Indonesia Loses Ground to Vietnam in the Battle for Foreign Investors
Vietnam has emerged as a formidable rival to Indonesia in the race to attract foreign investors, with recent losses highlighting the challenges faced by Southeast Asia’s largest economy. From tech giants to automotive manufacturers, Vietnam has consistently outshone Indonesia, raising questions about the latter’s competitiveness in the global investment landscape.
Nvidia and Apple: A Tale of Missed Opportunities
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One of the most notable blows came when Nvidia Corporation, the US-based multinational technology company, chose Vietnam over Indonesia for its artificial intelligence (AI) research and advancement center and a US data center.The investment, valued at US$ 200 million (Rp. 3.26 trillion), was a missed prospect for Indonesia, despite Nvidia founder Jensen Huang visiting the country in November 2024.
Similarly, Apple opted to invest US$ 15.8 billion (Rp. 257.54 trillion) in Vietnam, further solidifying the country’s position as a preferred destination for tech giants. These decisions underscore Vietnam’s growing appeal to global investors, leaving Indonesia to grapple with the reasons behind its repeated losses.
A Pattern of Defeats
According to Bhima Yudhistira, Economist and Executive Director of the Center of Economic and Law Studies (CELIOS), Indonesia’s struggles with Vietnam are not new. “The Chery automotive company chose to invest US$ 800 million in Thai Binh, Vietnam. Indonesia is only being used as a market for Chery cars without creating an industry,” Bhima told detikcom on Saturday, January 11, 2025.
The trend extends beyond tech and automotive sectors.South Korean tire manufacturer PT Hung-A relocated to Vietnam earlier this year, exporting over 70% of its production to Europe, including to the renowned brand Dunlop. Similarly, Taiwanese furniture company Full Ding Furniture Co. LTD and Danish footwear manufacturer PT ECCO Indonesia shifted their operations to Vietnam in 2015 and 2018,respectively.
“World Bank data shows that during the first trade war in 2018, 5 out of 8 Chinese companies preferred to shift to Vietnam rather than Indonesia,” Bhima added.
Why Vietnam?
Experts point to several factors that make Vietnam a more attractive investment destination. Esther Sri Astuti, Executive Director of Indef, highlighted four key reasons:
- Simplified Regulations: Vietnam’s centralized system for investment regulations and licensing makes it easier for businesses to operate.
- Strong International Ties: Vietnam has numerous multilateral and bilateral cooperation agreements with European countries and the US.
- Controlled Labor Costs: The government regulates labor wages, ensuring affordability for businesses.
- Lower Operational Costs: The cost of doing business in Vietnam is significantly cheaper compared to Indonesia.
Ease of Doing Business Rankings
The World Bank’s Ease of Doing Business (EoDB) report further illustrates Indonesia’s challenges. In 2020, Malaysia led the region with a global ranking of 12th, followed by Thailand (21st), Vietnam (70th), and Indonesia (73rd). Malaysia’s success is attributed to streamlined processes, such as eliminating road and drainage inspections for construction permits, a move that has significantly improved its business habitat.| Country | EoDB Ranking (2020) | Key Strengths |
|—————|————————-|—————————————-|
| Malaysia | 12th | Construction permits, minority investor protection |
| Thailand | 21st | Automotive, agriculture, fisheries |
| Vietnam | 70th | Labor costs, operational costs |
| Indonesia | 73rd | – |
The Road Ahead
While Indonesia continues to lose ground to Vietnam, the country must address its regulatory and operational challenges to remain competitive. As Bhima noted, Indonesia faces stiff competition not only from Vietnam but also from Malaysia and Thailand, notably in the semiconductor, automotive, and agricultural sectors.For Indonesia to reclaim its position as a top investment destination, it must streamline its processes, strengthen international partnerships, and create a more business-friendly environment. Until than, Vietnam’s rise as a regional investment hub seems unstoppable.
