Indonesia’s manufacturing sector remains a critical engine for economic growth, job creation, and export performance. However, to achieve its ambition of becoming a high-income economy, Indonesia must significantly enhance productivity, global competitiveness, and labor demand in this sector over the next two decades.
Achieving this goal requires a forward-looking, strategic approach to industrial policy—learning from the successes and challenges of regional peers. Vietnam, Thailand, and Malaysia have implemented distinct yet impactful policy frameworks that strengthened their manufacturing bases and deepened integration into global value chains. A rigorous comparative analysis of these experiences—particularly their responses to the People’s Republic of China’s (PRC’s) dominance—will offer valuable insights for designing a robust and adaptive industrial strategy for Indonesia.
In this study, SMERU conducts a comprehensive analysis of Indonesia's manufacturing competitiveness and productivity, benchmarking its performance and policies against three key regional peers: Viet Nam, Thailand, and Malaysia. The results of this analysis are used to develop a clear, evidence-based, and prioritized set of policy recommendations to inform and inspire national strategies aimed at unlocking the full potential of Indonesia's manufacturing sector, decisively boosting its productivity, and securing a sustainable competitive advantage in the post-pandemic global economy.
The primary objective of this study is to develop high-level and actionable policy recommendations to enhance Indonesia’s manufacturing competitiveness and productivity over the next 10–20 years.
Based on the study's findings, which reveal gaps in productivity, industrial sophistication, and the supporting ecosystem, the study proposes three sets of policy recommendations.
- The government needs to adopt an integrated digital-based governance system to replace complex and uncertain processes with mechanisms that are more coherent, transparent, and efficient.
- Trade policy needs to shift from a predominantly protectionist approach toward a more facilitative and strategic one to strengthen competitiveness.
- The government needs to promote the development of integrated and coordinated multimodal infrastructure to strengthen connectivity across regions in Indonesia. This effort should also be accompanied by the development of green logistics corridors that align with global sustainability demands while creating new sources of competitive advantage.
Taken together, these recommendations provide an integrated roadmap to increase productivity, strengthen participation in global value chains, and build a more resilient, sustainable, and inclusive manufacturing sector capable of competing in an increasingly dynamic global economy.
To provide a rigorous, actionable, and contextual analysis and policy recommendations, this study employs a rigorous mixed-methods approach to ensure a robust and nuanced analysis of Indonesia’s manufacturing competitiveness and productivity.
The research is structured around two complementary components.
- Comparative analysis
This component provides systematic, data-driven benchmarking across key thematic areas. This component compares performance indicators and policy frameworks between Indonesia and its key regional peers—Vietnam, Thailand, and Malaysia—all of which have implemented distinct yet impactful policy frameworks that have strengthened their manufacturing bases and deepened integration into global value chains.
- Qualitative study
This component grounds the findings in the practical realities and strategic insights of Indonesian stakeholders. This component draws on in-depth interviews with subject matter experts and practitioners, as well as discussions with business leaders, investors, and private sector associations. It captures nuanced, on-the-ground perspectives on Indonesia’s manufacturing ecosystem and provides essential context for understanding the persistent implementation gap.
The synthesis of objective metrics with contextual perspectives forms a comprehensive evidence base for the study’s conclusions and policy recommendations.
