Indonesia: Will It Surge or Slow?

Brent D. Johnson

After a series of economic setbacks in the mid-1990s, Indonesia is seeing rising interest from foreign investors. Last summer, Sharp Corp. moved its assembly operation of semiconductor laser devices to a subdivision plant in Karawan to reduce production costs. This might be interpreted as a vote of confidence in the new regime of President Megawati Sukarnoputri, which is dedicated to building a national center for semiconductor manufacture.

The question is whether the US will be able to participate in this developing market or will be excluded because of the war on terror. The US is one of the top five foreign countries investing in Indonesia, but recent travel warnings issued by the State Department after October's terrorist attacks could stifle Indonesia's budding economy and refocus attention on China and Latin America instead.

Amir Sambodo, adviser to the minister of research and technology for the Republic of Indonesia, hopes this is not the case. He explained that the Indonesian economy is still dependent on its natural resources, such as oil, textiles, gas, palm oil and wood products, as well as on support from the International Monetary Fund. But it is also advancing the Center for Science and Technology Development in the south of Jakarta and a proposed biotechnology initiative, Bio-Island, to be situated on Rempang Island near Batam, which is close to Singapore. The objective of these programs is to stimulate researchers, entrepreneurs and investors to create technology businesses in Indonesia.

So far, companies such as Lucent, Motorola, Ericsson, Siemens and Alcatel have been attracted by opportunities to build that nation's telecommunications infrastructure. However, a series of well-publicized incidents, such as the bombing of a discotheque on the island of Bali, could derail the best-laid plans of Indonesia's leaders. Sambodo admits that these incidents have had a detrimental effect on potential investors but contends that they have not impacted the nation's trade in natural resources. He said that the police, the regional military and the politicians have tried hard to protect the security of US companies and their employees in the country.

Offshore options

Richard Kean, special projects director for Tucson, Ariz.-based Offshore International, has seen an increase in inquiries regarding the location of manufacturing facilities in Mexico as a result of recent troubles. He said that Mexico's proximity to and its historically close relationship with the US give many top-level decision makers a greater sense of security. He noted, however, that the major competition is still from China, which will most likely remain the dominant player for high-volume, low-cost manufacturing. Kean believes that, for engineering-intensive endeavors and products where inventories and turnaround time are issues, much of this production will move closer to home.