Indonesia's textile industry: Dreaming for a revival

Indonesia's textile industry: Dreaming for a revival

By K. Basrie

The world knows only too well that Indonesia's textile
industry, which once stunned everyone in the industry with its
burgeoning international demand, has been experiencing lean times
recently.

Indonesian exporters have largely attributed the industry's
plummeting international demand to the quota system, declining
orders from the U.S. and Europe, the corrupt bureaucracy, labor
wages, strict lending terms, domestic instability, competition
with China, aging machines, and post-crisis debts. Too many
problems, huh?

The following article probably reflects only part of the
entire grim reality of our textile industry, which was once a
prima donna in Indonesia's foreign exchange earnings.

JAKARTA (JP): Even locals pose cynical questions over this
business: Is our textile industry still alive?

Many experts even conclude that the country's textile industry
has no future and is, therefore, going nowhere.

But all the pessimism means nothing for those directly
involved in the industry, which so far employs a workforce of
some 3 million and provides about 20 percent of Indonesia's non-
oil and gas revenue.

"It's wrong. When shopping malls are still in business and
people still have their clothes on, it means that we, in this
industry, are still in business, too," API (Indonesian Textile
Association) chairman Benny Soetrisno said in an interview on
Tuesday.

The world, he said, should know that, for example, every
Wednesday or Thursday, a number of Russian businessmen with a
limited budget land at Soekarno-Hatta International Airport with
a leased airplane for quick cash-and-carry business with partners
in Jakarta and the surrounding area.

"They regularly purchase clothing in bulk at factory outlets,"
Benny said.

"Indonesia has become an attractive textile bazaar for small
buyers from Russia, Africa, Middle East and neighboring ASEAN
countries."

He, however, admitted that the export performance of this
industry has shown a significant drop in the past five years.
(see table)

On behalf of API's 2,748 members, Benny therefore added that
textile producers really hope that they can make this year a
renaissance in both domestic and overseas markets.

"The truth is we're looking for the best position in the
industry," he added.

"Now, installed capacity utilization remains high at some 80
percent."

"Remember that we're still a big player in the world and the
market is quite challenging and getting bigger and bigger in line
with free trade schemes," said the boss of PT APAC Textile, a
giant player in the sector.

"So, I'm really optimistic about the bright future of this
industry. And it will be very helpful should the government be
able to develop infrastructure badly needed by the industry to
promote a culture of business transparency," he added.

Benny is probably not bluffing.

Majalaya, a small town which is about a three-and-a-half hour
drive from Jakarta, has already proved the revival of the
seemingly-dying industry.

Once dubbed by many as a "town of dollars" thanks to the
amazing growth of the local economy due to the success stories of
many home textile industries, Majalaya was totally ruined
economically a few years ago following extremely low orders.

The collapse left a series of sad human-interest stories,
particularly those who couldn't do anything on their machines and
were forced to sell them for scrap!

But now the golden days of Majalaya are likely to return (see
the sidebar story).

"It's an absolute miracle," said a West Java-based reporter,
who also once witnessed Majalaya's doomsday.

The domestic industry developed in the early 1970s with
Japanese investment in cotton spinning and synthetic fiber
production.

Between 1970 and 1985, business remained slow due to low
demand and poor product quality.

It then rapidly developed at a stunning rate in 1986 when the
government focused its foreign exchange earnings on non-oil
exports.

Today, the number of textile companies has already reached
some 6,000 firms mostly producing fabrics, garments, yarns and
fibers.

Until 1998, the total amount of money invested for this sector
reached Rp 120 trillion.

"Now, we have the latest and most modern engines among those
in the industry," Benny said.

Early this year, the Ministry of Industry and Trade curbed the
trading of export quotas among producers. It determined that the
government holds the right to transfer quotas between exporters,
from those who are unable to use theirs, to those who have the
ability to do so.

Under decree No. 2/2001 dated Jan. 4 on the quota of textile
exports and products, a special government team with the
assistance of state-owned surveyor company PT Sucofindo will
conduct regular and thorough checks on the utilization of the
quotas.

Minister Luhut B. Pandjaitan hoped that the regulation would
help make quota channeling more transparent and competitive.

But will the textile business be able to compete with major
rivals, such as China, India, Hong Kong and others, to grab a
larger share in both local and foreign markets when Indonesian
textile producers still face a bunch of domestic problems?

"Geographically, we're not as strategically well located as
our competitors in China, Hong Kong or India. But all of us,
including the government, have to be more innovative in order to
penetrate markets.

Otherwise, we will all be losers," Benny said.

API, he said, hoped that the government would, for example,
immediately develop Batam into a free trade zone so that all
textiles for export could be shipped from there, not Singapore as
is done these days.

"It would be considerably cheaper for producers, and the local
government would enjoy the tax and ensuing economic development."

He also hoped that small-scale textile producers would be
willing to change their points of views about distributors, who
they often accuse of being lazy brokers who only want large
orders without making the necessary investment.

"Without distributors, small-scale producers like those in
Majalaya would face regular problems, especially in accessing the
marketing network, said Banny .

Producers should realize that marketing also requires research
and a portion of our charges are allocated to finance marketing
efforts and efforts in funding market research.

"You (small time manufacturers) off course only earn a small
spread of the profits but the incoming flow of customers is
consistent.

According to Benny, who has been with the 27-year-old API
(www.indotex.com) since 1984, newly-established Indonesian
provincial autonomy could actually help boost the country's
textile performance.

"Local authorities, for example, could offer their vast empty
pieces of land for investors to operate new factories," he
proposed, adding that domestic and overseas markets still require
many more top-class products.

Many existing firms, he added, are still structurally weak in
their design and management.

"But some others already do their business via the Internet.
Of course, person-to-person relations is still needed," he said.

Minister Luhut estimated that the textile export would grow by
10 percent this year to reach a figure of US$8 billion.

According to Benny, this year more producers have been
focusing their eyes on non-quota markets, such as the Middle East
and North Africa.

Last year, these markets contributed some 20 percent of the
total $7.3 billion textile export revenue.

"So, don't worry, the Indonesian textile industry still has a
bright future and better times ahead, " Benny said.