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LG Electronics backs down from factory relocation threat
After factoring Indonesia’s robust economic growth and notable improvements in infrastructure development, Korean company LG Electronics has retreated from its plan to relocate its production base from Indonesia to Vietnam
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fter factoring Indonesia’s robust economic growth and notable improvements in infrastructure development, Korean company LG Electronics has retreated from its plan to relocate its production base from Indonesia to Vietnam.
The president director of LG’s Indonesian branch, Kim Weon-dae, said Friday that the company would continue “to strengthen its relationship with local leaders as well the local community”.
LG’s decision affects the livelihoods of 4,600 Indonesians currently listed as workers in factories producing household electronic appliances such as television sets, DVD players and refrigerators.
Approximately 95 percent of LCD TVs produced by LG in Indonesia are allocated for export.
Indonesia is among the several countries — including Vietnam, Thailand, China, Turkey, India, Vietnam and Brazil — where LG has set up its main factories outside of South Korea.
“Indonesia is a strategic market for LG in Asia with significant sales growth every year,” Kim said.
LG is also considering expanding its investment in Indonesia in the near future, Kim said, a statement that seemed unlikely just a month ago when the company expressed dissatisfaction over poor infrastructure and the complexity of customs and excise procedures in the country.
Previously, Industry Minister Mohamad S. Hidayat said LG had filed complaints to the ministry and threatened to leave the country should no improvements materialize.
LG’s complaint was filed at a time when many foreign companies began expressing and acting on plans to relocate their production base to Indonesia from China and Taiwan due to rising costs.
In April, the Indonesian Footwear Association (Aprisindo) said three sports shoe brands had relocated their production base from mainland China to Indonesia. The brands include Mizuno and Asics Tiger, both originally from Japan, as well as the US’ New Balance.
Aprisindo said that thanks to the relocations, shoe exports were predicted to rise by 11 percent to US$2 billion this year from $1.8 billion last year.
Nestlé, the world’s largest food producer, announced in June plans to relocate its production plant from Malaysia and the Philippines to Indonesia as the government had imposed export taxes on cocoa.
More producers of cocoa-based products are also expected to move their production facilities to Indonesia, the Investment Coordinating Board (BKPM) said.
BKPM chairman Gita Wirjawan told The Jakarta Post last month that he met with executives from Korean companies that were planning to either invest or expand their businesses in Indonesia. The combined investment commitment of the firms could reach up to $10 billion, he said.
The companies include Korean steel producer Pohang Steel & Iron Company, which recently signed a joint agreement with Indonesia’s PT Krakatau Steel to construct a steel plant in Cilegon, Banten.
Earlier this week, the Asian Development Bank (ADB) issued a brighter outlook on the Indonesia economy, with a senior executive predicting that the country’s gross domestic product would grow more than 6 percent this year.
ADB senior country economist Edimon Ginting said that he believed with the strong economic growth of 5.9 percent recorded in the first half, this year’s GDP growth may accelerate to between 6.2 and 6.3 percent, exceeding the government’s target of 5.6 percent. (map)
