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The Electronics Industry in Indonesia and Its Integration Into Global Supply Chains

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The Electronics Industry in Indonesia and Its Integration Into Global Supply Chains Working Paper No. 330 The electronics industry in Indonesia and its integration into global supply chains Sectoral Policies Department WP 330 The electronics industry in Indonesia and its integration into global supply chains Working papers are preliminary documents circulated to stimulate discussion and obtain comments International Labour Office Geneva Copyright © International Labour Organization 2019 First published 2019 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Licensing), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: [email protected]. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with a reproduction rights organization may make copies in accordance with the licences issued to them for this purpose. Visit www.isbn@org to find the reproduction rights organization in your country. The electronics industry in Indonesia and its integration into global supply chains, International Labour Office, Social Policies Department (Geneva), ILO, 2019. Working Paper No. 330 ISBN: 978-92-2-031390-9 (print) 978-92-2-031389-3 (web pdf) The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. Information on ILO publications and digital products can be found at: www.ilo.org/publns. Preface The International Labour Organization (ILO) is the United Nations specialized agency dedicated to advancing opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and human dignity. The ILO Sectoral Policies Department (SECTOR) promotes decent work by supporting the Organization’s tripartite constituency, namely governments, employers and workers, in creating opportunities and addressing challenges in 22 different economic and social sectors at the global, regional and national levels. Computers and small electronic products such as smartphones have become ubiquitous in modern life. The increasing demand for electronics is fuelling a competitive and dynamic global electronics industry, which has become one of the largest industrial sectors in the world economy. It is one of the most important revenue generators and the largest employer within the broader manufacturing sector. Fuelled by outsourcing and offshoring, the electronics industry has become one of the most globally fragmented production systems, with extensive and complex global supply chains. Production of electronics in Indonesia began in the 1980s, when large brands and multinational enterprises established operations in the country. This report describes the history of the electronics industry in Indonesia, its structure, and its integration into global supply chains. Relevant public governance and private compliance initiatives that key stakeholders are pursuing to advance decent work are discussed. The report also identifies challenges and opportunities for the development of Indonesia’s electronics industry while ensuring decent work. This research report is the outcome of the second component of an ILO development cooperation project entitled “The Future of Work in Information and Communication Technology (ICT)”. It further contributes to the implementation of the ILO programme of action on Decent Work in Global Supply Chains established in 2017. This report was prepared by Dr. Gale Raj-Reichert, an external consultant under the supervision of Project Manager, Ms Hitomi Takeuchi-Nakagome, Head, Extractives, Energy and Manufacturing Unit, Mr Casper N. Edmonds, Deputy Director of the Sectoral Policies Department, Mr Akira Isawa, and the Director of the Sectoral Policies Department, Ms Alette van Leur. An external consultant, Mr Andrew Dale, proofread and edited the material. We are particularly grateful to the Director of the ILO Office in Indonesia, Ms Michiko Miyamoto, and to Programme Officer, Mr Tendy Gunawan for their valuable contribution and support in preparation for and during the country level fact finding mission. This work also benefited from valuable input, comments and guidance from a larger group of ILO colleagues, including but not limited to Fernanda Barcia De Mattos, Anna Biondi, Enrico Cairola, Shreya Goel, Adam Greene, Caitlin Helfrich, Wael Issa, David Kucera, Berklee Morganto, Bianca Perina, and Amrita Sietaram. Finally, I am grateful for the generous and strategic financial support from the Japanese Ministry of Health, Labour and Welfare for this research project. Alette van Leur Director Sectoral Policies Department iii Contents Introduction ..................................................................................................................................... 1 1. Overview of the electronics industry in Indonesia and its integration into global supply chains .................................................................................................................................... 6 1.1. A short history of the electronics industry in Indonesia ............................................. 6 1.2. The electronics industry and its integration into global supply chains today ............. 7 1.2.1. Structure of the domestic industry .................................................................... 7 1.2.2. Integration of the Indonesian electronics industry into global supply chains ... 8 1.3. Challenges and opportunities in upgrading the electronics industry ........................ 11 1.3.1. Indonesia’s local content requirement policy and its challenges .................... 12 1.4. Regional supply chains and competition .................................................................. 13 1.5. Other factors critical to inclusive growth .................................................................. 15 2. Employment and working conditions in the electronics industry of Indonesia and its supply chains.. ................................................................................................................ 19 2.1. Employment .............................................................................................................. 19 2.2. Temporary contract workers ..................................................................................... 20 2.3. Wages ........................................................................................................................ 21 2.4. Working hours .......................................................................................................... 22 2.5. Occupational safety and health ................................................................................. 22 3. Approaches to advancing inclusive growth and decent work ............................................. 23 3.1. Public governance ..................................................................................................... 23 3.1.1. Public governance measures to ensure decent work ....................................... 23 3.1.2. Promoting domestic industry .......................................................................... 26 3.2. Measures by the social partners in Indonesia ............................................................ 27 3.2.1. Employers’ associations ................................................................................. 27 3.2.2. The Trade Union Law and trade unions ......................................................... 28 3.3. Private compliance initiatives ................................................................................... 29 3.3.1. Initiatives by the three interviewed firms ....................................................... 30 3.3.2. Industry support of private vocational high schools ....................................... 33 3.4. International governance ........................................................................................... 33 3.4.1. ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy ......................................................................... 33 3.4.2. United Nations Guiding Principles on Business and Human Rights ............. 34 3.4.3. European Union Directives on Public Procurement ....................................... 35 3.5. Challenges and opportunities .................................................................................... 36 4. Key findings and possible policy responses ........................................................................ 37 References ....................................................................................................................................
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