Indonesia’s Textile Industry: Future Trends and Insights

The Future of Indonesia’s Textile Industry: Trends and Projections

  • InCorp Editorial Team
  • 30 December 2024
  • 7 minutes reading time

Indonesia’s textile industry stands out as a prime investment opportunity. Its production contributes to the nation’s economy and thrives on growing domestic and international demand, particularly in the fashion and apparel sectors.

Indonesia has a unique combination of abundant natural resources, competitive labor costs, and a strategic location for global trade. These advantages position the country to become a major player in the textile industry on the world stage and attract investors from around the globe.

Indonesia Textile Market Analysis

The Indonesia textile industry is projected to reach a market value of USD 13.83 billion in 2024. With a young, expanding workforce and approximately 505,000 businesses in the textile manufacturing sector, the industry continues to attract global investors.

Indonesia has a well-developed supply chain, bolstered by abundant local raw materials such as cotton, wool, and silk, which enhances its production capabilities. The country is renowned for its cultural craftsmanship, particularly in traditional batik. 

The textile industry is a government priority under the Industry 4.0 agenda, which focuses on integrating advanced technology for diverse markets such as healthcare and sportswear.

Moreover, the domestic garment industry benefits from the rising population of 273 million, increasing disposable income, and e-commerce growth, with the apparel market valued at USD 21.7 billion in 2023.

The Indonesia textile industry continues to play a vital role in its economic landscape, which is driven by rich resources and skilled labor. As one of the top global textile producers, the industry adapts to international demands by integrating sustainable practices and exploring innovations in textile manufacturing.

The Rise of Cotton Imports in 2024

Indonesia’s Textile Industry: Future Trends and Insights

Indonesia’s cotton imports are estimated to increase by 5.9% to reach 1.8 million bales in 2023/24, as textile manufacturers deplete current stocks due to declining global demand and a rise in illegal clothing imports. End stocks for 2023/24 are estimated at 379,000 bales, and the textile exports sector remains resilient.

In Q3 2023, Indonesia’s manufacturing sector grew 5.2%, slightly up from 4.94% in the previous year. However, weak global demand and competition from low-cost imports have impacted textile exports and slowed cotton imports, exacerbated by a weaker rupiah.

Australia remains Indonesia’s top cotton supplier, with a 52.1% market share (268,000 bales). It is followed by Brazil and the U.S., whose share is declining due to Australia’s proximity and competitive pricing. However, fluctuating market conditions and the weaker rupiah present ongoing challenges to Indonesia textile producers.

Growing Focus on Sustainability in Indonesia’s Fashion Industry

Sustainability is increasingly important in the fashion industry as Indonesia merges its rich batik heritage with eco-friendly materials such as organic cotton and recycled fabrics.

Brands increasingly embrace ethical practices like fair trade to satisfy the growing consumer demand for socially and environmentally responsible fashion.

Collaborations with local artisans preserve cultural heritage and support sustainable livelihoods, while circular fashion reduces waste. New technologies, like 3D printing and advanced fabrics, enhance sustainability and elevate Indonesia’s global reputation in textile manufacturing.

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The Forecast of Indonesia’s Textile Industry

The Indonesian textile market is poised for significant growth, projected to reach USD 18.4 billion by 2028 with a robust CAGR of over 5.54%. However, challenges such as rising labor costs, outdated machinery, and competition in textile exports persist. 

These hurdles emphasize the need for modernization and innovation in the garment industry. To support its growth, the government’s “Making Indonesia 4.0” initiative drives technological advancements in critical sectors like textiles. 

This initiative aims to position Indonesia among the world’s top economies by 2030, with the textile industry playing a vital role in achieving this vision.

The Regulation for Indonesia Textile Business

To safeguard its domestic textile manufacturing, the Indonesian government introduced Minister of Trade Regulation No. 77 of 2019 (Permendag No. 77 Tahun 2019) in December 2019. This regulation imposes strict limitations and requirements on textile imports, aiming to strengthen the local market.

Moreover, Minister of Industry Regulation No. 40 of 2022 (Peraturan Menteri Perindustrian Nomor 40 Tahun 2022), implemented in July 2022, mandates that textile products sold in Indonesia comply with quality and safety standards, focusing on technical specifications and accurate labeling, reinforcing the strength of the Indonesia textile industry.

The Opportunities and Challenges for Textile Business in Indonesia

As the textile industry grows, opportunities and challenges arise. Companies must adapt to shifting market demands while maintaining ethical practices and efficiency. Balancing these aspects will be crucial for stakeholders aiming to thrive in an evolving landscape.

Challenges

The textile business in Indonesia faces significant hurdles that limit its growth and global competitiveness:

  • High Operational Costs: Rising electricity and gas prices and higher labor costs have made production expenses uncompetitive compared to other countries.
  • Outdated Machinery: Many manufacturers depend on outdated equipment, which impacts productivity. Only large companies can afford to upgrade their machinery, putting smaller businesses at a disadvantage.
  • Pressure from Imports: Cheaper imports, especially from China, create fierce competition, further squeezing margins for local manufacturers.
  • Niche Market Reliance: Smaller producers often focus on products like batik, which, while culturally significant, have limited appeal in the global market.
  • Currency Volatility: The depreciation of the rupiah raises raw material costs, disproportionately impacting smaller companies. While larger exporters may gain from a stronger dollar, the overall effect places a strain on the industry.

However, these challenges present opportunities for innovation and collaboration, setting the stage for a more competitive and modernized textile industry.

Opportunities

Despite these challenges, Indonesia’s textile industry has significant potential, offering multiple opportunities:

  • Foreign Investment: There is an increasing need for funding and expertise to modernize the industry. Foreign investors can engage through partnerships, joint ventures, or private equity, helping smaller firms to compete internationally.
  • Government Support: Policies designed to improve logistics, reduce illegal imports, and enhance vocational training programs create a more skilled workforce and streamline operations within the sector.
  • Emerging Export Markets: Trade agreements such as the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) facilitate market access in Australia, Japan, and South Korea.
  • Muslim Fashion Industry Growth: Indonesia’s growing Muslim fashion industry presents unique export opportunities, especially in the Middle East and North Africa, where demand for these products is increasing.

While the textile industry in Indonesia faces notable challenges, strategic investments, government support, and global market trends provide avenues for growth and transformation.

How to Start a Textile Business in Indonesia

Launching a textile business in Indonesia requires several critical steps, from conducting thorough market research to ensuring full legal compliance.

  • Conduct Thorough Market Analysis: Identify trends in Indonesia’s textile demand, including batik and other niche markets.
  • Formulate a Solid Business Plan: Outline goals aligned with the demands of the garment industry and export opportunities.
  • Complete Legal Registration: Secure necessary permits and comply with regulations for textile manufacturing operations.
  • Secure Financial Resources: Explore funding for advanced equipment and production processes.
  • Set Up Operational Infrastructure: Recruit skilled workers and source quality materials.
  • Adhere to Regulatory Standards: Meet environmental and labor compliance to maintain ethical practices.

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Start Your Textile Business in Indonesia with InCorp

Navigating the complexities of setting up a textile business in Indonesia can be challenging, but this is where InCorp can help. With over a decade of experience in market entry services, our experts provide the guidance you need to establish your business smoothly.

Here’s how InCorp can assist:

  • Company Registration: Streamlined assistance to establish your textile business legally and efficiently.
  • Business License: End-to-end support to secure the necessary licenses for smooth operations.

Complete the form below to kickstart your journey in the Indonesia textile industry.

Daris Salam

COO Indonesia at InCorp Indonesia

With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.

Get in touch with us.

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Frequent Asked Questions

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.