Indonesia’s protectionist approach to attracting tech giants like Apple through local content requirements is under scrutiny, as economists warn the strategy may backfire. While the country aims to bolster its economy and supply chain by enforcing strict regulations, experts argue these policies overlook deeper structural challenges and could ultimately deter foreign investment.
Indonesia’s local content requirements, known as “TKDN,” mandate that 40% of smartphones and tablets must be locally sourced or produced to be sold in the market. As a result, Apple has been unable to launch its latest iPhone models in the country without making significant investments in local production. Recently, the government rejected Apple’s $100 million proposal and instead demanded a $1 billion investment into cell phone component manufacturing. The move comes as Indonesia faces stiff competition from regional peers like Vietnam, which have successfully attracted supply chains shifting from China.
Indonesia’s strategy, aimed at building domestic industries and creating a value-added supply chain, extends across multiple sectors, from electric vehicles to solar panels. While policies like these have seen some success in securing commitments from companies such as Samsung, economists believe they are insufficient to entice major tech players like Apple. Bhima Yudhistira Adhinegara, executive director at CELIOS, labeled the approach “pseudo-protectionism,” claiming it focuses more on coercion than fostering a truly favorable investment climate.
Apple, which previously gained goodwill in Indonesia by opening Apple Developer Academies to train local talent, faces mounting pressure to shift portions of its manufacturing to the country. Despite Indonesia’s vast population — the fourth largest globally — the nation remains a relatively small market for Apple, as few consumers can afford its premium products. Instead, experts suggest Apple views Indonesia as a gateway to the broader Southeast Asian market.
Past instances underscore the pitfalls of Indonesia’s approach. Companies like Foxconn and Tesla previously scrapped investment plans due to policy uncertainties, high costs, and inconsistent regulations. Trade specialists, including Yessi Vadila from the Economic Research Institute for ASEAN, argue these policies increase costs, reduce productivity, and hinder export competitiveness.
In contrast, Vietnam has become a preferred destination for tech investments by offering clear policies, robust infrastructure, and investment incentives. Economists urge Indonesia to adopt a holistic strategy, improving infrastructure, labor markets, and regulatory stability to attract meaningful foreign direct investment.
With global supply chains poised for another shift, particularly if U.S.-China trade tensions escalate, Indonesia risks missing key opportunities unless it reassesses its approach. For now, its protectionist stance continues to create uncertainty and may ultimately undermine its efforts to position itself as a tech manufacturing hub.
