Indonesia may soon become world’s second-largest shoe exporter

Friday, 27 August 2010

The Jakarta Post

This is the second part of four stories on Indonesia as an emerging hot spot for foreign direct investment 

Indonesia’s footwear industry is gearing up to welcome more investment as the country’s stellar economic performance and its large labor force have made it a new emerging hot spot for foreign direct investment.

The Indonesian Footwear Association (Aprisindo) said that given recent global and domestic investment trends, it expected that by the end of 2011, Indonesia could attract at least 20 major footwear companies to relocate their factories to Indonesia.

Six footwear companies from Taiwan and South Korea have already relocated their factories here from China and Vietnam due to increased labor costs and difficulties recruiting new workers. Of those six companies, four Taiwanese companies are license holders of Nike and Reebok brands, while the remaining two South Korean companies are license holders of Adidas and Geox brands.

“Indonesia is now a very attractive investment destination. With improved infrastructure, I believe that we can invite at least 20 big footwear companies by 2011,” Aprisindo advisory council chairman Haryanto told The Jakarta Post.Investment Coordinating Board (BKPM) chairman Gita Wirjawan said that with the relocation of the six footwear factories from China and Vietnam, he was optimistic that the country’s footwear exports would reach US$2.1 billion in two years.He claimed Indonesia could potentially overtake Vietnam and become the second-largest footwear exporter in the world after China in two years.

“I believe we can achieve the target of total export revenue of $2.1 billion because most branded footwear factories [making New Balance, Mizuno, Adidas, Nike and Reebok shoes] export their products,” he told The Jakarta Post.He added that he was optimistic Indonesia could produce up to 300 million pairs of shoes this year.

The golden era of Indonesia’s footwear industry dates back to before the 1998 financial crisis. Aprisindo claims the country’s export revenue then reached $2.4 billion per year. The industry also employed up to 800,000 workers.Following the 1998 crisis, the country’s footwear export declined sharply. In 2004, the total export revenue was $1.32 billion, but continued to grow until 2008, when it peaked at a post-crisis high of $1.88 billion.

In 2009, another global financial downturn hit Indonesia’s major footwear export destinations, such as the US and EU and led to a drop in export revenue, which stood at $1.72 billion. Currently, the domestic footwear industry employs slightly more than 400,000 workers.

However, the relocation of the factories from China and Vietnam has boosted the expectation of industry stakeholders that in the next few years, Indonesia’s footwear industry would once again experience a boom.

China and Vietnam, which were previously leading investment magnets, have seen their popularity decline. Numerous labor protests have forced the governments in the two countries to raise wage standards, making them less appealing to investors.