Electronics Manufacturing in Indonesia Towards the United States Inflation

by | Aug 3, 2022 | Market Research | 0 comments

How big is the potential of the Electronics Manufacture Industry? What is the strategy to overcome US Inflation?

Electronics Manufacturing
Source: homestratosphere.com

The electronics manufacturing industry global has huge potential because it owns USD 1.5 trillion market size measured by revenue in 2022 according to data from Usetada. It has grown on average by 2% per year from 2017 to 2022.  Especially, the global consumer electronics manufacturing industry is the 3rd ranked global manufacturing industry by market size which the market size is expected to increase by 4.4% in 2022, and the 12th largest among the whole industry types in the world.

Not just business-to-consumer, the electronics industry is also largely a business-to-business that offers the building blocks on which many other modern industries stand likes e-commerce, consumer electronics, and the manufacturing sector, to name just a few, all in electrical components. Key markets include the United States, China, Germany, Japan, and South Korea.

According to data from The Indonesian Ministry of Industry (Kemenperin) in 2019, the market size was around USD 4.58 trillion globally. China, Asia’s powerhouse, is the world’s largest market with market revenues of around USD 1.73 trillion with the expectation to grow by 8% year on year. China controls about 40% of the global market for electrical and electronic engineering. 

Indonesia’s exports to the electronics industry accounted for USD  11.77 billion throughout 2021. Indonesia’s Ministry of Trade (Kemendag) projects the trade balance surplus this year to be in the position of USD 31.4 billion to USD 31.7 billion. Meanwhile, the number of workers in the large and medium-sized electronics manufacturing industry in Indonesia amounted to approximately 142,000, accounting for a decrease compared to the previous year.

What is the opportunity for the electronics manufacturing industry in Indonesia? And what are the supports from the government? Read this article to know more!

Potentials and Government Support for the Electronics Manufacturing Industry in Indonesia

The electronics industry, especially for household products and in terms of exports, is currently showing positive performance. According to data from The Indonesian Ministry of Industry, the export value of household products was recorded at USD 1.8 billion from January to September 2021, an increase of 98% compared to the same period in the previous year.

The electronics industry is one of the manufacturing sectors that get development priorities by the Indonesian government in carrying out digital transformation by the Making Indonesia 4.0 (4.0 industry) roadmap. This strategic effort aims at the main goal of improving quality and quantity more efficiently so that it can be more competitive in the domestic and global markets.

The government is committed to reducing the value of imports, including electronic products. This strategy is also supported by the government by accelerating the 35% import substitution program by the end of 2022. Another strategy is to deepen the industrial structure through increasing domestic production of electronic components. 

Indonesia’s Minister of Industry stated that the government is very serious about managing and improving the industrial business climate by issuing various policies to support it. Industry stated that the government is very serious about managing and improving the industrial business climate by issuing various policies to support it. So there is no longer any doubt to start investing in industrial activities and expanding the market to Indonesia. They are optimistic that the electronics industry has the leverage to elevate the value of its national exports. 

Moreover, the electronics industry is one of the sectors that get development focus to realize the Making Indonesia 4.0 roadmap. Additionally, the government has taken the initiative to encourage the growth and development of competent human resources also to support the implementation of industry 4.0 and spur research and development activities in the country.

According to the data from Kontan, the Indonesian government also facilitates the provision of tax incentives in the form of super tax deductions that provide gross income deductions of up to 200% for vocational-related expenditures and up to 300% for expenditures related to research and development. The very dynamic characteristics of the electronics industry have led to the emergence of product innovations that are also accelerating and require industries to continuously update and improve their products.

The Strategy for Indonesia’s Manufacturing Industry for US Inflation Explodes

The Indonesian Ministry of Industry noted that the overall export value of electronic and telematics products in Indonesia reached USD 7.8 billion throughout 2019. The 10 main destination countries include the United States, Japan, Germany, Hong Kong, China, and some South East Asia countries such as Singapore, Vietnam, Malaysia, Thailand, and the Philippines.

