Indonesia: ASEANs Emerging Jewelry Manufacturing Center
The Republic of Indonesia stands as the largest economy in ASEAN, the fifth largest in Asia and the 16th largest in the world, with the gross domestic product of 932 billion US dollars in 2016 (World Bank, 17 April 2017). Its economic structure consists of the agricultural sector at 32%, the industrial sector at 21% and the service sector at 47%. The industrial sector is the country’s main economic driver which generates enormous revenue. As a part of this developing sector, jewelry manufacturing industry earns considerable income each year, both from domestic and international markets. The Indonesian government recognizes the importance of the jewelry industry and is committed to promote Indonesia as a jewelry manufacturing center of this region, while establishing the business network with other countries in South East Asia, including Thailand.
Indonesia as ASEAN’s Leading Manufacturing Center
Indonesia has the highest population in ASEAN or almost half of ASEAN’s overall population (the fourth highest in the world, after China, India and the United States), at 264.33 million people (United Nations, 1 July 2017). The majority of the population is at the working age between 25 and 54 years old, and the average age of its overall population is at 28.6 years. Most are concentrated in major cities, including Jakarta, Surabaya, Bandung, Medan and Semarang.
Indonesian workforce has high skills and relatively low wages. According to the National Wages and Productivity Commission (24 April 2017), the minimum monthly wages of Indonesian labor are between 1.1 and 3.1 million rupiah (between 82 and 232 US dollars) (http://th.exchange-rates.org, 5 July 2017); these minimum wages vary in each province and each field of work.
Due to its large number of workforce with high skills and low wages, the current government led by President Joko Widodo aims to position Indonesia as an export-oriented industrial economy; therefore, the country is now more open to foreign investment. Its regulations have been revised to raise the ownership cap for foreigners; some investment restrictions are eased and tax measures implemented to attract foreign investors. As a result, the foreign direct investment has been increasing every year. According to a report by Indonesia Investment Coordinating Board, foreign investment in Indonesia was at 396.6 trillion rupiah (29.7 billion US dollars) in 2016, up from the previous year by 8.4%. The top three countries with the highest investment in Indonesia are Singapore, Japan and China. (Thailand is at the 12th.) Four industrial sectors with the highest foreign direct investment are 1) metal, machinery and electronic industry, 2) chemical and pharmaceutical industry, 3) paper and printing industry and 4) mining.
Indonesia welcomes foreign investment in almost every industrial sector, including jewelry manufacturing, where foreigners are allowed to have 100% ownership or co-invest with local entrepreneurs. Thanks to Indonesia’s reputation for high quality silver jewelry, companies from various countries have based their jewelry factories in Indonesia over these several years. For example, the American jewelry brand, John Hardy, has set up its silver jewelry factory in Mambang village on Bali, while Thailand’s Pranda Group has co-invested with Indonesian entrepreneurs in Jakarta under the name of P.T. Sumberkreasi Ciptalogam to manufacture gold and silver jewelry for domestic and international markets.
Gemstone and Precious Metal Resources
Indonesia has a large variety of abundant natural resources. Regarding gemstones, major sources of diamond and precious stone can be found in South Kalimantan, especially in the city of Martapura, as known by Indonesians as “The Diamond City”, where several diamond mines are located in Cempaka District. Martapura is now one of the most important centers for diamond polishing and jewelry manufacturing in Indonesia.
Semi-precious stones can be found in almost every province, from Nangroe Aceh Darussalam in the west to Papua island in the east; for example, amethyst and quartz in South Sumatra; chrysoprase, coral and jasper in West Java; and amethyst, quartz and chalcedony in South Kalimantan. Indonesia has also been one of the world’s largest South Sea pearl manufacturers since 2005, dominating as much as 50% of the world’s overall pearl production. South Sea pearls are produced in several provinces, such as Bali island, Lombok island, Sumbawa island, Maluku island and Sulawesi island.
Indonesia is also the world’s leading gold and silver manufacturer. According to the U.S. Geological Survey, Indonesia was the 10th most important gold manufacturer in 2016, with 100 tons of production, up from the previous year by 3.1%. Large gold mines in Indonesia are mainly located on Papua island, Sumbawa island, East Kalimantan and Central Kalimantan. Over half of gold production is from Grasberg, the world’s largest mine in Timika on Papua island, of which the United States’ Freeport-McMoRan Copper & Gold Inc (PT Freeport Indonesia) is the major shareholder. Two gold mines which are owned by the government, in the name of the state enterprise PT ANTAM (Persero) TBK, are Pongkor mine in West Java and Cibaliung mine in Banten.
In 2016, Indonesia was the world’s 16th largest silver manufacturer, with the production of 11.2 million ounces, up from the previous year by 12% (The Silver Institute’s World Silver Survey 2017). Most silver manufacturing companies are also in the gold mining industry; for example, PT ANTAM, Sumatra Copper & Gold plc and PT Newmont Nusa Tenggara. Indonesia’s major centers for silver manufacturing include Sumbawa island and West Java.
