Thinking about sourcing from Southeast Asia? You’re not alone. With a thriving industrial base in textiles, electronics, automotive, and palm oil processing—all supported by ongoing infrastructure upgrades—Indonesia is fast becoming a go-to destination for global sourcing.
It offers diverse manufacturing capabilities, competitive pricing, and a supplier network that’s growing faster than your inbox on a Monday morning.
As Southeast Asia’s largest economy, Indonesia plays a pivotal role in international trade. In 2023, Indonesia exported $299 billion, ranking as the world’s 27th largest exporter. Over the past five years, its exports grew by $84.1 billion, with key destinations including China, the United States, India, Japan, and Singapore .
Every opportunity has its quirks—and sourcing from Indonesia is no exception. You’ll need to navigate regulatory challenges, logistical issues, and supplier quality variations. But with the right plan, the rewards can far outweigh the risks.
In this guide, you’ll discover:
Why Indonesia is a smart sourcing destination
What industries it excels in
Challenges you need to plan for
Let’s get started!
Why Indonesia?
So, why are global businesses increasingly turning to Indonesia? Simple—it checks all the right boxes for cost, resources, and location.
1. Cost-Effective and Abundant Labor
With over 142 million workers, Indonesia boasts Southeast Asia’s largest labor force. Wages? They range from $1.80 to $3.00/hour.
Ideal for labor-intensive production: textiles, apparel, footwear
Quality manufacturing without the high price tag
2. Abundant Raw Materials Across Industries
Indonesia is rich in natural resources—it’s a one-stop shop for essential raw materials.
Major producer of timber, rubber, palm oil, and coal
Fuels key sectors like food and beverage production, energy, and consumer goods manufacturing
Need a reliable source of raw materials? Indonesia’s got your back.
3. Strategic Location for Global Trade
Indonesia’s location gives it a serious edge in global logistics. Nestled between the Indian and Pacific Oceans, it connects Asia to the rest of the world through some of the busiest shipping lanes on the planet.
Key advantages:
Direct access to ASEAN markets and fast-growing regional economies
Proximity to major international trade routes for efficient global shipping
A growing network of ports and logistics hubs streamlining export processes
Whether you’re moving goods across Asia or beyond, Indonesia’s location helps you cut transit times and shipping costs.
4. Trade Agreements:
Indonesia is part of ASEAN and multiple regional trade agreements, giving you an edge.
Have you started seeing the potential yet? Let’s keep going.
Why Sourcing from Indonesia?
What Indonesia is Good at Manufacturing
Indonesia has a well-diversified manufacturing sector, specializing in various industries. Below are some of the key sectors where Indonesia excels:
1. Apparel and Textiles
Indonesia is one of the world’s largest textile and apparel producers, exporting high-quality garments globally. The country is known for its batik, cotton, and synthetic textiles, offering competitive pricing, a skilled workforce, and an increasing number of sustainable and ethical textile factories.
Key Manufacturing Regions:
Bandung, West Java: Known as a textile production hub, Bandung hosts numerous mills and factories producing garments for domestic and export markets.
Central Java: Famous for its traditional batik and woven textiles, this region combines cultural heritage with modern textile manufacturing.
Pekalongan: Known for its intricate batik fabrics.
Key Companies that Manufacture Here:
H&M: Sweden’s fast fashion giant known for trendy, affordable clothing.
Uniqlo: Japanese retailer offering minimalist, high-quality basics.
Zara: Spain’s leader in fast fashion, famed for rapid design turnover.
Tommy Hilfiger: American brand blending preppy style with global appeal.
Calvin Klein: Iconic U.S. label known for sleek, modern designs.
2. Palm Oil Processing
Indonesia dominates the global palm oil market, producing 45.5 million tonnes of crude palm oil in 2023. As the world’s largest exporter, it accounted for 54% of global exports, reinforcing its pivotal role in the industry. In addition to palm oil, other major animal and vegetable oil exports from Indonesia in 2023 include:
Sumatra: A major center for palm oil plantations and processing, contributing significantly to Indonesia’s export volume.
Kalimantan: Key region for palm oil extraction and refining with large-scale processing facilities.
Key Companies that Manufacture Here:
Nestlé: Swiss food titan behind brands like Nescafé and KitKat.
3. Automotive
Indonesia’s automotive sector produced 1.4 million vehicles in 2023, generating $6.42 billion in exports. As the 26th largest car exporter, it plays a crucial role in Southeast Asia’s manufacturing and trade.
Key Manufacturing Regions:
Karawang, West Java: Known as the Detroit of Indonesia, it hosts major automobile plants and component manufacturers.
Bekasi, West Java: A key location for vehicle assembly lines and parts suppliers.
Key Companies that Manufacture Here:
Toyota: Japan’s automotive leader with strong production in Indonesia.
Honda: Renowned for reliable vehicles and motorcycles worldwide.
Mitsubishi: Known for durable vehicles across global markets.
4. Electronics and Electrical Equipment
Indonesia’s electronics and electrical equipment sector is expanding, supported by "Making Indonesia 4.0." In 2023, exports reached $14.34 billion, driven by growing production of consumer electronics, semiconductors, and industrial electrical equipment.
Top electrical machinery and equipment exports from Indonesia (2023):
Telephones and smartphones: $2.54 billion
Electrical machines and apparatus: $1.88 billion
Insulated wires and cables: $1.70 billion
Monitors and projectors: $1.26 billion
Electronic integrated circuits: $735.83 million
Key Manufacturing Regions:
Batam: A free trade zone specializing in semiconductors, electronics, and high-tech manufacturing.
