Innovation and Learning in Asia and Africa
3. 3.1 Low value-added operations in Indonesia INTRODUCTION Indonesia managed to stimulate information hardware (IH) manufacturing on a signiﬁcant scale from the late 1980s following the spillover eﬀects of the Plaza Accord when the Northeast Asian ﬁrms began a wave of relocation to the whole of developing Southeast Asia.1 Although this wave slowed down owing to overheating and a lack of institutional support for upgrading in Malaysia and Thailand, and the emergence of China as an attractive site, IH manufacturing has continued to grow in economies such as the Philippines, Vietnam and Indonesia. Indonesia’s huge labour force, especially the concentration in Java and the coordination oﬀered by Temasik Holdings, which enjoys the lease of the export processing zone in Batam, has helped attract labour-intensive assembly activities such as printed circuit boards, component assembly and consumer electronics to Indonesia. In addition, a handful of local Indonesian ﬁrms have also emerged to assemble brand-less cheap computers for the local market. Indonesian regulations on foreign direct investment (FDI) were for many years restrictive (see Panglaykim, 1983; Hill, 1995, 1996; Sjoholm, 1999, 2002; Blomstrom and Sjoholm, 1999; Dhanani, 2000; Okamoto and Sjoholm, 2003). Indonesia has become more liberal following the ﬁnancial crisis of 1997–98, albeit at a time when the political risks have risen. Total foreign ownership was prohibited until the inclusion of Batam in the Singapore–Johor–Rhiau (SIJORI) growth triangle in 1989. Foreign ownership regulations in the rest of Indonesia became more liberal following the 1997–98 ﬁnancial...
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