Electronics manufacturers see strong prospects for Indonesia

Adianto P Simamora, The Jakarta Post, Jakarta

The country's electronic goods manufacturers have started producing digital electronic items even though demand is still relatively low because they expect that consumer purchasing power will soon recover in line with the improvement of macroeconomic indicators.

Electronics companies are also now in tough competition to bring their technology to Indonesia in anticipation of robust demand for digital electronics in the near future.

In addition, they are also planning to make Indonesia their production base for the regional market, which is now imposing import tariffs of below five percent on electronic goods under the Association of Southeast Asia Nations (ASEAN) free trade area (AFTA) scheme.

Electronics executives Lee Kang Kyun of PT Samsung Electronic Indonesia and Sung Kyun of LG Electronic Indonesia agreed that demand for digital electronics would soon rise sharply in Indonesia.

"I am optimistic enough to say demand will follow the latest trends, in which people will soon move away from their old electronics products to digital ones," Lee told The Jakarta Post over the weekend.

He said that his headquarters in Korea had agreed to make Indonesia a production base for high-tech products, which would be exported to ASEAN countries and Australia.

Samsung currently markets digital electronic items, including Digital Video Disk (DVD) players, projection TVs, plasma TVs and LCD TVs.

Samsung has produced about one million DVD players since the company set up a plant in January 2002 in Cibitung, West Java.

A year later in January 2003, Samsung brought its projection TV technology to Indonesia. It produces some 1,500 TV sets every month.

Starting in June, the company then produced plasma TVs from its Cibitung plant. "We have so far produced 150 items," Lee, Samsung's marketing director, said.

"We shall also market imported home theater products here, starting this month, but we hope to produce such products here soon," he said.

However, he declined to state the total value of Samsung's investment here.

The company is expected to book US$300 million from domestic sales in 2003, compared with last year's $170 million, while export sales are predicted to increase to $850 million in 2003 from $800 million last year.

"Sales of digital products will still contribute about 20 percent to this year's total revenue," he said.

Meanwhile, LG Electronic said that the company would also bring its technologies to Indonesia for the production of digital electronic items.

"Digital products are the future of electronics. We have to follow the trend," Sung, LG's marketing director told the Post.

He predicted people would move from Video Compact Disc (VCD) players to DVD players this year as prices were expected to continue falling.

"We hope to control some 20 percent of Indonesia's DVD market this year," he added.

LG has produced slim-type DVD players priced at about Rp 800,000 per item since January 2003 at its Cibitung plant.

The company is expected to start producing projection TVs here next month so that the company can reduce its prices.

"As of now, we still import both projection TVs and plasma TVs from Korea," he said.

He said that the price of digital TVs was still high. Sixty- inch plasma TVs, for example, were sold here at $18,000 per item.

LG predicted its sales would reach some $300 million this year, as compared with $200 million in 2002.

Both companies admitted that their move to introduce high-tech electronic products in Indonesia was a result of the government's decision to cut luxury taxes on electronic products last January.

However, they still urged the government to provide a further tax stimulus to encourage more electronic companies to invest in the country.

"Luxury taxes of 10 percent to 40 percent on such digital products are still high and we therefore hope the government can reduce them," Lee said.

The giant electronic companies planned to set up manufacturing plants here in the mid-1990s, hoping to benefit from the country's cheap labor costs and huge market potential, but shelved their plans due to an unfavorable tax climate and rampant smuggling.

"This made Indonesia lag far behind other countries in the digital electronics industry," Lee said.