The Future of Manufacturing Industry in Semarang, Indonesia

Manufacturing in Indonesia is booming, making Indonesia the 10th largest manufacturing nation in the world. The number of manufacturing factories in Semarang, especially in its industrial parks and surrounding areas, continues to rise as foreign and local investments pour in. 

The Potential of Semarang

Domestically, businesses in Jakarta, Depok, Tangerang, Bekasi (Jabodetabek), and Bogor have set their feet in Semarang, Central Java, to develop manufacturing in Indonesia. Since 2014, many factories have obtained their operation permits and submitted them to the regional government in Semarang.

The most significant factors that encourage many businesses to move to Semarang are the lower wages compared to Jakarta and the attractive foreign direct investments (FDI) injected in this area that open up a myriad of opportunities.

Ranked the number one city in Central Java, Semarang is striving to become a charming manufacturing site for labor-intensive industries, and the opening of Kendal Industrial Park in 2016 is solid proof of this progressive development.

This article will guide you on why you should set up a manufacturing factory in Semarang and how you should do that.

Semarang Is a Strategic Location – Both Economically and Geographically

Low Cost

As of 2023, the minimum wage for Jakarta is set at IDR 4.9 million per month. Meanwhile, the minimum wage in Semarang is at IDR 3 million per month. Therefore, the lower salary has prompted many entrepreneurs and business owners to do market research in Semarang and obtain information on factory operations, permit applications, and licensing processes.

The demand for factory space soars in Semarang. Some companies even closed their manufacturing facilities in China and other Southeast Asia countries and transferred their production lines to plants in Semarang, where production costs are lower.

Learn more about: How Can China Manufacturing Companies Benefit from Moving Factories to Indonesia?

Kendal Industrial Park

Kendal Industrial Park, or Park by the Bay, is a joint Indonesian project between Indonesia and Singapore, aiming to create 100,000 employment opportunities in Semarang and its surrounding region. Twenty companies from different countries, including Indonesia, Singapore, Australia, and Japan, have invested in the park, amounting to IDR 4.3 trillion (S$450 million). They are starting from automotive manufacturing in Semarang, rubber manufacturing in Semarang, textile manufacturing in Semarang, etc.

The first integrated township in Central Java, Kendal Industrial Park, is a coastal development along the Jakarta-Semarang-Surabaya Economic Corridor, including industrial, commercial, and residential spaces.

This industrial park not only enhances the foreign customer base of the investing countries but also acts as a platform where different nations can share their industrialization expertise and experience to create more jobs for more excellent development across Indonesia.

Strategic Location

Semarang is considered a more optimal choice for a factory to import materials and input goods from its surrounding areas and countries.

Located between Jakarta and Surabaya, two of Indonesia’s most significant domestic markets—Kendal Industrial Park in Semarang is only 30 KM from Ahmad Yani International Airport and Tanjung Emas International Seaport – the largest commercial and economy port in Indonesia and the only one in Central Java.

Enticing Incentives

Many investors might not know that Semarang has an incentive that encourages foreign investments. Manufacturing is one of the regulated, inspired, and prioritized sectors. Government Regulation (PP) No. 142/2015 states that tax incentives will be granted to investors building their factories in industrial parks.

These incentives also include easier licensing processes, advanced infrastructure, tax deductions, and exemptions to encourage the establishment of a manufacturing factory. Foreign companies, therefore, are being lured to Semarang to take advantage of tariff incentives.

Read more:

How to Set Up a Manufacturing Factory in Semarang

Before getting into details, it is crucial to know that beginning from January 2, 2018, the Principal License (Izin Prinsip, or IP) is invalid. Capital Investment Registration (Pendaftaran Investasi, or PI) has replaced a principal license. With the newly enacted regulation, investors of manufacturing industries will be able to get a Business License (Izin Usaha, or IU) with the Capital Investment License after they fulfill the investment plan.

Learn more about Principal Business License Replaced with Capital Investment Registration.

The overall goal of the enactment is to simplify licensing and facilities processes to boost foreign direct investments. Previously, a PI was initial permission granted from BKPM, with more stringent requirements, to allow foreign companies to invest before they could do business in Indonesia.

The process of setting up a manufacturing factory can be broken down into the following:

1. Capital Investment Registration

• Obtain Capital Investment Registration License from BKPM. This process does not involve any presentation, but a short interview may be needed.
• Apply for a temporary business license, valid for one year and can be extended once for a maximum of one year.

2. Incorporation of Business

• Open a bank account in Indonesia.
• Hire workers for factory installation – required for locals and foreigners. Work visas can only be granted to foreign workers who meet specific factory installation criteria and are subject to being determined by the Ministry of Manpower.
• Work permit issuance to directors and commissioners.
• Commence the registration process of setting up a PT PMA.

3. Construction of a Factory for Manufacturing in Indonesia

• Purchase or rent land for constructing a factory. The lease agreement must be for a minimum of 3 years for rented property.
• Choose between industrial and non-industrial areas. Industrial areas include industrial parks such as Kendal Industrial Park.
• Apply for API-P (Import Identification Number, or Angka Pengenal Importir-Produsen) for the import of machinery and equipment from overseas. API-P allows you to import all products needed to build and set up your factory.
• Depending on the manufacturing site’s size and environmental impact, specific environmental Licenses will also be needed, such as UKL-UPL or even AMDAL.

Do take note that it is prohibited to import products with API-P for the purpose of sales in Indonesia. There is also another type of import license, API-U (Angka Pengenal Importir-Umum). Unlike API-P, API-U only allows the import of products from one category. Therefore, be careful and apply for the correct one.

4. Masterlist, Operational and Local Licenses

• Apply for import tax exemption for machinery in the manufacturing factory. Presentation to BKPM is required.
• Proceed with the application of local and operational licenses based on different industries.

5. Permanent Business License for Manufacturing in Semarang

Replace a temporary business license with a permanent business license. This license is valid permanently as long as the manufacturing firms stay operational.

Industrial vs Non-Industrial Areas

Many entrepreneurs and business owners are unsure whether to choose an industrial area (such as Kendal Industrial Park) or a non-industrial area to build manufacturing factories. In most circumstances, industrial areas would be a more cost-effective choice with several other benefits. Here are some of the differences:

To learn more about Semarang’s myriad of investments and business opportunities and gain insights into how to start a manufacturing company for any given business in Semarang, please consult further with InCorp’s specialists.