Indonesia overtaking China as hot spot for Japanese apparel firms

Indonesian workers sewing shirts at a Nisshinbo factory.

TOKYO -- Japanese companies are ramping up textile and apparel production in Indonesia, a trend that is making the country a principal alternative to China as a location for conducting such operations.

Lower labor costs -- a quarter of those in China -- are not the only attraction. Indonesia offers much better roads, ports and power supply infrastructure than Myanmar and Bangladesh, countries that are also drawing attention as manufacturing bases. In 2012, Indonesia accounted for just 3% of Japan's imports of textile products, far lower than China's 74%.

Trading house Mitsubishi will invest 6 billion yen ($57.9 million) to build seven joint venture factories in central Java by 2016 for OEM supply to Japanese and Western apparel makers. Currently, about 70% of the company's clothing output is concentrated in China -- where it consigns manufacturing operations to local businesses. But with labor costs rising sharply in China, Mitsubishi plans to transform Indonesia into a core production base. Four factories are scheduled to come onstream in 2014 to make outerwear and pants, among other items.

Nisshinbo will spend 3 billion yen to 4 billion yen to automate and expand manufacturing facilities at an existing textile and sewing factory in Indonesia. It will start out by installing state-of-the-art machines for making wrinkle-free shirts.

The factory currently produces enough cloth to make 19 million shirts a year. Most of its products are exported to Japan, but the market will be expanded to Europe starting in fall 2014. Nisshinbo will invest an additional 2 billion yen to 3 billion yen as early as fiscal 2015 to boost output capacity by 10-20%.

Aoyama Trading, Japan's largest menswear chain operator, will set up a directly run factory in Indonesia around next spring.