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Abstract
This article traces the development of industrial policy towards the Indonesian motor industry within the automotive global value chain. Showing the current dominance of Japanese motor assemblers in Indonesia, it notes the rather undeveloped nature of the locally owned supporting industry, particularly compared with that of neighbouring Thailand. Most investment in auto-parts production has been by foreigners. Nevertheless, Indonesia's rapid domestic-market growth has allowed it to attract foreign automotive investment without having to offer excessively generous incentives. While the continued entry of foreign suppliers of auto parts into Indonesia offers opportunities for local suppliers to upgrade their productive capabilities, it also limits their chances of becoming first-tier suppliers themselves. Japanese automotive investors are optimistic about Indonesia's export potential, more so than Malaysia's.
Tulisan ini membahas mengenai perkembangan kebijakan industri dalam konteks industri otomotif Indonesia dan keterkaitannya dengan rantai nilai global. Dengan pembahasan mengenai dominasi pabrik perakitan mesin motor Jepang di Indonesia, tulisan ini memberikan catatan mengenai kurang berkembangnya industri pendukung dalam negeri, khususnya jika dibandingkan dengan negara tetangga Thailand. Sebagian besar investasi dalam produksi komponen otomotif dilakukan oleh orang asing. Namun demikian pesatnya pertumbuhan pasar domestik telah memungkinkan datangnya investasi otomotif asing tanpa melalui pemberian insentif yang besar. Masuknya pemasok komponen otomotif asing ke Indonesia telah menawarkan kesempatan bagi produsen lokal untuk meningkatkan kemampuan produksinya. Di sisi lain, pemasok asing tersebut juga telah membatasi kesempatan para produsen lokal untuk menjadi produsen kelas satu. Para investor otomotif dari Jepang memiliki keyakinan besar mengenai potensi ekspor Indonesia, bahkan lebih besar jika dibanding keyakinannya terhadap Malaysia.
We are grateful to two anonymous referees for their comments. We also thank Ritsumeikan Asia Pacific University and the Japan Society for the Promotion of Science (KAKENHI 22730153) for research finance. Of course, the usual disclaimers apply.
Notes
1 In this article we deal only with automobiles; we do not consider the Indonesian motor-cycle industry.
2 See Auty's (Citation1994, 610–14) study for a discussion of the minimum efficient size of an automotive plant. The minimum efficient size for producing some key components, such as engines, transmissions, and axles, is several times larger than that for producing vehicles. Note, though, that for a plant simply assembling completely knocked-down kits, the minimum efficient size could be as low as 40,000 vehicles per year, or 30,000 per year for light commercial vehicles of the sort that has been popular in Indonesia. See Karmokolias's (Citation1990) study for a still very useful discussion.
3 This is not the place to discuss the many problems that Malaysia has had with Proton, its main national car manufacturer, but a determined government has been able to at least stop the firm going out of business. See the studies of Natsuda, Segawa, and Thoburn (2013) and Segawa, Natsuda, and Thoburn (Citation2014).
4 All interviews were conducted in confidentiality, unless otherwise specified.
5 Hill (2000, 155) notes that in 1966, at the start of Soeharto's New Order and after the depredations of the Sukarno years, Indonesia was one of the least industrialised among the world's large developing countries. Later industrialisation attempts, in the 1980s, included leap-frogging into high-technology sectors like aircraft. The 1980s, and the early 1990s, also saw a more successful development of light-manufacturing exports (Thoburn Citation2001), but this development has slowed as wages have risen (Basri 2012, 41).
6 For brief surveys of the GVC literature, see the studies of Natsuda and Thoburn (2013) and Natsuda, Segawa, and Thoburn (2013). UNCTAD (2013, especially chapter 4) and Gereffi (2014) have captured some of the latest thinking in GVC analysis.
7 In this article, however, we shall not go back as far as the raw-materials stage.
8 See UNCTAD's (2013, 172) report for a discussion of some trade-offs between increasing value added, on the one hand, and upgrading, on the other.
9 ‘Non-domestic’ here refers to value added originating overseas. Value added originating in foreign-owned firms operating in the domestic economy is treated as domestic.
10 Some component makers in the automotive industry are outside this system, not being original-equipment-manufacture producers but makers of replacement equipment (like replacement tyres and batteries). Some first-tier suppliers make original-design-manufacture products.
11 For instance, the Thai government implemented an LC requirement of 25% in 1975. It continued to control the requirement up to 72% (for pick-up trucks with diesel engines), before the policy was abolished in 2000 (Natsuda and Thoburn 2013). The Malaysian government employed mandatory deletion programs in 1980, by prohibiting 30 auto parts listed as mandatorily deleted (that is, deleted from imports of completely knocked-down kits) (Segawa, Natsuda, and Thoburn 2014).
12 For example, in 2010, the most recent year for which the UN Comtrade trade database gives quantities for Indonesia for vehicles imported and exported, exports of HS 8703 (‘motor vehicles for transport of persons, except buses’) were 76,340 units and imports were 92,538 units, giving net imports of 16,198 (see http://comtrade.un.org/db). This figure is considerably lower than the net import figure (sales minus total production) for 2010, on which the first figure is based (62,202 units). The other major automotive import category, HS 8704 (‘motor vehicles for the transport of goods’) probably accounts for the bulk of this discrepancy, but unfortunately Comtrade does not give physical quantities for HS 8704. However, in value terms, imports of HS 8704 were only marginally smaller than those for 8703 (both around $1.4 billion in 2010), whereas exports of HS 8704 were negligible. Remaining differences probably reflect the usual difficulties of marrying trade and production data categories, and also stock changes, and time lags between foreign trade movements and domestic sales and production.
13 With 95% of capital from Toyota and 5% from Astra International in 2013 (interview with Toyota Astra Motors, 25 Feb. 2013).
14 This total includes original-equipment-manufacture production of Toyota's Avanza model (142,612 units) and Rush model (20,515 units).
15 Basri (2012, 38) notes that the IMF package also captured most of the World Bank agenda for trade deregulation.
16 LC ratios in Indonesia are based on the calculation of the total value of four types of CKD parts (engines, transmissions, axles, and chassis and bodies).
17 For instance, domestic car sales are projected to more than triple over the period 2011 to 2025, while motorbike sales are projected to rise only by about half (presentation supplied by BKPM, Jakarta, dated Mar. 2012).
18 The oil price after the subsidy accounted for Rp 4,500 per litre, compared with a pre-subsidised price of Rp 9,800 in February 2013—a 54% subsidy by the Indonesian government (interview with JETRO representative, Jakarta, 22 Feb. 2013). The fuel subsidy was greatly reduced by Indonesia's new president in 2014 (Economist, 22 Nov. 2014).
19 See http://data.worldbank.org/topic/economy-and-growth. Indonesian inflation relative to that of the United States should have already been taken into account by changes in the rupiah-to-dollar exchange rate, although such changes would also have been influenced by capital movements as well as by PPP.
20 In December 1994, during the earlier development of the industry, data obtained by Thoburn in an interview in Jakarta with the president of a major international (non-Japanese) motor manufacturer suggested the following minimum efficient scales: assembly plants for small cars or high-quality light commercial vehicles, 300,000 units per year (but they could get most of that efficiency at 150,000 units); low-quality light commercial vehicles, 100,000 units; transmissions or engines, 400,000 units (but most of the efficiency gains could be had in the first 250,000 units); and axles, 300,000-400,000 units. The interviewee commented that, in the motor industry, ‘volumes dominate costs’.
21 On non-AFTA imports. Import duties were reduced to between 0% and 5% on imports from AFTA members from 2003–4 onwards.