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Batam’s technology and manufacturing strategy could draw $60b of investments

Tech manufacturing companies are being drawn to Batam, the largest city in the province of Riau Island, Indonesia, for its potential as an export hub.
17 June 2020 •

Batam’s manufacturing sector scored a big win in July 2019 when Pegatron, a Taiwanese supplier for Apple products, opened its first factory worth US$40 million on the Indonesian island. The move came as a result of the US-China trade war,  leading to several companies moving their production bases out of China, to avoid hefty import tariffs.

Pegatron’s move has the potential to lead the Indonesian island towards becoming a hub for electronic exports and support the growth of the country’s electronics industry, according to Indonesia’s Ministry of Industry. It is expected to provide up to 1,800 jobs involved in the production of smartphones, computers and telecommunication devices.

"With the presence of Pegatron, we hope the export of electronic products will increase significantly," said Janu Suryanto, Director of Electronic and Telematic Industry, Ministry of Industry.

Leveraging on its strategic location

An island of Indonesia, Batam has traditionally been the country’s industrial hub, with shipbuilding, oil and gas, and electronics manufacturing as its main pillars. Located just south of Singapore, its favorable location along major shipping routes supports an export-oriented industry.

In 2016, Batam’s economic growth stalled, with GDP sliding to a low two percent in 2017, compared to the national average of five percent, before inching up to 4 percent in 2018. Exports had also dipped in 2016-2017, recording US$8bn, before reaching US$9.5bnin 2018.

But that is all primed to change as the Indonesian government announced plans in 2019 to reposition the island as an alternative shipping and manufacturing hub to neighboring Singapore — a move expected to attract investments worth up to US$60bn.

To further encourage investment in Batam, the government in February 2019 introduced a one-stop service to speed up and simplify the process of issuing business permits for interested companies.

The Indonesian government is trying to increase exports to reduce its current-account deficit and leveraging Batam’s location in Singapore’s backyard could be the key.

Plans are underway to create two enclaves into Special Economic Zones which would offer more significant tax breaks to companies — one at the Nongsa resort area and Hang Nadim International Airport, which will include a facility for aircraft maintenance and repair.

"We aim to develop enclaves of special economic zones in Batam with dedicated clusters for tourism and logistics among others," Edy Putra Irawady, the acting head of Batam Indonesia Free Trade Zone Authority said. The authorities plan to launch the SEZs sometime this year.

Aiming for peak port performance

One way to increase the island’s competitiveness in logistics is to enhance its port operations. Indonesia’s state port operator Pelindo, announced funding of US$85m last year to upgrade the Batu Ampar port. This injection of funds goes towards enhancing cargo handling capabilities with more container cranes to facilitate loading and unloading of goods for larger ships.

Batu Ampar Harbor is already one of the busiest on the island. From January to September 2019, it saw the largest value of cumulative exports at US$2.8bn.

Earlier this year, the Indonesian Port Corporation (IPC) also announced during a press conference, that the revitalization of the Batu Ampar port would involve improving infrastructure.

This involves increasing the loading and unloading capacity up to 600 to 800 Twenty-foot Equivalent Unit (TEU) in the first phase and deepening the pier pool to 12 meters to allow larger ships.

“The main objective of the revitalization of Batu Ampar Port is to be able to improve logistics competitiveness and participate in developing Batam as a whole and in improving the quality of port management,” said Elvyn G. Masassya, President Director, IPC.

For freight forwarders like DHL Global Forwarding (DGF), this will expedite processes, as most of its customers export their products directly after production.

“Batam is an excellent manufacturing hub for companies looking to diversify from China due to rising costs. Upgrading its port infrastructure enables businesses to take advantage of the island’s strategic location and its special Free Trade Zone status in the region,” said Vincent Yong, President Director, DHL Global Forwarding Indonesia.

In addition, DHL’s ASIACONNECT+ service — a less-than-truckload (LTL) scheduled service that connects Indonesia to DHL ASIACONNECT, its road freight network — of which Batam is part of - serves to provide a cheaper, multimodal freight option for customers.

DGF is currently one of the few freight forwarders that provide direct full-container load and less-than-container load service for its customers, without going through the commercial and additional booking process in Singapore, which reduces costs and time.