Various pro-business policies were issued to support this, as well as removing rules that were considered difficult. The United States (US), as one of the biggest markets for Indonesia, today is experiencing the highest inflation rate in the last 41 years at 9.1%.

It has the potential to slow down the recovery process of the Indonesian manufacturing industry after the pandemic, especially in the second semester of 2022. Of course, this will have an impact on the export performance of the manufacturing industry, especially to the United States, which is one of the largest importers of Indonesia.

If US inflation rises, that export performance for US destinations could be disrupted because household consumption in the US will decrease due to its lower purchasing power, thus affecting the demand for goods from Indonesia. The trade balance in the second half of 2022 will be affected because the US is the main trading partner. In total, the trade balance may decline further.

This condition could jeopardize the potential of national economic recovery until the end of the year because the manufacturing industry contributes to around 30% of Indonesia’s GDP growth. To anticipate the impact of US inflation, here are some strategies that the industry needs to explore.

1. Increasing Promotions in Domestic and Abroad Markets

There are some alternative markets, for example, ASEAN countries and China, including carrying out promotions using the momentum of the B20/ G20 Presidency. Preparing a market switch is very necessary for countries with a high demand for electronics products, especially household electronics.

2. Optimizing the Use of Local Currency Settlement (LCS)

Local Currency Settlement in international trade transactions can reduce the demand for US Dollars. Decreasing the dependency on US Dollars will help to strengthen the native currency of countries that trade. 

Popular Electronic Manufacturers in Indonesia

The electronics industry is one of the biggest industries in Indonesia, especially with its potential market and demand. Some of them are well-known brands made in Japan and South Korea. But actually, Indonesia has well-known electronic brands, call it Polytron and Maspion.

Three famous household electronics brands are Polytron, Maspion Group, and Sharp, which are explained below.

1. Polytron

The success story of Polytron as an Indonesian electronics brand that has been able to compete in the global market is very inspiring. This company has succeeded in producing several electronic products ranging from televisions, refrigerators, washing machines, air conditioners, and even cell phones. Based on data from Kontan, Polytron Indonesia recorded an increase in market share of 5% – 6% in the first quarter of 2021 compared to the same period in 2020.

Not only succeed in the domestic market, but the original brand of Indonesia has also successfully penetrated the international market. At least 5 to 7% of its products have even been exported to various countries in the world such as Thailand, Myanmar, Bangladesh, Philippines, Sri Lanka, Spain, to Saudi Arabia.

2. Maspion Group

As one of the very well-known group companies in Indonesia, Maspion Group is now a large-scale company with more than 30,000 employees spread over 5 industrial and production areas in East Java and Cibitung, Jakarta. Maspion Group in expanding its business cooperates with high-end global companies, for example, Samsung, Komatsu, Sumitomo Metals, and Kawasaki Steel.

Besides domestically, Maspion’s products are also exported to the United States, Japan, Australia, Europe, and the Middle East. The company also has a representative office in Toronto, Canada. Maspion’s export value in 1995 reached USD 100 million.

3. Sharp

Sharp Corporation is a company that designs and manufactures electronic equipment based in Osaka, Japan. In 1953 Sharp began to develop television production. In March 2012, a 10% stake in Sharp Corporation was successfully acquired by Hon Hai or better known as Foxconn, a Taiwan-based electronics company.

Then, in 2013, Sharp Corporation also received an investment of USD 100 million from Samsung. The products developed by Sharp include televisions, refrigerators, air conditioners (AC), home theaters, washing machines, vacuum cleaners, calculators, telephones, smartphones, LED, Plasmacluster, and several other product variants.

Enter the Indonesian Electronics Manufacture Market with BRIGHT Indonesia

Because of the huge impact of the electronics manufacturing industry in Indonesia, of course, it takes a lot of in-depth research about the electronics manufacturing industry market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you. 

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

  1. Provide assistance for you in expanding and developing your business by identification of potential partners.
  2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
  3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net

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