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doi:10.1111/j.1467-9493.2006.00250.

The Indonesian consumer market for clothing:


Institutions, firms and organizational behaviours
Markus Hassler
Department of Geography, Ruhr-Universät Bochum, Bochum, Germany

Correspondence: Markus Hassler (email: markus.hassler@ruhr-uni-bochum.de)

The clothing industry is widely cited as an industrial sector that is embedded primarily in buyer-
driven structures of global commodity chains in which retailers and brand-name companies, rather
than manufacturers, are the key driving forces. Analysis of clothing production systems within the
commodity chain literature, however, has been predominantly Western-centric, with little empha-
sis on similarities and/or differences between competitors in different institutional and societal
contexts. Therefore, this paper explores the ways in which international and domestic clothing
brand-owners compete for market shares within Indonesia. The analytical focus includes important
issues such as the influence of the regulatory policy framework on firm-specific behaviour as well as
applied marketing strategies within individual fashion segments.

Keywords: commodity chains, Indonesia, developing economies, institutional framework, cloth-


ing industry, brand-name licensing

Introduction

The market potential in developing economies for short-life consumer goods, such as
clothing, has received scant attention in the literature on development issues or interna-
tional business. In the context of the increasing industrialization and economic deve-
lopment of Asian emerging economies, this is particularly relevant as such national
economic processes have also been accompanied by rising wages and, consequently,
increasing disposable incomes. Although the distribution of wealth, more pertinently
buying power, within these economies continues to be highly uneven and concentrated
within urban populations, this remains a significant factor influencing the growth of
domestic clothing industries.
Indeed, the potential of the Indonesian consumer market has received increasing
attention from clothing firms since changing cultural norms and Western influences have
created a strong demand for Western-style clothing. Most urban Indonesians no longer
wear traditional clothing except on formal occasions and there is a similar trend in rural
communities, especially among the young. This pattern of consumption, combined with
the overall increasing buying power and population (Jones & Hull, 1997), has stimulated
the demand for industrially manufactured clothing. Consequently, both international
and domestic brand-name owners are competing for market shares within this changing
economic environment. In comparison to other countries, however, the Indonesian con-
sumer market is unique in many ways. In particular, highly protective measures in terms
of import duties and the uneven geographical and social distribution of buying power are
key conditions of its national business framework.
Various studies have focused on investigating different aspects of the Indonesian
clothing industry: its political, structural and organizational aspects in relation to its
export success (Hill, 1991; 1992; Pangestu, 1997; Dicken & Hassler, 2000; Hassler,
2003a,b; 2004a,b); the regional development of clothing production in Bali (Cole, 1998;
Hassler, 2005a,b); and the organization of clothing retailing in Indonesia (Hassler, 2004c).

Singapore Journal of Tropical Geography 27 (2006) 150–162


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The Indonesian consumer market for clothing 151

However, the organization and structures of the domestic consumer market for clothing
have so far been neglected. This paper, therefore, focuses on clothing marketing and dis-
tribution networks within Indonesia. Specifically, on both local as well as international
business networks dealing with the domestic market in Indonesia, including their orga-
nization, embeddedness and characteristics.
This paper is organized into four parts. In the first, I outline a conceptual framework
based on the discussion of global commodity chains. I then discuss the national clothing
trade balance and the regulatory framework affecting clothing marketing networks. The
third and substantive part of the paper outlines the strategic and organizational behav-
iour of international and domestic brand-owners within the Indonesian market environ-
ment. The empirical evidence presented here was collected as part of a larger research
project on the Indonesian clothing industry, for which a total of 85 interviews were con-
ducted in 1997, 1998 and 2001 with representatives of companies, lobby groups and
government agencies in Java and Bali. The specific information in this paper is drawn pri-
marily from interviews conducted in 1998 with managerial employees of clothing firms
located in Jakarta and Bandung (West Java). The concluding part of this paper interprets
this empirical evidence in relation to the theoretical framework.

