MODERN MANUFACTURING INDUSTRY IN GLOBAL COMPETITIVENESS:

Is Indonesia Ready Yet?

Hanan Izzah Nabilah
02411640000095
[email protected]

Introduction
According to Mark Walport and Richard Lapthorne, manufacturing in the future will look very
different from today. Successful industry must be capable for adapting their physical and intellectual
infrastructures to exploit changes in technology as manufacturing becomes faster, more responsive to
global market change, and closer to customers. Successful firms will also harness a wider skill base,
with highly qualified leaders and managers whose expertise combines both commercial and technical
skill. In line with the development of production machines, the quality of manufacturing process
becomes a demand. In order to succeed in the rapidly evolving global manufacturing landscape,
companies will need to embrace some of the key elements of manufacturing competitiveness, such as
talent, advanced technologies, ecosystem partnership, and smart strategies. Indonesia has potential
to be successful nation in global manufacturing sector. This paper is going to talk about condition in
global manufacturing competitiveness, the drivers of global manufacturing competitiveness, and
Indonesias condition of manufacturing industry. This paper argues that Indonesia is capable to
compete in global manufacturing.

LITERATURE REVIEW
GLOBAL MANUFACTURING COMPETITIVENESS INDEX
As the global manufacturing becomes increasingly advanced and sophisticatedly, the leading
manufacturing countries of the 20th century (the United States, Germany, Japan, and the United
Kingdom) that have continually invested in developing advanced manufacturing technologies are now
seeing increasing in ranking. These countries driven by a focus on innovation and advanced
manufacturing are expected to shape a new battleground and to remain in the top rankings in global
manufacturing competitiveness through the rest of the decade. Consistent with the previous 2010 and
2013 Global Manufacturing Competitiveness Index studies, China is again ranked as the most
competitive manufacturing nation in 2016, but the United States is expected to take over the number
one position from China by the end of the decade.

Figure 1. The Leading Manufacturing Countries

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 The BRIC countries (Brazil, Russia, India, and China) continues to face sharp declines in the level
of competitiveness shown by some of its member countries. According to study held by Deloitte, Brazil
has joined Russia in an extreme decline to the bottom of the Global Manufacturing Competitiveness
Index ranking with instability in economic and socio-political as the main roll on both nations.
Challenge in the Brazils political uncertainty has likely caused companies to either delay their strategic
business plans, or temporarily cut production to adjust with weakening demand. Meanwhile, Russia
suffers from slide in global crude oil prices and the countrys recent geopolitical activities, including its
military intervention in the Ukraine, which have created a significant amount of tension and resulted
in economic sanctions, obstructing its manufacturing competitiveness. Indias falling in
competitiveness ranking is mainly caused by accelerated decline of the countrys economic growth and
delayed policy actions around infrastructure investments in the face of continued national political
uncertainty. However, the study foresees an improvement in Indias competitiveness ranking
considering change in political direction brought on by a new Indian government. As the anomaly to
this trend, China significantly surpasses the other BRIC nation in terms of its current and expected level
of competitiveness on the global manufacture.

Figure 2. BRIC Nations Ranking

China is now going through a striking move in focus towards higher value manufacturing.
Moreover, China is actively moving toward a more technologically advanced manufacturing paradigm
to adjust with other global, innovation-oriented countries. The resulting movement is generating
opportunity to other countries to strengthen their position as lower-cost global manufacturing
destination. Countries looking for utilizing the Chinas decision include MITI-V (Malaysia, India,
Thailand, Indonesia, Vietnam), and although all but Vietnam show decline on competitiveness rank
between 2013 and 2016, the MITI-V is expected to join the top 15 before the end of the decade. While
these countries keep showing interest to be successor of China in global manufacturing
competitiveness, each country must overcome many challenges while emphasizing its own superiority
to take full advantage of global manufacturing investment opportunity.

Figure 3. MITI-V Ranking

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GLOBAL MANUFACTURING COMPETITIVENESS DRIVERS

Figure 4. Drivers of Global Manufacturing Competitiveness

Similar to 2010 and 2013, Talent ranked as the most important driver of global manufacturing
competitiveness For Global Manufacturing Competitiveness Index study by Deloitte, talent is defined
as the quality and availability of highly skilled workers which facilitate a shift towards innovation and
advanced manufacturing strategies. The result shows the strong influence a highly skilled workforce
can have on a nations overall competitiveness. Government forces such as policy and infrastructure
also affect the competitiveness on global manufacturing as both help to establish a countrys ability to
keep up with the demands of a competitive manufacturing environment.

