Apple Inc.’smajor supplier Hon Hai Precision Industry Co. is eyeing Indonesia, but not for its cheap labor.
The Taiwanese company, known by the trade name Foxconn, aims to tap strong domestic consumption in Southeast Asia’s largest economy for profit at a time when there are growing concerns about its profitability because of rising wages at its Chinese factories.
Although analysts are skeptical about the benefits of setting up a handset factory in a country known for its forestry and mining industries rather than electronics, Hon Hai appears to be bent on expanding to Indonesia and is lobbying for support from the government.
“If the Indonesian government doesn’t establish a certification system for the country’s handsets, Hon Hai-made handsets won’t be able to compete with low-cost imported white box handsets,” said a company official, who declined to be named.
Hon Hai, a contract manufacturer for Apple and other consumer-electronics companies, said it plans to manufacture handsets in Indonesia for sales in the country, which the World Bank said had a population of more than 240 million in 2011.
Although Indonesia’s handset imports exceed $1 billion annually, analysts remain skeptical about Hon Hai’s plan to venture into the country.
“Indonesia is certainly the up-and-coming big consumer market. However, the lack of handset component suppliers in the country means Hon Hai can only import components and do low-margin assembly work there. Poor infrastructure also poses problems for transportation logistics,” said Daiwa analyst Birdy Lu. “Rising wages also make Indonesia a less cost-competitive location for manufacturing industries.”
Hon Hai, which assembles iPhones and iPads and has most of its operations in China, said it is the right time to enter the emerging market, as Indonesia’s operating environment and infrastructure will improve gradually.
But there will also be some challenges.
Frequent protests and escalating demands from Indonesia’s labor groups could trigger higher wages and discourage investment. Bowing to pressure from labor groups threatening to paralyze the capital by blocking traffic, Jakarta’s governor agreed to increase the minimum wage in the capital by 44% in November
However, many companies continue to invest in the country, lured by its robust economic growth. Indonesia’s economy has expanded more than 5% in seven of the last eight years.
Hon Hai said it hopes to work with local brands and distribution networks in the future to sell made-in-Indonesia handsets as part of its efforts to grow its retail and distribution business and improve profitability.
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