Navigating the Storm: APINDO Unveils Strategic Roadmap to Combat Rising Layoffs in Indonesia’s Industrial Sector

JAKARTA – The Indonesian Employers Association (APINDO) has issued a comprehensive analysis regarding the escalating wave of terminations (PHK) currently rippling through the nation’s industrial landscape. In a detailed statement, the association highlighted that the surge in layoffs is not the result of a single isolated factor but rather a "multi-dimensional challenge" rooted in long-standing structural inefficiencies and exacerbated by current global economic volatility.

As the Indonesian economy grapples with shifting trade dynamics and internal regulatory hurdles, APINDO Chairperson Shinta Kamdani emphasized that layoffs remain the absolute "last resort" for businesses. To mitigate the social and economic fallout, the association is introducing a "10-Step PHK Prevention Framework" designed to help member companies maintain operations without sacrificing their workforce.

Main Facts: A Multi-Layered Industrial Crisis

The current employment crisis in Indonesia is characterized by a pincer movement of domestic structural failures and international market contractions. According to Shinta Kamdani, the discourse surrounding layoffs must be approached proportionally to understand the gravity of the situation.

The primary drivers of the current instability include:

Declining Industrial Competitiveness: A long-term trend where Indonesian manufactured goods are struggling to compete with regional peers due to high production costs.
High Operational and Logistical Burdens: Indonesia’s logistics costs remain among the highest in Southeast Asia, significantly eating into the margins of export-oriented firms.
Weakening Global Demand: Major export destinations, particularly in Europe and the United States, are experiencing economic cooling, leading to a sharp decline in orders for labor-intensive sectors like textiles and footwear.
Geopolitical Uncertainty: Ongoing conflicts in Eastern Europe and the Middle East have disrupted supply chains, leading to volatile energy prices and expensive raw material imports.
Regulatory Hurdles: A lack of consistency in policy implementation and difficulties in accessing affordable financing continue to stifle business expansion.

"PHK needs to be seen proportionally because the cause is not singular. It is a multi-dimensional challenge," Shinta Kamdani stated. "On one hand, we have structural issues—primarily the decline in national industrial competitiveness that has been occurring for quite a long time."

Chronology: From Post-Pandemic Recovery to Geopolitical Friction

The trajectory leading to the current wave of layoffs began shortly after the initial post-COVID-19 recovery. While 2021 and early 2022 saw a rebound in demand, the landscape shifted dramatically in late 2023 and early 2024.

Phase 1: The Logistics and Raw Material Surge. Following the pandemic, global supply chains remained brittle. As demand surged, the cost of shipping and raw materials skyrocketed. Indonesian industries, heavily reliant on imported intermediate goods, saw their operational capital depleted.
Phase 2: The Export Slump. As central banks worldwide raised interest rates to combat inflation, consumer spending in the West plummeted. For Indonesia’s labor-intensive industries, which employ millions, the "order books" began to thin out.
Phase 3: The Energy and Currency Pressure. The weakening of the Rupiah against the US Dollar increased the cost of doing business for companies with dollar-denominated debts or those requiring imported energy and machinery.
Phase 4: The Tipping Point. By mid-2024, many companies reached a threshold where operational efficiencies were no longer enough to offset losses, leading to the difficult decision to reduce headcount.

Supporting Data: The Vulnerability of Labor-Intensive Sectors

While the broader Indonesian economy maintains a growth rate of around 5%, the manufacturing sector—specifically the labor-intensive segment—presents a more concerning picture.

Data from the Ministry of Manpower and various industrial chambers suggest that the textile, garment, and footwear sectors (TPT) are the most vulnerable. These sectors are sensitive to even minor fluctuations in production costs. In the first half of 2024, several large-scale manufacturing hubs in West Java and Banten reported significant workforce reductions.

APINDO notes that the "cost of doing business" index in Indonesia is hampered by:

Logistics Costs: Estimated at roughly 14% of GDP, which, while improving, still lags behind neighbors like Vietnam and Thailand.
Energy Prices: For industrial users, the lack of competitive gas and electricity pricing compared to regional competitors remains a significant deterrent to domestic investment.
Credit Access: Small and medium-sized enterprises (SMEs) within the industrial supply chain often face interest rates that make capital expenditure (CAPEX) for modernization nearly impossible.

