Textile exports lose competitiveness

Textile exports lose competitiveness

JAKARTA (JP): Financial constraints, inefficient plants, low
worker productivity, over-burdened managements and an inability
to penetrate markets have eroded the competitiveness of
Indonesia's textile exports.

Chamroel Djafri, an executive at the Indonesian Textile
Association, said recently that many textile and apparel
producers, especially the small ones, were facing serious
financial difficulties in upgrading their production facilities.

"New investment in the textile industry is currently not
attractive due to high capital costs and a lack of government
incentives," Chamroel said.

The textile and textile-related industry has been one of
Indonesia's largest foreign exchange earners with annual exports
exceeding US$6 billion. But the industry has been rendered less
competitive due to old and inefficient plant equipment.

The share of textiles and textile-related products in the
country's total exports steadily declined from 17.5 percent in
1992 to 16.4 percent in 1993, to 14.1 percent in 1994 and 13.3
percent in 1995.

Textile and apparel exports reached $5.9 billion in 1992, $6
billion in 1993, $5.6 billion in 1994 and $6 billion in 1995.

The government expects a 10 percent increase in textile
exports this year.

Chamroel said that strong textile exports in the past were
made possible by stepped up investment in the sector.

Many new investments in the textile industry in the 1980s were
mostly relocation projects from industrialized or newly-
industrialized countries. The projects mostly employed outdated
technology that was not used in their original countries.

However, the market now demands better quality and more
innovation. Companies also need more updated machinery,
especially if they are to secure bank loans to restructure their
production plants.

In addition, many textile firms face liquidity problems
because they receive payment for their exports one week after
delivery. In the 1980s, textile exporters received a down payment
from importers after signing a contract. In early 1990s,
exporters were paid after producing a bill of loading. Now, they
get their payments one week after delivery.

Indonesia's textile firms also have trouble securing imported
feedstocks due to weak support from the transportation and
banking sectors.

While textile firms in South Korea need only 80 days from the
importing of feedstocks to the production of fabrics, Indonesian
firms need 210 days, Chamroel said.

"This condition of course diminishes our competitive
advantage. Moreover, if we look at our capital costs, which are
very expensive, our comparative advantage does not mean much,"
Chamroel said.

The weakening competitiveness of Indonesia's textile-related
industry, especially the labor-intensive apparel industry, is
caused by the low productivity of laborers and increased minimum
wages.

According to the Werner International's 1995 summer report,
hourly labor costs in Indonesian textile firms were still lower
than those in China and India. However, the hourly labor cost in
Indonesia's apparel firms was much higher than those in China,
India and Pakistan.

Chamroel suggested that the government increase the minimum
level of incomes subject to income tax so that incomes of textile
laborers would not be reduced by income tax.

Another factor affecting competitiveness is the management
style employed by textile and apparel firms, Chamroel said.

Most large textile firms in Indonesia diversify their
businesses into other sectors. Thus, managements no longer focus
on the textile business.

"The absence of an antitrust law leaves this practice
uncorrected and it continues to blossom here," Chamroel said.

Meanwhile, the managements of small- and medium-sized textile
firms are controlled and even run directly by the shareholders.
Therefore, he said, they cannot work professionally.

In addition, Chamroel noted, Indonesia's textile firms wanting
to penetrate new markets do not receive full support from trading
firms, the banking sector or the government, while their
competitors do.

"We will not be able to respond quickly to requests from
importers if we do not have the full support of all related
parties, including the transportation and banking sectors," he
said. (rid)