Indonesia Needs to Learn from Vietnam to Enter Apple's Supply Chain
Investors usually want to invest in a country that is close to the market or close to the supply chain source of raw materials.
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Apple CEO Tim Cook walks after meeting President Joko Widodo at the Merdeka Palace, Jakarta, Wednesday (17/4/2024).
JAKARTA, KOMPAS — President Joko Widodo's desire for Apple to expand the initiative beyond the Apple Developer Academy was responded to by Apple CEO Tim Cook by considering it, one of which is considering building a manufacturing factory in Indonesia. So far Apple has chosen Vietnam and India, after previously China, to be the favorite investment destinations for smartphone manufacturing in other Asian regions.
"We are talking about the President's desire to see Apple products manufactured in this country, and that is something we will consider," said Cook after a meeting with President Joko Widodo on Wednesday (17/4/2024) at the Merdeka Palace in Jakarta.
Minister of Industry Agus Gumiwang said that if this is done, the Ministry of Industry (Kemenperin) will carry out a business matching process with Apple. The Ministry of Industry already has a list of cellphone components that have been produced in Indonesia and this will be discussed with Apple.
However, Agus does not deny that it will take Vietnam 15–20 years and China 30 years to have a mature manufacturing industry supply chain. ”So, anyone just starting to build a supply chain will need time, but that doesn't mean it's impossible. "Earlier, Tim Cook was willing and eager to manufacture in Indonesia," said Agus.
Also read: Tim Cook: Apple is considering building a manufacturing factory in Indonesia
Executive Director of the Center of Economic and Law Studies Bhima Yudhistira said there were several factors that caused Vietnam to become the location for Apple investment. He views that Vietnam has a workforce with better vocational strengths to fill information technology manufacturing factories. Second, Vietnam's location is close to China. Third, the United States -China trade war has made Vietnam a target for information technology product manufacturing production locations.
Apple CEO Tim Cook shows his gestures while crossing the street in the Hanoi area during a visit to Vietnam, Monday (15/4/2024).
The next factor, said Bhima, is that over the last few years, Vietnam has entered into many effective bilateral and multilateral agreements, including with the United States and European countries. As a result, Vietnam enjoys exemption from import duties for a number of major export destination countries.
TKDN
Also read: Iphone, Tightly Tapped by Samsung and Chased by Chinese Newcomers
In the development of the scheme, Apple chose the last scheme which was implemented by building the Apple Developer Academy in four regions, namely BSD City (South Tangerang), Surabaya, Batam, and Bali. Bhima believes that the establishment of institutions like this does not push up the manufacturing industry's capacity in Indonesia.
"The Indonesian government's lack of firmness has resulted in Indonesia becoming a 'market' for smartphones. What Apple does is often imitated by other foreign technology companies, by creating skill training programs that are unrelated to local content requirements for manufacturing," said Bhima.
Also read: Without the Domestic Component Industry, Apple's Assembly Factory Will Be Wasted
Apple CEO Tim Cook gestures when he arrives at the Merdeka Palace, Jakarta, to meet President Joko Wiododo, Wednesday (17/4/2024).
Meanwhile, economist and researcher at the Center of Industry, Trade and Investment Institute for Development of Economics and Finance (Indef), Ahmad Heri Firdaus, said that investors usually want to invest in a country that is close to market or approaching the supply chain of raw material sources. In the context of India being a destination country for investment in smartphone manufacturing, he argued, this is because India is a large smartphone market.
Meanwhile, in the context of Vietnam, which has recently become a target, Ahmad suspects that international smartphone vendors with a significant market share in Indonesia are targeting the ASEAN free trade policy. Furthermore, the contribution of the manufacturing industry to Vietnam's GDP is higher than Indonesia's, indicating a more established industrial sector.