Shinta Kamdani explained that before a company even considers layoffs, they undergo a rigorous process of internal austerity. "Companies will first suppress operational and overhead costs, reduce non-essential spending, and delay capital expenditure. They also re-evaluate expansion plans and optimize production capacity utilization," she added.

Official Response: APINDO’s 10-Step Prevention Framework

In response to the crisis, APINDO is actively promoting a "Framework of 10 Steps to Prevent PHK." This guide is intended to provide a standardized protocol for businesses to exhaust all possibilities before terminating contracts.

The framework emphasizes a hierarchy of intervention:

Elimination of Overtime: The first step in reducing labor costs without reducing the number of employees.
Work Pattern Adjustments: Implementing shift rotations or shorter work weeks to spread the available work across the existing workforce.
Natural Attrition Management: Not replacing employees who retire or resign voluntarily, thereby reducing the headcount through "natural" means.
Operational Efficiency: Cutting waste in utilities, administrative costs, and non-core business activities.
Supply Chain Optimization: Renegotiating contracts with suppliers to find more competitive pricing for raw materials.
Cash Flow Prioritization: Delaying non-critical investments to ensure liquidity for payroll.
Skill Redeployment: Moving workers from underperforming divisions to areas of the company that may still see demand.
Management Salary Freezes: Demonstrating "shared pain" by freezing or reducing executive compensation.
Temporary Furloughs: Placing workers on leave with partial pay rather than permanent termination, allowing for a quick restart if orders return.
PHK as the Final Resort: Only when the survival of the entire legal entity is at stake does the company proceed with layoffs.

"These stages start from reducing overtime, adjusting work patterns, managing labor needs through natural attrition, to various other forms of operational efficiency before finally considering PHK if the company’s condition truly cannot be maintained," Shinta clarified.

Implications: The Need for Structural Reform and Tripartite Collaboration

The implications of these industrial challenges extend far beyond the boardroom. If the decline in competitiveness is not addressed, Indonesia risks "de-industrialization," where the manufacturing sector’s contribution to GDP shrinks prematurely.

1. The Call for Deregulation and "Debottlenecking"

APINDO is calling on the government to accelerate deregulation. This includes simplifying the convoluted permit processes that often stall industrial expansion. "Debottlenecking" is required to ensure that once an investment is committed, the physical and administrative path to production is clear.

2. Revitalizing Labor-Intensive Industry

There is an urgent need to modernize the textile and footwear sectors. APINDO suggests that the government provide incentives for machinery restructuring—allowing old, inefficient factories to upgrade to automated, energy-efficient systems that can compete with high-tech factories in Vietnam.

3. Strengthening Domestic Demand

With global markets volatile, APINDO argues that the "Local Content Requirement" (TKDN) policies must be balanced with quality and price competitiveness to ensure that domestic consumers and government procurement favor local products.

4. Adaptive Labor Regulations

Shinta Kamdani highlighted that labor regulations must be "adaptive." In a rapidly changing global economy, the ability for companies to scale up or down based on market reality is crucial for long-term survival. This requires a delicate balance between protecting worker rights and providing the flexibility necessary for business sustainability.

5. Fiscal and Administrative Support

The association is also pushing for the acceleration of tax restitutions. For many companies, waiting months for VAT refunds creates a liquidity crunch that can lead to missed payrolls. Strengthening the cash flow of businesses through administrative efficiency is a low-cost, high-impact way for the government to support the private sector.

Conclusion: A Shared Responsibility

The message from APINDO is clear: the fight against unemployment cannot be won by the private sector alone. It requires a synchronized effort between the government, employers, and labor unions.

"Ultimately, handling the issue of layoffs cannot be done by one party alone. Close collaboration is needed between the government, the business world, and workers," Shinta Kamdani concluded. "These three elements have the same goal, which is to maintain business continuity while simultaneously protecting job opportunities."

As Indonesia looks toward its "Golden Indonesia 2045" vision, the health of its industrial sector remains the primary engine for social mobility and economic stability. Addressing the structural flaws identified by APINDO today will determine whether the nation can weather the current global storm or if the "last resort" of layoffs becomes a permanent fixture of the industrial landscape.