Indonesian regulators last week rejected a proposal from Apple that the tech giant had hoped would pave the way for sales of the iPhone 16 in one of Southeast Asia’s largest markets.
Indonesia requires 40% of parts used in certain smartphones to be produced domestically. To comply, Apple had pitched a $1 billion investment in an Indonesian manufacturing facility on Indonesia’s Batam island to produce parts for the AirTag tracking device.
However, Industry Minister Agus Gumiwang pointed out that since the AirTag is not an iPhone part, the facility would not count towards the locally produced component rule for the iPhone 16, which was rolled out in September 2024. The local sales ban was first announced the following month.
The regulation, known locally as The Domestic Component Level (TKDN), calls for the locally produced components to be integral parts of the device, whether it is a smartphone, a tablet or a computer.
Aryo Meidianto Aji, a Jakarta-based smartphone market analyst, told DW that it seems Apple “does not understand” the TKDN scheme rules.
“Since AirTag is an accessory sold separately from the mobile phone itself, even with significant investment, AirTag will not contribute to the TKDN percentage,” he said.
“Ideally, Apple would establish a factory in Indonesia where components can be produced domestically and included in the sales packaging of Apple devices. For instance, adapters, data cables, earphones, cases, and even simple components of the packaging and manuals have their own assessment weight.”
Indonesia eyes more tech investment
Nevertheless, Apple’s Batam AirTag production facility is set to open next year, according to Indonesian Investment Minister Rosan Roeslani.
It would be Apple’s first production facility in Indonesia, which is seeking to compete with other Southeast Asian countries like Vietnam in becoming a tech production hub.
However, there are concerns that the government is not making Indonesia an easy choice.
“We can appreciate the government’s intention to increase local components within products marketed in Indonesia, yet we cannot force multinational companies to comply without providing them with options and the necessary ecosystem,” said Muhammad Habib, a Jakarta-based international relations expert at the Center for Strategic and International Studies (CSIS).
“Playing hard to get can send a negative signal to the international community. We have remarkably high demand, but we have not been able to meet the needs of the company,” he told DW.
“Additionally, Singapore and Malaysia have recently created special economic zones focused on producing high-tech products and integrating into the global technology supply chain,” Habib added.
Apple’s initial $1 billion investment proposal in Indonesia compares with nearly $16 billion invested in Vietnam, where it operates multiple production facilities. India is another investment location.
Apple had initially proposed $100 million component factory to meet the local parts requirement, but the government said it was not enough.
“We have done an assessment and this [proposal] has not met principles of fairness,” said Industry Minister Gumiwang in November, comparing Apple’s proposal to larger investments in Vietnam and Thailand.
Indonesia’s “fairness principles” compare how companies invest in other countries, while calling for contributions to local jobs and economic development.
Muhammad Habib from CSIS said that with US President Donald Trump taking office, Indonesia should think about how it uses leverage with US-based tech giants.
“During Trump’s tenure, there will be a tendency for business actors to approach Trump to secure more incentives or other forms of support in terms of the economy, geopolitics, and other areas. If we are too stringent, we risk not only losing the investment but also facing other undesirable consequences,” he said.
Despite being a massive potential market for Apple, most smartphones used in Indonesia are made by South Korea’s Samsung, or Chinese manufactures like OPPO.
Non-compliant smartphones bought abroad can still brought into Indonesia, as long as users pay a tax. Indonesia has also banned the sale of Google Pixel phones for failing to meet the local parts rule.
“Apple’s market share in Indonesia is not substantial, particularly for their new products. The larger share is held by some of the older products. Consumers will become weary of waiting for uncertain devices, leading to a significant potential shift to other devices,” said market analyst Aryo.
Edited by: Wesley Rahn
Written with material from Reuters.