Global commodity chains and institutional frameworks

Distinct combinations of business relationships are created by firms of diverse organiza-


tional scales and scopes – transnational and domestic, large and small, public and private
– operating within an economy. Despite this heterogeneity of the economic system, it is
increasingly the transnational corporation (TNC) that shapes and coordinates the struc-
ture of global production and consumption (Dicken, 2003). International capital flows
are the basis for the global shift of economic activities but do not necessarily lead to direct
investments in production facilities. Looser forms of business relations, such as subcon-
tracting and licensing, however, generate a certain power and control of production in
external facilities without requiring a relatively strong financial commitment of direct
investment. Thus, Bonacich et al. (1994: 5) argue that ‘TNCs can set up complex networks
of global production without owning or directly controlling their various branches’. In
other words, the ownership of productive assets is not essential to empower the TNCs
with the control mechanisms over these assets.
In this context, Gereffi (1994; 1999; 2001) argues, industrial and commercial capital
has a central role in creating commodity chains that are either ‘producer-driven’ or
‘buyer-driven’. According to Gereffi, producer-driven commodity chains are vertical
networks of large TNCs predominantly operating in capital- and technology-intensive
industry sectors such as heavy machinery, automobiles, aircrafts and computers. TNCs
in producer-driven commodity chains are characterized by the ability to control their
backward linkages to raw material and component suppliers and their forward linkages
into distribution. Thus, producer-driven commodity chains are controlled by firms at
the point of production. In contrast, buyer-driven commodity chains are trade-based
horizontal networks coordinated by retailers, trading houses and brand-name compa-
nies. Firms coordinating buyer-driven commodity chains deal predominantly with
labour-intensive manufactured consumer goods, such as clothing, footwear, toys,
housewear and consumer electronics. The geographical separation of the production
process from design, research and development and marketing is the key characteristic
of this type of commodity chain. The core firms or buyers specialize in design and
marketing activities without actually owning and operating internalized production

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152 Markus Hassler

facilities. This allows them to focus on final consumer markets by responding with
strategic decisions to changes in consumption. They own brands and maintain them
by designing appropriate products and creating extensive marketing campaigns in
target markets.
The distinction between producer-driven and buyer-driven commodity chains high-
lights inter and intrasectoral variations of global capitalism. The firm plays a major role in
developing these variations in the structural and organizational composition of the chain.
Although economic activities increasingly slice through national boundaries (Castells,
2000; Dicken, 2003), institutional frameworks function as an additional determinant in
defining inter and intraorganizational relationships. These institutional frameworks set
conditions and policies at the local, national and international scales that in turn shape
and reshape the processes of globalization.
The firm-state interrelationship has a particular influence on commodity chains
because all economic processes are socially instituted and vary with the societal contexts
in which they are embedded. States implement a particular policy orientation and mix in
relation to their political, social and cultural constitution to which firms conform in order
to access labour and capital (Dicken, 2003). Each sector and its economic processes are
organized in relation to location-specific governing institutions that regulate the use of
key resources. They are influenced by the ‘ubiquity of rules’ and normative institutions
(Hodgson, 1997; 1998a,b) that impact on all economic activities at the most fundamental
level through factors such as price, exchange, competition, markets, money, supply and
demand. Therefore, as Smith et al. (2002: 48) argue:
understanding economic development processes involves more than just an examination of the
flows of commodities through a chain of production, distribution and retailing. Economic actors
such as firms are always embedded in dense social and institutional networks of relations [. . .]
at both national and local levels, and these relations impinge in important ways upon the vari-
ability of economic development outcomes across space.