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this article is based on information from detikcom and insights from experts Bhima Yudhistira and Esther Sri Astuti.
Why Vietnam is Outpacing Indonesia in Attracting Foreign investors: An Expert Interview
Vietnam has emerged as a formidable rival to Indonesia in the race to attract foreign investors, with recent losses highlighting the challenges faced by Southeast Asia’s largest economy. From tech giants to automotive manufacturers, Vietnam has consistently outshone Indonesia, raising questions about the latter’s competitiveness in the global investment landscape. To shed light on this issue, we sat down with Dr. Anindya Kusumawardhani, a leading economist and expert on Southeast Asian economic development, to discuss the factors behind Vietnam’s rise and Indonesia’s struggles.
Nvidia and Apple: A Tale of Missed Opportunities
Senior Editor: Dr. Kusumawardhani, one of the most notable blows to Indonesia was when Nvidia Corporation chose Vietnam over Indonesia for its AI research center and data center. Similarly, Apple invested billions in Vietnam.Why do you think Indonesia missed out on these opportunities?
Dr. Kusumawardhani: It’s a combination of factors. Vietnam has been proactive in creating a business-pleasant environment, especially in the tech sector.they’ve streamlined regulatory processes, offered attractive incentives, and built strong infrastructure to support high-tech industries. Indonesia, conversely, still struggles with bureaucratic hurdles and inconsistent policies. While Nvidia’s founder visited Indonesia, the lack of clear incentives and infrastructure likely tipped the scales in vietnam’s favor.
A Pattern of Defeats
Senior Editor: Beyond tech, we’ve seen companies like Chery Automotive, PT Hung-A, and Full Ding Furniture shift their operations to Vietnam. What’s driving this trend?
Dr. Kusumawardhani: This isn’t a new phenomenon. Vietnam has been steadily building its reputation as a manufacturing and export hub. As a notable example, Chery Automotive’s decision to invest $800 million in Vietnam rather of Indonesia highlights a critical issue: Indonesia is frequently enough seen as a market rather than a production base. Vietnam, with its lower operational costs, controlled labor wages, and strong international trade agreements, offers a more compelling proposition for manufacturers.
Why Vietnam?
Senior Editor: What specific advantages does Vietnam have over Indonesia?
Dr. Kusumawardhani: Vietnam’s success can be attributed to four key factors:
- Simplified Regulations: Vietnam’s centralized system for investment approvals makes it easier for businesses to set up and operate.
- Strong International Ties: Vietnam has numerous trade agreements with major economies, including the EU and the US, which provide access to lucrative markets.
- Controlled Labor Costs: The government regulates wages, ensuring they remain competitive for businesses.
- Lower Operational Costs: From electricity to logistics, the cost of doing business in Vietnam is substantially cheaper than in Indonesia.
Ease of Doing Business Rankings
Senior Editor: The world Bank’s Ease of Doing Business report shows Indonesia lagging behind Malaysia, Thailand, and even vietnam.What can Indonesia learn from its neighbors?
Dr. Kusumawardhani: malaysia,such as,has streamlined processes like construction permits,which has significantly improved its business environment. Indonesia needs to focus on reducing bureaucratic red tape,improving infrastructure,and offering more competitive incentives. The government must also work on building stronger international partnerships to attract high-value investments.
The road Ahead
Senior Editor: What steps should indonesia take to reclaim its position as a top investment destination?
Dr. Kusumawardhani: Indonesia has immense potential,but it needs to address its regulatory and operational challenges. Streamlining investment processes, improving infrastructure, and creating a more predictable policy environment are critical. Additionally, indonesia should leverage its large domestic market and natural resources to attract investors. Without these changes, Vietnam’s rise as a regional investment hub will continue unabated.
Senior Editor: Thank you, Dr. Kusumawardhani, for your insights. It’s clear that Indonesia has work to do if it wants to compete with Vietnam and other regional players.
This interview is based on insights from Dr. Anindya Kusumawardhani and facts from detikcom.
