Indonesia: Textile and leather exports face fierce competition

The textile and garment industry is the pillar industry of Indonesia’s manufacturing industry. According to data from the Indonesian Central Bureau of Statistics, the combined output value of the textile, leather and sports shoe industries contributes approximately 9% to Indonesia’s economic growth. From 2008 to 2013, the average annual growth rate of these industries was 4%. Recently, Indonesian banker Mandiri released an industry analysis report and put forward relevant future development suggestions in response to issues such as international market development, production costs and competitive advantages of Indonesia’s textile and garment industry.
The international market is gradually recovering, but it has not yet benefited the Indonesian textile industry. The United States is Indonesia’s largest export market for textiles. The gradual recovery of the U.S. economy should promote the development of Indonesia’s textile and garment industry. However, the actual benefits to the industry are not obvious. The main reason is that industry competition from places such as Vietnam and Bangladesh is becoming increasingly fierce. Analysis shows that every 1% increase in the U.S. economic growth rate can increase textile imports from Indonesia by 1.5% in the next three ordering seasons; while every 1% increase in European economic growth rate can increase textile imports from Indonesia in the next two ordering seasons. The quantity increased by 3%. The recovery of the European and American markets should be beneficial to the export of Indonesian textile-related products. However, due to increasingly fierce international competition, whether Indonesian textiles can obtain more favorable conditions when the European and American markets recover, the focus remains on the competitiveness of the products. In 2009 and 2013, the market share of Indonesian textiles in the United States was 4.9% and 3.7% respectively, while the market share in the European market was 1% and 0.8% respectively. This shows that the market share of Indonesian textiles in Europe and the United States is very limited and is showing a downward trend.
The substantial increase in production costs has made the development of Indonesia’s textile industry even worse. In recent years, factors such as increases in electricity prices, substantial increases in minimum wages, and exchange rate depreciation have caused Indonesia’s textile production costs to increase. Since labor costs account for 6% and 27% of the production costs of the upstream spinning and weaving industry and the downstream garment industry respectively, , the significant increase in the minimum wage has a more obvious impact on the labor-intensive garment industry. The cost of electricity accounts for 25% and 1% of the production costs of the upstream and downstream textile industries respectively. The increase in electricity prices will have a greater impact on the spinning and weaving industry. Since April 2014, the Indonesian government has once again raised electricity prices for Zhongda (Zhongda specialty stores)-type industrial users in stages. According to data from the Indonesian Textile Industry Association (API), a total of 48 textile companies have been directly affected by the increase in electricity prices and must not Without reducing the employed labor force, the production capacity will be reduced by up to about 20%, which will lead to an increase in the selling price of end-use garment products by 7% to 10%. In addition, the depreciation of the Indonesian rupiah has also pushed up the production costs of the textile industry. The proportion of Indonesian textile cotton imports is as high as 99.5%, and textile dyes and auxiliaries are priced in US dollars even if they are made in China. Analysis shows that every 1% devaluation of the Indonesian rupiah will cause the cost of textile production to increase by approximately 6.91% in the next quarter.
API estimates that Indonesia’s textile exports this year will be US$12.9 billion, of which ready-made garments (such as shirts, T-shirts and skirts) account for about 60.9%, and fabrics and yarns account for about 39.1%. In order to maintain the scale of Indonesia’s textile exports, Mandiri Bank recommends Indonesia should focus on producing competitive products based on market characteristics. Mandiri Bank calculated and suggested based on relevant economic models that Indonesia should launch main products in each international market. In the U.S. market, priority is given to yarn, women’s clothing, children’s clothing, men’s clothing, cotton and other fiber sewing threads; in the European market, yarn, sewing thread, men’s coats and gloves are the main products; in the Japanese market, yarn and sewing thread are the main products The product has the most advantages.
In the conclusion of the report, Mandiri Bank suggested that the Indonesian textile industry should pay more attention to how to choose to produce textiles with high quality and competitive advantages, so as to have the opportunity to compete with other textile exporting countries to increase international market share and the overall value of Indonesian textiles.