Indonesia secures $140m order from Adidas
Zakki P. Hakim, The Jakarta Post/Surabaya
Increasing fuel and electricity prices for industry will not deter foreign companies from investing in the country, a minister says.
Foreign companies that have secured US$140 million worth of orders from international sportswear brand Adidas for sports equipment and apparel are expected to open up factories in Indonesia.
"Adidas is set to order 14 million pieces of apparel and other sport equipment from various producers in the country," Minister of Trade Mari E. Pangestu told The Jakarta Post and Antara during a working visit earlier this week to Surabaya and Denpasar.
The footwear industry's labor-intensive nature needs to attract branded shoemakers to invest and encourage non-branded firms to follow suit.
At least 27 shoe companies have closed down since 2001, leaving 55,000 workers jobless. No new investment has been made since, for which industry players blame the rigid labor laws.
Indonesian Footwear Association (Aprisindo) and Korean Chamber of Commerce data show that as of 2004, 104 shoemakers in the country employed some 500,000 workers, but the number would exceed one million if supporting industries were included.
Mari said the government won Adidas' commitment during President Susilo Bambang Yudhoyono's visit to China in July.
She added that Adidas was planning to relocate 20 percent of its production capacity in China to Vietnam and Indonesia. She did not elaborate on the investment figure.
"Vietnam will not get all 20 percent (of the relocation), so Adidas will surely have to place part of the relocation here," she said, adding that the government was trying to convince Adidas.
Mari will also head to Busan, South Korea -- the center of footwear manufacturers -- next week to convince shoemakers to invest in Indonesia.
"Busan shoemakers receive orders from Adidas and Nike. They are the manufacturers and we need to get them to make their products here," she said.
The minister will be accompanied by a team of representatives from the Investment Coordinating Board (BKPM), the Taxation Office, the Customs and Excise Office and the Ministry of Manpower and Transmigration.
As the main discouragement for the Korean shoemakers are labor regulations, she said, the team would explain the government's efforts in dealing with the issue to Korean businesspeople.
Mari is confident that if the country manages to attract branded shoemakers, non-branded footwear manufacturers would follow suit as domestic supporting industries flourished.
Separately, Aprisindo's East Java chapter chairman. Eddy Widjanarko, said that inconsistencies in the country's tax policy made it hard for supporting industries in the country to move forward.
Shoemakers prefer imported materials rather than local ones as the government imposes zero import duties on materials used to make export-oriented products, but imposes a 10 percent value- added tax (VAT) on local materials, he said.
Meanwhile, Danish shoemaker PT Ecco Indonesia president director Flemming Larsen said the firm had recently decided to expand its factory in China rather than the one in Sidoarjo, East Java, due to complicated taxation policies.
"We've decided to invest an additional $40 million in China, rather than here. China is more business friendly," he told the Post. He added that he had talked to the trade minister, who promised to address the issue.
Ecco, a premium shoe brand, exports 99 percent of its production of five million pairs of shoes annually to Thailand, China, Slovakia, Portugal and Japan.
Indonesia exported $1.35 billion worth of footwear last year, with 20 percent coming from East Java, in which the manufacturers were dominated by non-branded shoemakers.
Aprisindo expects this year's exports to reach $1.6 billion, and with new investment it may exceed $2 billion next year and $4 billion in 2010.