No fun for toy makers; government policies causing bankruptcies

Adianto P. Simamora, The Jakarta Post, Jakarta

Some 60 local toy makers went bankrupt since the regional economic crisis hit the country in late 1997, while the remaining 40 are now struggling hard to survive, according to the Indonesian Toy Association (APMI).

APMI chairman Widjanarko Tjokroadisumarto said the collapse of toy companies was due mainly to unfavorable government policies, rendering them unable to compete with overseas products, particularly from China.

"The current situation is very difficult for us because our toys are now more expensive than those made in China, both in the local market and overseas. We are now simply struggling to survive," Widjanarko told The Jakarta Post recently.

Indonesia exports almost 80 percent of toys produced to the U.S. and European countries.

"In the U.S. market, the price of Indonesia-made toys is 30 percent higher than those from China," executive of the Association Jack Sutanto added.

Meanwhile, cheaper imported toys from China had also flooded the local market, he said.

"I reckon about 80 percent of toys sold in the local market are imported from China," Jack said, adding that the China-made products were 50 percent cheaper than local ones.

He said that most imported toys from China were categorized as rejects.

"I don't know whether these imported toys are smuggled or not but most of them (toys) are reject Chinese products," said Jack.

Widjanarko put the blame on a number of government policies, including a high minimum wage policy, unfavorable labor regulations and a high interest rate environment. He said those "crazy" policies had left toy makers less competitive against overseas products.

He added that the minimum wage hike had caused labor costs to soar, forcing some companies either to lay off workers or shut down their operations.

"For example, we now employ only 600 people, compared with 1,100 previously," said Widjanarko, who is also the owner of PT Ramashinta Citra Kreasi.

"This (wage policy) is suicidal; Indonesia is the only country that has increased workers' wages by four times the rate of inflation," he added.

"Therefore, I would not be surprised if more toys from China entered the local market both legally and illegally," Widjanarko said.

Indonesian toys have become more expensive as some 50 percent of the raw materials used are imported.

Widjanarko said that about five toy companies from Indonesia had relocated their factories to China and Vietnam, both of which had a more supportive business climate.

"One of the five companies is now able to book annual sales of up to US$30 million, compared with only $3 million when it operated in Indonesia," he said.

Indonesia's toy exports were worth about $213 million in 1996, the figure falling sharply to only $72.8 million in 1999.

"We expect this year's exports to decline to $100 million, from $152 million in 2001," Widjanarko said.

Minister of Trade and Industry Rini Soewandi has included the toy industry in the government's revitalization program, which is aimed at supporting local manufacturers and helping curb the rampant smuggling of overseas products.

But the program has so far failed to work as no investors are interested in financing it.

"I think not much will change in the future because the government does not care about this problem," Widjanarko said.

He added the government's plan to introduce a new labor policy would further undermine Indonesia's toy export performance, as it would increase the financial burden on local firms and push up the price of toy products.