Consequently, it could be argued that firms tend to develop rather heterogeneous


chain coordination in cases where institutional frameworks demand strategic adjust-
ment. In relation to the clothing production system, however, there is little empirical evi-
dence to substantiate this claim, largely because information on the structures of the
global clothing industry has been mostly gathered in relation to the export business of
developing economy producers to developed markets in North America and Western
Europe. Commodity chain structures in relation to consumer markets of developing
economies have so far largely been ignored. This has led to a rather monostructural
understanding of buyer-driven chain coordination. In fact, the strict sector-specific dual-
ism between producer-driven and buyer-driven chains tends to neglect potential intra-
sectoral variations (Whitley, 1996; Raikes et al., 2000; Dicken et al., 2001; Smith et al.,
2002; Hassler, 2003a).
Therefore, in the following sections, this paper aims to examine the commodity chain
coordination of firms dealing with the Indonesian consumer market for clothing to dem-
onstrate the potential impact of institutional frameworks on the strategic behaviours of
firms.

The Indonesian clothing industry: Trade and regulation

The Indonesian clothing industry is embedded in the global economy predominantly


through exports to markets in advanced economies; imports have only a marginal role.
Thus, the Indonesian clothing trade balance is strongly positive, so much so that the trade

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The Indonesian consumer market for clothing 153

10
10
Exports

9
10

8
10
Value (USD)

Imports
7
10

6
10

5
10
1986 1988 1990 1992 1994 1996 1998 2000

Figure 1. Indonesian clothing trade balance, 1985–2000 (compiled from data provided by the Central Bureau
of Statistics, BPS).

balance from 1985 to 2000 shown in Figure 1 can only be represented meaningfully in
logarithmic scaling.
As Figure 1 shows, the value of exports grew continuously from about USD 300 mil-
lion in 1985 to more than USD 4.5 billion in 2000, while imports during the same period
rose from around half a million to USD 25 million. The overall increase in imported cloth-
ing, however, has not been a linear trend but one that has fluctuated strongly and can
thus be interpreted as a fragile business. Furthermore, if imports are viewed in relation to
a potentially huge domestic consumer market comprised of more than 200 million
people, the actual figures are shown up as relatively insignificant. Indeed, in terms of
value, more than 54 per cent of the entire production output of the Indonesian clothing
industry in 2000 was destined for the domestic market (Hassler, 2004a).
The domination of domestically manufactured products in the Indonesian consumer
market is clearly a result of the national regulatory framework in place from the mid-
1980s when Indonesia’s overall industrialization strategy of import-substitution was
changed to emphasize export-orientation (Booth, 1992; Karseno, 1997). In spite of this,
however, access to the Indonesian consumer market remains restricted and interna-
tional companies still face a distinctly protectionist regulatory framework. In short, the
domestic market space is far from liberalized and not easily accessible to foreign compet-
itors. The import of finished garments is regulated by a tariff structure that varies
between 25 per cent and 40 per cent of the product value, organized in different product
categories. Products in which Indonesian manufacturers are able to achieve competitive-
ness are subjected to a lower tariff than, for example, categories such as high fashion
designer label clothing. The import of finished garments is also restricted to Indonesian
firms and regulated through an import identification number that is only accessible to
local companies.
Foreign firms that do not produce the goods locally are excluded from the entire
import and distribution process, both to protect local clothing manufacturers dealing
with the domestic market and to generate employment within this industrial sector.
Thus, access to the Indonesian consumer market is closely tied to local production activ-
ity. However, the national regulatory framework is also aimed to prevent domestic mar-
ket access to products manufactured locally within export-processing zones. Garments
entering from these privileged zones are therefore imposed with an even heavier tax than

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154 Markus Hassler

foreign manufactured imports so that these companies do not exploit the incentives
given for export production to target the domestic market instead.

