Ahead of 2017 law on smartphones, a rush towards ‘made in Indonesia’

by Tech in Asia

TSM-Technolgies-4GSmartphoneFactoryA regulation due to come into effect in January 2017 will shake up the Indonesian smartphone market. Nicknamed the “made-in-indonesia” smartphone law, the regulation requires companies that sell 4G smartphones and tablets in Indonesia to produce 30 percent of their devices locally.

Global brands seeking access to Indonesia’s fast-growing and potentially vast mobile market will face significant challenges and changes.

There’s much at stake if they don’t comply: they’d risk losing out in Indonesia, which looks set to be the world’s fourth-largest smartphone market by 2018.

The race is on

Phone manufacturers are rushing to keep up with the new rules. Samsung has announced on several occasions that it will open a manufacturing plant in Indonesia, but has yet to follow through with this plan. The South Korean manufacturer’s phones are popular among Indonesians at present, who prefer lower- to mid price smartphones that cost up to US$230. Nine out of 10 phones in this segment are Samsung models.

Xiaomi, which entered Indonesia with the release of the budget Redmi 1S in September 2014, faces a similarly unclear road ahead. It might be unable to release its 4G smartphones in Indonesia later this year. Hugo Barra, Xiaomi’s VP of international, is holding back because he feels the Indonesian government has not sufficiently explained its future 4G regulations.

Even Indonesian smartphone brands will have difficulties in keeping up with the made-in-Indonesia requirements, because most of their phones are manufactured in China. Local bands like Polytron, Evercoss, Himax, and Mito have relied heavily on imported devices.

At present there seems to be only one company ready to produce 4G smartphones in Indonesia in compliance with the 30 percent law: TSM Technologies (TSM). In August 2014, TSM was the first to launch an Indonesian-made 4G phone. The phone was introduced under the brand name IVO V-5 in a tie-up with 4G internet provider Bolt.

See: 8 Android smartphone models to challenge Xiaomi’s Redmi Note in Indonesia

Indonesia’s Foxconn?

TSM is now readying itself to become a major player in mobile manufacturing in Indonesia. According to co-founder Benson Kawengian, TSM sees itself primarily as an engineering company. It positions itself as the go-to partner for both local and foreign brands who want to continue to tap into the Indonesian market effectively. “Our solutions are very flexible for partner brands. Clients can buy finished products [from] us, or collaborate in producing locally made products using their current design and approved vendor lists,” Kawengian tells Tech in Asia.

TSMTechnolges-Team-MWC

TSM at the Mobile World Congress 2105. From left to right: Mantosh Malhotra (Regional Head Southeast Asia, Qualcomm), Benson Engelbert Kawengian (Managing Director, TSM Technologies), Sam Ali (Chairman, TSM Technologies), Muhammad Budi Setiawan (Director-General, Indonesian Ministry of ICT), Denny Setiawan (Group Head, Fixed and Land Mobile Services, Indonesian Ministry of ICT)

With Foxconn’s plans to open a factory in Indonesia still in the air, TSM is in pole position to fill the gap, although the company’s founders don’t liken their firm to the giant Taiwanese manufacturer.

Behind TSM are Kawengian and his partners Riswanto and Sam Ali. The company jump-started into existence in early 2014 when Kawengian and Riswanto were discussing the huge market potential for mobile hardware in Indonesia. Then they partnered up with Ali, who was an importer of feature phones and smartphones from China into Indonesia. To Kawengian, Ali was an ideal partner because he understood the engineering side and had access to the supply chain ecosystem necessary for smartphone manufacturing. Ali is now chairman and CTO at TSM.

With the IVO V-5 phone, TSM has delivered a proof of concept of Indonesia’s 4G future. Kawengian is optimistic about TSM’s prospects in this space. “In a very short time, TSM has recorded multi-million dollar sales. We believe revenue of over US$100 million is within reach in three to five years. We have a simple business model with a clear path to profitability supported with a grand vision to be a dominant and regional mobile technology player.”

Kawengian does not share the concern that the “made in Indonesia” rule would “increase costs and restrict access to technology”. This argument made the rounds after Reuters attributed this quote to an “influential US business group” in a February 24 article.

Kawengian sees the market becoming more diverse, which would ultimately be a win for the end user. “I believe the iPhones, Samsung and Xiaomi phones will still be available, they can’t ignore the Indonesian market. Overall, buyers will have more options and will get more quality for their money.”

Kawengian says that TSM has not yet received any external funding, but the team is prepared to seek investment towards the end of year.

This post Ahead of 2017 law on smartphones, a rush towards ‘made in Indonesia’ appeared first on Tech in Asia.

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