Growing domestic market ignites investments in Indonesia

Investments in Indonesia continues as Foxconn recently confirmed plans to invest up to $1bn over the next few years to build new factories in Indonesia. Various electronic devices such as handsets, tablets and televisions are expected to be produced. In fact, Blackberry, which is one of the leading smartphone companies in the country, has agreed to outsource some of its device production to Foxconn’s new facility in Indonesia.

However, unlike its Chinese facilities which produced devices mostly for export, the facilities in Indonesia are expected to support a good bit of the domestic market.

The country is one of the largest in Asia, with about 250m people and has a growing domestic market. Smartphone ownership, for example, doubled from 2012 to 2013 to 61.2m users, representing almost 17% of the entire population. It is estimated that by 2017, there will 103.6m smartphone users, representing 40% of the total population.

Logistics providers are expanding into the country to take advantage of this potential growth market. For example, in 2013 DHL Global Freight Forwarding opened two additional offices in Indonesia. According to its Asia Pacific CEO, “Indonesia is poised for rapid growth as the government pursues its economic strategy and invests in infrastructure to create first class logistics capabilities by 2025.”

Also, in 2013, Yusen Logistics announced it would open a new warehouse in Indonesia with an area of approximately 16,700 sq m. The new warehouse would grow Yusen Logistics’ total space in Indonesia to approximately 90,000 sq m. According to the company, “The new warehouse’s logistics services will include inventory management, processing for distribution and inland transportation of automotive-related goods and consumer goods, as domestic demand for these items is expected to grow.

”Yet, another example is that of Damco Indonesia which opened a new warehouse in Semarang, Central Java. The warehouse was Damco’s fourth container freight station facility in Indonesia and the second in Semarang to support the strong growth of the footwear and apparel industry in Central Java.

In the 2014 Agility Emerging Markets Logistics Index, Indonesia was ranked 5th overall, behind two other Asian countries – China and India. Its geographic position within the growing Southeast Asian region makes it an attractive investment. However, while great strides have been to improve its infrastructure, its economy has slowed. Other concerns surround the country’s customs regulations. According to Terry Gou, Foxconn chairman and chief executive, imports of handsets are cheaper than imports of components of handsets due to tariffs set on some electronic materials.

For more information on Indonesia and other emerging markets please download the Agility Emerging Markets Logistics Index whitepaper here.