Drive for digitalization

Batam is also looking to draw new investments to build a digital industry, and the 100ha Nongsa Digital Park (NDP), operated by Indonesian conglomerate Citramas Group, holds promise for that.

The park aims to be a “digital bridge” between Singapore and Indonesia and currently houses around 100 technology companies and startups in sectors such as e-commerce, blockchain, and film and animation. A data center will also be established at the park.

One of its key focuses is to build capabilities in digital technology by grooming talent. Companies such as Infinite Learning, Glints Academy and the Apple Developer Academy have launched training programs to build up the talent pool.

Nongsa D-Town, a digital hub within the existing park, also aims to boost these numbers with tech campuses as well as co-working and co-living spaces.

Its second phase of commercial development is expected to be completed in 2024 and aims to house more than 8,000 digital workers by then.

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Batam’s manufacturing sector scored a big win in July 2019 when Pegatron, a Taiwanese supplier for Apple products, opened its first factory worth US$40 million on the Indonesian island. The move came as a result of the US-China trade war,  leading to several companies moving their production bases out of China, to avoid hefty import tariffs.

Pegatron’s move has the potential to lead the Indonesian island towards becoming a hub for electronic exports and support the growth of the country’s electronics industry, according to Indonesia’s Ministry of Industry. It is expected to provide up to 1,800 jobs involved in the production of smartphones, computers and telecommunication devices.

“With the presence of Pegatron, we hope the export of electronic products will increase significantly,” said Janu Suryanto, Director of Electronic and Telematic Industry, Ministry of Industry.

Leveraging on its strategic location

An island of Indonesia, Batam has traditionally been the country’s industrial hub, with shipbuilding, oil and gas, and electronics manufacturing as its main pillars. Located just south of Singapore, its favorable location along major shipping routes supports an export-oriented industry.

In 2016, Batam’s economic growth stalled, with GDP sliding to a low two percent in 2017, compared to the national average of five percent, before inching up to 4 percent in 2018. Exports had also dipped in 2016-2017, recording US$8bn, before reaching US$9.5bnin 2018.

But that is all primed to change as the Indonesian government announced plans in 2019 to reposition the island as an alternative shipping and manufacturing hub to neighboring Singapore — a move expected to attract investments worth up to US$60bn.

To further encourage investment in Batam, the government in February 2019 introduced a one-stop service to speed up and simplify the process of issuing business permits for interested companies.

The Indonesian government is trying to increase exports to reduce its current-account deficit and leveraging Batam’s location in Singapore’s backyard could be the key.

Plans are underway to create two enclaves into Special Economic Zones which would offer more significant tax breaks to companies — one at the Nongsa resort area and Hang Nadim International Airport, which will include a facility for aircraft maintenance and repair.

“We aim to develop enclaves of special economic zones in Batam with dedicated clusters for tourism and logistics among others,” Edy Putra Irawady, the acting head of Batam Indonesia Free Trade Zone Authority said. The authorities plan to launch the SEZs sometime this year.

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A new service rolled out by DHL connects Indonesia to its road freight network and links it with the rest of the region, as the country continues to be a key driver of the growing intra-Asia trade.

After nearly a decade of steady growth, the global economy is now facing the looming prospect of a downturn.

But amid the gloom, there is one bright spot: the Association of Southeast Asian Nations (ASEAN).

ASEAN is tipped to be the world’s fourth largest economic bloc by 2030, after the United States, China, and the European Union, fueled in part by its fast-expanding intra-Asia trade.

In recent years, a new group of high-growth, high-potential countries within the bloc have emerged to join the “Tiger” economies, comprising Hong Kong, Singapore, South Korea and Taiwan.

With growth rates of around 5 percent, Indonesia, Malaysia, the Philippines, Thailand and Vietnam are powering ahead as Asia’s “Tiger Cub” economies.

Against this backdrop, Indonesia is stepping up on its efforts to boost infrastructure and logistics, with DHL Global Forwarding launching a new small-freight multimodal logistics service known as DHL ASIACONNECT+.

The less-than-truckload (LTL) scheduled service connects Indonesia to DHL ASIACONNECT, DHL’s highly successful road freight network across Singapore, Malaysia, Thailand, Vietnam and China.

