Manufacturing Indonesia: What are The Benefits of Relocating Factory from China to Semarang?

Despite the rising bilateral tensions, Beijing has repeatedly asked the US to remove its punishing tariffs on Chinese goods, but US officials confirm that the tariffs will remain in place three years following the commencement of the US-China trade war that can affect Indonesia manufacturing industry.

Before the trade war in 2018, US tariffs on Chinese imports were on average 3.1%, while China’s levies on American goods were at 8%. The following table shows the import tariffs between the two countries in early 2021:

Although this trade war has had a significant impact on the global economy, many nations, like Indonesia, are anticipated to gain from it. Semarang, the regional capital of Indonesia’s Central Java province, has established itself as a profitable place for businesses especially Indonesia manufacturing, particularly for manufacturing firms. This article further discusses why Chinese manufacturing businesses should consider relocating their operations to Semarang.

Read more: The Investment Opportunity for an Electric Vehicle Ecosystem in Indonesia

Why Should Chinese Companies Consider Relocating to Semarang

According to a 2019 report, Semarang realized a total investment value of about 50 trillion rupiahs (US$ 3.5 billion), half of which came from foreign investment, and about 15 trillion rupiahs (US$ 1.05 billion) came from domestic investors showing the promising of Indonesia manufacturing growth. The efforts of the provincial government in improving the bureaucratic system, and incentivizing investors are some of the major strategies to attract investment in the region.

Following are some factors why establishing a manufacturing company in Semarang could be lucrative for an investor:

Strategic Location for Indonesia Manufacturing Business

Central Java was characterized by the Dutch colonizers as an ideal port having access to the Java Sea, which flows straight into the Pacific Ocean, making the City of Semarang highly preferable for Indonesia manufacturing companies. Moreover, Semarang is ideally located between Jakarta and Surabaya, the two most populous cities in Java which are the indicators for the Ease of Doing Business Index in Indonesia. Semarang has also long been Central Java’s major center for agriculture, trade, and industry.

ASEAN-China Free Trade Area

90% of imports from Indonesia, Malaysia, Singapore, Brunei, the Philippines, Singapore, and Thailand are now tariff-free thanks to the ASEAN-China Free Trade Area (ACFTA). Furthermore, in Q1 2020, ASEAN surpassed the EU to become China’s largest trading partner, with a value of US$140 billion, accounting for 15% of China’s overall trade volume.

Human Resource Availability

Central Java has a huge pool of human resources at its disposal that can benefit Indonesia manufacturing enterprises when it comes to labor force. According to the province administration, graduates from 378 universities and 1,588 vocational institutions are ready to work, with over 70, 000 people currently working in Semarang enterprises.

Interested in hiring Indonesian talent? Learn how HR outsourcing can help you simplify the recruitment process.

Lower Labor Cost

Semarang’s minimum wages are on average lower than those in Jakarta or other major Indonesian cities, especially when working in a labor-intensive industry such as Indonesia manufacturing businesses.

Minimum wage in Semarang as compared to other areas in Indonesia:

• Bekasi: IDR 4, 782, 935 / USD 337
• Surabaya: IDR 4, 300, 479 / USD 303
• Bogor: IDR 4, 217, 206 / USD 297
• Semarang: IDR 2, 810, 025 / USD 198

A Pool of Chinese-Speaking Talent

Along with a growing economic tight, China also become a sought-after destinations for Indonesian students. In 2017 alone, the number of Indonesian who studied in China has reached 14,000 students.

Most of these students are studying Chinese language and literature, with an increasing number of them studying other fields such as medicine, industry and technology.

For Chinese companies looking to set up a business in Indonesia, this can become a cost-saving factor as it should not be difficult for them to hire local talent who speak Chinese.

Read more: Indonesia: Becoming A Global Leader in Manufacturing

A Vibrant Chinese Community in Semarang

The Chinese community in Semarang has existed for a long time, dating back to Zheng He’s arrival in 1413. Around Semawis street, there is also a Chinese neighborhood of Chinatown. Semarang’s Chinatown is one of the city’s oldest neighborhoods, and it is rich in Chinese culture and traditions.

Developing Infrastructure

The Semarang City government is focusing on boosting the city’s economy by promoting industrial development through infrastructure improvements. For instance, the new Light Rail Train (LRT) is set to connect the Ahmad Yani International Airport to the city center. Moreover, the new inter-city toll road connects Semarang to both west and east of Java Island. Furthermore, the expansion of Tanjung Mas Port is to increase the number of delivered goods to Central Java.

Ease of Doing Business for Indonesia Manufacturing Business

Semarang is also noted for having great government support. Investors may take advantage of a business-friendly system in the city, with the whole investment and license procedure streamlined and the waiting period for license cut in half. Investors can also follow the process online via the Online Single Submission (OSS) system.

Read More: How To Obtain Risk-Based Business License via OSS

Setting Up a Manufacturing Company in Semarang or Indonesia with InCorp

Semarang holds a lot of potential for foreign investors due to its excellent location, low costs, and growing partnerships with various countries, particularly for Chinese manufacturers seeking to avoid rising labor costs and slowing economic growth by relocating to a city with a large Chinese minority.

Are you considering relocating your manufacturing facility from China to Semarang or other Indonesian cities? InCorp is a market-entry service provider based in Indonesia, having operations in Semarang, Jakarta, and Bali. We certainly can help you to carry out all the legal aspects for doing business in Indonesia, such as company registration, acquiring required business licenses, as well as tax-related services. 

With our comprehensive and tailor-made solutions, we can make your business venture into Indonesia much simpler and streamlined. Talk to our Chinese and English-speaking consultants now.