Why Surabaya is The Perfect Location for Manufacturing Business in East Java

Indonesia’s attractiveness as an investment destination stems from a combination of its advantageous natural resource endowments and geographically strategic location. Indonesia, a diverse archipelago nation with over 300 ethnic groups, continues to be Southeast Asia’s largest economy.

The country’s growing young population and increasing urbanization have made it one of the world’s fastest-growing consumer marketplaces. Between 2000 and 2015, the proportion of the population living in urban areas increased from 42% to 54%. By 2030, 71% or 209 million people are predicted to live in urbanized areas.

While the capital city of Jakarta and The Island of Gods Bali are in the spotlight for doing business in Indonesia, the rest of the archipelago has much more to offer. Surabaya, the capital city of East Java, is one such place with a treasured potential for conducting business.

Surabaya Manufacturing Business: A Gateway to Eastern and Western Indonesia

Despite the prevalence of the Covid-19 pandemic, East Java’s economic performance is commendable as it grew by Rp587.33 trillion in Quarter-I 2021, as assessed by Gross Regional Domestic Product (GRDP). East Java’s economy is strongly backed by the manufacturing sector (23.68%), the trade sector (21.11%), and the agricultural sector (12.18%), contributing 56.97% to its GDP.

As the capital of East Java, Surabaya is quickly becoming a hub for doing business and investments. Surabaya’s investment in 2020 exceeded IDR 64 trillion, a significant increase from IDR 62 trillion in 2019. The investments consisted of Foreign Investment (PMA) of IDR 1.5 trillion and Domestic Investment (PMDN) of 62.55 trillion.

READ MORE:

• Insider Tips on Import and Export Business in Surabaya
• Why You Should Establish a Manufacturing Company in Surabaya

Why Should Invest in Surabaya

Various key factors are influencing foreign and domestic investors to set their footprints in Surabaya are:

Strategic Location

Surabaya is the commercial hub of eastern Indonesia and is known as the “gateway to the East.” It serves as a crossroads for all shipments to and from the east coast of Java. Moreover, the port of Surabaya, Tanjung Perak, continues to be a major economic engine.

The port is now managed by Pelindo III, a governmental operator in charge of 43 ports around the nation. Tanjung Perak handles 13 international shipping lines to service dozens of destinations, including Singapore, Pusan, Hong Kong, and Manila, because of its strategic position.

Growing Middle Class

According to Surabaya’s Central Bureau of Statistics, the area’s gross regional domestic product (GRDP) was IDR 451.5 trillion ($34 billion) in 2016, indicating an 11% increase from 2015.

It further spiked the per-capita income of IDR 10.4 million (USD 784) to IDR 15.8 million (USD 1190). As a result, Surabaya is witnessing higher consumption levels and a burgeoning middle class.

Ideal Place for Property Investment

Based on accessible land and high demand for property, realtors are enthusiastic about property investments in Surabaya. The local population is more optimistic to invest in real estate than other investment areas.

Surabaya accounts for more than 80% of the buyers and has more land available than Jakarta. Moreover, economists predict that land prices will rise quickly in Surabaya due to the shortage of availability of land over time.

Seamless Licensing and Business Permit

Indonesia’s Presidential Regulation Number 97 of 2014 is a response from the government to the era of free investment in Indonesia. Under PR 97/2014, Surabaya Government established the Surabaya Single Window permit service, where the service system will facilitate people who want to take Trading Business Permit (SIUP). This also could be another advantage for Surabaya manufacturing business.

The Recent Developments of Surabaya

With growing interest from foreign businesses to invest in Surabaya, the city has made significant initiatives in infrastructure development to support economic and business growth. An Australian Government-supported institution has also collaborated with the Indonesian government to strengthen infrastructure policy, planning, and investment in Surabaya. Notable projects include:

• Suramadu Bridge: A key infrastructure project connecting Surabaya to the neighboring island of Madura, fostering regional connectivity and development.
• Autonomous Rapid Transit (ART): A cost-effective transit system designed to enhance business connectivity and improve Surabaya’s public transportation network.
• Surabaya Regional Railways Lines (SRRL): Supported by a €250 million loan from Germany’s Bank, this project involves constructing an electric commuter rail system to connect Surabaya with surrounding areas, promoting sustainable urban mobility.
• West Outer Ring Road (JLLB) and East Outer Ring Road (JLLT): These strategic projects aim to reduce traffic congestion and stimulate economic growth by connecting various city regions.
• Menganti-Wiyung Road Construction: A new road project to connect Surabaya’s western and central regions, improving mobility for residents and logistics.
• Gunungsari Drainage Diversion: A key initiative designed to mitigate flooding while serving as a strategic link between Surabaya and Gresik.

Surabaya Manufacturing Business: Industrial Estates Surrounding The City

The government has mandated* industrial businesses to operate their activities in industrial estates in order to promote equal economic growth in the country.

As the second-largest business center in the archipelago, East Java offers a bunch of industrial estates where foreign investors can opt to set their footprint in. Here are some of the notable location to support manufacturing business in Surabaya:

Industrial Estate	Location	Key Sector
Surabaya Industrial Estate Rungkut	Surabaya	Food and beverage, Steel, Automotive, Electronic and Circuit Parts, Papermill, and Basic Chemical Industry
Java Integrated Industrial and Port Estate (Special Economic Zone)	Gresik Regency (30 km north of Surabaya)	Warehouse and Shipping Yard, Food, Steel, Plastic, and Glass industry.
Ngoro Industrial Park	Mojokerto Regency (50 km south of Surabaya)	Plastic, Paper mill, Feed mill, and Garment industry.
Pasuruan Industrial Estate Rembang	Pasuruan Regency (60 km south of Surabaya)	Electronic Manufacturing, Feed mill, Plastic, Bottled Water, Cigarette, and Garment industry

*This mandate is excluded for companies with the following conditions: (1) Companies operating in the region that do not have industrial estates or its industrial estates have been fully occupied; (2) Small and medium-sized companies that do not cause environmental impact; (3) companies that process special raw materials and/or whose production processes require a specific location.

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• 5 Key Reasons for Doing Business in Batam Industrial Park
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Incentives in Setting Up A Business in Industrial Estate

In addition to its facilities and easier access to ports and major transportation routes for goods distribution and logistics, the Indonesian Government also offers attractive incentives for foreign investors who set their business operations in these Industrial Estates. Refer to the table below for more details:

Industrial Estates Incentives
Developing Industrial Estates (Located in Java Island)	30% net Income Tax reduction for 6 years (5% per year) Value Added Tax (VAT) exemption Import Duty Exemption
Potential Industrial Estates Category I (Located in South Sulawesi, East Kalimantan, North Sumatera)
Potential Industrial Estates Category II (Located in Papua and West Papua)	10-100% Income Tax reduction for 5-15 years Value Added Tax (VAT) exemption Import Duty Exemption

Surabaya Manufacturing Business: Commence it with InCorp

Setting up a manufacturing business in Surabaya is indeed lucrative, however, it comes with its fair share of challenges. While you focus on the core business aspect of your company, InCorp’s registers your company with the least hassle. InCorp also conducts due diligence and market research to rule out any loopholes. Our consultants readily aid you to obtain the necessary product registration and licenses like business and import licenses. We also provide professional advice and save you the management stress with our HR and recruitment services.

To know more about how InCorp’s solutions can help you make investments in Indonesia, please fill out the form below or talk to an expert on our chatbot.