US Footwear Giants Lacing Up For ‘Made in Indonesia’ Push

Jenn Abelson

Tangerang. That ubiquitous ‘’Made in China’’ tag stamped or stitched on almost everything you own may become a lot less common. Make room for ‘’Made in Indonesia.’’

Footwear and apparel brands, in their endless pursuit of keeping down costs, are shifting manufacturing to the archipelago, drawn by a large labor pool, stable wages and fewer regulations. Export volume of sports footwear produced in Indonesia is expected to soar 25 percent to $1.6 billion from 2007, according to the Indonesian Footwear Association (Aprisindo).

US companies are among those leading the trend. Reebok, the Ohio-based sneaker company, is looking to expand its operation in Indonesia after doubling production in the country in recent years. And New Balance, the Boston maker of running shoes, opened a factory last month near Jakarta, and next year plans to increase the number of shoes made there to six million pairs from just 500,000 last year.

At the new Tangerang factory — a plant the size of a football field — New Balance expects to employ 5,000 people to take on the labor-intensive production that constantly drives athletic footwear companies to seek out inexpensive workers. Young women in long rows cut fabric, stitch together leather and press ‘’Made in Indonesia’’ labels onto the shoes.

‘’Indonesia has a ready supply of workers and their wages are not going up as fast as in China,’’ said Jim Sciabarrasi, New Balance’s vice president of sourcing. “People are looking at Indonesia as one of the places that has some pretty good growth potential.’’

China once lured US companies to build plants in its economic zones near its coastal cities with low costs and a seemingly endless supply of workers. But it is becoming a more challenging place to do business. Chinese are getting more skilled and are finding opportunities inland, so fewer people are moving to the zones.

And the labor shortage is driving up costs. In the export hub of Guangdong province, several cities last month increased their minimum wages by up to 20 percent. Workers there now earn up to $160 a month, compared with laborers in Indonesia who make roughly $100 to $120 a month. By comparison, wages are around $12 an hour, along with full benefits, at New Balance’s factory in Lawrence, Massachusetts.

But it’s not simply the expansive labor pool and stable wages that are giving Indonesia an edge. The dollar goes further, there is less bureaucracy and there are not the same counterfeiting problems that are pervasive in China and cut into profits, says Sameer Kumar, a professor of supply-chain management at the Opus College of Business in Minneapolis.

Although China is still the No. 1 producer of athletic footwear, Indonesia, ranked third, is poised to rise.

The pressure to improve profits and keep prices competitive drives sports apparel manufacturers to seek inexpensive labor overseas. This is especially true during an economic downturn, when shoppers are particularly thrifty, leading businesses to trim costs all along the supply chain.

‘’Merchants want to maintain their margins, but they can’t charge a lot because there is a lot of competition out there,’’ Kumar said. “So customers are ultimately benefiting, too, because they are getting low prices on goods.’’

Human rights groups, however, note this comes at a cost. While stringent labor laws have resulted in better working conditions in Indonesia compared to China, factory workers are still earning ‘’poverty wages,’’ said Jim Keady, founder of Educating for Justice, a nonprofit that has exposed alleged labor abuses by Nike and others.

While some apparel and footwear producers have set up factories in Vietnam and India, Indonesia, the world’s fourth-most populous nation, is becoming a destination of choice. Its 240 million people offer an ample supply of skilled laborers, and that population is growing, says Jim Castle, founder of CastleAsia consultancy in Jakarta.

At the New Balance factory, it takes more than 200 people to create and package one pair of sneakers, said Elmore Simorangkir, director of Groot, which oversees the New Balance plants in Indonesia.

Looking outside China has taken on greater urgency with a growing number of nations imposing antidumping tariffs on Chinese goods. These duties are imposed when a country exports a significant amount of goods to another at prices lower than domestic prices.

“We’re getting tagged with 20 and 30 percent duties in some places,’’ said Dave Mischler, head of Reebok brand operations. “Costs in China are increasing heavily. That has an impact on the cost of goods.’’

The New York Times