Lower operating costs led Hong Kong-based Lung Cheong to move part of its manufacturing to Indonesia, says Executive Director Andy Wong

"Cost played a big part in our decision to expand our manufacturing base into Indonesia," said Andy Wong, Executive Director of Lung Cheong.

He cited the rising renminbi, as well as the cost of living and salaries on the Chinese mainland compared to Indonesia. 

As Hong Kong companies scale down their production factories in the Pearl River Delta region, Indonesia is increasingly seen as a promising manufacturing base. 

Free Trade Zones

"With its abundant, low-cost labour force and cheaper, stable electricity supply, Indonesia is a viable alternative production base for Hong Kong manufacturers," said Loretta Wan, Hong Kong Trade Development Council (HKTDC) Regional Director for Southeast Asia and India. "The current government is more pro-business and addresses the concerns of foreign investors," she said. 

Ms Wan pointed out that the government has set up several free trade zones – in Bintan, Batam Island and Karimum. They exempt companies from import and export taxes, customs and excise duties, value-added tax and luxury goods sales tax. 

"Indonesia, like many other neighbouring Asian economies, has not been immune to the global financial crisis and the recession," said Kelvin Lau, Regional Economist at Standard Chartered Bank. "Yet, in relative terms, Indonesia has so far shown greater immunity, thanks to its smaller reliance on exports to drive growth." Household consumption, he said, accounts for about 60 per cent of the country's GDP and should act as a buffer for economic growth. 

The country is attracting mineral-sourcing companies as well as Hong Kong manufacturers. 

Miner's Dream

New Resources Energy International's Eric Poon found some promising leads for his mineral-sourcing business

"Mining is a long-term investment, similar to chasing a dream," said Eric Poon, Department Manager of Hong Kong-based New Resources Energy. Mr Poon set up New Resources Energy International last year, sourcing minerals around the world, mainly in Asia and Australia. The company, which owns shares in Philippine mine operations, sells and markets a full range of mineral ore, including chrome, manganese, lead, zinc, copper as well as coal. It also acts as a middle-man to help Chinese mainland companies locate potential investments in mines overseas. 

"I saw potential on an earlier visit to Indonesia," Mr Poon said. "I wanted to go back there to get a better look." 

In February, Mr Poon had his chance when he joined an HKTDC mission to Jakarta, where delegates got a first-hand look at the business environment and the consumer market. 

"I made several good contacts there," Mr Poon said, including one with Indonesia-based European Wellness. The two companies are now collaborating on a two-year project to provide five million tonnes of steel to the Indonesian market from Mr Poon's mainland partner. 

"Indonesia is not an easy market," he noted. "It's important to have reliable contacts and find trustworthy partners."

Retailers' Market

	Indonesia's retail industry shows great potential for growth

More than half of the country's 237 million people are under the age of 30. The middle class make up 13-15 per cent of the population – roughly the size of Canada's entire population, Ms Wan said. The majority, nearly 60 per cent, live on the islands of Java and Madura, where the wealth is concentrated. 

Indonesian consumers, according to Ms Wan, are similar to those in Hong Kong. Both are "brand conscious." She noted that electronics goods are in high demand, especially such appliances as televisions, refrigerators and air conditioners. 

"The key 16 retail companies in Indonesia represent only five to eight per cent of the total retail market, suggesting that there is great potential for growth," Ms Wan said. 

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