Layoffs Still Loom over the Labor-Intensive Sector

The shoe industry, as well as textiles and textile products, are still relied upon for job creation. In the past two years, layoffs have continued to negatively impact the performance of this labor-intensive sector.

KOMPAS/WAWAN H PRABOWO

Activities of workers in the shoe manufacturing industry in Cikupa, Tangerang, Banten, Tuesday (30/4/2019). The factory employs as many as 15,000 people.

JAKARTA, KOMPAS — Amid the national economic recovery, the footwear industry and TPT products have not fully recovered from the effects of the Covid-19 pandemic and the global economic slowdown. This is evident in the ongoing wave of layoffs in this labor-intensive manufacturing sector.

The demand for export markets in both sectors has weakened due to global economic pressures. This situation is further compounded by difficulties in boosting domestic sales as a result of the influx of imported goods. Consequently, a decline in production leading to job cuts has become inevitable.

For instance, PT Dean Shoes, a shoe manufacturer located in Karawang Regency, West Java, ceased operations and closed its factory as of 14 April 2023. As a result, 3,329 employees were laid off.

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Fajar Ahmad Faizal, who was still handling public relations affairs for PT Dean Shoes when interviewed prior to the factory closure explained that the global economic uncertainty caused by the Russia-Ukraine war had led the brand owners to reduce orders from PT Dean Shoes since 2022. Initially, the company coped with this situation by implementing a four-day workweek.

"Along with these conditions, the minimum wage in the regency increased significantly. Our investors were seeking cheaper production locations to ensure more sustainable operations. The layoffs were carried out on 6 April and 14 April, so they were completed before the Idul Fitri holiday," said Fajar, who himself was not spared from the layoffs.

PT Dean Shoes has been manufacturing shoes under the Nike and Under Armour brands for the middle-class market segment. Prior to the cessation of operations, the company was solely focused on fulfilling the remaining orders from Nike. The future of PT Dean Shoes' facilities remains uncertain.

KOMPAS/TOTOK WIJAYANTO

Employees of the PT Dean Shoes shoe factory in Karawang, West Java, on Tuesday (28/3/2023). PT Dean Shoes closed the factory and stopped its operations on April 2023. A total of 3,329 workers were laid off.

The phenomenon of job cuts has also affected the TPT product industry. Kwee Liang Cing, owner and director of PT Bentara Sinarprima, a textile company producing fabrics for bed sheets and fashion located in Bandung regency, West Java, stated that they had reduced their workforce from 500 employees to 260. Previously, workers used to work 5 to 6 days a week, but now they only work 1-2 days a week.

Lilik, as he is commonly known, explained that the factory's production capacity has been continuously declining since 2022 due to a sharp drop in demand. The factory's production capacity, which used to reach 2 to 2.5 million meters per month, is now only utilized at 30 to 35 percent. Fabric production has decreased to around 700,000 to 800,000 m per month.

The decline in demand, which has resulted in decreased production, according to Lilik, is due to the domestic market being pressured by an influx of imported products. Imported bed sheets and fashion fabrics are cheaper compared with domestic products.

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He mentioned that domestic products face difficulties in competing because manufacturers are burdened with various cost increases, ranging from labor wages to operational expenses. On the other hand, textile imports are easier and cheaper. "The flood of imported goods has become very distressing," Lilik said recently.

Job cuts have also occurred in the TPT industry center in Majalaya, Bandung regency. Aep Hendar Cahyadi, one of the TPT entrepreneurs in Majalaya, stated that in the past two years, the number of employees has dropped from 245 to 85. The number of working days has also been reduced to four days a week.

Dedi, which is not his real name, who manages another TPT factory in Majalaya, shares a similar story. Two years ago, the number of workers in his factory was around 400, but now it is only half that number, with a production capacity of 60 percent.

The flood of imported goods has become very distressing.

The Garment and Textile Workers Union Federation (Garteks) chairman Ary Joko, stated earlier this week that the labor-intensive footwear and TPT industries were initially hit by social restrictions due to the Covid-19 pandemic.

The pressure was particularly felt between April and September 2020. As they entered 2021, both sectors were actually starting to recover. There were even rumors of a business expansion.

"Our total membership amounted to 60,000 people. Throughout the pandemic in 2020 to 2021, 12,300 of our member workers experienced layoffs. We demand fairness during the pandemic, such as wage negotiations. When there was a brief recovery in 2021, we rehired workers who had been previously laid off," said Ary. However, before they could fully recover from the pandemic, the global economy worsened again due to the Russia-Ukraine war. The export market demand also weakened.

KOMPAS/TOTOK WIJAYANTO

One of the textile production machines was not operated at the textile factory in Majalaya, Bandung, West Java, due to a lack of incoming orders, Thursday (30/3/2023). The massive import of fabrics that flooded the local market caused the Majalaya textile industry to have a shortage of orders and was unable to compete.

Production costs keep rising

The Indonesian Footwear Association (Aprisindo) executive director Firman Bakri stated that factory closures, like what happened to PT Dean Shoes, are inevitable due to the decline in the export market demand.

On the other hand, industry players are confronted with continuously increasing labor wages. Additionally, the 2023 minimum wage in Karawang, which is the highest in Indonesia, is set at Rp 5.17 million per month, representing a 7 percent increase compared with the 2022 minimum wage of Rp 4.79 million per month.

The Indonesian Textile Association (API) believes that the current minimum wage policy is not appropriate for assisting the labor-intensive industry.

"The government's chosen calculation formula results in an unreasonable increase in the minimum wage. However, productivity does not increase accordingly, further impacting the competitiveness of the TPT industry," said the API Employment and Human Resources Development vice chairman Nurdin Setiawan.

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In the upstream textile sector, which is relatively more capital-intensive, labor costs are estimated to account for 10 to 15 percent. In the garment sector, labor costs account for around 18 percent. Since most materials used for garments are imported, the proportion of raw material costs in total production costs can range from 55 to 65 percent.

"There are other consequences of the increasing minimum wage, such as the rise in social security contributions, holiday allowances and overtime costs," he added.

Nurdin stated that due to various pressures, layoffs have become an inevitable option. As an example, during the period of January to November 2022, API member companies laid off nearly 80,000 workers.

Previously, the TPT industry was hit by crises in 1997 to 1998 and 2008 to 2009, but it managed to recover and become a crucial source of employment. Nurdin also believes that this time, the TPT industry in Indonesia will not experience a decline because TPT products are always in demand.

However, the API hopes that the government will provide policy support for the development of this labor-intensive industry. The anticipated support includes regulations on minimum wages, incentives for energy prices and firm measures against TPT imports, particularly illegal ones.

This article was translated by Tenggara Strategics.