This means businesses moving goods out of the Indonesian archipelago now have a strong viable alternative to traditional air and ocean freight, tapping DHL ASIACONNECT’s robust scheduled road network to reach key ASEAN trading markets.

“Adding Indonesia to the service portfolio gives customers a new option for multimodal freight service, which is up to 35 percent cheaper and reduces carbon emissions by up to 54 percent compared to air freight,” said Vincent Yong, President Director of DHL Global Forwarding Indonesia.

“It is also 65 percent faster as compared to ocean freight, providing the perfect middle ground for customers who want more flexibility.”

The new ‘Tiger’ economy

Indonesian President Joko Widodo wants to push the envelope further by having Indonesia crack the world’s top 10 economies by 2030, up from its current 16th place.

Central to this is the “Making Indonesia 4.0” plan, a roadmap aimed at upgrading five manufacturing industries: food and beverage, textile and garment, automotive, chemical and electronics.

Risks to Indonesia’s projected growth have increased with global trade tensions.
Risks to Indonesia’s projected growth have increased with global trade tensions.

The goal is to have the manufacturing sector account for a sizable 21 to 26 percent of the country’s gross domestic product (GDP) by 2030, and, in turn, lift overall exports to make up 10 percent of the economy.

“A successful ‘Making Indonesia 4.0’ can drive real GDP growth by between 1 and 2 percent per year, so that GDP growth per year will rise to 6 to 7 percent in the period of 2018 to 2030,” President Widodo said in 2018.

More than half of Indonesia’s trade flows are regional, with 58 percent of its exports and 69 percent of its imports going to and coming from trading partners in Asia Pacific, according to DHL’s Global Connectedness Index.

Already, export values between Indonesia and other ASEAN countries are on the rise. Data from the Indonesia Trade Ministry Report 2019 shows that the value of goods sent to Vietnam, for instance, jumped about 23 percent from 2016 to 2018.

E-commerce, in particular, has played a considerable role in driving exports up. The sector is expected to rocket 88 percent from 2015 to make up US$21 billion (€19.06 billion) in gross merchandise value of Indonesia’s Internet economy this year, and surge further to hit US$82 billion by 2025, going by latest research by Google, Temasek and Bain.

Info-graphic of DHL AsiaConnect+ - a new multimodal service connecting Indonesia to the region

Opening the doors of opportunity

The new DHL ASIACONNECT+ will help open more doors for businesses to tap on the rising demand for its products in the region.

Under the service, shipments from various cities in Indonesia, including Bandung, Balikpapan, Semarang and Lampung, containing locally produced goods, such as textiles, machinery and electronic goods, will be consolidated in Jakarta by air or truck before being air-freighted to Singapore and transported via road freight to Kuala Lumpur, Penang and Bangkok.

An extension of the offering to Vietnam and China, as well as imports to Indonesia from the various cities along DHL ASIACONNECT will follow at a later stage.

It comes on the back of Indonesia’s continued push to develop its infrastructure, with US$429 billion in funding to go toward massive projects spanning airports, power plants, rails and ports from 2020 to 2024.

RELATED ARTICLES


Road freight: Paving the way for a smooth ride
Transporting goods by road comes with its own set of challenges, but with the right measures in place, logistics providers can enjoy a smoother ride.

“There is significant value for businesses in Indonesia to strengthen their intra-Asia supply chain. Half of the trade from Asia are bound for destinations within Asia and Asia’s economies are forecasted to be larger than the rest of the world combined by 2020,” said Bruno Selmoni, Vice President, Head of Road Freight & Multimodal ASEAN and South Asia, DHL Global Forwarding.

He pointed out that Indonesia is also gaining traction as a manufacturing hub for companies looking to diversify from China due to rising costs.

“Building a greater range of transportation options for businesses enables companies to better leverage Indonesia’s strategic location as a production base for the increasingly affluent domestic and regional markets.”

To help customers better run their logistics operations, DHL ASIACONNECT+ offers a standard tariff that allows them to manage their costs, as well as a single point of contact for end-to-end shipments as well as online track and trace capabilities via the DHL Interactive platform.

It also helps sustainability-conscious businesses achieve another important objective: reduced carbon emissions.

