Parts Makers Decry High Wages


JANUARY 22, 2015

Jakarta. Indonesian automotive parts manufacturers are struggling with rising minimum wages and a shortage of locally sourced  raw materials, denting their capability to face stiffer competition ahead of the Asean Economic Community that takes full effect at the end of this year.

Hamdhani Dzulkarnaen Salim, the new chairman of the Indonesian Automotive Parts and Components Manufacturers Association, or GIAMM, said its members operated in a labor-intensive industry and faced increasingly vocal demands from workers for higher salaries.

“We honor and understand that the minimum wage must rise, but not so rapidly and especially not without an increase in productivity,” said Hamdhani, who is also president director of Astra Otoparts, an automotive parts maker under Astra International, the country’s biggest auto distributor.

GIAMM’s members include major auto part makers such as Astra Otoparts, Honda Precision Parts Manufacturing and Astra Komponen Indonesia.

It is common for companies operating in Indonesia to relocate from one city to another in search of low-cost labor, with minimum wages varying widely.

Almost half of GIAMM members have set up operations in the West Java districts of Bekasi and Karawang, where local authorities last year approved a 20 percent rise in the minimum wage for 2015. Without a guarantee of long-term support from the government, Hamdhani said the option to relocate was not feasible.

“If we don’t find a wise solution soon, it will reduce our competitiveness and everybody will lose: businesses, labor unions and the government, especially with the advent of the Asean Economic Community at the end of this year,” he said. Regional economic integration under the AEC is designed to allow the free flow of goods, services and labor within the 10-member Association of Southeast Asian Nations.

Hamdhani said another challenge that GIAMM members faced was that they had to import more than 50 percent of the raw materials needed to make car parts.

“Very rarely are Indonesian manufactured components produced using 100 percent raw materials from Indonesia, simply because there is not enough raw material here,” he said.

He called for greater development of local raw material processing to ensure a steady local supply and to shield parts makers from foreign exchange risks.