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.