Current Condition of the Electronics Industry in Indonesia

The electronics industry of Indonesia has been experiencing a period of rapid growth. According to the Indonesian Electronics Producers Association (Gabel), domestic sales of electronic products typically increase by around 11% every year. In Indonesia, the electronics industry includes various subsectors from semiconductors to consumer electronics.

In the late 1990s, there was a revolution in the country’s electronics industry because of the increased ability to achieve cost efficiency through the use of economies of scale as well as supply chain management. The growth of electronics production in Indonesia is not only connected to growth in demand for consumer electronics but also to the increasing number of electronic applications for manufacturing production and processing of information.

When discussing the electronics industry in Indonesia, it is very important to note the shift of electronics manufacturing from Japan, Taiwan, South Korea, and Singapore to four countries in Southeast Asia of which one is Indonesia. Indonesia has benefited from the relocation of electronics manufacturing centers from Japan, Taiwan, South Korea, and Singapore. This relocation was mainly caused by the appreciation of the currencies of these countries. Another factor was the fact that several countries in Southeast Asia including Indonesia began to encourage electronics manufacturing in their countries. Other such countries included Malaysia, the Philippines, and Thailand.

The Electronics Industry and the Indonesian Economy

The electronics industry plays an important role in the Indonesian economy. The electronics industry has been bringing and is expected to continue to bring enormous economic benefits to Indonesia if its growth and development is not hampered. The export of electronic products is one of the main Indonesian export products which could give a positive contribution to Indonesia’s international trade. One important factor supporting the increase of Indonesia’s electronic exports in the world is the decrease of international tariffs which have been imposed on Indonesian electronics products.

Nevertheless, the Indonesian electronics industry may still be further developed by being supported by appropriate strategies and government policies as well as stakeholder participation. For this reason, the government ought to take steps such as improving the investment climate, improving infrastructure, and supporting research and development activities within the electronics industry. Through such actions, it is expected that the electronics industry of Indonesia will not only further develop but will also increase its contribution to exports as well as to the country’s economic growth in general in the future.

Televisions contribute most to total electronics sales in Indonesia. They account for around a third of the market. They are followed by refrigerators and other large electrical appliances such as air conditioners and washing machines. Market penetration for electronics and household appliances is still relatively low in many areas of the country, but the ongoing expansion of retail outlets which specifically sell electronic goods all over Indonesia have made the future growth of the industry likely. Today, private individual electronic stores sell the majority of all consumer electronics and appliances which are purchased in Indonesia.

Local electronics brands have the majority of the share of the market for small appliances. In Indonesia, larger electronic appliances are primarily sold by foreign brands. They usually do so through joint ventures with local manufacturers which primarily import the components and then assemble the products in Indonesia for the local market and exports alike. Well-known brands such as Toshiba, LG, Sony, Panasonic, and Samsung have established themselves throughout the country through the use distribution networks as well as intelligent and well-planned advertising strategies.

Why One Should Start an Electronics Company in Indonesia

The latest surge in the fortunes of the Indonesian electronics industry serves as a compelling reason for one to start an electronics company in the country. Many business experts have predicted a further increase in the revenue of the industry which has solidified the decision of many to start planning an electronics company in Indonesia. The increased consumption of electronic goods in Indonesia and other countries of Southeast Asia is one of the key drivers of the investment. Indonesia’s massive population as well as its steadily increasing GDP have been major contributors to demand for such products. Most of the electronic goods on display in Indonesia’s electronics stores are built from imported parts but are assembled within Indonesian borders.

The availability of inexpensive labor in Indonesia compared to several other Asian countries has also caused many to become interested in starting an electronics company in Indonesia.  Indonesian minimum wages are set at provincial and district levels rather than nationally. They are generally high enough for employees to live from day to day while at the same time not so high that they impose a significant financial burden on employers as is often the case in other countries of the Asia-Pacific region.

In general, the demand for electronics and electronic appliances in Indonesia has been on a steady increase. This fact has made entering the electronics sector in Indonesia a profitable venture. The growth of the domestic market for consumer electronics does not appear to be ending any time soon.

How to Start an Electronics Company in Indonesia

In order to set up an electronics company in Indonesia, a company has to complete three stages. These stages are company incorporation, factory construction, and obtaining of a permanent business license.

Company Incorporation

Before an electronics company based in Indonesia can be incorporated, it is required to first obtain a principal license from the Investment Coordinating Board of Indonesia (BKPM). There are several important points stated on a principal license. One of these is the total investment planned. This is done via a breakdown by amount invested in land and buildings, machinery, other investments, and working capital. The location of the company’s head office and factory will also be mentioned. In most cases, this location will be listed as tentative. Products and annual output as well as the company’s detailed production flowchart are also to be stated.

After BKPM grants the principal license, the company will next be required to open a corporate bank account for its financial activities. Hiring of workers, who may be either locals or foreigners who have received due approval, must also be done. Work permits are to be issued to any eligible worker who requires one, should such be possible.

If you require any assistance with the incorporation of a company in Indonesia, we at Paul Hype Page & Co will be able to serve your needs. Our incorporation experts understand much about company incorporation in Indonesia. Therefore, by working with us, you can be certain that the incorporation of your new Indonesian company will be completed in the most suitable manner possible.

Construction of the Factory

The company is required to obtain land for the building of the factory. In cases in which the land will be rented, the rent agreement must be for at least three years.

The company must choose either an industrial or non-industrial area. In most cases, industrial areas are safer and more effective, but non-industrial areas can be considerably cheaper.

Application for API-P (Import Identification Number)

In many cases, a company will need to import machinery from abroad. Every manufacturing company based in Indonesia may apply for the import license known as the API-P which allows for the importing any products which are required by the company.

Licenses Related to Indonesian Electronics Companies

Obtaining a Business License

To obtain a business license, the business actor must first obtain a Business Identity Number (NIB) and submit all required certificates. These certificates may include a location permit, water location permit, environmental permit, and building establishment permit.

Once the required certificates have been submitted, the OSS system will automatically generate the business license for the applicant. Those who have received a business license may acquire land, amend the amount of land to be used by a company, build and operate buildings to be used by the company, procure equipment and facilities, hire employees; (f) complete certification or quality testing, effect commissioning, and produce goods or services.

Obtaining a Commercial or Operational License

For certain business activities and products, the owner of the business is required to obtain an operational or a commercial before selling products within the Indonesian market.

Permanent Business License

If a business owner plans to construct a factory, this process may start once the principal license has been issued. Once at least 80% of the machinery has been installed, but no later than three years after the issuance of the principal license, the company in question is required to apply for a permanent business license.

Obtaining any required business license in Indonesia is not necessarily a simple process. Fortunately for you, we at Paul Hype Page & Co are always willing to take you through this process. Through our assistance, we will see to it that your company obtains all necessary licenses lawfully and ethically. We will also contact any relevant authorities on your behalf if you need us to do so for you.