Indonesia isn’t taking a step back from its hardball approach to Apple Inc. The showdown has turned into quite a spectacle, but it’s unlikely the wins will be sustainable.
The tug-of-war has raged for months after Jakarta said last October that it would block the sale of iPhone 16s in the country because Apple had not met local investment requirements. This week, the government said it was upholding the ban and demanded further negotiations — despite greenlighting Apple’s proposal to set up an AirTag factory on the island of Batam just a day prior.
The US tech giant has remained silent about how the talks were progressing. Not so the Indonesians. Various leaks have claimed that the country refused to repeal the iPhone prohibition even after Apple coughed up investment offers worth $10 million, $100 million, and most-recently: $1 billion. Officials also reportedly altered the terms of their demands and then called for Apple senior executives to meet with Industry Minister Agus Gumiwang Kartasasmita. After landing in Jakarta, they were told the minister wasn’t available.
Indonesia’s strong-arming appears to have reaped some victories. Yet it has also exposed what a costly headache it is for foreign companies to navigate the regulatory red tape required to operate within its borders. This could backfire, as competition for tech investment in the region grows, and competitors such as Vietnam and Malaysia position themselves as more attractive options.
Apple accounted for just 1% of the Indonesian smartphone market as of the third quarter of last year, according to data from research firm Canalys. Some 80% of the market is dominated by devices that cost under $200, a much lower price point than Apple’s marquee lineup. The company may have the resources to play the long game and navigate the many hoops the government is forcing it to jump through. But others keeping tabs on the drama may be discouraged by the many hurdles, even if their lower-cost options are a better fit for the country’s current market.
Still, Apple is wise to stick it out for the chance to unlock longer-term growth in the world’s fourth most-populous country that has more active cell phones than people. Shipments to the archipelago, with its young and tech-savvy population, are forecast to grow at a significantly higher clip than the global rate. And as this saga drags on, Chinese premium brand Honor, a spinoff of Huawei Technologies Co., announced it was entering Indonesia. The cheekily timed foray into the market is not related to the iPhone 16 ban, an Honor executive has said.
President Prabowo Subianto’s government needs to be more strategic. The looming threat of fresh tariffs on goods from China following Donald Trump’s election victory has handed it more leverage to lure Apple to further diversify supply chains.
His administration seems to be taking issue with the fact that Apple has offered to support an AirTag factory in the country, instead of components that are directly related to the banned smartphone. It lays bare a recurring obstacle for foreign firms identified by the American Chamber of Commerce in Indonesia: The gulf between what the government demands regarding local production and the capabilities and infrastructure it currently has to support high-tech manufacturing.
Some companies have achieved compliance with the local production requirements the easy way. They’ve brought some packaging, charger cables, headsets and accessories production to the country. But this does not move Indonesia up the tech value chain or support its own industry.
Policymakers should eradicate red tape and enforce regulations more clearly. They must also take strategic steps to improve infrastructure and upskill the labor force to create a sustainable high-tech manufacturing ecosystem. Vietnam and Malaysia have made focused efforts to lure investments and have seen major success, despite having consumer bases that are a fraction of the size. Indonesia only has one Apple supplier, according to its most-recent list, compared to 35 in Vietnam and 19 in Malaysia.
This conflict goes beyond just iPhone sales in the country. Emerging markets like Indonesia have become battlegrounds for the broader US-China tech rivalry. Four out of the top five smartphone makers in the Southeast Asian nation are Chinese companies (and the fifth is South Korea’s Samsung Electronics Co.).
As Chinese money and tech influence spikes, so has the nation’s popularity. More than 73% of citizens say they would prefer to align with Beijing over Washington if forced to choose. It should be a wake-up call for US policymakers that even as it’s moving toward a breakup from Chinese tech, the rest of the world is increasingly relying on it.
For Jakarta, there’s a limit to how many more victories it can eke out by holding its vast consumer base hostage from tech companies or forcing businesses into decisions that don’t make economic sense. Reaching a truce with Apple would signal to the world that it’s an attractive destination for firms looking for an alternative to China.
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