The Indonesian economy relies heavily on garment exports. The textile and textile product industry is a labor-intensive sector and a cornerstone of the economy. In 2019, the sector accounted for 11% of total manufacturing exports and 5% of total national exports. The industry employs 5.2 million workers, predominantly medium-skilled, low-paid, and female. However, in recent times, many businesses in the textile sector have started to collapse one by one.
Over the past nine years, the situation in 2023 and 2024 marks the most challenging period for Indonesia’s textile industry. Factors such as limited availability of raw materials and predatory pricing practices pose significant threats to the domestic textile sector. According to Redma Gita Wirawasta, Chairman of the Indonesian Fiber and Filament Yarn Producers Association (APSyFI), the industry has been under severe strain. As of June 2024, 21 textile factories have shut down, with an additional 31 at risk of closure. Since 2022, factory capacity utilization has witnessed a sharp decline, reflecting the industry’s worsening condition.
The decline of Indonesia’s textile industry can be attributed to several factors. The first is the implementation of the ASEAN-China Free Trade Agreement in 2012, which intensified competition from lower-cost Chinese imports. Furthermore, the global disruption caused by the COVID-19 pandemic and the Russia-Ukraine war, significantly impacted production capabilities and market demand. During the COVID-19 pandemic in 2020, stagnation at Chinese ports led to a surge in Chinese products entering Indonesia, some of which were reportedly imported illegally.
Chinese products, often sold at significantly lower prices, have become more appealing to consumers still recovering economically from the effects of the COVID-19 pandemic. This trend persisted throughout 2023, with domestic products struggling to compete against a market increasingly saturated by illegal imports. These illegally traded goods, sold below production costs, have forced local industries to slash production expenses and reduce their workforce. Compounding the issue, legal products are subject to stringent regulations, unlike their illegal counterparts, putting domestic manufacturers at a further disadvantage.
In addition, the Indonesian Minister of Trade Regulation 8/2024, which relaxed restrictions on ready-made garment imports, exacerbated the problem by allowing previously held imports to flood the market. This surge in imported goods diminished the utilization of local textile manufacturing capacity, leading to delays or cancellations of orders for small and medium industries as well as garment manufacturers. Many local products were unable to compete with the low-cost imports, further straining the industry.
Moreover, order delays and cancellations have driven up costs for domestic manufacturers already grappling with post-pandemic recovery challenges. As a result, many have been forced to cease operations. By June 2024, six factories, including PT S. Dupantex, PT Alenatex, and PT Sai Apparel, had shut down, leading to the layoff of approximately 11,000 workers. The situation has been further highlighted by the bankruptcy of PT Sri Rejeki Isman Tbk (Sritex), one of Indonesia’s largest textile companies. The court ruling declaring Sritex bankrupt signifies a troubling trend in an industry already struggling with mounting challenges.
Furthermore, the Indonesian textile industry has also been pressured by declining demand from key export markets, including the United States and China. Although the U.S. economy has shown signs of recovery, this has not translated into higher demand for textiles. Simultaneously, an oversupply in China’s domestic textile market has compounded the slowdown. The dominance of Chinese e-commerce platforms in the distribution chain has worsened the plight of Indonesian producers. These platforms often prioritize Chinese goods, creating additional barriers for Indonesian products to enter the market.
Redma, an industry representative, emphasized the need for stricter controls on imported textiles, both online and offline. He advocated for the development of a dedicated platform for Indonesian products, stating “The current distribution chain, owned by China, favors Chinese goods. The government must address this imbalance.” This series of challenges paints a grim picture for Indonesia’s textile industry, calling for urgent intervention and policy measures to safeguard the sector and its workforce.
On a global scale, declining demand for textiles has been influenced by geopolitical instability and rising export costs. The Russia-Ukraine conflict has further weakened global purchasing power, as consumers prioritize essential needs such as energy over textile products. Additionally, competition from major textile-producing countries such as China, India, and Vietnam, which have successfully reduced their production costs, has eroded the competitiveness of Indonesia’s textile industry.
Domestically, the manufacturing sector mirrors this instability. The Purchasing Managers’ Index (PMI) released by S&P Global revealed a contraction in the sector for three consecutive months, from July to September 2024, with the PMI falling below 50—a clear indicator of economic contraction. Policies permitting imported products to account for up to 50% of total market production have been identified as a major contributing factor to the domestic industry’s challenges. This influx has intensified the pressure on local manufacturers, threatening the long-term sustainability of the textile sector.
As the Indonesian textile industry faces a looming crisis, characterized by increased competition, market volatility, and regulatory challenges, you can expect supply chain disruptions and cost pressures. During this time, it’s crucial for businesses to adapt quickly and strategically. As your trusted freight forwarding partner, we at Translindo are committed to provide flexible solutions to help you manage supply chain disruptions, minimize costs, and seize new market opportunities. Reach out to us today to discuss how we can support your operations through these difficult times and beyond.