"It's cheaper to send finished smartphones because there is a free trade policy in ASEAN. "In the context of the Apple issue, I think the trigger is the same as Blackberry, which previously preferred to build an assembly factory in Malaysia, even though there are quite a lot of Blackberry cellphone users in Indonesia," he said.
One significant difference is that the Vietnamese workforce has vocational skills that are very ready for industry.
Chip Design Collaborative Center (ICDeC) administrator Joegianto believes that the current TKDN cellphone policy is 10 years old and has actually resulted in local brands collapsing one by one. A number of cellphone assembly factories currently established in Indonesia do not produce local brands or young Indonesian talents who are capable of making original Indonesian cellphones.
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Illustration. Several employees of Polytron cell phone factory are producing cell phones at the Polytron cell phone factory in Kudus Regency, Central Java, on Monday (23/2). Polytron is ready to compete with other cell phone manufacturers in producing phones with a required domestic component level (TKDN) set by the government, which is 40 percent in 2017.
"Because the existing TKDN is not a real obstacle for foreign smartphone brands. This is because imports of whole cellphone products have been converted into imported decomposed products and some parts have been purchased in Indonesia, such as charger cables and packaging. "For local cellphone brands, they have to pay more because there are differences in production quantities," said Joegiyanto. Therefore, the Indonesian government needs to review what an appropriate TKDN policy looks like.
Joegianto also mentioned the significant difference between Indonesia and Vietnam when compared as manufacturing investment destinations for mobile phones. One of the significant differences is that Vietnam's workforce has highly skilled vocational abilities that are ready for the industry.
"Don't forget that Vietnam has a government style similar to China's. Business stability there is well-maintained, there are many subsidies, and minimal labor demonstrations," he said.
Before visiting Indonesia, Apple CEO Tim Cook visited Vietnam. Cook's visit to Vietnam, Monday (15/4/2024), came after 61 environmental and human rights groups asked Apple to oppose the detention of climate activists in the country. While in Vietnam, Cook met with a number of application developers, schools, communities, and Vietnamese Prime Minister Phạm Minh Chính. In a meeting with Chính, Cook, as quoted by AP, said Apple wanted to increase its investment in Vietnam.
Also read: 5 Percent TKDN Increase to Accommodate Domestic Mobile Phone Industry Capabilities
Apple CEO pays attention to student activities at a school during his visit to Hanoi, Vietnam, Tuesday (16/4/2024).
According to a research report by consumer market intelligence firm IDC quoted by CNBC, based on cellphone shipments from factory to market, Apple has become the third largest smartphone vendor in Vietnam, behind Oppo and Samsung. Vietnam has become a key manufacturing location as the giant company from Cupertino, United States, seeks to diversify the assembly of its products away from China.
”Vietnam is important to Apple not only because of its growing fan base there, but also because the industry is hedging its bets by diversifying its manufacturing outside of China. "This includes key locations such as Vietnam, where Samsung has long had a presence in the north of the country," Bryan Ma, Vice President of Client Devices Research at IDC toldCNBC.
For Indonesia, the IDC research report in the third quarter of 2023 shows that in terms of shipments, the order of the largest number of smartphone vendors starts from Oppo, Samsung, Transsion, Xiaomi and Vivo. Smartphones from Apple are in another category after Vivo.
Apple's dependence on China for assembling its products received attention in 2022 when strict social restrictions due to Covid-19 were implemented in China and worker riots at Foxconn factories disrupted production. Foxconn is the main assembler of Apple's iPhone, a smart phone.
In December 2023, Nikkei Asia wrote, Apple moved some of its key iPad technical resources to Vietnam. The country is now reportedly involved in the development and manufacture of MacBooks, iPads and Apple Watches.
Apart from Vietnam, India has also emerged as a major center for iPhone production. Last week, citing Bloomberg, Apple has now produced one of seven iPhone models in India. Apple began assembling its newest iPhone lineup in India in 2022. It started with the iPhone 14 series. India also represents a large consumer market for Apple.
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