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Indonesia is reaping the benefits of China's labor policy and tax reforms. With lower labor costs and tax rates, the island nation is becoming more appealing for intensive manufacturing industries. The shift from China to Indonesia has started happening and is predicted to keep happening.
With a population of 240 million people, and a young workforce, Indonesia is blessed with an abundance of labor. And at a relatively cheap wage at that too.
As China is moving up in the value chain, manufacturers of labor-intensive products are now looking to Indonesia as the next low-cost manufacturing destination.
James Castle, director of Castle Asia Group, said, "There is no doubt that Indonesia is attracting a significant amount of labor intensive industries, part of it is its own attractions."
The footwear and apparel industry for example. Pressures to increase profits and keep a competitive price have driven this sector to seek cheaper labor overseas. And Indonesia has seen an influx in orders from this sector of roughly 25% since 2007.
Binsar Manurung, official of Indonesian Footwear Association,said, "We are expecting the volume to increase to $ 2 billion this year."
As a comparison, workers in Indonesia today earn around $100-$120 a month compared to workers in Guangdong Province, China, who roughly earn around $160 a month.
But this is not the only driving force for manufacturers.
James Castle said, "One, companies are nervous they have too much capacity in one country, as good as it may be. Secondly, China did a number of things that raised the cost."
Indonesia, with its growing population, offers a huge pool of labor, and its government is doing all it can to promote the country as the world's next low-cost manufacturing base. So, make way for more "Made in Indonesia" product tags in the future.