Khoirul Amin – Homegrown automotive component makers are still largely failing to cash in from Southeast Asia's biggest auto market, with regulations working against them and incoming foreign component makers posing a threat to the industry.
Association of Small and Medium-Sized Automotive Component Companies (Pikko) chairwoman Rosalina Faried said recently that Pikko members were finding it difficult to compete under current regulations that favored large-scale businesses.
"It's unfortunate that small component makers are still subject to 10 percent tax for importing raw materials, while the big ones are entitled to government-paid import duties [BMDTP]," she told reporters.
Rosalina said that the situation had put pressure on small component makers, which are still forced to import around 20 to 25 percent of their raw materials from overseas because of a lack of domestic production.
The government provides BMDTP for 25 sectors, including automotive components. However, Rosalina said that small component makers were excluded.
The Finance Ministry's tax and customs directorate general previously announced that the national industry took up only around Rp 194 billion (US$14.8 million) or 33.5 percent of an indicated Rp 578 billion indicative BMDTP last year.
A number of associations have argued that the low take-up of BMDTP is mainly due to the long and complicated procedures that must be undergone in order to make use of the facility.
Afrida Suston Niar, the head of the Industry Ministry's subdirectorate general for four-wheeled vehicles, admitted previously that domestic challenges had left the country's component industry lagging far behind that of neighboring countries like Thailand.
"The challenge is that our component industry still has to import certain raw materials on which import duties are imposed, while they also need to offer their products at competitive prices to beat the competition from their peers in other countries," she said. She implied that the matter was still being discussed with the Finance Ministry.
According to the Industry Ministry's estimates, there are around 600 component companies in Indonesia at present, against more than 2,000 in Thailand.
Pikko comprises 120 member companies spread across Greater Jakarta, East Java and Central Java, with seven having gone bust in the face of fierce competition with foreign component makers, said Rosalina.
She added that many of Pikko's members were still too financially and technologically weak to face head-to-head rivalry with foreign component makers entering the Indonesian market, such as those from Japan. "Most our members are tier-3 and tier-2 companies, while Japanese component makers are mostly tier-1 companies," she said.
In the automotive supply chain, tier-1 companies are direct suppliers of components to original equipment manufacturers (OEM), which manufacture products for end-consumers. Meanwhile, tier-2 companies are those supplying to tier-1 companies and tier-3 companies supply tier-2 companies.
A number of major Japanese carmakers, including Toyota and Honda, have their own production plants in Indonesia, with local content usage hitting up to 80 percent.
Indonesia is currently the largest car market in Southeast Asia with annual sales of around 1 million vehicles, surpassing Thailand with around 800,000 units. However, Thailand still outpaces the country in terms of car production, with total annual output hitting 2.4 million units.
Source: http://www.thejakartapost.com/news/2016/04/11/industry-struggles-amid-fierce-competition.html