T
he archipelago of the Republic of Indonesia — comprising 17,508 islands between the
Indian Ocean and the Pacific Ocean, of which 6,000 are inhabited — has experienced a number of
transformative events within the last decade. The Asian financial crisis of 1997-99, recent
political shifts and the December 2004 tsunami — which killed more than 100,000 people and caused
more than US$4 billion in damage — are among events that have left their mark on the republic and
its textile industry. With a strategy of restructuring, modernization and expansion to maximize its
competitiveness, Indonesia’s textile industry is taking steps to ensure it can weather the
challenges of an ever-expanding global economy.
Industry Infrastructure
Indonesia’s textile industry is vertically integrated and involved in almost every sector of
the textile supply chain — from the production of man-made fibers, particularly polyester, nylon
and rayon; man-made and cotton yarn spinning; and weaving and knitting; to dyeing, printing and
finishing; and apparel manufacturing. According to the Indonesian Textile Association (API), based
in the republic’s capital city of Jakarta, the textile and apparel sector consisted of 2,661
enterprises in 2004. In that year, there were 28 companies in the man-made fiber subsector; 204 in
spinning; 1,044 in weaving, knitting and finishing; and 861 in apparel manufacturing. In 2005, a
majority of those companies — 57 percent — were located in the region of West Java, followed by
Jakarta, 17 percent; Central Java, 14 percent; and East Java, 6 percent. Other regions with
textile-related companies were Bali, Sumatra and Yogyakarta.
As the largest employer in Indonesia’s industrial and manufacturing sector, the textile
industry in 2005 employed 1.8 million workers in directly related large- and small-scale operations
and 3.7 million in indirectly related operations. Apparel manufacturing — the fastest-growing
segment, according to API — employed the most workers, more than 353,000 in 2004; followed closely
by the weaving, knitting and finishing sector, with a total of nearly 344,000 workers. Textile
industry workers altogether comprised 1.9 percent of total employment in the republic.
According to the 2005 International Textile Machinery Shipment Statistics report of the
Switzerland-based International Textile Manufacturers Federation (ITMF), the textile industry’s
installed spinning capacities in 2004 were 7.8 million short-staple spindles, 103,000 long-staple
spindles and 90,000 open-end rotors. When comparing the republic to other industries in Asia and
Oceania, Indonesia’s short-staple capacity in 2004 ranked fourth — behind mainland China, India and
the Philippines, in that order. The industry’s long-staple and open-end capacities were seventh and
fifth, respectively.
In 2003 and 2004, the weaving segment’s capacities numbered 29,000 shuttleless looms,
197,000 shuttle looms and 34,000 filament weaving looms. In comparison to other industries in Asia
and Oceania, the republic’s shuttleless capacity in 2004 ranked fourth — behind mainland China,
Thailand and Taiwan, which ITMF reported separately from mainland China — and the country’s shuttle
capacity ranked third — behind China and Pakistan.
In the man-made fiber subsector, the Jakarta-based Indonesian Synthetic Fiber Makers
Association (APSyFI) reports total manufacturing capacities of 500,000 tons for polyester staple
fiber, 825,000 tons for polyester filament yarn and 30,000 tons for nylon filament yarn. APSyFI
represents 14 man-made fiber manufacturers in the republic.
A majority of the goods produced along Indonesia’s textile supply chain last year were
consumed domestically. API notes fiber production totaled 752,000 tons, with 559,621 tons and
192,379 tons going to domestic use and exports, respectively. Of the 1.6 million tons of yarn
produced in the spinning industry that year, 51 percent was used domestically and 49 percent was
exported. In the weaving and knitting sector, 63 percent — or 591,451 tons — of goods produced was
used domestically; 344,748 tons were exported. Finally, the apparel and other textile product
segment exported 63 percent of the 690,860 tons of goods it produced and found domestic buyers for
273,238 tons of end-products. By far, most of the yarn and fabric consumed in Indonesia was
produced in the country.
Regarding industry imports, Indonesian spinners imported 98 percent of the cotton they spun
into yarn in 1995. The US International Trade Commission in its 2003 report, “Textiles and Apparel:
Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market” notes that
domestically produced cotton accounted for less than 4 percent of the country’s domestic
consumption.
