and Cambodia, the severance for workers with one year of service is half a month’s salary.
“This also creates considerable pressure on companies, where the total severance for workers in Indonesia with an average of one year of service is one month’s salary. Whereas in Vietnam and Cambodia, it is 0.5 months’ salary,” he continued.
He added that the potential severance in Indonesia can reach 19 months’ salary for workers with 10 years of service. In Vietnam, it only reaches 5 months’ salary for 10 years of service.
Additionally, the cost of termination of employment (PHK) in Indonesia is also considered high, reaching more than 240% higher than in Vietnam and Cambodia.
“This disparity makes companies want to relocate their factories out of Indonesia. Indeed, our severance is still quite high, so the burden borne by businessmen in Indonesia, when viewed in comparison, it is understandable that some of them expand abroad, especially to Vietnam and Cambodia,” he explained.
Furthermore, another issue lies in the mismatch between the minimum wage and the real capacity of industry. Indonesia’s minimum wage is recorded at around US$334.60, higher than Vietnam’s US$204. However, the average payment capacity of the manufacturing sector in Indonesia is only around US$188.31.
In contrast, in Vietnam, the average real wage is actually above the minimum wage, at around US$342. This condition makes many labour-intensive companies in Indonesia struggle to meet minimum wage requirements.
“Most minimum wages cannot be met by labour-intensive companies,” he said.