Clothing marketing networks in Indonesia

The regulatory framework has resulted in the lion share of international brand garments
being manufactured locally. Apart from some global clothing firms such as Adidas and
Levi that currently operate through their own subsidiaries in Indonesia, the majority of
international brands cooperate with Indonesian firms through licensing in compliance
with Indonesian law. In fact, fieldwork evidence suggests that these licensed products and
a wide range of Indonesian brands are the two main competitors in the domestic con-
sumer market. This creates distinct commodity chain coordinations that are different
from those Indonesian firms serving global markets (see Dicken & Hassler, 2000; Hassler,
2004b for an analysis of these export-oriented firms).
Institutionalized business practices play a significant role in defining the structures in
which clothing firms operate in the Indonesian domestic market, on both the supply and
the demand sides of the chain. On the supply side, manufacturing has an integral func-
tion in all clothing firms dealing with the domestic market, whether licensees or brand-
owners. On the demand side, Indonesia is quite unique in the way clothing distribution
and retailing are organized. Although franchised retailers have a significant role in
distributing imported garments, the retailing of domestically manufactured clothing
products is largely organized within the clothing firm’s own retail outlets or within
department stores (Hassler, 2004c). The case of clothing firms establishing their own
retail outlets leads to an entirely integrated clothing commodity chain. The case of retail
organization in department stores is only marginally different. Because practically all
department stores operate with a consignment-based retail system, the clothing firm
remains the owner of the garment until it is finally purchased. The transfer of ownership
occurs at the very end of the chain. In this sense, this consignment system leads to a fully
integrated clothing firm that owns its manufactured products at both the production and
distribution stages of the commodity chain. While these two instances illustrate the claim
that national origins of firms and domestic institutional frameworks have a major impact
on how commodity chains are coordinated, there are still other differences between firms
marketing licensed products and firms marketing products under their own brands.

Brand-name licensing in Indonesia

Brand licensing, the most important way of doing business in Indonesia for international
brand-owners, is a form of cooperation between an international brand and a local man-
ufacturer and involves a certain form of risk-sharing in the development and penetration
of new markets. The licensor or brand-owner enjoys the advantage of relatively easy and
low-investment access to unknown market environments and the Indonesian partner,
who has institutional knowledge of the market, organizes distribution and carries all the
major investments. Typically, product and marketing specifications are supplied by an
international brand-owner while the local partner organizes material procurement, pro-
duction and marketing management, which in the case of Indonesia includes retail distri-
bution (Figure 2). The Indonesian firm financially compensates its international partner
for the use of the brand label, with royalties per garment sold, as well as for its provision
of marketing materials – a form of fixed costs irrespective of the volume of final sales.
The more garments sold, the lower the relative share of these fixed costs for the licensee.
Marketplaces are geographically defined and must not overlap with markets directly

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The Indonesian consumer market for clothing 155

INTERNATIONAL BRAND-NAME OWNER

Design Marketing

INDONESIAN LICENSEE / MANUFACTURER

Own Retail
Merchandising Marketing Outlets

Franchised
Retailers

Sample Bulk Logistics & Department


Making Production Distribution Stores

Figure 2. Indonesian brand-name licensing commodity chain.

served by the brand-owner or other licensees. Branded clothing distributed through this
form of licensing in Indonesia includes Nike, Triumph, Kenzo, Arrow, Cerruti, O’Neil and
Lee Jeans.
Great River, the company with the longest involvement in licensing within Indonesia,
was by 1998 dealing with more than 50 international brands:
It is easy for them [licensors]. It is just like collecting money for them. They just own the name
and manage it. It is good for our licensors to use us for the Indonesian market because the prod-
uct is always in the same hands – sample making, production, marketing and retailing. The
licensor has to deal only with one firm (field interview, Great River, Jakarta, 1998).

