Indonesia’s Electronic Manufacturing Industry: Potential and Challenges

The electronic manufacturing industry is a vital part of our modern world. It produces the electronic devices we use daily, such as smartphones and self-driving cars. This industry has grown rapidly and has changed our lives in many ways.

Indonesia’s Electronics Manufacturing Industry Landscape

Badan Pusat Statistik (BPS) data shows that the electronic industry has consistently grown from Q3 2022 to Q3 2023. Over these five quarters, the industry has grown by 12.56%, 7.62%, 12.78%, 17.32%, and 13.68%, respectively. The primary metals industry, flourishing due to the widespread downstream of minerals from natural resources, surpasses this growth record.

In the third quarter of 2023, the electronic industry contributed 8.3% to the manufacturing industry’s overall performance, making it the fourth-largest contributor, following the food and beverage industry, the coal and oil refining industry, and the chemical and pharmaceutical industry.

Potential for Growth and Development in 2024

In 2024, the consumer electronics market in Indonesia will be thriving, gaining a substantial revenue of USD 21.410 million. Projections indicate a steady annual growth of 2.53% (CAGR 2024-2028), underlining the market’s resilience and potential for expansion.

The Telephony segment emerges as the dominant force in the market, contributing significantly with a staggering volume of USD 11.580 million in 2024. This segment underscores the pervasive influence of communication technologies in the Indonesian consumer electronics landscape.

By 2028, the consumer electronics market in Indonesia is expected to reach 267.2 million units, with an estimated growth rate of 2.0% in 2025.

These figures point towards a robust market with a rising demand for electronic devices among the Indonesian populace.

Key Factors Driving this Potential

Taufik Bawazier, Director General of the Metal, Machinery, Transportation Equipment, and Electronics Industry at the Ministry of Industry mentioned that the upstream part of the electronic industry, particularly the supply of raw materials, is still relatively weak. 

As a result, many raw materials are imported from China. Investment and development are needed in the upstream electronic industry. The aim is to achieve import substitution, enhancing this industry’s competitiveness.

Moreover, data from Statista showed that the consumer electronics market is divided into six main categories:

Challenges to Overcome

The electronic manufacturing industry faces various challenges that require attention and proactive solutions.

1. Infrastructure Limitations

Most of Indonesia’s manufacturing operations are concentrated on the islands of Java and Batam. Due to historically better infrastructure, Jakarta and its surrounding regions are Java’s most crucial areas for electronic manufacturing. 

However, these areas are highly congested, with Jakarta ranking tenth among the most densely populated cities.

2. Development of Skilled Workforce & Knowledge Transfer

Data from Statistics Indonesia (BPS) indicate that most of Indonesia’s population aged 15 and above have completed at least nine years of compulsory education or graduated from junior high school or its equivalent.

The highest educational attainment comes from high school or its equivalent, constituting 30.22% of the population as of March 2023. Meanwhile, the proportion of those who have completed higher education is only 10.15%.

3. Competition & Market Access

The consumer electronics industry is dominated by leading brands such as Apple, Samsung, Huawei, and Sony, especially smartphones, TVs, home appliances, and gaming consoles.

Emerging companies like Xiaomi are gaining ground, especially in the smartphone sector. Tech giants like Google and Meta are also making virtual and augmented reality advancements, adding to the competitive landscape.

Opportunities and Strategies

Presidential Regulation 10/2021 identifies 245 priority industries in Schedule 1, which are eligible for tax and non-tax incentives under the Government Regulation in place of Law 2/2022 (GR 2/2022). 

This regulation supersedes the 2020 Omnibus Job Creation Act and is effective from 2022.

The listed industries span leading sectors: export-oriented manufacturing, capital-intensive enterprises, national infrastructure projects, the digital economy, labor-intensive sectors, and research and development activities. 

Businesses can qualify for these benefits by making a minimum investment of IDR 10 billion (excluding land and buildings), except for technology start-ups in special economic zones exempt from this requirement.

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