How to Build Semiconductor Manufacturing Capacity in Indonesia

Global semiconductor manufacturing continues to face intense pressure as demand for chips grows faster than existing supply chains can keep pace. Concentrated production hubs, rising costs, and bottlenecks across the semiconductor industry have pushed manufacturers to explore new locations that offer greater resilience and long-term stability.  

In this shifting landscape, Indonesia is gaining attention as a promising base for expansion. 

Why Indonesia is Becoming a Strategic Base for Semiconductor Manufacturing 

Indonesia’s semiconductor market is projected to reach USD 2.79 billion by 2025, driven by demand from smartphones, IoT devices, consumer electronics, and smart home technologies. 

Indonesia’s digital economy is expanding rapidly, projected to reach USD 150 billion in 2025 and USD 600 billion by 2030, highlighting significant long-term growth potential for semiconductor supply chains.  

This shift is prompting the government to strengthen the semiconductor industry and position Indonesia as an attractive destination for semiconductor manufacturing and production diversification. 

Indonesia’s Semiconductor Manufacturing Potential 

Growing demand is opening opportunities for semiconductor Indonesia to build upstream, midstream, and downstream capabilities across the value chain. 

Expansion of Raw Material Processing 

Indonesia’s downstreaming strategy encourages local processing of silica sand and mineral resources, creating entry points for semiconductor companies investing in silicon wafer production and upstream materials for semiconductor factories. 

Growth of Advanced Technologies 

The rise of AI, IoT, and automation is accelerating demand for high-performance, energy-efficient semiconductors, supporting new opportunities in microelectronics, sensor development, and advanced chip design. 

Integration with Battery Technology Development 

Indonesia’s focus on sodium-ion battery innovation is creating collaboration between battery and semiconductor development. The Riau Islands and other tech clusters offer promising locations for integrated facilities that advance both technologies simultaneously.

READ MORE:

• Indonesia’s Electronic Manufacturing Industry: Potential and Challenges 
• Renewable Energy Investment in The Manufacturing Sector
• 10 Reasons Outsourcing Services Will Supercharge Your Manufacturing Growth 

Ideal Locations for Semiconductor Manufacturing in Indonesia 

Indonesia’s semiconductor landscape is concentrated in strategic regions like Java, Sumatra, Batam, and East Java, each offering distinct advantages for semiconductor companies and factory development. 

Java and Sumatra 

• Core hubs for semiconductor industry activity, driven by strong logistics, skilled labor, and stable power. 
• Greater Jakarta hosts 35 operational data centers that support chip production and electronics operations. 
• Java’s industrial corridors generate the largest share of the Indonesia semiconductor market. 

Batam and the Riau Islands 

• Five hyperscale data centers are underway, leveraging Batam’s free trade zone and proximity to Singapore. 
• Apple is negotiating a USD 1 billion AirTag facility expected to supply 65% of global output, reinforcing Batam as a central semiconductor cluster. 

East Java 

• Home to the region’s first digital substation by Hitachi Energy, strengthening grid reliability is essential for back-end fabs and SMT lines. 

Central Java 

• Attracts AI-oriented investments, including the new Solo AI Center. 
• Offers competitive labor costs and strong infrastructure for semiconductor companies expanding midstream production. 

Kalimantan 

• Provides upstream raw materials such as silica sand, essential for wafer production and semiconductor manufacturing. 
• Existing processors support plans for a future wafer fab ecosystem, although companies may require self-generation systems due to grid inconsistencies. 

Sulawesi 

• The Morowali Industrial Park hosts battery precursor plants that rely on power semiconductors for EV supply chains. 
• Increasing integration between the battery and semiconductor industry activities. 

Future Growth Regions 

• Government programs aim to expand fiber backhaul and stabilize electricity in the outer islands. 
• These improvements may unlock new semiconductor factory locations beyond the Java corridor.

How Indonesia Supports Semiconductor Factory Setup 

Indonesia is building a supportive environment for semiconductor manufacturing through incentives, infrastructure upgrades, and downstreaming initiatives. 

Key Government Supports 

• Tax incentives, including holidays and reduced corporate tax rates for high-tech facilities. 
• Import duty exemptions for machinery, equipment, and semiconductor manufacturing materials. 
• Special Economic Zones offering simplified licensing, streamlined logistics, and cost advantages. 

Silica Downstreaming Roadmap 

• Policies promote domestic silica sand processing to support wafer materials and reduce reliance on imports. 
• Reinforces the long-term goal of establishing a local semiconductor supply chain. 

Infrastructure Improvements 

• Investment in power reliability, smart grids, and industrial utilities is essential for fabs. 
• Upgraded ports, logistics corridors, and industrial estates to support semiconductor factories. 

Digital and Talent Development 

• Expansion of data centers, AI hubs, and digital training programs. 
• University partnerships to build microelectronics and semiconductor engineering talent. 

Regulatory Facilitation 

• Faster business setup through OSS systems helps semiconductor companies establish operations with fewer delays. 

Challenges and What Companies Should Prepare For 

While Indonesia offers strong momentum for the semiconductor industry, several practical considerations remain necessary for manufacturers entering the market. 

• Infrastructure variation outside major hubs may require land verification, utility checks, and due diligence. 
• Layered licensing requirements mean companies must carefully prepare for PT PMA incorporation, environmental permits, and building approvals. 
• Specialized talent shortages require strategic workforce planning and HR advisory. 
• Import procedures for semiconductor machinery and materials require accurate HS coding and customs readiness. 
• Land and operational compliance requires zoning checks, ongoing reporting, and reliable local representation.

Accelerate Your Semiconductor Factory Setup with InCorp 

Entering the semiconductor landscape requires careful navigation of licensing, land verification, utility readiness, workforce planning, and import compliance. 

InCorp (an Ascentium Company) can assist semiconductor companies in managing the complexities of establishing and operating a semiconductor factory in Indonesia through support such as: 

• PT PMA establishment and regulatory structuring 
• Environmental permits and OSS-based licensing 
• Workforce planning, HR compliance, and talent advisory 
• Import preparation, HS Code classification, and documentation support 
• Ongoing corporate compliance and reporting management 

Fill out the form below to build a strong operational foundation in Indonesia’s semiconductor industry.

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