“In line with Deutsche Post DHL’s goal to reduce all logistics-related emissions to net-zero by 2050, the new multimodal solution will help Indonesian businesses slash their carbon footprint by up to half as compared to pure-play air freight services,” said Yong.

“Taking the sustainable route is no longer a choice today. It’s a necessity.”

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After nearly a decade of steady growth, the global economy is now facing the looming prospect of a downturn.

But amid the gloom, there is one bright spot: the Association of Southeast Asian Nations (ASEAN).

ASEAN is tipped to be the world’s fourth largest economic bloc by 2030, after the United States, China, and the European Union, fueled in part by its fast-expanding intra-Asia trade.

In recent years, a new group of high-growth, high-potential countries within the bloc have emerged to join the “Tiger” economies, comprising Hong Kong, Singapore, South Korea and Taiwan.

With growth rates of around 5 percent, Indonesia, Malaysia, the Philippines, Thailand and Vietnam are powering ahead as Asia’s “Tiger Cub” economies.

Against this backdrop, Indonesia is stepping up on its efforts to boost infrastructure and logistics, with DHL Global Forwarding launching a new small-freight multimodal logistics service known as DHL ASIACONNECT+.

The less-than-truckload (LTL) scheduled service connects Indonesia to DHL ASIACONNECT, DHL’s highly successful road freight network across Singapore, Malaysia, Thailand, Vietnam and China.

This means businesses moving goods out of the Indonesian archipelago now have a strong viable alternative to traditional air and ocean freight, tapping DHL ASIACONNECT’s robust scheduled road network to reach key ASEAN trading markets.

“Adding Indonesia to the service portfolio gives customers a new option for multimodal freight service, which is up to 35 percent cheaper and reduces carbon emissions by up to 54 percent compared to air freight,” said Vincent Yong, President Director of DHL Global Forwarding Indonesia.

“It is also 65 percent faster as compared to ocean freight, providing the perfect middle ground for customers who want more flexibility.”

The new ‘Tiger’ economy

Indonesian President Joko Widodo wants to push the envelope further by having Indonesia crack the world’s top 10 economies by 2030, up from its current 16th place.

Central to this is the “Making Indonesia 4.0” plan, a roadmap aimed at upgrading five manufacturing industries: food and beverage, textile and garment, automotive, chemical and electronics.

Risks to Indonesia’s projected growth have increased with global trade tensions.
Risks to Indonesia’s projected growth have increased with global trade tensions.

The goal is to have the manufacturing sector account for a sizable 21 to 26 percent of the country’s gross domestic product (GDP) by 2030, and, in turn, lift overall exports to make up 10 percent of the economy.

“A successful ‘Making Indonesia 4.0’ can drive real GDP growth by between 1 and 2 percent per year, so that GDP growth per year will rise to 6 to 7 percent in the period of 2018 to 2030,” President Widodo said in 2018.

More than half of Indonesia’s trade flows are regional, with 58 percent of its exports and 69 percent of its imports going to and coming from trading partners in Asia Pacific, according to DHL’s Global Connectedness Index.

Already, export values between Indonesia and other ASEAN countries are on the rise. Data from the Indonesia Trade Ministry Report 2019 shows that the value of goods sent to Vietnam, for instance, jumped about 23 percent from 2016 to 2018.

E-commerce, in particular, has played a considerable role in driving exports up. The sector is expected to rocket 88 percent from 2015 to make up US$21 billion (€19.06 billion) in gross merchandise value of Indonesia’s Internet economy this year, and surge further to hit US$82 billion by 2025, going by latest research by Google, Temasek and Bain.

Info-graphic of DHL AsiaConnect+ - a new multimodal service connecting Indonesia to the region

Opening the doors of opportunity

The new DHL ASIACONNECT+ will help open more doors for businesses to tap on the rising demand for its products in the region.

Under the service, shipments from various cities in Indonesia, including Bandung, Balikpapan, Semarang and Lampung, containing locally produced goods, such as textiles, machinery and electronic goods, will be consolidated in Jakarta by air or truck before being air-freighted to Singapore and transported via road freight to Kuala Lumpur, Penang and Bangkok.

An extension of the offering to Vietnam and China, as well as imports to Indonesia from the various cities along DHL ASIACONNECT will follow at a later stage.

