With an export volume of close to 12.5 billion US dollars in 2012 and a workforce of almost two million people, the Indonesian garment and textile industry has firmly secured a spot for itself among the world’s top ten garment exporters (if not the top five depending on the source).

Like for Vietnam and India portrayed earlier, some argue that the recent tragedies in Bangladeshi garment factories could mean more work for other apparel producing nations in the region but industry insiders like Ade Sudrajat, chairman of the Indonesian Textile Association, doubt that. “The recent incidents in Bangladesh are not a major reason for shifting international buyers to Indonesia,” he says, adding: “Indonesia is still maintaining its position in the global apparel market because we are promoting more democracy than economy.”

US, EU and Japan most important garment importers
The United States, the European Union and Japan rely heavily on Indonesia for their ready-made garment needs with 36 percent of all garments and textiles exported in 2011 going to the US, 16 percent to the EU and 5 percent to Japan.

Those planning to find garment manufacturers in Indonesia can take advantage of the fact that the Indonesian textile and garment industry is highly concentrated, with most operations being located on the island of Java and here particularly in West Java. The capital Jakarta and Batam Island in the north west also have a high concentration of garment factories with the latter taking advantage of its close proximity to Singapore – Batam Island is only 20 km away from Singapore's south coast and part of a special economic zone with the city state that eliminates tariffs and value-added taxes for goods shipped between the two ports. Lower labor costs and special government incentives also make the island attractive for foreign companies operating factories here.

Bangladesh could learn from Indonesia
Although there may not be a major shift of orders away from Bangladesh to Indonesia, the Southeast Asian and Oceanic nation could well be a model for its northern competitor in terms of improving labor standards and wages while remaining competitive. After all, Indonesia has successfully reformed its garment industry after a decade of sweatshop scandals in the 1990s with a combination of government support and agreements between unions and international buyers that have led to improved health and safety conditions.

"We're much better than Bangladesh in many ways; we have one of the best minimum wages in Asia, and we're relatively free to form trade unions," confirms Surya Tjandra, a labor laws expert at Jakarta's Atma Jaya University, according to The Christian Science Monitor.

Like many nations in Asia, the nation of 260 million people built up its garment industry in the 1970s, taking advantage of readily available and plentiful low-cost labor. The resignation of autocratic president Mohamed Suharto in 1998 further helped the country along as it ushered in labor reforms together with democracy. Especially former president Megawati Sukarnoputri (2001-2004) supported worker-friendly laws, including one in 2003 in favor of high severance pay. In 2012, minimum wages increased by up to 40 percent and have reached between 80 and 160 US dollars a month for garment workers (in comparison, wages in rival Southeast Asian neighbor country Cambodia are around 75 US dollars a month).

Agreements between buyers, suppliers and unions work
Accords like the Freedom of Association Protocol (FOAP) have made a big difference too. It was signed in June 2011 by trade unions, supplier factories and six international sportswear brands to “supports the rights of women and men producing for global brands in Indonesia to join unions and bargain collectively for better working conditions making a change.” Though only six international buyers signed - Adidas, Asics, New Balance, Nike, Pentland and Puma - they represent the bulk of the global athletic footwear market and as the first such accord worldwide that involved the commitment between local labor groups, suppliers and international buyers, it was a milestone.

Plus, given that Indonesia’s apparel market is still fragmented, each big, international buyer has the potential to make a difference. In 2012, there wasn’t a single domestic or international buyer with more than one percent value share in the Indonesian apparel market – Spanish fast fashion giant Inditex came the closest in the top spot, followed by global footwear manufacturer Bata.

According to the Scott Nova, executive director of the Workers Rights Consortium, agreements like the FOAP are important because they “speak to the obligations of factory owners and the brands and retailers" but there is still a discrepancy between theory and implementation. "There have been huge problems with workers being robbed of severance pay and while the minimum wage is substantially higher due largely to massive worker protests, it's still a poverty wage," he says.

Like Vietnam (and Cambodia, Haiti, Jordan, Lesotho and Nicaragua worldwide) Indonesia is since 2011 part of the ILO's Better Work program with the aim to improve working conditions in garment factories while promoting productivity and competitiveness. According to the Better Work website, the country fares well in terms of implementation: “Still in its early years, the programme has been successful in encouraging the participation of enterprises and international buyers, taking the lead in engaging with Korean multinational suppliers, which make up a large percentage of investors, and innovating worker outreach with a pilot social media project.”

Challenges and chances for Indonesia
In terms of challenges, Indonesia will have to tackle one problem that is common among developing countries, namely the need for further investments in machinery, equipment and technology. About 70 percent of all machinery used in textile and garment production is considered outdated, i.e. more than ten years old. In response to this problem, the Indonesian government has introduced a textile machine restructuring program in 2007 that offers incentives on machinery like discounts and lower interest rates; textile machinery imports are also exempt from custom duties.

Competition from China and other Asian nations is another challenge for Indonesia, especially in terms of Chinese exports of fibres, textiles and garments after the introduction of China to the ASEAN Free Trade Agreement (CAFTA) in January 2010. However, after the initial surge of Chinese exports by 70 percent, Indonesia as a high quality producer will benefit from the agreement in the medium term.

According to the Global Business Guide Indonesia, the growth of the domestic garment and textile production remains a major challenge. “Branding and marketing of Indonesian made textiles has been conducted poorly in the past and domestic brands have not taken a strong footing among Indonesian consumers. Foreign apparel brands have flourished in the upper end of the market as have the imports of cheap garments from China that are on trend. With a reorientation of the sector towards higher quality goods and greater focus being placed on innovation and creativity; Indonesia has a strong base for further developing its textile garment, textile and fibre industries.”

This article concludes our series of country portraits of top garment exporters. Please send comments, feedback and suggestions to news@fashionunited.com.