Jewelry Manufacturing Industry
Today Indonesia has approximately 30,000 jewelers, offering fine and imitation jewelry and employing over 300,000 workers in total. Its jewelry manufacturing industry has greatly developed during the last decade. As local and international brands enter the fierce competition to maintain and grasp for market share, Indonesian manufacturers have to focus on product development to suit the market’s demand. With more sustainable industry and wide recognition of its products in the global market, Indonesia has stepped up as ASEAN’s third most important gem and jewelry exporter in place of Malaysia since 2014 onwards. (The first and the second are Thailand and Singapore respectively.) Indonesia’s domestic jewelry trading maintains 5.3% average annual growth, with estimated purchase of 4.5 million pieces in 2016, up from the previous year by 4.5%. Meanwhile, its gem and jewelry export value amounted to 6,368.67 million US dollars, having gold jewelry as its main export product with over 63% share and 45% growth compared to the previous year.
Gold Jewelry Production : Due to the age-old custom of wearing jewelry, especially gold pieces, Indonesians’ consumption of gold jewelry is higher than that of other kinds. (Gold jewelry consumption accounts for approximately 60% of the overall jewelry consumption.) As a result, a large number of manufacturers are competing for the market share in this large market. Most manufacturers are local entrepreneurs who own small and medium enterprises, offering branded or non-branded products. Products are largely made by hands with unique designs inspired by local culture. The gold used is often yellow gold in 18, 22 or 24 karat. On the other hand, large-scale manufacturers are more oriented towards using modern technology in their mass manufacturing process for export. Products consist of their own designs, which combine traditional patterns with global trends, and designs according to clients’ orders. As for the local market, products are mainly decorated with local patterns made by skilled craftsmen in 14k or 18k white gold, or 18k, 22k or 24k yellow gold, and distributed under the manufacturers’ own brand. Some large manufacturers also wholesale their gold products to jewelry retailers. Gold jewelry manufacturing centers are situated in many provinces; the most important ones include Jakarta, Bali and Java.
Silver Jewelry Production : Indonesia’s silver jewelry has long maintained its reputation and is widely recognized in the international market today, with its unique characteristics from entirely handmade process by craftsmen who inherited techniques from previous generations. Most silver jewelry products are in traditional styles with some variations according to the local culture of each area; the most famous ones are Balinese style and Batik style, of which intricate patterns are set in metal. Jewelry made by hands can be found in various parts of the country, but the hubs of Indonesia’s handmade silver jewelry are Jakarta, Yogyakarta, South Kalimantan, West Nusa Tenggara, West Java, North Sulawesi, South Sulawesi and Bali. Silver jewelry from Bali and Java in particular is highly recognized in the international market and generates considerably high export value from the United States, Europe and Hong Kong each year.
Since silver jewelry production in Indonesia is predominantly handmade process, it is considered as labor intensive industry. Most businesses are small and medium enterprises. A small factory usually has 10-20 craftsmen and produces less than 10,000 pieces per month. A middle-sized factory has 20-100 craftsmen and produces over 10,000 pieces per month. As for a few number of large factories with more than 100 workers, although some technology has been introduced into the process, a large part of the production is still done by craftsmen. Traditional style is increasingly combined with modern global designs, and over 30,000 pieces are produced each month.
Gem-Studded Jewelry Production : Since Indonesian middle-class and affluent consumers are now increasing in number as a result from the country’s economic development, the overall consumption of diamond jewelry is on the rise, especially among couples purchasing diamond rings for their weddings. On the other hand, colored stone jewelry gains popularity among consumers who believe in its supernatural power which can affect the wearer; for example amber might help the wearer to be lucky in love, or amethyst to prevent exhaustion. Jewelry settings are made with gold and silver from local mines, while locally-sourced diamonds and colored stones are limited both in production capacity and quality, leading to some material import. Whether they are small, medium or large enterprises, all jewelers develop their own designs and have these products made by high-skilled craftsmen. Products include both traditional style in simple patterns and modern style that still maintains intricate craftsmanship thanks to the labors’ expertise.
Indonesia’s gem and jewelry industry is now steadily developing. Manufacturers are active in enhancing their potential and take advantage from their strength in labor skills by combining traditional craftsmanship with global designs to cater for local urban customers who prefer modern trends, as well as expand wider into the international market. Meanwhile, the Indonesian government recognizes the importance of this industry and has implemented several policies to support entrepreneurs, especially small and medium enterprises which dominate this industry in terms of number; for example, building gem and jewelry trading center as a marketplace for local entrepreneurs, developing labors’ skill and design capability through training programs, and encouraging local jewelers to participate in local and international trading fairs.
With the help of the above factors, including labors’ skills and relative low wages, as well as various local resources of precious metal and gemstones, Indonesia can produce good-quality products in competitive cost. As a result, the country can easily become one of the leading jewelry manufacturing centers in ASEAN, and might possibly surpass Thailand and Singapore as the region’s top jewelry exporter in the future.
Gem and Jewelry Information Center
The Gem and Jewelry Institute of Thailand (Public Organization)
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