Operating on this basis since 1976, Great River had emerged as the largest domestic
clothing company in Indonesia with a fully integrated production chain and extensive
experience in retail distribution, which has made it especially attractive to international
brands.
As demonstrated in Figure 2, licensees often operate their own retail network.
Indeed, Great River has developed and established a significant network of its own retail
outlets, also the result of it being the first company to cooperate with licensors and hav-
ing a favourable position in the 1970s and 1980s to work with international brand-
name owners. Its accumulated market expertise left little space for local competitors to
find appropriate international partners to serve the Indonesian market in this segment.
However, during those two decades, Indonesian clothing companies were mainly inter-
ested in penetrating export markets rather than serving the domestic market. Thus,
Great River was endowed with an almost monopolistic position as a local provider of
international brands and the protective measures for the clothing industry priced
imports at the very top end of the market. As the initial competitive pressure in the
domestic market was low, the company could afford not only to expand extensively but
also to use its well entrenched business networks in international fashion brands to
obtain brand-name licenses for other countries, including Singapore, Malaysia, Hong
Kong, Japan and Australia. Great River even vertically expanded its own retail distribu-
tion network into Singapore and Malaysia exclusively for its manufacturers of licensed
branded products.

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156 Markus Hassler

Since the early 1990s, however, several newer market entrants have used a similar
strategy for domestic market penetration. In particular, companies belonging to the larg-
est Indonesian clothing manufacturers having established export-manufacturing pro-
duction networks with brand-owners. While that still remains their key business, the
growing potential of the local market increasingly has been a major draw for these
licensees.
Fieldwork suggests that companies involved in this form of international business
have a strong tendency to use local inputs. Raw materials are procured domestically
where possible in accordance with licensor specifications. Great River, for example, has
established several joint ventures in textile manufacturing to secure supplies of quality
inputs. The huge demand for raw materials in the company’s internal production chain
makes cooperative ventures with Great River very attractive to potential international
partners. Therefore, the amount of raw materials procured internationally is rather
limited.
International licensing cooperation is specified in legal terms between the licensor
and the licensee, often for a specific duration. International brands with subsidiaries cur-
rently in Indonesia started their market penetration on the basis of licensing. The chang-
ing institutional framework for direct investments and the growing domestic market
have resulted, for example, in Levi ending the partnership with its Indonesian licensee to
take full control of its marketing operation in Indonesia. The licensee had introduced the
brand to the market and developed the distribution system. However, Levi saw a great
market opportunity to internalize this business at an organizational level, while retaining
the ex-licensee as franchised retailer for Levi’s products.
We believe we will do a better job because it is our baby. We own the brand. The licensee pays
royalties but they do not own the brand. They care about short-term profits more than they look
at the long-term. We have a much longer view and it is simply more profitable if we do it our-
selves (field interview, Levi’s Indonesia, Jakarta, 1998).

Besides the obvious benefits for the licensor, this form of international business coop-
eration offers great advantages to the licensee. For these Indonesian firms, the use of an
internationally recognized brand provides the quickest market access to the high end of
the fashion segment.
The main problem of the clothing business is that everyone can make the same product, except
if you have a brand name. But if you don’t have an international brand, it is difficult to have a
strong brand. People like to have international brands as a status symbol (field interview, Indo-
nesian licensee for O’Neil and Ocean Pacific; also the brand-owner of Basic Element and Coun-
try Fiesta, Jakarta, 1998).

While the brand name and marketing material supplied by an international brand-
owner facilitates an almost instant visibility in the domestic market, establishing market
awareness of a new brand can be very costly and time-consuming. Retail distribution for
these licensees is made easier by department stores allowing new entrants prime places,
with the expectation that international brands would generate higher sales; for the lic-
ensee, the higher potential for quick turnover means early profitability. Meanwhile,
newcomers with local brands face serious difficulties in securing prime retail space and,
therefore, the danger of slow sales and cash flow problems.
Similar to advanced economy consumer markets, the prime marketing channels for
promoting licensed products in Indonesia are television and cinema commercials, mass
circulation magazines and sponsorships of popular concerts and other events, all aimed
at groups who are the key consumers of international branded fashion products. The

