Of the targeted total USD $4.5 billion worth of investment in Indonesia’s telematics industry over the next couple of years, USD $300 million is to be invested in the cellular phone industry, mostly stemming from foreign investors including Samsung, Oppo and Haier. Ignatius Warsito, the Director for Electronics and Telematics Industry at the Indonesian Industry Ministry, said that these three foreign-based companies are currently developing manufacturing facilities in Indonesia.

Samsung Electronics Co Ltd, the multinational electronics company headquartered in South Korea, established a USD $20 million new mobile phone factory through its subsidiary Samsung Electronics in West Java. Operations already commenced in January 2015 and this facility is estimated to produce 800,000 cell phones per year. However, production capacity of this plant will expand in the future.

China-based Oppo and Haier are both in the final stages of construction of their cell phone factories. Both plants are expected to start production in the second quarter of 2015. Oppo announced that its production facility will be able to manufacture between five and ten million mobile phones per year, while Haier’s plant is designed to have an annual production capacity of nearly 2.5 million smartphones. It will be Haier’s first mobile phone factory in Southeast Asia (Samsung Electronics already owns a factory in Vietnam).

Meanwhile, Apple supplier Foxconn pledged to establish a factory in Indonesia. However, these plans are still to materialize as land acquisition troubles, a notorious obstacle to investment in Indonesia, hamper investment realization.

Foreign mobile phone manufacturers are enthusiastic about the market in Indonesia as Southeast Asia’s largest economy is one of the fastest growth markets for cellular phones and smartphones worldwide. Indonesia has a huge population (250 million people) that is characterized by growing per capita income (implying the middle class is expanding rapidly), a young age (about half of the population is below the age of 30 years), while per capita smartphone penetration is still low (roughly 30 percent of the population owns a smartphone, lagging far behind China with nearly 80 percent). According to research conducted by consulting firm Frost & Sullivan, smartphone penetration in Indonesia is estimated to exceed 50 percent in 2015 from only nine percent in 2012 and 23 percent in 2014. Moreover, Indonesia offers a new market for 4G technology, whereas 4G markets in the USA, China and Japan are already saturated.

The latest Ericsson Mobility report predicts that Indonesia will have the third-highest number of new mobile phone subscriptions in the Asia-Pacific area by 2019, while Emarketer believes that Indonesia will have more than 100 million active monthly smartphone users by 2018, becoming the world’s fourth largest market.

In an effort to boost the local mobile phone manufacturing industry, the government of Indonesia has designed new rules, most notably the mandatory local content rule which requires smartphones and other devices compatible with the 4G network (sold on the Indonesian market) to have locally-manufactured content of at least 40 percent starting from 2017. This rule, which is still in draft form (and may be issued by mid-year 2015), already met resistance from the USA and other trading partners as it favours domestic companies over foreign ones. Indonesian Trade Minister Rachmat Gobel recently stated that the government will examine these concerns. Currently, Indonesian mobile phone producers such as Sat Nusapersada and Hartono Istana Teknologi source roughly between 20-35 percent of its cell phone parts domestically.