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.
Lorraine Luk
Business & Investment Opportunities
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