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The Indonesian consumer market for clothing 157

primary target group comprises young consumers aged 15–20 years, while the secondary
target group is young adults aged 21–25 years. Counterfeit merchandise is a constant
problem for global brand-name companies. Substandard fakes manufactured in home
workshops and sold in local markets are difficult to control and can adversely affect the
image of these brands if supply is excessive. The potential loss of sales is not a particular
worry for brand-owners because consumers of counterfeit products in Indonesia are
generally from social target groups that cannot afford the genuine items anyway.
The upmarket consumers of the urban middle class are strongly international brand
and status conscious. However, even licensees acknowledge the attractiveness of actually
owning the brand names. Brand-ownership has the potential to achieve higher profit-
ability as there is no demand for royalty payments. Several have therefore started to
exploit their expertise to establish their own brands. Companies using this dual market
approach can benefit from the design and marketing ideas of their international partners
and also capitalize on the internal infrastructure and distribution system that they have
developed in aiming for this.

The organization of Indonesian brand-name owners

Licensed international products comprise the higher end of the fashion segment while
the majority of independent Indonesian fashion brands compete in the lower and middle
market segments; in fact very few labels are able to compete in the higher market seg-
ment. Production has a central role in the commodity chain of Indonesian brand-owners.
As stated earlier, retail distribution of products by Indonesian brand-name owners is
largely conducted within their own retail outlets and department stores (Figure 3). How-
ever, wholesalers and independent retailers also play a necessary role in supplying the
outer islands and distributing out-of-season stock.
Local mass market fashion brands have Western designs and mainly adopt English
names such as ‘Hammer & Nail’, ‘Rodeo’, ‘Country Fiesta’, ‘Watchout’ and ‘Triset’ that do
not reveal the national origin of products. The main consumers, who may not be aware
that these are Indonesian brands, are those who do not have the buying power to pur-
chase international branded clothing but who, nevertheless, observe and try to imitate
the fashion styles set by the trends at the higher priced end of the fashion segment. There-
fore, mass market Indonesian brands eschew indigenous designs inspired by the rich

BRAND-NAME OWNER / MANUFACTURER

Own Retail
Design Merchandising Marketing
Outlets

Department
Stores

Wholesalers

Sample Bulk Logistics & Independent


Making Production Distribution Retailers

Figure 3. Indonesian brand-name owner commodity chain.

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158 Markus Hassler

diversity of ethnic cultures, aiming instead to achieve an entirely ‘Western’ look in terms
of styles, colours and fabrics:
In the low to middle segment we can pretend to have an international image with our own
brand names. People are either not aware of the fact that it is a local brand or they don’t care
about it because they can’t afford an international brand anyway. . . . We don’t put any ethnic
styles into our garments as our customers demand a very western looking design. A western
look is synonymous with a modern look. We have tried to expose Indonesian ethnic colours, but
the people don’t buy it. They want to have something flashy. They want to come as close as pos-
sible to be western in their own taste (field interview, Indonesian brand-owner of Rodeo,
Jakarta, 1998).

In contrast to licensees who obtain design sketches, detailed production patterns and
marketing material from their international partners (Figure 2), Indonesian brand own-
ers have to develop their entire product lines and marketing strategies (Figure 3).
Although it is common to manufacture most products within internal facilities, the key
competencies to stay successful in the market are product development and marketing,
which require basic ideas about changing fashion trends as well as the human resources
to translate this market knowledge into final products.
The most important design influences are derived from international fashion maga-
zines and catalogues such as Elle and Vogue while exposure via the Internet and shopping
trips abroad are increasingly sought out. Among the leading fashion hubs of Asia,
Singapore and Hong Kong are the main destinations for Indonesian designers shopping
for international fashion trends and products. Since the economic crisis during the late
1990s, however, companies have cut back on expenses like travelling abroad; instead,
Indonesian brand-owners now just shop for high fashion brands at the upmarket retail
malls of Jakarta:
Some companies go to Hong Kong or Singapore and go shopping there. We have stopped doing
this. We just do it here in Jakarta. Of course it is not the absolutely latest, but it is still very
fashionable. . . . We also have the magazines that are always up-to-date. Fashion in Hong Kong
is one step ahead of Indonesia. So if they buy it in Hong Kong and prepare the lines for the
Indonesian market, they have the right timing. Hong Kong is always one season ahead (field
interview, Indonesian brand-owner of Rodeo, Jakarta, 1998).

