As wages continue to rise in China, is Foxconn, the huge Taiwanese contract manufacturer that makes iPads for Apple and laptops for Dell, looking to Indonesia as a cheaper alternative?
The Indonesian press, which has stories about Foxconn investing in Indonesia all over its front pages on Thursday,seems to think so. The reality is somewhat more prosaic.
Indonesia’s economy has been growing at an impressively solid clip of nearly 6 per cent per year thanks to natural resource extraction and domestic consumption, which accounts for more than 60 per cent of GDP in this country of 240m people.
But, having listened to advice from economists, the government wants to deepen the base of the economy by attracting more international manufacturers who can create the millions of formal jobs that Indonesia sorely needs.
So Foxconn, which is perhaps the world’s most high-profile electronics manufacturer (although not always for the right reasons), would be a great name for Indonesia to attract.
To that end, Gita Wirjawan, the smooth-talking trade minister and Indonesia’s foreign promoter-in-chief, met with Terry Gou, the chairman of Foxconn’s parent Hon Hai, while on a trade mission to Taiwan last month.
During that meeting they discussed the possibility of Foxconn investing in Indonesia, said Sofjan Wanandi, the chairman of the Indonesian Employers Association, who was also present.
“They need to expand and they cannot put all their eggs in one basket in China,” Wanandi told beyondbrics. “Indonesia would be a good choice because of our labour force, strategic location, political stability and the future potential of our economy.”
Foxconn, which has been forced to increase wages in China after criticism of its working conditions and a spate of apparently related worker suicides, has been looking to expand elsewhere in the region, including Malaysia and Vietnam.
Indonesia certainly has the large pool of cheap labour Foxconn would need, with unskilled workers getting around $100 a month, a third to a half of what’s on offer in Chinese factories.
But the lack of a broad manufacturing skills base, the poor infrastructure (with regular power shortages and clogged-up roads and ports) and Indonesia’s strict labour laws and feisty trade unions could make investing here a tougher sell than China.
Some Indonesian media reports claimed that Foxconn could invest more than $1bn to building a vast electronics manufacturing city.
Foxconn, which tends to be publicity shy, declined to comment.
But well-placed government officials told beyondbrics that the two sides had only had very preliminary discussions and that it was far too early to tell if Foxconn would invest. “If they were to come it would be a boost for Indonesia’s manufacturing base but it’s all just a proposal at this stage,” said one.