The Future of Garment Industry in Indonesia: Importing or Producing?

Indonesia, the world’s fourth-most populated country, has a strong economy based on domestic production. The government is known for its robust textile and garment industry. Imagine a clothing factory the size of a small country, producing millions of clothing items a day. 

This particular manufacturing sector employs countless locals and pumps billions of dollars into the national economy. However, there are debates regarding today’s garment industry, especially the need to import clothes more than necessary.

Let’s look at Indonesia’s textile and garment industry situation. Does our home production satisfy all the needs? Let’s dive deeper!

Indonesian Textile and Garment Industry Facts

Indonesia’s textile and garment industry is crucial for the national economy and the global market. Here are some essential highlights:

• Indonesia belongs to the world’s top 10 textile producers.
• More than 3.7 million people are involved in textile and garment production.
• The industry makes up around 6% of Indonesia’s GDP.
• In 2022, Indonesia’s textile and garment exports were valued at approximately $13 billion.
• The country’s domestic apparel market was valued at USD 21.7 billion in 2023 and is growing at an annual rate of 3.5%.
• In 2024, each Indonesian spends an average of USD 78.14 on clothing.
• There are approximately 5,000 registered large and medium-sized textile and garment companies.   
• Around 70% of the textile and garment production is for export. Major markets are the United States, Europe, and Japan.

The country’s textile and garment industry is growing actively and adapting to global trends. Indonesian manufacturers follow sustainable practices to reduce environmental impact and improve production efficiency. 

The government has launched various initiatives to support the industry, including tax incentives, infrastructure improvements, and vocational training programs. International trade requires precise communication, making the translation of legal documents, marketing materials, and labels a crucial part of the export process.

Importing vs. Domestic Production

Indonesia, like many Southeast Asian countries, heavily relies on importing raw materials for its garment sector. Imported inputs make up about 18-30% of the production costs in this industry. The Indonesian government is working to strengthen the domestic market and reduce reliance on imports by imposing higher tariffs and non-tariff barriers.

These measures, however, increase production costs for local manufacturers as imported raw materials become more expensive. So, should Indonesia focus on importing stylish, ready-made garments to satisfy the growing needs of the local population or invest in building a solid domestic clothing industry? Let’s review both options.

Importing Garments

International brands offer the latest trends at irresistible prices and deliver goods straight to your doorstep. Is that a winning choice?

Advantages

• Cost efficiency. Some countries with lower labor and production costs, such as Bangladesh or Vietnam, offer beautiful clothes prices.
• Variety. Import provides access to a vast world of fashion. Imported clothes come in various designs, fabrics, and the latest trends.
• Flexibility. The import model allows businesses to be highly adaptable. They can quickly source new styles from different suppliers and avoid heavy investments in local production infrastructure.

Disadvantages

• Tariffs and duties. High import taxes and customs duties often accompany imports. These additional costs can add complexity.
• Lead times. Shipping times can be a significant pitfall. Imported garments can take weeks or even months to arrive, making stock outdated before it reaches store shelves.
• Quality control. Quality often becomes a challenge when sourcing from international suppliers. There is a risk of inconsistencies and customer dissatisfaction, which can be difficult to gauge without the right tools to measure sentiment. Using the best NPS survey tools can help you gather feedback from international customers and identify potential issues before they impact your small personal business.

Domestic Production

What should local manufacturers be aware of if they choose to produce locally? There are several crucial things to note.

Advantages

• Speed to market. Domestic production always has a quicker turnaround time. New styles can be faster to the stores and bring more profits.
• Quality control. Monitoring the entire production process, from raw materials to finished garments, allows manufacturers to achieve high-quality standards and build customer trust.
• Economic benefits. Domestic production means more jobs within the industry, stimulating the local economy and promoting economic diversification.
• Government incentives. The Indonesian government may offer various incentives to encourage domestic production. These can include subsidies, tax breaks, and support for infrastructure development.

Disadvantages

• Higher costs. Labor and production costs in Indonesia might be higher compared to other countries. This can initially make domestically produced garments more expensive for consumers.
• Limited technology. The Indonesian textile industry might need access to the latest manufacturing technologies and practices available in other production centers.  
• Infrastructure issues. Challenges with local logistics and supply chain infrastructure can affect production efficiency. Reliable transportation networks and efficient distribution channels must support domestic production.

What Is The Optimal Solution?

The success of the garment industry success does not mean prioritizing import or domestic production. The most beneficial is a strategic approach that uses both options. Here’s why such a blend is the winning idea:

Cost Optimization

 Importing certain items from cheaper countries allows Indonesia to offer competitive prices to consumers. This is especially true for essential items. For example, the latest styles can be imported at attractive prices, allowing local production to earn in other areas.

Quality Control

Domestic production allows local manufacturers to better control clothing-making, from the materials used to the final goods. This means stricter quality checks and focusing on high-quality garments that will last longer. Showcasing these high-quality garments through event photography can effectively highlight the superior craftsmanship and appeal to a broader audience.

Job Creation

The growth of domestic production means more jobs within Indonesia’s garment industry. It opens up opportunities for people and supports the overall economy. A healthy domestic industry always allows people to earn and strengthens the country’s economic standing.

Market Flexibility

The blend of imported and domestic production allows Indonesia to stay on top of the fashion game. Need to get the trends quickly? Strategic import can easily solve this task. However, domestic production will create designs that match specific tastes and preferences for those special, unique pieces. 

To manage the distribution and sales of such a flexible offering in the garment industry, you should evaluate a fashion catalog software or consider integrating an e-commerce app to streamline your operations and reach a broader audience.

Global Competitiveness

A skillful combination of import and domestic production allows Indonesia to establish a strong brand identity in the international fashion market. The country’s goods can become known for their quality, innovative designs, and commitment to ethical production.

Let InCorp Help You

Indonesia does not have to choose between trendy imports and a thriving domestic industry. The key is to blend the two strategically. This approach can turn the country into a global force in fashion. Continuous evaluation and adaptation can create this perfect mix. Careful consideration of market demands, production costs, and government policies will help the industry thrive.

If you want to take advantage of the promising Indonesian market, InCorp Indonesia has the complete solution. We are a leading market entry consulting firm specializing in company incorporation, import, and product registration, and we provide comprehensive business process outsourcing solutions. Fill in the form below to start consulting with our experts