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FEATURE STORY

Export competitiveness in Indonesia’s manufacturing sector

March 5, 2013

Despite the dynamics in the global market and their challenges, Indonesia has a "second chance" to strengthen the performance of its exports.

  • This report provides a background information for policy note on export competitiveness for the recent World Bank study on Indonesian manufacturing sector and highlights the window of opportunities for Indonesia to revive its manufacturing sectors are critical for labor-absorbing and technology-producing. The report focuses on three manufacturing sub-sectors, clothing, furniture and automotive, that have different challenges and global dynamics yet represent strategic importance in Indonesia's development, such as labor absorption, usage of raw materials, capacity of local skills, and the use of technology.
  • Despite the dynamics in the global market and their challenges the report concludes that Indonesia has a "second chance" to strengthen the performance of exports in these sub-sectors.  Besides access to raw materials, another critical sources of competitive advantage for Indonesia, that may be leveraged for growth in some manufacturing sectors – specifically, the huge domestic market and the power of regional integration, both of which offer significant potential to take advantage of home market effects and scale economies in production.
  • To maximize the opportunities, the report argues that Indonesia should consider to exploit the wage gap with other emerging countries, leverage domestic market to integrate more with regional value chains, and invest in capacity to innovate in process and product.