Indonesia is intensifying efforts to boost its domestic manufacturing sector by mandating a higher percentage of locally made components in smartphones sold within the country. This move follows the recent ban of Apple’s iPhone 16 for failing to meet the country’s requirement that smartphones must include at least 40% local parts. This shift could have significant implications for both international manufacturers and Indonesia’s growing tech industry.
A rising requirement for local components
Indonesia’s deputy industry minister, Faisol Reza, announced on Tuesday that the government is considering increasing the requirement for local components in smartphones sold in the country. This policy is designed to bolster local manufacturing, providing a significant boost to the nation’s economy by encouraging greater investment and production in the tech sector.
The announcement comes shortly after Indonesia banned the sale of the Apple iPhone 16. Apple failed to meet the local content requirement, as their device lacked the necessary proportion of domestically made parts. In response to the ban, Apple proposed a $100 million investment to build a factory for producing accessories and components locally, aiming to reverse the decision. However, the Indonesian government rejected this proposal, citing its failure to meet fairness principles in the local content rules.
Apple's response and local manufacturing strategies
Although Apple has not officially commented on the issue, the tech giant has taken steps in recent years to align itself with Indonesia’s local content requirements. Since 2018, Apple has opened developer academies in the country, an initiative seen by the Indonesian government as a part of Apple's strategy to meet the local content stipulations, particularly for older iPhone models. However, this effort falls short of the 40% local component threshold required for newer devices like the Apple iPhone 16.
Investment and innovation for domestic growth
Minister Faisol has emphasized that the Indonesian government’s ultimate goal is to strengthen the country’s domestic industry. As the government continues to refine the details of the new policy, discussions are underway regarding the role of research and development (R&D) in meeting the local content requirement. One possible consideration is whether investment in R&D could be counted toward the local content quota. The government has not yet announced a timeline for the new rules or the specific increase in local component requirements. However, industry experts are closely monitoring the situation to gauge how this will impact the production of smartphones in Indonesia.
Challenges and potential consequences for Apple
As Indonesia pushes for higher local content, one potential consequence is that Apple may pull out of the country if it feels the terms are unreasonable. This could lead to fewer locally made components, and in turn, limit consumer access to new Apple products in the region. Apple’s preference for keeping its manufacturing processes within its established supply chain could create tension between the company’s global strategy and Indonesia’s new policies.
Furthermore, while the opening of Apple’s academies has helped meet some requirements for older iPhone models, it does not come close to fulfilling the demand for 40% local components, a threshold that many believe is critical for supporting the country’s industrial growth.
Looking ahead: what’s next for Indonesia’s smartphone market?
The increasing push for local content in smartphones represents a critical turning point for Indonesia's tech industry. While the government is committed to boosting local manufacturing and attracting more investment, the tension with international giants like Apple could lead to significant challenges. How Apple responds to the government’s demands will likely determine whether the initiative will succeed or result in a reshaped smartphone market in the country.
Via: Reuters
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