The Indonesian government is preparing two locations - Kendal (Central Java) and Gresik (East Java) - as alternatives for the automotive manufacturing industry in Indonesia. Currently, West Java (specifically Karawang) is the nation's car manufacturing hub where most carmakers establish their manufacturing facilities.
Imam Haryono, Director General for Industrial Region Development at Indonesia's Industry Ministry, said both locations - Kendal and Gresik - already have good infrastructure development at their disposal, hence they can rely on relatively good connectivity (that keeps logistics costs low). Moreover, Kendal is already known as one of Indonesia's centers for automotive components.
Although Haryono immediately said Karawang will most likely remain the key center of Indonesia's automotive manufacturing industry, he does detect a big problem in this area, namely the high prices of industrial land and the higher minimum local wages. For the smaller players (for example Indonesia's car component makers) these matters make it basically impossible to establish their plants at Karawang. In Kendal and Gresik, on the other hand, land prices and minimum wages are still lower.
While there exists a thriving automotive manufacturing industry center in Karawang, the various automotive manufacturers that are active in Indonesia are spread across Sunter (North Jakarta), Cikarang, Bekasi, Purwakarta, and Bogor. Therefore, the government now intends to create special automotive manufacturing areas that are connected to big ports. In about five years time a new international deep seaport should be completed in Patimban (West Jakarta) that will have a focus on automotive exports. Meanwhile, carmakers in Kendal and Gresik can transport their output to the Tanjung Mas port in Semarang and Tanjung Perak port in Surabaya, respectively, for export purposes.
Yohannes Nangoi, Deputy Chairman of the Indonesian Automotive Industry Association (Gaikindo), also stated that Karawang will remain the key center of Indonesia's automotive industry, particularly due to its proximity to Jakarta (where Indonesia's largest car market is located). However, the disadvantage is that industrial land has become very expensive in this area. Therefore, it is important that the government creates new growth centers for the automotive sector that contain good supportive infrastructure.
I Gusti Putu Suryawirawan, Director General of Metal, Machinery, Transportation Equipment & Electronic Industries at the Indonesian Industry Ministry, says the government has to focus on the development of industrial zones that have a high degree of competitiveness in order to compete with industrial zones in other countries (for example Thailand). However, he adds that Indonesia needs to adapt its car industry to the latest global trends and technology, such as the manufacturing of low emission cars and electric cars.
Sanny Iskandar, Chairman of the Industrial Estate Association (HKI), said automotive companies will remain focused on the island of Java as, domestically, the biggest car market is found on Java, while, externally, the biggest international ports are located on this island. Therefore, Iskandar expects demand for industrial land (from automotive companies) on Java to continue growing. However, the growth pace may reach only one digit in 2017, which constitutes is moderate growth. The reason behind this is that many automotive companies - especially in Bekasi and Karawang - still have unused land at their disposal and therefore do not need to acquire more land to expand their business.
The automotive industry is actually very important for Indonesia's industrial land sector as this industry accounts for about 30 percent of total demand for industrial land in Indonesia. Sales of industrial land rose 33 percent year-on-year (y/y) to 120 hectares in the first half of 2017.
Read more: Overview of Indonesia's Automotive Industry