New manufacturing hub

August 24, 2016

Central Java is closer to achieving its goal of becoming a manufacturing hub for labor-intensive industries with the start- up operations of the first-stage development of the 2,700-hectare Kendal Industrial Park, located about 30 kilometers from Tanjung Emas international seaport and Semarang’s Achmad Yani International airport. We should commend the leadership of Central Java Governor Ganjar Pranowo, whose business-friendly stance and policies have made things much easier and smoother for the joint venture of Singapore’s Sembcorp and Indonesia’s Jababeka to develop the industrial estate.

Ganjar is fully aware of the great advantages of well-designed and equipped industrial estates, supported by adequate infrastructure, such as ease of access to airports or seaports, power, bonded warehouses, training facilities and residential areas, for attracting manufacturing investors. He also fully realizes that it is private investors, rather than the government, that create jobs, which in turn generate wages and purchasing power to propel the wheels of the economy. Industrial estates can also become suitable locations for single-industry clusters, in electronics, leather or textiles, for example, thereby significantly improving supply chain management and decreasing distribution costs. Investors in industrial estates or zones no longer need to bear the cost of infrastructure, including the arduous procedure of land acquisition and the time-consuming licensing bureaucracy.

Yet most advantageous is the latest government policy of granting virtually all the necessary permits within three hours for investors intending to operate in industrial estates. This business-friendly policy has been prompted by the success of several industrial estates in Jakarta, West and East Java as well as Batam Island whereby the concentration of many industries in a well-designed zone created focus and efficiency in the provision of basic infrastructure such as power, access roads and other facilities. Moreover, a well-developed industrial estate also always creates a new town, complete with all the necessary public facilities.

The chief executive officer of Kendal Industrial Park, Ling Poon Lim, said about 16 foreign investors from Singapore, Malaysia, China and Japan, as well as Indonesia, had committed a total of US$250 million in a wide variety of factories. The immediate success and popularity of Kendal Industrial Park should also be attributed to the well-known reputation of the developers: Sembcorp has built up experience in developing industrial parks in China, Vietnam and several other countries, while PT Jababeka is Indonesia’s largest industrial estate developer.

With profit margins notoriously thin in labor-intensive industries such as garments and canvas shoes, the main attractions in Central Java are low wages (about $130/month), a ready workforce and a relatively harmonious state of labor relations in sharp contrast to the increasingly militant trade union movement in Jakarta and its surrounding towns. As wages continue to rise sharply in manufacturing centers in China, Vietnam, Jakarta and surrounding area as well as the Batam Free Trade Zone near Singapore, an increasing number of investors are eyeing an opportunity to tap the large, cheap workforce of 35 million people in Central Java.

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