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Apple's $10 Million Gambit: Navigating Indonesia's Local Content Roadblock

AInvestTuesday, Nov 5, 2024 3:00 am ET
1min read

Apple Inc. has allegedly proposed a nearly $10 million investment in Indonesia, intending to produce more components locally to lift a ban on the sale of its latest iPhone model. According to sources, the plan involves collaboration with its suppliers to establish a factory in Bandung, southeast of Jakarta. This facility is slated to manufacture parts and accessories for Apple's devices.

The proposal has been submitted to Indonesia's Ministry of Industry, which last month blocked the availability of the iPhone 16, citing that Apple's local subsidiary did not meet the requirement of 40% domestic content for smartphones and tablets. The Ministry is currently reviewing the proposal, and a decision is expected soon, although the details may still evolve.

This move by Apple comes amidst Indonesia's broader strategy to pressure international companies to bolster local manufacturing, intending to protect and promote domestic industries. Previously, Indonesia also prohibited the sale of Google's Pixel smartphones due to similar investment shortfalls. These actions echo the approach used by former President Joko Widodo's administration to stimulate the local economy.

Despite lacking an independent manufacturing facility in Indonesia, Apple partners with local suppliers to produce parts or finished products, akin to other multinational companies. For Apple, the proposed investment is relatively modest, considering it offers greater access to Indonesia's approximately 278 million consumers, many of whom are tech-savvy and under 44 years old.

Though Indonesia might perceive Apple's investment as a triumph, its stringent demands could deter other firms from expanding or initially establishing a presence in the region, especially those considering relocation from China. This might undermine the government’s aspiration to draw foreign investments necessary for economic growth and fiscal policy support.

Notably, earlier this year, the Indonesian government implemented import restrictions on thousands of products ranging from MacBooks to tires, compelling foreign corporations to increase local production. This policy sparked discontent among industry players, including long-term manufacturers like LG Electronics, who faced difficulties importing components necessary for their products.

Despite repeated calls to enhance local industry, Indonesia's manufacturing sector has struggled, with its contribution to GDP decreasing from 21.1% in 2014 to 18.7% in 2023. Apple had previously invested approximately $95 million through its developer academy, significantly below the pledged $109 million. Additionally, officials have urged e-commerce platforms like Tokopedia and TikTok to cease listing iPhone 16 sellers, warning of potential legal actions if non-compliant.

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