The name Indonesia has its roots in two Greek Words: "Indos" meaning Indian and "Nesos" meaning island. This is an excellent description of the archipelago, as there are an estimated 17,508 islands, some nothing more than tiny outcropping of barren rock, others as California or Spain and covered in dense tropical jungle. Approximately 6,000 of these islands are inhabited, with five main islands and 30 smaller archipelagoes serving as home to the majority of the population.
Most Indonesian textile companies realize that they need to upgrade their equipment and facilities to produce high-quality products efficiently. Expansion is slow, however, partly because of limited domestic financing. The Indonesian banking sector has still not fully recovered from the regional financial crisis in the late 1990s, and many of Indonesia’s larger textile companies continue to be heavily debt ridden.
The major foreign markets for Indonesia’s cotton yarn are Japan, Hong Kong, China and South Korea, with only about 4 percent destined for the United States. Italy, Bangladesh, Japan and Hong Kong are the major markets for Indonesian cotton fabric, while the United States is the top destination for garments.
Modern textile production in Indonesia began in 1962 with the establishment of the first modern cotton spinning and weaving operations. Subsequent years saw a rapid expansion of the industry spurred by low labor costs, government deregulation efforts and an influx of foreign capital and technical expertise. Today, Indonesia has the largest fiber and textile production capacity among the Association of Southeast Asian Nations (ASEAN).
Exports are the main force behind the spectacular growth seen in Indonesia's textile industry in the latter 1980s. Textiles are now the third largest export earner for Indonesia, trailing only petroleum and forest products.
Indonesia's export earnings from textiles in 1989 were estimated at $2 billion, almost a 17-fold increase from 1981. Domestic demand, spurred by Indonesia's burgeoning population and growing income, also has contributed to recent growth.
Indonesia's textile industry is broken into four main sectors: garments, woven fabrics, yarn and manmade fabrics. Garment exports are the most important category, accounting for approximately 55 percent ($770 million) of total export sales in 1988. Fabric, yarn and manmade fabrics exports accounted for 30 percent ($417 million), 8 percent ($106 million) and 1 percent ($17 million), respectively. Most of Indonesia's textile exports are covered under the Multi-Fiber Arrangement (MFA), which sets limits on the growth of textile trade between participating nations.
"Quota markets" accounted for about 96 percent of Indonesia's clothing exports in 1988. Major export destinations include the United States, Singapore, Hong Kong, the European Community and other markets in Asia.