Indonesia Inaugurates $60 Million Nike Shoes Factory in Garut

Sunday, 03 May 2015 01:32 Written by

Indonesian Industry Minister Saleh Husin inaugurated the new USD $60 million shoe factory of Changshin Reksa Jaya in Garut (West Java) which will produce Nike branded shoes. The shoe factory has an annual production capacity of 15 million pairs and will provide employment to 5,500 people. Reportedly, all of the shoes produced at this plant will be exported to Europe, USA, and other parts of Asia. Minister Husin stated that the new factory is highly appreciated as it will boost the country’s non-oil & gas exports.

Husin added that the Indonesian government regards the footwear industry as one of the priority industries that is to be developed in order to maximize foreign exchange earnings in the non-oil & gas sector and to provide employment opportunitiesfor the local population (the footwear industry is a labor-intensive industry). The government hopes that the South Korea-based Changshin Group can promote Indonesia as a production hub for the footwear industry in Asia. Currently, the main export destinations of Indonesian made footwear products include the USA, Belgium, Germany, Britain and Japan.

Over the years 2011-2013, investment in Indonesia’s footwear industry grew by an average of 4.7 percent year-on-year (y/y) according to Husin. In 2013, investment in the footwear industry of Indonesia totalled IDR 10.7 trillion (USD $836 million). The Minister said that Indonesia now accounts for about three percent of total worldwide footwear production (Indonesia is within the top six of leading global footwear exporters).

In 2014, Indonesia exported a total of USD $4.1 billion worth of footwear, up 6.4 percent from the preceding year. However, this meant that the country failed to achieve its USD $5 billion footwear export target in 2014. This failure was partly the result of cancelled investment projects of foreign investors. Earlier this year, it was reported that a total of sixteen investors, mostly from South Korea and Japan, had cancelled their plans to establish footwear factories in Indonesia due to uncertainty over Indonesia's minimum wage growth. These wages have been growing rapidly in Indonesia in recent years and seriously burden financial balances of companies (in fact low labor costs have been one of the key reasons why foreign footwear companies started production in Indonesia). In recent years, dozens of footwear manufacturers have reportedly moved their factories to East Java or to other ASEAN member countries (such as Cambodia and Vietnam) where wages are more competitive.

Another obstacle in Indonesia’s footwear industry is the lack of domestic supply of raw materials - most importantly leather and rubber. Despite being one of the world’s leading natural rubber producers, rubber needs to be exported first for processing purposes as domestic processing facilities are still insufficient.