Fashion items of international brands are used as basic style guides and modification in
patterns and colours are made for the domestic market, which is commonplace in the
clothing industry elsewhere. Or, two or more styles might be combined to make up a new
product – say the sleeves and the cuffs of one garment combined with the collar of
another, so as to conceal the influences:
Design is no problem. We just copy. We even copy styles from our international customers or we
are just buying samples, like everybody does in the clothing industry. Our designers go to Hong
Kong and Singapore, buy samples and take ideas. We would even copy a whole line (field inter-
view, Indonesian licensee for O’Neil and Ocean Pacific; also the brand-owner of Basic Element
and Country Fiesta, Jakarta, 1998).

Besides buying samples and copying styles as the main design influence, there are also
companies aiming for a strong individual appearance and image of their branded prod-
ucts. The owner of upmarket brands Watchout menswear and Triset ladieswear, for
example, deals directly with an Italian style consultancy in Milan:
Our garment designs have Italian influences. We cooperate with one Italian design consultancy.
They supply us with the colours, the styles and fashion trends every three months. This is a

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The Indonesian consumer market for clothing 159

company of designers in Milan. Every season they have an idea about fashion trends in Euro-
pean countries. They supply us with basic sketches and colours on how the garments should
look like. We do the patterns ourselves (field interview, Indonesian brand-owner of Watchout
and Triset, Bandung, 1998).

Watchout and Triset are examples of an attempt to achieve a distinctive product by


upgrading towards a strong independent brand identity: the Italian image and design
allows them to command higher product prices. Both are among the very few Indonesian
brands that have been able to compete against international brands such as Esprit and
Benetton and that, in fact, are widely perceived as being international rather than
national in origin by their Indonesian consumers. The brand-owner capitalizes on this
advantage over other local brands, employing a Western gloss in marketing to preserve
this positioning:

Every season we send our collection to Australia because we use the models in Australia and the
Australian landscape to shoot the photos. Every season we have a collection of photographs that
have a western look. We have a photo agent there who arranges everything for us. We are
always satisfied with the result. We choose Australia because it is close to Indonesia. . . . We
have an English brand-name and an Italian design. Therefore, we need to have western looking
marketing material to create this western image (field interview, Indonesian brand-owner of
Watchout and Triset, Bandung, 1998).

Indonesian brand-owners use various marketing tools. While the use of television com-
mercials is beyond the means of most, television coverage is achieved by sponsoring the
outfits of television presenters and specific programmes, and thereby getting a prominent
mention in the credits. This form of publicity is particularly important to achieve brand
awareness in the big cities throughout Indonesia because television guarantees a national
display. In addition, the Indonesian fashion magazine Dewi is also considered a very
important medium for advertisements that in turn also cooperates with Indonesian
clothing firms to foster domestic fashion trends. Therefore, close relationships with the
magazine are a priority for local brand-owners.
These multi-media marketing activities, as also the case for the creative aspects of
product development, demand skilled personnel to develop selling ideas and strategies.
Availability of skilled personnel for marketing and distribution is relatively easy, because
numerous colleges and universities in Indonesia offer courses in business and marketing.
However, the lack of training facilities in local fashion schools and in institutions of higher
education has resulted in difficulties in recruiting the right skills for jobs in product
design, pattern making and other technical positions; even transferring copied ideas into
design sketches and pattern constructions demands relatively specialized skills. While
recruiting expatriates for skilled and technical positions is the norm in export-oriented
clothing firms, it is not common in companies serving the domestic market where these
positions are filled by Indonesians who have obtained their skills through on the job
experience. The standard of these skills has often been upgraded by additional short-term
training schemes abroad, mainly in nearby Singapore. Although a French and Canadian
international fashion school – ESMOD and LaSalle respectively – have opened franchises
in Jakarta to serve the increasing demand for local designers and other skilled personnel
in the clothing industry, only a limited number of Indonesians can afford the hefty
annual course fees (around USD 6500).
This shortage of skilled Indonesian designers effectively curbs the industrial upgrad-
ing of domestic clothing brand-name owners; because product development and design
in the clothing sector are highly skill and labour dependent, Indonesian brand-owners

