By Sonia Adriaty, Industrial Park

Introduction

The global industrial landscape is undergoing a major transformation driven by the “China+1” strategy. Multinational corporations are no longer relying solely on China as their main production base. Instead, they are adding at least one additional country as an alternative manufacturing location.

This trend is primarily fueled by protectionist tariff policies, particularly U.S. import tariffs on Chinese products, which now exceed 30%. Meanwhile, tariffs on Indonesian products are relatively lower at 19%, similar to Malaysia and slightly below Vietnam at 20%. This creates strong incentives for companies to consider relocating to these countries, including Indonesia.

The impact is evident in the surging demand for industrial parks. Industrial real estate prices in Indonesia have risen by 15–25% compared to last year – the fastest increase in two decades. Additionally, Indonesia’s economy grew 5.12% in Q2 2025, the highest in two years, supported by robust foreign direct investment (FDI). In Q1 2025 alone, FDI reached IDR 230.4 trillion (USD 13.67 billion), up 12.7% year-on-year, creating more than 594,000 new jobs.

Global Industrial Relocation Trends and Their Impact on Indonesia

One of the key catalysts for this shift is the U.S. decision to reduce import tariffs on Indonesian products from 32% to 19%. This policy opens new opportunities for labor-intensive industries such as textiles, garments, footwear, and furniture, which have long faced challenges in competing in the U.S. market due to high tariffs.

Indonesia’s exports to the United States have now reached USD 23.3 billion annually, with the textile and footwear sector contributing USD 1.85 billion in the first quarter of 2025 alone. The new tariff commitment is likely to strengthen the position of Indonesian products in the U.S. market, enabling more competitive pricing and greater export volumes.

The 11.3% export surge in June 2025 reflects U.S. market confidence in Indonesian products amid ongoing tariff negotiations. This also opens up new investment opportunities in labor-intensive manufacturing, one of Indonesia’s key sources of global competitiveness.

Moreover, the U.S.–China trade war remains a major driver of relocation. High tariffs on Chinese exports to the U.S. have significantly disrupted the global manufacturing landscape, forcing companies to reevaluate production and distribution strategies. To reduce dependence on China and manage costs, many firms are actively considering relocating production facilities to cost-efficient, tariff-neutral countries.

Countries like Vietnam, Thailand, and Indonesia are among the top choices. Vietnam, for instance, has already seen a surge in Chinese-origin industrial investments as firms seek alternative bases to navigate shifting trade dynamics.

However, to fully capitalize on this momentum, Indonesia must address several structural challenges, including:

• Inefficient bureaucracy and regulatory hurdles
• Limited local supply chain depth
• Uneven infrastructure outside Java
• Need for more supportive trade and industrial policies

Without decisive reforms, neighboring countries could capture a larger share of this relocation wave.

Potential Sectors for Industrial Relocation in Indonesia

The global relocation trend is not uniform across all sectors. Instead, it is concentrated in industries with high strategic value and strong growth potential. Indonesia, with its large domestic market, abundant workforce, and downstream industrialization policy under President Prabowo Subianto, is well-positioned to attract new investments in three priority sectors:

1.Electronics and Components

In 2024, Indonesia’s total realized FDI reached IDR 900.2 trillion (USD 55.3 billion), up 21% year-on-year. The 2025 target for combined FDI and domestic investment is IDR 1,900 trillion (USD 120 billion). While specific data for electronics is not yet available, this overall investment climate signals strong potential for the electronics sector.

Indonesia is actively developing modern manufacturing clusters and smart industrial parks to enhance efficiency and build complete ecosystems of suppliers, workforce, and infrastructure. The Domestic Component Level (TKDN) policy also compels global brands to localize production, as seen with Apple.

2. Textiles and Garments

This sector serves as one of the backbones of Indonesia’s labor-intensive industries and has now emerged as a major destination for global relocation. Supported by a large workforce and relatively competitive labor costs, it remains a key driver of Indonesia’s non-oil and gas exports.

In Q1 2024, Indonesia’s textile and garment industry recorded 2.64% year-on-year growth, with export values reaching USD 2.95 billion. This reflects the sector’s resilience amid global demand fluctuations and rising production costs driven by energy and raw material prices.

The industry continues to perform strongly due to its cost-competitive labor advantage and the support of a large domestic market. With a population of around 273 million, Indonesia’s domestic apparel market was valued at USD 21.7 billion in 2023, with per capita clothing expenditure reaching USD 78.14.

3. Electric Vehicles (EV) and Batteries

Indonesia holds a dominant position in the global EV supply chain due to its massive nickel reserves:

• Nickel production (2024): 2.2 million tons (~60% of global output)
• Nickel Output: surged 1,143% over the past decade
• 2025 Mining Quota: 298.5 million Wet Metric Tonnes (WMT), up from 271.89 million WMT in 2024 This aggressive downstream strategy ensures raw material supply for domestic industries and strengthens Indonesia’s role in the global EV ecosystem.

With a combination of a large domestic market, an abundant labor force, and downstream industrialization policies under President Prabowo Subianto’s administration, Indonesia is poised to become more than just a relocation destination — it has the potential to evolve into a strategic industrial hub at both regional and global levels.

Future success will hinge on the country’s ability to maintain investment climate stability, manage oversupply risks, and accelerate the transition toward sustainable, technology-driven manufacturing.

The Strategic Role of Industrial Parks in Indonesia

Industrial parks are no longer just clusters of factories—they have become critical nodes for industrialization, investment attraction, and large-scale job creation.

