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 The projects mostly employed outdated technology that was not used in their original countries.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)