Economic Impact
To be sure, Indonesia’s textile industry continues to be economically relevant domestically
and globally. According to API, textile and apparel exports made up $8.6 billion, or approximately
3 percent, of the republic’s 2005 gross domestic product, which totaled nearly $280 billion using
the official exchange rate. That was a 12.5-percent increase over 2004 and a 22.3-percent increase
over 2003. Last year, the industry had a trade surplus of $7 billion after importing goods worth
$1.6 billion. Second only to the mining industry, the textile and apparel sector is one of the
largest net exporters in Indonesia.
Globally, Indonesia ranked 11th among leading textile exporters and captured 1.6 percent of
total market share in 2004, according to API, which cited the World Trade Organization (WTO). It
also ranked ninth among top apparel exporters, with 1.7 percent of total market share. The republic
also continues to be a leading textile and apparel producer in the Association of Southeast Asian
Nations (ASEAN) region.
The top four destinations for the industry’s products in 2005 were the United States,
importing 36 percent of Indonesia’s textile and apparel exports; the European Union (EU), 16
percent; Japan, 5 percent; and the United Arab Emirates, 4 percent. According to API, Indonesia’s
textile exports to the United States have increased from $2.4 billion in 2003 to $3.1 billion in
2005. Furthermore, the republic is the United States’ fifth-largest textile and apparel supplier in
value terms, the office of the US Trade Representative reports. In the US Department of Commerce
Office of Textiles and Apparel’s Sept. 8, 2006, Major Shippers Report, Indonesia accounted for 3.93
percent in million dollars and 2.96 percent in million square-meter equivalents of total textile
and apparel imports into the United States.
Facing Challenges, Looking Ahead
As is the case with textile manufacturers worldwide, Indonesia faces new competition in the
global textile industry, especially in the US and EU markets. According to API, China has dominated
the US market with its low-end products, but Indonesia’s “real competitor[s]” are India, Vietnam
and Bangladesh for apparel; Thailand and Brazil for fabric; and Pakistan for yarn. In an effort to
prevent illegal transshipments of textiles and apparel through Indonesia into the United States,
the two countries recently signed a memorandum of understanding, pledging cooperation to prevent
such transshipments. In the EU market, Indonesia lost market share and contended with competition
from China and Eastern Europe. Domestically, the industry lost 39 percent of market share in 2005
from 2004, primarily to illegal imports, but also a small portion to growing legal imports.
Further challenging the industry and causing decreased utilization is its aging machinery,
especially in the spinning and weaving sector. API notes that in 2005, the fiber, spinning, weaving
and knitting, and garment sectors utilized 69 percent, 67 percent, 54 percent and 57 percent,
respectively, of their installed capacities. Also in that year, 66 percent of weaving machinery was
more than 20 years old, 26 percent was 10 to 20 years old and 8 percent was less than 10 years old.
Regarding spinning machinery, 35 percent was greater than 20 years old, 60 percent was 10 to 20
years old and 5 percent was less than 10 years old. Indonesia’s Ministry of Industry determined
that half of Indonesia’s textile production plants are more than 15 years old.
In light of these challenges, API reports the industry is adopting a strategy of
restructuring and modernizing existing capabilities — including upgrading 2.5 million spindles in
the spinning sector and replacing 200,000 shuttle looms with shuttleless looms — and adding 20
man-made fiber manufacturing units, 2.4 million spindles, 63,500 shuttleless looms, 16,600 knitting
machines, 221 finishing units and 179,000 sewing machines. API expects the strategy will boost
exports to $14 billion by 2010, add 469,000 workers to the labor force and cost an estimated $5.19
billion, requiring financial backing from the banking sector. The goal is to increase production
capacity throughout the textile supply chain. The industry also is touting its strengths — such as
low fixed labor and energy costs, and its integrated structure — and maximizing the advantages of
quotas affecting Chinese textile goods, free trade agreements and trade preference initiatives —
including the new EU Generalised System of Preferences, ASEAN Free Trade Area and the
Japan-Indonesia Economic Partnership Agreement, currently under negotiation — in an effort to
remain competitive.
