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textile industry in Semarang Indonesia

Textile Industry in Semarang and Its Business Opportunities

The garment and textile industry in Indonesia is one of the largest in the world. As of 2016, the export value of textile in Indonesia has hit US$12.3 billion, contributing to the nation’s gross domestic product (GDP) of 1.21%.

One place that is worth mentioning, apart from Jakarta and Bali, is Semarang. Semarang is one of the most important manufacturing sites for the garment and textile industry in Indonesia.

Surrounding cities, as well as Surakarta (Solo) and Yogyakarta—known as the hotbeds for batik production—are also supported by Semarang’s booming textile business opportunities.

With so many business opportunities that Semarang can offer in the textile industry, this place is becoming a preferred destination for expats to set up a company in Indonesia and get excited about the positive outlook.

In this article, we will highlight the business potential, legal aspects, permit and licensing, and factors of the garment and textile industry in Semarang.

Textile Industry in Indonesia: Why Semarang?

The two major components in Semarang that have caught foreign enterprises’ attention to set up their textile and garment bases are the city’s relatively lower wages and almost non-existing labor tensions.

Central Java, the region that Semarang is part of, is home to 14% of Indonesia’s population. It is no surprise that the labor resources in Semarang are sufficient, given that textile businesses, especially manufacturing, are very labor-intensive.

Read more about Top Sectors to Invest in Semarang.

Different Business Opportunities in Textile Industry in Semarang

There are many opportunities available for textile businesses. Generally, they can be categorized into the following areas in which investors can venture to grow their businesses.

  1. Textile and garment manufacturing
  2. Textile and clothing distribution, sales, and exports
  3. Clothing online store for local and international end-users
  4. Clothing retail store or boutique

Foreign Ownership

This table shows the foreign ownership and business classification of different textile business activities, according to the Negative Investment List.

Activity Maximum Foreign Ownership
Textile and garment manufacturing 100%
Textile and clothing distribution, sales, and exports 67%
Clothing online store for local and international end-users 0%
Clothing retail store and boutique 100%
Importer and exporter 100%
Wholesaler 0%

Details of Each Textile Business Activity

1. Textile and Garment Manufacturing

According to PwC, textile manufacturing is one of the key contributors for the Indonesian economy to become the fifth-biggest in the world, surpassing Brazil, Russia, and Germany.

The impact can already be seen in this decade. There is no doubt that Semarang with its large population and inexpensive workforce has an enormous influence on manufacturing, as well as consumers’ buying.

Many quality raw materials and fabrics are readily available in Semarang and in the surrounding areas, contributing to and strengthening the local textile and garment manufacturing ability to meet global standards and acceptability.

Just make sure that you do your due diligence in sourcing and perform stringent quality assurance. However, the same issue dies hard in Indonesia as setting up a textile company is always bureaucratic and ambiguous.

Remember to double-check that if your business classification is accurate or an extra-legal entity is required for your supplementary business.

Building Permit (Izin Mendirikan Bangunan – IMB)

Foreign firms are usually in a challenging situation when it comes to getting a manufacturing facility with the proper building permit IMB.

An IMB is a permit issued to construct a building for both residential and commercial purposes. It is critical that you know that your manufacturing factory has the correct license because modifying or changing the permit afterward can be troublesome and problematic.

To make matters even more complicated, Semarang has several districts and each district has its own law that restricts certain areas for manufacturing purposes.

To avoid hassles and possible regulatory blunders, an alternative is available. Expats can partner with an already up-and-running manufacturing company and facilitate the existing license the latter has.

A foreign company can even outsource the manufacturing to the said company. Consultants at Cekindo can match you with a reliable partner who has valid licenses.

Manufacturing Business Classification (KBLI)

Manufacturing, including textile manufacturing, possesses its own KBLI (Business Classification or Klasifikasi Baku Lapangan Usaha Indonesia).

Other business activities such as sales and retail cannot be joined with your textile manufacturing business. You need to set up a new business entity in a different business classification.

textile industry in Semarang

2. Textile and Clothing Distribution, Sales, and Exports

If you are a foreign firm in Semarang with various products that are ready for distribution, sales and exports, this business opportunity will help you generate a healthy inflow of revenue. A textile distributor can register the company under the trading business classification.

In this case, you are able to distribute, export, and import textile products. In this classification, B2B (Business-to-Business) sales are allowed, but B2C (Business-to-Consumer) sales are prohibited.

3. Clothing Online Store for Local and International End Users

According to the Indonesian government, the online markets, or e-commerce in Indonesia, are expected to have a turnover growth of at least IDR 1,500 trillion (USD 114.5billion) by 2020.

This is mostly due to the development of Internet infrastructure in Indonesia, and the convenience that allows people to purchase from all over the world.

Therefore, a lot of traditional retail stores see the astounding potential of online textile businesses, thus becoming part of the e-commerce ecosystem.

An online store is classified as e-commerce in KBLI. However, one of the major drawbacks is that for this classification, any exports or imports of goods are not allowed at all.

A separate business classification—trading, is required for both imports and exports. If you want to save time and avoid the arduous procedures at the custom, you can appoint a third party that provides undername import and export services.

4. Clothing Retail Store or Boutique

Just like picking a place for a textile manufacturing factory, you will have to choose a shop that fulfills all the requirements in regards to building permit IMB.

An IMB with the store or shop function is compulsory. You are obliged to set up your clothing store in an area where the IMB with the correct function is valid. The last thing you want is an incorrect IMB that will peril your venture into the textile industry.

A retail store in Semarang will also need a business classification that says “retail shop”. Since no foreigners can own a retail shop or boutique, in other words, 0% foreign ownership in retail and boutique business, a special purpose vehicle can be an option—considering if this is the type of textile business you would like to go ahead with.

Do bear in mind that foreign ownership is allowed for a retail store in a larger model such as a big department store.

Gain Presence in the Textile Industry in Semarang, Indonesia with Assistance from Cekindo

With all the comprehensive and professional tie-ups with experts and firms both locally and internationally, Cekindo is trying to touch all areas when it comes to helping you form a textile company in Semarang.

Contact us now to get your company set up in the textile industry in Semarang right away.

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