Samsung Electronics Co Ltd, the multinational electronics company headquartered in Suwon (South Korea), said that it plans to establish a factory in Indonesia to produce mobile phones for Indonesia’s domestic market. Samsung Electronics, subsidiary of the Samsung Group (a leading global information technology company), wants to set up the factory in West Java and production is expected to start later this year. Samsung Electronics already owns factories in China and Vietnam.
The company is enthusiastic to establish manufacturing facilities in Indonesia as Southeast Asia’s largest economy constitutes one of the world’s fastest growing markets for cellular phones and smartphones. The country contains a large and young population while smartphone penetration is still low. According to consulting firm Frost & Sullivan smartphone penetration in Indonesia will exceed 50 percent in 2015 from only nine percent in 2012 and 23 percent in 2014. Meanwhile, Indonesia is characterized by a rapidly expanding middle class due to solid per capita GDP growth, implying that more and more people can afford to purchase electronic devices. This context makes investments in the country’s telecommunication sector lucrative. Previously, Taiwan-based Foxconn Technology Group (supplier to Apple Inc) announced it is considering to open a USD $1 billion factory in Indonesia. However, they prefer to wait before the new Indonesian government (headed by Joko Widodo) has been inaugurated in October 2014.
The factory of Samsung in West Java will be designed to have a total production capacity of 900,000 phones per month. It remains unknown, however, whether Samsung will manufacture cellular phones, smartphones or both at this facility.
Growth of the smartphone market in Indonesia has caused a shift in the country’s telecommunication business model. Revenue from voice messages, previously the core business, has declined as Indonesians switched to chat applications like BlackBerry's BBM and WhatsApp. Moreover, cellular phones and smartphones are increasingly used as a tool to access the Internet.
However, prospects in the smartphone business in Indonesia in 2014 and beyond are a bit dashed as the Indonesian government considers to introduce a 20 percent tax on smartphones retailing at (or over) IDR 5 million rupiah (USD $429). This tax is an attempt to curb the current account deficit (as most smartphones are imported) and to protect domestic (usually cheaper) brands. If this tax will be implemented (which depends on a decision made by the new government) then Indonesia would become the most expensive country in Asia to buy an Apple iPhone 5s.