Textile industry must improve to survive, warn analysts

JAKARTA (JP): Comprehensive restructuring and efficient bureaucratic procedures are needed if the local textile industry is to survive, according to stock analysts.

Three analysts contacted by The Jakarta Post on Monday said that many textile companies had lost their competitiveness after new overseas players entered the market because of local inefficiencies and their small size.

"I think it would be difficult for the textile sector to maintain its position as the country's single largest exports outside oil and gas," a PT HG Asia Indonesia analyst said.

"I would say that our textile industry, at its present stage of development, is already mature or, as investors describe it, a 'sunset' industry. So, in my viewpoint, it's time for textile companies to diversify their product mix and focus on higher quality or value-added products," Hanafi Wongso from PT BZW Niaga Securities said.

The analysts blamed production and distribution inefficiencies as the major factors slowing most textile companies' growth.

"The (textile) industry can survive if it can be more progressive in using technology and in improving its economies of scale," Phua Kok Kim from PT HSBC Securities Indonesia said.

Kim said the future would be positive for large companies (like Polysindo and Indorama) because they were using efficient technology.

"Moreover, with a big business scale, they (large companies) can obtain capital more easily," Phua argued.

Phua said smaller companies must consolidate.

He said that industry sources say that textile exporters would be more competitive if bureaucratic procedures were streamlined to improve distribution.

The HG Asia analyst, who requested anonymity, said that, because it was labor intensive, Indonesia's textile industry was less attractive than in other countries, particularly Myanmar, Sri Lanka and Latin America, which have cheaper labor.

She said the key to boosting the industry's performance was to attract more investment to increase plant capacities and improve production technologies. But she said it might be too late for some firms.

"A multinational firm recently told me that it has considered moving to Sri Lanka," she said.

The analyst reckoned the future of the textile industry would depend on its target market: for exports or the domestic market.

"I would say that there is still a bright future for a textile company which concentrates on the domestic market with an assumption that the domestic consumption will grow in line with increases in purchasing power," she said.

But she said it was difficult for Indonesian textile firms to increase their exports because their competitors in other countries were improving.

Hanafi said that textile companies could maintain their profitability by increasing their capacity.

"With more players coming into the market, they can no longer expect significant price increases. So, they should increase sales volume," he said. (alo)