INDONESIA MANUFACTURING INDUSTRY

Manufacturing industry performance in 2015 reached Rp 2, 097, 71 trillion or contributed
18,1% to the national GDP with the largest contribution from the food and beverage sector, metal
goods, transportation equipment, chemical, pharmaceutical, and traditional medicine industries. The
result is increased compared to the previous year which is worth Rp 1,884 trillion or 17,8% contribution
to national GDP. Even though economic conditions in 2015 are more difficult than the previous year,
national manufacturing is still experiencing growth.
In addition, Indonesias overall 10-year growth in productivity exceeds that of Malaysia,
Vietnam, and Thailand. Still, its manufacturing GDP represents a significant portion of its overall GDP
and with such a strong manufacturing focus, particularly in electronics, coupled with the sheer size of
its population, Indonesia remains high on the list of alternatives for manufacturers looking to shift
production capacity away from China in the future as Chinas labour cost have risen due to its focus on
more advanced innovation and technology. Indonesias labour cost which are also less than one-fifth
of those in China has taken the attention of those manufacturers looking for a stable low-cost
alternative since its cost has remained relatively flat.

Figure 5. Manufacturing Labor Costs per hour, South-East Asia

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 However, Mirza Adityaswara, Senior Deputy Governor of Bank of Indonesia stated that the
performance of manufacturing industry against GDP continues to decline year by year. All this time,
the manufacturing industry has become the main sector of nations economy, particularly the export-
oriented industries. Government is working on manufacturing to be back surmount 20 percent of GDP.
The performance had reached almost 28 percent, now at 20 percent (19.90 percent), but it was still
the largest contributor to GDP. One of the causes of the decline is decreasing of the peoples
purchasing power. Not to mention the global economic slowdown that has occurred since 2015.
Furthermore, another problem is the onslaught of imported goods that cost much cheaper. These
factors are severe blow for business in manufacturing industries in Indonesia.

Argumentation
Indonesia is ready to compete more actively in global manufacturing. Based on Global
Manufacturing Index reported by Deloitte in 2016, Indonesia has many strengths to face global
manufacturing battleground. Moreover, Indonesia is one of some countries that could represent a
New China in terms of low cost labour, competent manufacturing capabilities, beneficial
demographic profiles, market and economic growth, with its competitiveness ranking rising in the rest
of the decade as China continues to focus towards a higher value, advanced technology manufacturing
paradigm. Indonesia is predicted to join top 15 in 2020, going up 4 ranking, in global manufacturing
competitiveness ranking. Large reserves of natural resources in Indonesia also attracts attention from
companies in the energy-and-resources intensive commodities to develop business in the country. In
term of low cost labour, Indonesias are less than one-fifth of those in China whose costs have the
steepest rise in Asia over the past 10 years. Indonesias cost remained relatively flat gets attention of
those manufacturers looking for a stable low-cost alternative.
However, Indonesia still should prepare more for joining global manufacturing battleground
more actively. Indonesia needs to work on improving and reforming bureaucratic manufacturing
policies, investing in greater development, and strengthening overall manufacturing infrastructure.
Indonesia can adapt other countrys strategies and adjust it corresponding to nations condition. For
instance, top global companies are benefiting from new public-private partnership models resulting in
competitiveness undergoes a significant transformation at both company and country level. Not to
mention the infrastructure and skilful workers in Indonesia are less competitive compared to other
countries in global manufacturing battleground.
In addition, Indonesia needs change in energy usage system. It would be advantageous for
Indonesia to maximise its energy supply from unconventional sources to natural resources. Based on
The Archipelago Economy: Unleashing Indonesias potential by McKinsey Global Institute, game-
changing forms of energy from unconventional sources could meet up to 20% of Indonesias energy
needs by 2030, reducing the countrys dependence on oil and coal by almost 15% as well as lowering
greenhouse gas emissions by almost 10 percent, compared with business as usual. The potential to
improve Indonesias energy efficiency is also significant. For instance, using more efficient methods to
generate power, improving transportation, and retrofitting and constructing more energy-efficient
buildings could reduce energy demand.

Conclusion
Manufacturing remains critically important for developing and advanced world. China is
ranked as the most competitive manufacturing nation in 2016, but the United States is expected to
take over the number one position from China while Germany holds steady at the number three
position through the end of the decade. Meanwhile, Indonesia has overall 10-year growth in

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productivity exceeds Malaysia. Moreover, Indonesia is one of some countries that could represent a
New China in terms of low cost labour, competent manufacturing capabilities, beneficial
demographic profiles, market and economic growth, with its competitiveness ranking rising in the rest
of the decade. However, Indonesia still has to face some obstacles, but with good treatment, they can
be handled. The facts stated before can show that Indonesia is ready to complete more actively in
global manufacturing with some adjustment so the preparation can be more qualified.

References
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 TABLE OF FIGURES

Figure 1. The Leading Manufacturing Countries ..................................................................................... 1

Figure 2. BRIC Nations Ranking ............................................................................................................... 2
Figure 3. MITI-V Ranking ......................................................................................................................... 2
Figure 4. Drivers of Global Manufacturing Competitiveness .................................................................. 3
Figure 5. Manufacturing Labor Costs per hour, South-East Asia............................................................. 3

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