Despite a nationwide ban on Apple’s iPhone 16, investors barely batted an eye. Indonesia’s decision came after Apple failed to meet local investment requirements, underscoring a mismatch in priorities between the world’s fourth-most populous nation and the world’s most valuable company. Apple’s shares remained largely unaffected, a sign of how minor Indonesia’s smartphone market is in Apple’s global business despite its scale.
As Indonesia’s young, tech-savvy demographic and smartphone market expand, the country remains an attractive but challenging frontier for foreign investment. Yet, for a tech giant like Apple, Indonesia’s policies may be too restrictive, leading to tough questions about the future of investment and tech growth in the nation. Indonesia must consider whether its current strategies are effective in appealing to tech giants or if more flexible policies could yield better outcomes.
While Indonesia has over 278 million people and more active cell phones than residents, its smartphone market reflects an ongoing struggle between affordability and premium innovation. Apple, with its focus on high-end devices, holds a relatively small market share here; in 2023, it wasn’t even in the top five smartphone brands. Leading players like Samsung, Xiaomi, and Chinese brands such as Oppo and Vivo, dominate with competitively priced Android devices.
This landscape places Apple in a niche position, targeting Indonesia’s luxury market rather than the mass market. Despite Apple’s notable 40% share in Indonesia’s premium smartphone segment—devices priced above $600—its reach remains limited. The growth in this high-end market segment, up 70% year-on-year in the last quarter, hints at potential, but the company’s limited presence is evident in the broader market dynamics.
Indonesia introduced local investment requirements in 2017 to encourage foreign companies to contribute to the domestic economy, especially in manufacturing. The strategy has brought successes, such as Samsung and Xiaomi establishing local factories. Yet, these moves have not been without controversy, as some Samsung factories faced accusations of labor abuses, which the company denied. Apple’s minimal response, meanwhile, hints at its preference for developing regions where it has greater flexibility and fewer regulatory burdens.
Apple’s current contributions to Indonesia’s economy include $95 million in investments and the establishment of four developer academies focused on training students in iOS app development. However, the impact of these academies is debatable given that the overwhelming majority of Indonesian smartphone users operate on Android. Indonesia’s decision to ban the iPhone 16 serves as a reminder that the country’s policy strategy might benefit from recalibration, focusing on incentives over restrictions.
Indonesia has pursued policies requiring foreign companies to engage in domestic processing for certain raw materials, particularly for commodities vital to global markets, like nickel and other battery components. These policies helped secure investments from electric vehicle (EV) battery manufacturers looking to access Indonesia’s vast reserves, especially amid the shift to electric mobility. Despite these successes, the broader economic payoff remains limited, with manufacturing’s share of GDP slightly declining over the last decade.
The U.S. State Department’s 2024 Investment Climate Report on Indonesia points to “restrictive regulations, legal and regulatory uncertainty, economic nationalism, trade protectionism, and vested interests” as significant challenges for foreign companies. This environment makes it challenging for foreign businesses to establish long-term operations, hindering Indonesia’s attractiveness relative to other Southeast Asian nations. Vietnam, for instance, has drawn investments by offering a more open environment, capitalizing on global supply chain shifts away from China.
Apple’s chief executive officer, Tim Cook, visited Indonesia earlier this year, meeting with then-President Joko Widodo. After discussions on potential collaborations, Cook stated the company would “look at” manufacturing possibilities within the country. Yet, this statement lacked concrete commitments, signaling a hesitance that aligns with other foreign investors’ experiences in Indonesia. Factors such as logistics challenges, legal and regulatory inconsistencies, and trade protectionism have deterred broader tech investment in the country.
Indonesia’s inability to secure long-term commitments from Apple may indicate a missed opportunity, especially given Apple’s reported intention to invest more in emerging markets like Indonesia. Other foreign firms, particularly those from China, have been more willing to invest heavily in Indonesia, partly due to shared interests in commodities and regional influence. In 2023, Chinese investments in Indonesia were more than twice the value of U.S. investments, underscoring how China is capitalizing on Indonesia’s protectionist stance to gain an edge over American firms in the region.
Despite its limited market share, Apple is the premium smartphone leader in Indonesia, a market that has shown resilience and growth even amid economic fluctuations. Apple CFO Luca Maestri acknowledged growth in emerging markets, including Indonesia, as a critical area of focus amid Apple’s ongoing revenue challenges in China. In Indonesia’s premium segment, which saw robust year-over-year growth in shipments, Apple’s competition largely comes from Samsung and Chinese manufacturers that also target this high-end niche.
Although Apple currently enjoys a lead in this segment, the risk of Chinese brands seizing more premium market share is real. These companies have gained traction by offering high-performance devices at more competitive prices, appealing to Indonesia’s growing young population and digital economy. For Apple, maintaining and growing its lead in this niche segment could open doors for broader market penetration if it can navigate Indonesia’s regulatory landscape.
The U.S. and China are locked in a global tech rivalry, with Southeast Asia becoming a key battleground. Indonesia, Southeast Asia’s largest economy, is pivotal in this rivalry, especially given China’s increasing presence. China’s investments have not only strengthened economic ties with Indonesia but have also secured supply chains critical to Chinese industries, particularly in areas where Indonesian resources are abundant.
Indonesia’s stricter requirements for foreign firms may be inadvertently supporting China’s regional influence, as U.S. companies face more difficulty in establishing a foothold. In contrast, Chinese firms, accustomed to navigating complex regulatory environments, have leveraged their adaptability to forge stronger partnerships in Indonesia. This trend reflects a shift in influence that could impact U.S.-Indonesia relations, especially as Indonesian policymakers observe the steady flow of Chinese investment.
To foster more productive partnerships with tech giants like Apple, Indonesia may need to shift from a protectionist stance to one that is more collaborative and incentive-based. Policymakers could take steps to:
- Streamline Regulations: Simplify regulations that hinder foreign direct investment, creating a more business-friendly environment for tech firms.
- Enhance Infrastructure: Improve logistics, transportation, and digital infrastructure, reducing operational costs for foreign companies.
- Incentivize Innovation: Introduce tax benefits, grants, or public-private partnerships that reward innovation, making Indonesia an appealing base for tech development and manufacturing.
- Upskill the Workforce: Develop technical training programs tailored to the needs of foreign companies, especially in the tech sector, ensuring a steady pipeline of qualified talent.
The challenge for Indonesia lies in balancing its national interests with the competitive needs of the global economy. Encouraging foreign investment through these initiatives could transform Indonesia from a market with unrealized potential to a dynamic hub of tech and innovation.
Indonesia’s decision to ban the iPhone 16 is unlikely to leave a major impact on Apple’s bottom line, as the company’s revenue model does not heavily depend on Indonesian sales. However, the decision reinforces a broader perception of Indonesia as an uncertain investment environment. For Apple, finding a workable solution with Indonesia’s new administration would be prudent if it aims to capitalize on the premium market’s growth potential in Southeast Asia’s largest economy.
On Indonesia’s part, the nation’s economic growth ambitions will require foreign partnerships that go beyond resource-based exports. As it watches neighboring countries attract tech giants by providing more open business environments, Indonesia must decide if it wants to adopt a similar approach or risk falling behind in the Southeast Asian tech race.