West Java
Key Companies that Manufacture Here:
Panasonic: Japanese electronics powerhouse making appliances and devices.
Samsung: South Korea’s tech leader in phones and consumer electronics.
LG Electronics: Global brand for home appliances and displays.
5. Footwear and Leather Goods
Indonesia, the world’s fifth-largest footwear producer, exported $6.43 billion in 2023, solidifying its role as a major global supplier. Competitive labor and strong manufacturing capabilities drive its growing presence in international markets.
Key Manufacturing Regions:
Banten: Home to large footwear factories producing for global brands.
Surabaya, East Java: A center for leather tanning and shoe manufacturing.
Bandung, West Java: Specializes in high-quality, specialized footwear and leather goods.
Key Companies that Manufacture Here:
Nike: U.S. sportswear leader with global sneaker production.
Adidas: German brand famous for athletic and lifestyle footwear.
Puma: Sports fashion innovator known for bold, dynamic designs.
6. Precious Stones
Indonesia, rich in diamonds, sapphires, and opals, sustains a niche yet valuable gemstone industry. In 2023, precious stones and metals exports totaled $7.5 billion, highlighting the sector’s economic significance and global demand.
Major precious stone and metal exports from Indonesia (2023):
Waste and scrap of precious metal: $859.16 million
Gold: $848.31 million
Pearls: $112.77 million
Silver: $78.49 million
Key Manufacturing Regions:
Kalimantan: A leading region for diamond and sapphire mining.
Sumatra: Key source of gold and other gemstones.
Challenges and Risks of Sourcing from Indonesia
Indonesia offers plenty of sourcing potential, but it’s important to be aware of the hurdles that can impact your operations. Here’s a closer look at the main challenges to plan for—and strategies to manage them.
1. Infrastructure and Logistical Challenges
Transportation and logistics can be a sticking point. The country's logistics costs account for 23% of GDP, largely due to underdeveloped infrastructure. Poor road conditions, limited port capacity, and unpredictable shipping timelines can lead to:
Shipment delays
Inventory shortages
Increased supply chain costs
Compounding the issue, 99% of Indonesian businesses are MSMEs, but they only receive 21.3% of total bank lending. This funding gap slows infrastructure development and affects broader economic efficiency.
2. Regulatory and Governance Issues
Indonesia’s regulatory landscape can be complex and time-consuming to navigate. Businesses face:
Multiple agencies with overlapping jurisdictions
Extensive documentation requirements
Slow approval processes
Additionally, regulations may change frequently and vary by region, leading to uncertainty and higher administrative costs. Corruption remains a concern in some areas, where unofficial payments may be expected for permits or customs clearance, further increasing the cost of doing business.
3. Labor and Environmental Concerns
Labor-related issues can disrupt operations, particularly in industries like manufacturing and plantations. Key concerns include:
Labor strikes driven by demands for better wages and working conditions
Regional minimum wage variations, making cost forecasting more difficult
From an environmental standpoint, industries such as palm oil and mining face global scrutiny for contributing to deforestation and emissions. Stricter regulations, like the EU’s deforestation laws, are already affecting exporters relying on raw materials from sensitive ecosystems.
Indonesia offers valuable sourcing opportunities, but success depends on preparation. By understanding these risks and working with reliable partners, businesses can mitigate disruptions and achieve stable, efficient operations.
Conclusion
Sourcing from Indonesia presents an exciting and viable opportunity for businesses seeking cost-effective production, skilled labor, and access to abundant natural resources. With strengths in industries like textiles, electronics, and palm oil, and a growing reputation as a global sourcing hub, Indonesia continues to attract companies from around the world.
However, success in this market requires more than just recognizing its potential—it demands a thoughtful approach. Understanding the logistics landscape, navigating regulatory frameworks, and ensuring supplier reliability are essential to making the most of what Indonesia has to offer. The rewards are there for those who are prepared.
So, is Indonesia the right fit for your sourcing strategy? With the right planning and partnerships in place, it could very well be your next big move in global trade.
FAQ
1. What makes Indonesia attractive for sourcing compared to other Southeast Asian countries?
Indonesia offers a unique mix of abundant labor, rich natural resources, and a strategic location on major global shipping routes, making it highly competitive with countries like Vietnam and Thailand. However, determining which country best fits your sourcing strategy depends on your specific business needs, such as product type, lead times, and cost priorities.
2. Are there government incentives for sourcing or manufacturing in Indonesia?
Yes, Indonesia offers incentives like tax holidays, reduced import duties, and special economic zones to attract foreign investment in manufacturing and sourcing.
3. Are there sourcing fairs or trade shows in Indonesia?
Yes, events like Indonesia International Furniture Expo (IFEX) and Trade Expo Indonesia are popular platforms to meet suppliers, see products firsthand, and negotiate deals.
Head of Marketing
Judy Chen
Graduating from USC with a background in business and marketing, Judy Chen has spent over a decade working in e-commerce, specializing in sourcing and supplier management. Her experience includes developing strategies to optimize supplier relationships and streamline procurement processes for growing businesses. As SourceReady’s blog writer, Judy leverages her deep understanding of sourcing challenges to create insightful content that helps readers navigate the complexities of global supply chains.