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160 Markus Hassler

are likely to find it difficult to develop independent and creative product styles. Still, the
drive towards industrial upgrading may not even be strongly desired because copying
styles and designs is a much easier, faster and cheaper process than creating original
designs. In addition, imitations of contemporary international designs almost guarantee
a certain measure of market success.

Conclusion

The case of marketing networks in the Indonesian clothing industry shows that commod-
ity chain coordination has substantial intrasectoral variations. The Indonesian pro-
tectionist regulatory institutional framework also has a decisive role in shaping the
organization of established marketing networks and leads to a situation in which all
brand-owners are actually engaged in some kind of production activities. According to
Gereffi’s dual distinction of governance structures, integrated production is a clear aspect
of producer-driven commodity chains.
This pattern of integrated production is also applicable to licensed products. It is the
strategic behaviour of international brand-owners that emphasizes this form of coopera-
tion with local firms in their aim to penetrate unfamiliar or protected markets. Licensing,
as a particular form of market access, is therefore a beneficial way of doing business for
both parties. In the case of Indonesia, the lack of essential market knowledge and more
specifically the protectionist regulatory framework, leaves the licensor with few other
options than to gain market access through a local partner. In turn, the licensee gains
access to the business linkages of an established brand as well as product specifications
and marketing materials that meet international standards. The integration of production
facilities allows domestic firms to manufacture garments in accordance with the quality
and product specifications demanded by the international brand-owner. However, the
temporary transfer of property rights seems to have little impact on the driver within the
chain structure, which is largely a spatial and organizational extension of the buyer-
driven commodity chain. The licensee simply organizes the chain in accordance with the
distinctive institutional framework and societal market environment in Indonesia. The
case of Levi shows, nevertheless, that the takeover of local marketing operations is a
viable option for international brand-owners when sales and market potential and the
institutional framework favour such a move.
The case of commodity chains coordinated by Indonesian brand-owners also demon-
strates that the societal and institutional background of firms has a significant impact on
the organization of production systems. Production is a key node within the commodity
coordination of Indonesian brand-owners. The fact that Indonesia still has a large and
low wage workforce leads to a situation where brand-owners still manufacture locally in
their own production facilities. This finding is in contrast with Gereffi’s claim that cloth-
ing/buyer-driven commodity chains always operate with an externalized network of
subcontractors. However, it remains true that product development and marketing are
the key nodes in any clothing commodity chain, and these activities tend to be coordi-
nated by brand-owners rather than manufacturers. As clothing product cycles are sensi-
tive to constantly changing fashion tastes, trends and market requirements, clothing
commodity chains are driven by the demand side of the market and are therefore essen-
tially a buyer-driven commodity chain.
The emphasis on Western markets in previous studies of clothing commodity chains
neglects the potential influence of national institutional frameworks on the structures of
commodity chains in the clothing sector. The firm-state interrelationship still has a major

© 2006 The Author


Journal compilation © 2006 Department of Geography, National University of Singapore and Blackwell Publishing Asia Pty Ltd
The Indonesian consumer market for clothing 161

impact on the way clothing firms operate and organize themselves within national mar-
kets. While individual firms may follow a global marketing and distribution strategy, in
places where state policy creates a distinct economic framework, strategic behaviour is
adjusted to local and national requirements.

Acknowledgements

I am grateful to Peter Dicken for the constructive and insightful comments offered while doing field
research in Indonesia and to Heiner Dürr, David Gibbs, Amy Trauger and three Singapore Journal of
Tropical Geography referees who provided helpful comments on an earlier version of this paper. The
usual disclaimer applies.

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