Robert Go, Jakarta – Decisions by Nike and Reebok to cut orders from local manufacturers leave Indonesia's footwear industry under siege, and laid-off workers may harm the country's economy further by staging rowdy street protests and scaring off potential investors.
The two companies' officials and Indonesia's footwear manufacturers association Aprisindo said that simple business sense had motivated the cuts.
Aprisindo chairman Anton Supit said: "There is no long-term guarantees in this business. Foreign buyers come and go, depending on their own business calculations. In this case, the suppliers' cut-off will hurt, but other players, who employ thousands more Indonesians, still benefit from relationships with Nike and Reebok.' Mr Jeff Dumont, Nike's general manager in Indonesia, said in a statement that even though his company had terminated its contract with supplier PT Doson Indonesia, it would continue ordering shoes from nine other firms that employ 60,000 workers.
Reebok also still gets more than 25 per cent of its shoes made in Indonesia by three manufacturers which employ nearly 20,000 people. The footwear industry here has suffered since the onset of the economic crisis in 1996, and experts said that protests could aggravate the situation.
Last week, 1,000 workers staged a raucous protest in front of the US embassy in Jakarta after Reebok said it would stop buying shoes from the local manufacturer that employs them. PT Doson's workers have also said that they would demonstrate against Nike for its decision to stop ordering shoes from them by November.
Aprisindo estimated that shoe exports would contribute only US$1.3 billion to the Indonesian economy this year, down from more than US$1.7 billion two years ago.
Rising production costs, such as higher wages and material prices, have put about 100 local producers out of business. Those still operational are worried about losing orders from foreign buyers such as Nike and Reebok.
Indonesian manufacturers are also losing customers to suppliers from other developing countries such as China, Vietnam and Thailand, who reportedly can produce shoes and other apparel items cheaper and more efficiently.
Mr Anton complained: "The picture has worsened steadily over the last few years. Buyers take their bottomlines seriously, and if we cannot offer better deals than our competitors, we will simply lose." Aprisindo added that the minimum wage in Vietnam, for instance, was only US$42 per month, compared to over US$60 in many parts of Indonesia. A Vietnamese worker, however, is also more productive, churning out four pairs of shoes daily, whereas the typical Indonesian can finish three. The strengthened rupiah, in this case, also deals a blow to labour-intensive industries here by driving up costs.
Industry experts said that buyers could not be blamed for making reasonable business decisions and warned that worker protests only created the impression that investing in Indonesia brought foreign companies more trouble than it was worth.
A factory owner said: "They're not thinking of the good of the country when they demonstrate like that. Nike and Reebok still employ thousands more. If they were to pull out completely, the entire industry will be affected."