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Local sneaker firms are making it in Indonesia

Eager to expand new footwear foothold as costs in China climb

By Jenn Abelson
Globe Staff / May 29, 2010

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TANGERANG, Indonesia — 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 this island nation, drawn by a large labor pool, stable wages, and fewer regulations. Export volume of sports footwear produced in Indonesia is expected to soar roughly 25 percent to $1.6 billion since 2007, according to the Indonesian Footwear Association.

Local companies are among those leading the trend. Reebok International, the Canton sneaker company, is looking to expand its operation in Indonesia after doubling production here in recent years. Collective Brands, which owns local businesses such as Saucony, Keds, and Stride Rite, is also stepping up manufacturing in Indonesia as a way to cut back costs. And New Balance, the Boston-based maker of running shoes, opened a factory last month near Jakarta, and next year plans to increase the number of shoes made here to roughly 6 million pairs — from just 500,000 last year.

At the new factory here in Tangerang — a facility the size of a football field — New Balance expects to soon 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 sneakers.

“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 and procurement. “People are looking at Indonesia as one of the places that has some pretty good growth potential.’’

China once lured American companies to build plants in its economic zones near its large coastal cities with low costs and a seemingly endless number of workers, but it is becoming a more challenging place to do business for some industries. Chinese are getting more skilled, and are finding business 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 range from $11 to $12 an hour, along with full benefits, for workers at New Balance’s factory in Lawrence.)

But it’s not simply the expansive labor pool and stable wages that are giving Indonesia an edge these days. The US dollar goes further here, there is less bureaucracy, and there are not the same counterfeiting problems that are pervasive in China and cut into company profits, according to Sameer Kumar, a professor of operations and supply chain management at the Opus College of Business in Minneapolis. Although China still leads the market as the number one producer of athletic footwear, Indonesia, ranked number three, is poised to increase its market share.

The pressure to improve profits and keep prices competitive helps drive sports apparel manufacturers to seek inexpensive labor overseas. This is especially true during an economic downturn, when shoppers are particularly thrifty. To meet shoppers’ expectations — along with those of investors in the company — businesses are looking for ways 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 more stringent labor laws have resulted in better working conditions in Indonesia compared with China, factory workers are still earning “poverty wages,’’ according to Jim Keady, founder of Educating for Justice, a not-for-profit that has exposed alleged labor abuses by Nike and other businesses. “These expanding brands are helping to decrease unemployment in Indonesia, but these are not good jobs,’’ said Keady, who said he has interviewed Indonesian factory workers employed by Nike, Reebok, Adidas, and other brands.

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 roughly 240 million people offer an ample supply of skilled laborers, and that working population is growing, according to Jim Castle, founder of CastleAsia, a business consultancy based in Jakarta. Apparel manufacturers for brands like Victoria’s Secret are expanding, along with Japanese sportswear company Mizuno.

The easy access to workers is critical for athletic footwear manufacturers. At the New Balance factory, it takes more than 200 people to create and package one pair of sneakers, according to Elmore Simorangkir, director of PT Groot, which oversees the New Balance plants in Indonesia. Dozens of stations are dedicated to slicing leather, buffing edges, and cementing soles to the bottom of shoes.

Looking outside China has taken on a greater sense of urgency with a growing number of countries in Europe and South America 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 market 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, especially southern China, are increasing heavily. That has an impact on the cost of goods.’’

Jenn Abelson can be reached at abelson@globe.com.