Six foreign furniture companies with combined annual exports of $300 million have relocated their factories to Vietnam from Indonesia over the past 18 months due to cheaper labor costs and lax business regulations. (Reuters Photo/Julie Gordon)

Furniture Producers Relocate to Vietnam Due to Cheap Labor Costs, Business-Friendly Regulations

JULY 31, 2017

Jakarta. Six foreign furniture companies with combined annual exports of $300 million have relocated their factories to Vietnam from Indonesia over the past 18 months due to cheaper labor costs and lax business regulations.

"With our competitiveness weakening, and the cost of production here more expensive, [furniture companies] prefer Vietnam," said Abdul Sobur, the deputy chairman for organization and agencies relationship at the Indonesian Furniture and Handicraft Industry Association (Himki).

Abdul said three large-scale furniture manufacturers in East Java, two in Central Java and one in Medan, North Sumatra, have relocated to Vietnam, while more than 20,000 workers have been laid off.

In addition to cheaper wages, the Vietnam government is also more supportive of foreign investment compared with Indonesia, Abdul said.

Vietnam's furniture exports reached $7.2 billion last year, more than four times Indonesia's furniture exports of $1.6 billion.

"We need support in exports, product promotion and the procurement of raw materials. Those items require licensing from many ministries. But we have not felt the support," Abdul said.

The exodus of furniture producers presents considerable challenges for the country, which looks to attract more investments to boost its export market and provide more jobs over the next few years.

President Joko "Jokowi" Widodo, who was a furniture businessman himself before heading into politics, instructed his aides to improve local business conditions.

Industry Minister Airlangga Hartarto said the government views the furniture market as one of the country's strategic industries due to an abundance of raw materials and skilled craftsmen across the archipelago.

"The government is trying to reduce the obstacles faced by national furniture entrepreneurs in the process of production, marketing and exporting," Airlangga said.

The minister pointed out that starting this year, furniture companies that secure special export import facility permits will not need to receive recommendations from the Ministry of Environment and Forestry (KLHK) to import timber.

Airlangga is also working with the Ministry of Agriculture to drop quarantine requirements for timber samples from selected countries to speed up furniture design and prototyping in Indonesia.

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