It was billed as a stand for “principles of fairness” against an uncaring foreign tech giant. Such was the heady rhetoric Indonesia’s ministers deployed throughout the country’s stand-off with Apple, which began in October, when Indonesia banned the sale of the newest iPhone. The saga reached a denouement on February 26th, with a $320m investment deal signed by Apple and the government.
The principle ostensibly at stake was the integrity of Indonesia’s local-content requirements (commonly referred to as TKDN). These mandate that phones sold in the country are made with at least 40% locally produced parts. Officials argued that phonemakers such as China’s Xiaomi and South Korea’s Samsung ran local factories to meet these requirements.
Yet for Apple, complying with TKDN by sourcing components within Indonesia was nearly impossible. It has just one supplier in Indonesia, Yageo Corp, a Taiwanese firm that makes ceramic capacitors, a basic electronic part. And compared with Xiaomi or Samsung, the stakes for Apple in Indonesia are smaller. Although sales are rising, the company sold 2.3m phones in Indonesia in 2023, 1% of global unit sales and 8% of “rest of Asia” sales (ie, outside China and Japan). The extent of business actually affected by the ban, which applied to the high-end iPhone 16, is even smaller.
Indonesia’s negotiating leverage was always modest. Few believed the government cared about precise adherence to TKDN. Even so, officials drove a hard bargain. After they rejected two investment offers worth $10m and $100m, Apple proposed a deal north of $1bn. It involved three parts. First, a factory would be built in Batam, an Indonesian island near Singapore, producing Apple’s AirTag accessory. Second, a separate “components and accessories” factory would be built in Bandung, a few hours from Jakarta. Third, Apple would further invest in its developer-training facilities in Indonesia.
In December Prabowo Subianto, the president, reportedly instructed negotiators to accept the $1bn offer, according to Bloomberg. But that deal failed to materialise. Despite Mr Prabowo’s go-ahead, Agus Gumiwang Kartasasmita, the industry minister, rejected Apple’s offer in January. “Apple must understand…the Indonesian people are watching us,” Mr Agus said the day before rebuffing the company. The final $320m figure, announced by Mr Agus on February 26th, is less than a third of what Mr Prabowo had approved. Yet the details of the deal are remarkably similar to the original $1bn proposal. Factories are still to be built in Batam (making AirTags) and in Bandung (making mesh fabric for Apple’s over-ear headphones); training facilities will still be expanded. Half of the new deal will come through a woolly $160m commitment that Apple invests “hard cash” in Indonesia.
It is possible that Apple’s original $1bn figure was exaggerated. In January the industry ministry said its valuation of Apple’s AirTag factory was “far below the $1bn commitment” and closer to $200m. Another possibility, given Indonesia’s unco-ordinated bureaucracy, is that Mr Agus was freelancing.
Regardless, the episode demonstrates why TKDN is reviled. Rather than a systematic policy, it is an opportunity for politicians to make hay out of shaking down companies. This is damaging Indonesia’s position as an investment destination, especially compared with its neighbours. Apple itself illustrates this: against just one supplier in Indonesia, it has 19 in Malaysia, 24 in Thailand and 35 in Vietnam. Even after the expansion in Indonesia, Apple’s local footprint will remain small. In the end, it got the better deal. ■