It comes on the back of Indonesia’s continued push to develop its infrastructure, with US$429 billion in funding to go toward massive projects spanning airports, power plants, rails and ports from 2020 to 2024.

RELATED ARTICLES


Road freight: Paving the way for a smooth ride
Transporting goods by road comes with its own set of challenges, but with the right measures in place, logistics providers can enjoy a smoother ride.

“There is significant value for businesses in Indonesia to strengthen their intra-Asia supply chain. Half of the trade from Asia are bound for destinations within Asia and Asia’s economies are forecasted to be larger than the rest of the world combined by 2020,” said Bruno Selmoni, Vice President, Head of Road Freight & Multimodal ASEAN and South Asia, DHL Global Forwarding.

He pointed out that Indonesia is also gaining traction as a manufacturing hub for companies looking to diversify from China due to rising costs.

“Building a greater range of transportation options for businesses enables companies to better leverage Indonesia’s strategic location as a production base for the increasingly affluent domestic and regional markets.”

To help customers better run their logistics operations, DHL ASIACONNECT+ offers a standard tariff that allows them to manage their costs, as well as a single point of contact for end-to-end shipments as well as online track and trace capabilities via the DHL Interactive platform.

It also helps sustainability-conscious businesses achieve another important objective: reduced carbon emissions.

“In line with Deutsche Post DHL’s goal to reduce all logistics-related emissions to net-zero by 2050, the new multimodal solution will help Indonesian businesses slash their carbon footprint by up to half as compared to pure-play air freight services,” said Yong.

“Taking the sustainable route is no longer a choice today. It’s a necessity.”

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Aiming for peak port performance

One way to increase the island’s competitiveness in logistics is to enhance its port operations. Indonesia’s state port operator Pelindo, announced funding of US$85m last year to upgrade the Batu Ampar port. This injection of funds goes towards enhancing cargo handling capabilities with more container cranes to facilitate loading and unloading of goods for larger ships.

Batu Ampar Harbor is already one of the busiest on the island. From January to September 2019, it saw the largest value of cumulative exports at US$2.8bn.

Earlier this year, the Indonesian Port Corporation (IPC) also announced during a press conference, that the revitalization of the Batu Ampar port would involve improving infrastructure.

This involves increasing the loading and unloading capacity up to 600 to 800 Twenty-foot Equivalent Unit (TEU) in the first phase and deepening the pier pool to 12 meters to allow larger ships.

“The main objective of the revitalization of Batu Ampar Port is to be able to improve logistics competitiveness and participate in developing Batam as a whole and in improving the quality of port management,” said Elvyn G. Masassya, President Director, IPC.

For freight forwarders like DHL Global Forwarding (DGF), this will expedite processes, as most of its customers export their products directly after production.

“Batam is an excellent manufacturing hub for companies looking to diversify from China due to rising costs. Upgrading its port infrastructure enables businesses to take advantage of the island’s strategic location and its special Free Trade Zone status in the region,” said Vincent Yong, President Director, DHL Global Forwarding Indonesia.

In addition, DHL’s ASIACONNECT+ service — a less-than-truckload (LTL) scheduled service that connects Indonesia to DHL ASIACONNECT, its road freight network — of which Batam is part of – serves to provide a cheaper, multimodal freight option for customers.

DGF is currently one of the few freight forwarders that provide direct full-container load and less-than-container load service for its customers, without going through the commercial and additional booking process in Singapore, which reduces costs and time.

Drive for digitalization

Batam is also looking to draw new investments to build a digital industry, and the 100ha Nongsa Digital Park (NDP), operated by Indonesian conglomerate Citramas Group, holds promise for that.

The park aims to be a “digital bridge” between Singapore and Indonesia and currently houses around 100 technology companies and startups in sectors such as e-commerce, blockchain, and film and animation. A data center will also be established at the park.

One of its key focuses is to build capabilities in digital technology by grooming talent. Companies such as Infinite Learning, Glints Academy and the Apple Developer Academy have launched training programs to build up the talent pool.

Nongsa D-Town, a digital hub within the existing park, also aims to boost these numbers with tech campuses as well as co-working and co-living spaces.

Its second phase of commercial development is expected to be completed in 2024 and aims to house more than 8,000 digital workers by then.

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