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The condition of uncertainty that continues to jolt the country worsened by violence, riots and looting have scared foreign investors. Foreign buyers have turned theor back on Indonesia and look to Vietnam and China for footwear supply, the shoe makers association (Aprisindo) said. The association said so far this year there has been no orders received from foreign buyers of shoes. Normally many orders have been received for delivery this year.

Actually foreign buyers still favored Indonesian products of branded and non branded shoes such as Nike, Rebok, Fila and Adidas, but high country risk have scared buyers away. Shoe sales are seasonal, therefore, delay in delivery could be a serious damage.

Similar case has been experienced by Indonesian producers in May 1998 when big riots rocked the country leading to the fall of the despotic government of Soeharto and continued uncertainty until the general election and presidentisal election in 1999.

Similar threat of relocating factories from Indonesia has also been reported in other sectors of labor intensive industry. Labor unrest has turned violent and spread to various sectors of industry.

Threat to exports

The footwear industry has been a major export earner for the country. This year the industry is expected to contribute US$2.2 billion to the country's export earning or a 10% increase from the export earning target in 2000. In the first 8 months of last year exports of shoes grew 9.8% year-on-year to US$1.16 billion.

An agreement on "normal trade regulation" between Vietnam and the United States in 2000 more or less would create tighter competition in the U.S. market. Under the agreement, the United States lifted discriminatory tariffs on imports from Vietnam.

Shoe exports from Vietnam to the UNited States have been around 10% of exports from Indonesia, but after the lifting of the discriminatory tariff Vietnam will have an equal treatment which will strengthen its competitiveness. What gives greater concern is the report that foreign investors might move their shoe factories to Vietnam where investment climate is much more favorable. Vietnam, has in fact recorded a steady rise in its production capacity.

Indonesia, however, is believed to be superior in quality, but much less competitive in price. Indonesia and Vietnam have the same market segment in the U.S. market.

Indonesia might be able to cope with the problem by changing its market target with high quality market segment. The proble is that the market segemtn has long been dominated by sheo kaers from Europe.

Export earning down

Indonesia's exports of sports shoes have tended to decline in the past 5 years. In 1995, Indonesia exported 48.3 million pairs of sports shoes valued at US$ 1.63 billion. In 1999, exports dropped to 28.2 million pairs valued at US$ 980.3 million.

Exported sports shoes from Indonesia include sports footwear of rubber and ski-boot & cross country ski footwear with outer soles of rubber. According to the Central Bureau of Statistics (BPS), shoe exports form Indonesia totaled 28.2 million pairs valued at US$ 980.3 million in 1999 including 16.94 pairs of ski boot with rubber outsoles worth US$ 784.5 million and 11.3 million pairs of rubber sports footwear valued at US$ 195.8 million.

Table - 1 Indonesia's exports of sports shoes, 1995 - 1999

 Year Rubber Rubber Total
 ski boot sport shoes

1995 22,005,829 26,316,899 48,322,728
 1,018,130 616,470 1,634,600
1996 18,805,272 24,158,614 42,963,886
 1,035,330 780,584 1,815,914
1997 13,212,557 27,897,948 41,110,505
 747,606 534,497 1,282,103
1998 14,488,624 14,083,851 28,572,475
 574,723 396,789 971,512
1999 16,944,605 11,294,585 28,239,190
 784,530 195,773 980,303

Source: CBS/Data Consult

The United States the largest

Almost all ski boots exported from Indonesia have rubber outer soles. Around 60% or 16.94 million of 28.2 million pairs of sports shoes exported in 1999 were of that type. Exports of ski boots dominated the commodities in the tariff post of HS 6403.19.200 exports of which totaled 16.3 million pairs valued at US$ 758.47 million or 96.75 of the exports value of the commodities in the tariff post in 1999.

Indonesian products of ski booths are exported mainly to Europe and the United States. Exports to the United States totaled 7.69 million pairs valued at US$ 392 million. The rest were to Europe such as Belgium 1.49 million pairs and Britain 1.36 million pairs.

Table - 2 Exports of main types of sports shoes from Indonesia, 1999 (HS6403.19.200, 6404.11.100 and 6404.19.190)
Type of shoes Volume Value
 (Pairs) (US$'000)

Ski boot HS. 6403.19.200 16,323,816 758,469
(Ski-Booth & Cross country sky
footwearother with outer soles
of rubber)
- USA 7,687,655 391,733
- Belgium 1,486,135 68,619
- England 1,359,979 55,171
- Germany 881,649 36,198
- Netherlands 705,060 26,825
- France 639,653 25,968
- Italy 517,322 23,023
- Spain 349,931 14,411
- Japan 348,604 17,043

Sports shoes HS. 6404.11.100 4,832,609 129,673
(Sport footwear of rubber)
- USA 1,301,757 40,036
- England 424,814 11,611
- Belgium 400,307 10,241
- Japan 399,983 10,205
- Italy 353,759 9,590
- France 227,260 5,571
- Germany 205,144 4,948
- Netherlands 170,444 4,891

Sports shoes HS. 6404.19.190 4,865,700 42,643
(Other sport footwear of rubber
for other)
- Japan 3,211,869 17,686
- Italy 215,768 3,001
- Nigeria 209,527 1,659
- Ghana 173,094 1,131
- USA 97,266 2,275

Source: CBS/Data Consult

Shoe production down

Until 1996, Indonesia's production of sports shoes continued to show a sharp rise peaking at 405.8 million pairs that year. In 1997 the production plunged 30% to 284.1 million pairs as a result of the monetary crisis. In the past two years the production did not change much in quantity because of soaring prices of imported basic and auxiliary materials and decline in demand from foreign buyers.

Most Indonesian shoe makers produce shoes on job order from foreign principals. There are few major local producers not depending on job order. They include PT kasogi International with its Kasogi brand and Dong Joe Indonesia with brands of Spotec and Eagle.

Procurement of components and auxiliary materials

Indonesia's production of tanned leather is not not enough to meet domestic requirement. Imports, therefore, are still needed. Imports are also still needed for chemical auxiliary materials. Aprisindo said Indonesia is still dependent on import for 40% of its basic materials mainly from South Korea and Japan.

Lately, there was problem over mouth and hoof disease abroad. Indonesia has to stop imports of leathers from Japan and South Korea for fear of the disease. The impact was panic among the shoe makers as production process would be affected because of scarcity of tanned leather.

As a result, Indonesian producers could not fulfil orders from abroad. Aprisindo said Indonesia failed to meet order for 1.5 million pairs of shoes worth around US$ 20 million last year. After talks with officials of the industry and trade ministry and the agriculture ministry the import ban was lifted. The scarcity of supply of tanned leather, however, could not be coped with immediately as the agriculture ministry has a new policy requiring special license for leather imports both raw and tanned leather. The regulation added to great inefficiency in shoe production.

Leather goods industries in Garut, West Java, complained about the scarcity of leather supply. Many of the small industries were forced to turn down orders for exports of thousands of pieces of leather products such as leather jackets and shoes.

The shortage in supply caused an increase in the prices of tanned leather by 10%-20%. Many producers of unprocessed leathers prefer to export their goods to earn foreign exchange. Exports are considered more profitable with the rupiah fall.
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Title Annotation:International Pages
Publication:Indonesian Commercial Newsletter
Article Type:Statistical Data Included
Geographic Code:9INDO
Date:Feb 27, 2001

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