Indonesia secures $140m order from Adidas

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.