• Total Investment (as of Q4 2024): IDR 6,173 trillion (USD 378.65 billion)
• Jobs Created: 2.3 million
• Active Industrial Parks: 170 (average occupancy: 58.4%)
• Additional Parks Targeted to Open in 2025: 41

This expansion aligns with the government’s target of achieving 8% economic growth under the Asta Cita vision.

Strategic Advantages for Industrial Parks

1.Geopolitical Location and ASEAN Market Access

Located along major global trade routes, Indonesia serves as a regional hub for ASEAN distribution. Industrial parks across Java and in key locations beyond Java Island are critical gateways for regional trade.

2.Competitive Workforce and Vocational Programs

With a workforce of 143 million people (World Bank, 2025), Indonesia offers large-scale labor availability at competitive costs. Industrial parks are further supported by government-led vocational programs and workforce training, ensuring skills development aligned with investor requirements.

3.Massive Domestic Market as an Investment Buffer

With a population of 273 million, Indonesia stands as the largest consumer market in ASEAN, where household consumption accounts for over 50% of GDP (BPS, 2025). The country has a large and growing consumer base, supported by strong purchasing power. Household consumption grew 4.97% year-on-year in Q2 2025, indicating relatively stable demand.

For investors, this translates into strong absorption potential for products and services without overreliance on export markets. Indonesia is viewed as one of the most self-sustaining markets in ASEAN, providing a stable domestic demand base. This makes investments in manufacturing, consumer goods, and public service infrastructure particularly attractive.

4.Government Regulations and Incentives

Government Regulation (GR) No. 20/2024 on Industrial Zoning introduces stronger incentives:

• Fiscal: Tax reductions/exemptions, import duty relief, lower Non-Tax State Revenue
• Non-Fiscal: Streamlined environmental and business permits, land provision, power infrastructure support, workforce training and certification

However, classic challenges remain: political and security stability, licensing bureaucracy, uneven infrastructure outside Java, demand for green energy, and upsklling workers to meet global industry standards.

Conclusion

The global industrial relocation wave presents a historic opportunity for Indonesia. Capturing this momentum requires:

• Prioritizing key sectors such as electronics, textiles & garments, and EVs & batteries, alongside other promising sectors, leveraging Indonesia’s strong domestic market and growing spending power;
• Leveraging industrial parks with strong ASEAN connectivity;
• Maximizing fiscal and non-fiscal incentives under GR No. 20/2024;
• Ensuring political stability and structural reforms.

Looking ahead, green manufacturing and digitalized industrial park management will be the key differentiators in attracting long-term investment. By embedding sustainability and advanced technologies, Indonesia can meet global expectations for environmentally responsible production.

Indonesia is now on the path to becoming a strategic manufacturing hub in Asia. With a strong domestic market, progressive regulations, and modernizing industrial parks, the country has the foundation to secure its place in the global supply chain.

The fiscal and non-fiscal incentives outlined in Government Regulation No. 20/2024—ranging from tax breaks to simplified permitting and land provision—should be fully leveraged to reduce upfront costs and increase business certainty. At the same time, integration with Indonesia’s large domestic market remains critical to sustaining demand despite global fluctuations.

However, incentives and market potential alone are not enough. Their effectiveness ultimately depends on political stability and security, which remain decisive factors for ensuring business certainty and investment continuity. Global investors consistently rank predictable governance, credible policymaking, and a secure environment as prerequisites for capital commitment. Without stability, geographic advantages, regulatory incentives, and market potential cannot fully attract long-term investment.

Sources:

1. Skylight Analytics Hub
2. ASEAN Secretariat. (2024). ASEAN Economic Outlook 2024. Jakarta: ASEAN.
3. Badan Pusat Statistik (BPS). (2025). Produk Domestik Bruto Indonesia Menurut Pengeluaran 2018–2025. Jakarta: BPS.
4. Bisnis Indonesia. (2024, Mei 13). Jokowi Teken PP Perwilayahan Industri, Cek Daftar Insentif Terbaru.
5. DDTC News. (2024, Mei 13). PP Baru Perwilayahan Industri: Ada Ketentuan Soal Insentif Pajak.
6. InfoEkonomi.id. (2025, Juli 28). Investasi Rp6.173 Triliun, Ini Peran Strategis Kawasan Industri RI.
7. IDX Channel. (2025, Juni 14). Pemerintah Buka 41 Kawasan Industri Baru di 2025.
8. Koran Jakarta. (2025, Juli 28). Kemenperin Selesaikan Regulasi Turunan PP 20/2024 untuk Tingkatkan Daya Saing Kawasan Industri.
9. Reuters. (2025, April). Indonesia Industrial Land Prices Surge at Fastest Pace in Two Decades.
10. Tempo. (2025, Februari). Morowali Industrial Park Jadi Episentrum Hilirisasi Nikel.
11. World Bank. (2025). Indonesia Economic Prospects: Harnessing Human Capital. Washington DC: World Bank.

Disclaimer

The content on this platform (“Platform”) is proprietary to Skylight, protected under copyright and intellectual property laws, and cannot be reproduced or used without written authorization. The insights shared are for informational purposes only, do not constitute professional advice, and may not reflect the latest industry developments. Skylight and its contributors disclaim all liability for actions taken based on the content and do not guarantee specific outcomes from past insights or case studies. Use of the Platform does not establish any contractual or advisory relationship with Skylight. By accessing this Platform, you agree to these terms. © 2025 Skylight Strategic Indonesia. All rights reserved