Apple’s investment plans in Indonesia have been a hot topic over the past few months. Bloomberg recently reported that Apple is exploring a partnership with a factory in West Java, Indonesia under a collaboration scheme with several suppliers. However, on November 25, 2024, the Ministry of Industry rejected Apple’s latest investment proposal worth $100 million (IDR 1.58 trillion), citing its failure to meet four key fairness criteria.
As one of Southeast Asia’s largest markets, Indonesia presents significant opportunities. However, the Domestic Component Level (TKDN) regulation poses a major hurdle. TKDN aims to support local industries, boost domestic production, and encourage technology transfer. Despite this, a report by the American Chambers of Commerce (AmCham) Indonesia highlighted that this regulation is seen as a barrier for American companies, including Apple, as they struggle to source local components that meet global standards.
The Ministry of Industry’s firm stance in rejecting Apple’s proposal to uphold TKDN compliance deserves recognition. With its vast domestic market, Indonesia should leverage its appeal to strengthen the domestic industrial structure and create broader employment opportunities. Moreover, Indonesia holds the largest national income in the ASEAN region. However, Apple’s approach in India and Vietnam highlights key differences.
In India, Apple has made significant investments, establishing iPhone production facilities that are integral to its global supply chain. Despite India’s strict local regulations, such as the Make in India initiative similar to TKDN, the Indian government has successfully created attractive incentives, including tax breaks and the development of supporting infrastructure in industrial zones.
In Vietnam, Apple has taken a different approach. Without stringent TKDN-like regulations, Apple can more easily import components and focus on global supply chain integration. Vietnam’s strength lies in its robust infrastructure for electronics manufacturing, which has drawn investments from multinational companies.
Encouraging foreign companies to establish production facilities in Indonesia has long-term benefits. Companies like Xiaomi, Samsung, and Oppo have made substantial investments in Indonesia, not only meeting TKDN requirements but also creating jobs and supporting the local manufacturing ecosystem.
For example, Samsung operates factories in Indonesia that produce phones for both domestic and export markets. These efforts demonstrate how regulatory compliance can coexist with industrial growth.
Yet, why does Apple remain hesitant to invest significantly in Indonesia when its investments in India and Vietnam are much larger? Indonesia must continue improving its infrastructure and local talent capacity. Foreign investors often consider factors such as infrastructure and the availability of skilled talent. Currently, Indonesia’s 5G connectivity covers only 1% of total connections (GSMA, 2024), with mobile internet speeds averaging just 17 Mbps (We Are Social, 2023). These challenges highlight Indonesia’s struggle with digital transformation as a vast archipelago nation.
What about Indonesia’s tech talent? As of 2020, Indonesia produced only 300,000 STEM (Science, Technology, Engineering, and Mathematics) graduates, far behind India’s 2.5 million STEM graduates (CSET George Town, 2023). This skills gap has left Indonesia short of 4 million digital talents in 2024, according to data from the Ministry of Communication and Digital Affair.
Investments from multinational companies like Apple are crucial for enhancing technology transfer and building local human resource capacity. However, in many cases, technology transfer from multinational companies is unlikely to have a significant impact unless Indonesia improves its talent pool and technological capabilities (O’Brien, 2016). This might be one reason Apple remains cautious, hesitant to integrate Indonesia into its global supply chain.
Malaysia’s success as part of Motorola’s supply chain illustrates effective technology transfer. According to the book International Political Economy: Interests and Institutions in the Global Economy, Malaysia capitalized on Motorola’s investment through strategic policies. The government provided essential infrastructure such as transportation, electricity, and telecommunications, not only attracting investors but also enabling efficient integration into global production networks.
By creating a business-friendly environment, Malaysia facilitated the local affiliate of Motorola in becoming part of its global supplier network, supplying components to 11 Motorola factories worldwide. The government also supported workforce training and education infrastructure development, resulting in significant managerial and technological skills transfer.
Similarly, Singapore has leveraged foreign investment to drive economic development and foster a technology-based national industry. However, the success of foreign investment in both Malaysia and Singapore hinges on local readiness, particularly workforce skills and infrastructure.
What Can Indonesia Learn?
Indonesia needs to accelerate digital infrastructure development and enhance local talent capacity to attract foreign investments like Apple’s. Currently, digital connectivity and the number of STEM graduates in Indonesia lag far behind countries like India. These challenges pose significant barriers to maximizing technology transfer.
But has Indonesia focused too much on foreign investors? Is this truly the best path toward inclusive and sustainable economic growth for the country?
According to the World Development Report 2024, foreign direct investment (FDI) plays a critical role in helping developing countries escape the middle-income trap. FDI can be a key catalyst for introducing modern technologies and business processes from developed countries to emerging markets. Benefits range from technology infusion, skill transfer, and economic diversification to spillover effects for local businesses, helping countries transition to innovation-driven economies.
FDI brings capital, technology, and access to global markets. However, to ensure maximum benefits, foreign investment must be directed toward supporting technology transfer and local economic development. With the right strategy, Indonesia can ensure that regulations like TKDN not only protect the domestic market but also drive inclusive digital transformation. The bonus? Indonesia might break free from the middle-income trap and elevate itself to developed-country status.
