India & Indonesia: Opportunities and Challenges

February 25, 2015

 

Boston Consulting Group’s recent study on global manufacturing trends shows that India and Indonesia remain competitive by global standards in terms of labor cost, a major factor that has driven corporate investment in the two countries during the past year.

 

Cheaper Costs Drive Interest in India and Indonesia

 

Cost stability in India and Indonesia, supported by increased productivity and weakening exchange rates, has enhanced the attractiveness of the two countries as a industrial base, particularly as China has seen steady increases ranging between 10 and 20% in labor costs during the past ten years. 

 

Focus on 'Demographic Dividends' and Weaker Wage Pressure 

 

What’s more, industrialists see demographic dividends in the two countries. During the next 20 years, both India and Indonesia are expected to see rapid growth in the proportion of their populations aged between 18 and 40 years of age, which points to a large labor force and high potential growth in consumer markets. 

 

Logistics Quality & Costs of Doing Business a Drawback

 

That said, the costs of coordinating operations and bring products to market in the two countries are a key concern. In both locations, relatively undeveloped logistics networks and excessive bureaucracy put an extra cost on doing business. In 2013, Indonesia and India ranked 120nd and 134th, respectively, in the World Bank’s Ease of Doing Business rankings, a survey of business conditions in 164 countries. 

 

Pressure on Modi & Jokowi to Deliver Reforms and Infrastructure

 

As such, to benefit from a steady stream of investment, the two countries face a challenge in reforming their economies. It is against this backdrop that the newly-elected administrations run by Nahendra Modi in India and Widowi Jokowi in Indonesia were greeted with such enthusiasm.

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