ASIATODAY.ID, JAKARTA – Indonesia’s position is increasingly strategic and has the potential to become a target for massive factory relocation from China, which is planning to diversify its supply chain, as well as complement the country’s existing manufacturing base.
Jones Lang LaSalle (JLL) research projects that in the next decade there will be an acceleration of the world supply chain targeting Southeast Asia and India as production locations. This is driven by manufacturing companies looking for better locations and financing options to take advantage of supply chain volatility.
In recent years, a number of Chinese companies have begun to explore manufacturing relocation. The addition of manufacturing bases outside China is considered important to prevent disruption to supply chains by reducing dependence on one country.
Country Head and Head of Logistics and Industrial, JLL Indonesia, Farazia Basarah said that greater demand for industrial land, plus rising wages and raw material costs have also made land prices more expensive in China.
“This makes Indonesia a more cost-effective alternative,” he explained in a press release, Wednesday, June 5 2024.
Moreover, factors such as skilled labor, infrastructure, environmental regulations, proximity to suppliers and customers, and political stability contribute greatly to the long-term success and sustainability of factories.
JLL recommends Companies carefully evaluate these non-cost or qualitative factors as they are critical to making informed decisions and building a strong foundation for future growth.
Head of Manufacturing Strategy, Asia Pacific, JLL, Michael Ignatiadis, stated that China’s strategy has had an impact in destination countries, especially in Southeast Asia and India. Governments in the region are seizing opportunities and providing policies that support their local manufacturing industries by prioritizing land availability and access to capital sources.
“We see that the Southeast Asia region and India can complement each other with the existing production strengths of China,” said Michael.
In this case, Indonesia is a potential one because of its strong economic foundation and its ability to rise to become a hub for large manufacturing. Moreover, Indonesia has a large population and the large number of workers, attractive costs, and various incentives offered in this country make it an attractive manufacturing investment destination.
“But in our opinion, for companies to be able to respond quickly to this shift in supply chains, they need to adopt a flexible mindset towards land selection and funding options,” he said.
In 2023, Indonesia will experience an increase in foreign direct investment (FDI) in the manufacturing sector, with an increase of US$4 billion, reaching a total of US$28.7 billion. Indonesia also experienced significant growth in key industries such as electronics and equipment, chemicals and pharmaceuticals, as well as motor vehicles and other transportation.
The Indonesian government has implemented various policies to support and attract investment in the manufacturing sector. Some of the main initiatives include incentives for battery-powered motorized vehicles, investment tax incentives through Special Economic Zones, and the “Making Indonesia 4.0” strategy which targets integrating advanced manufacturing technology. (ATN)
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