Indonesia’s iPhone 16 ban sends the wrong message: Butler Eagle

Even the world’s fourth most populous country, which has more active cellphones than people, appears to be no match for Apple Inc.

Indonesia’s ban on iPhone 16s sales after the company failed to meet local investment requirements did not deter investors. Shares of the world’s most valuable company were largely unchanged by the news, which makes sense given the company’s smaller footprint in the emerging market. And the cards were already unevenly distributed: Indonesia’s entire GDP is just over a third of Apple’s market capitalization.

Of course, the ban isn’t great for Apple, given its growing position in a premium smartphone market with a huge young and tech population. But things look just as bad for Indonesia at a time when it is urgently trying to attract foreign investment, after seeing some neighboring countries cash in on Big Tech’s supply chain pivot from China.

Instead of using the stick to punish Apple for not creating more local jobs, Indonesian policymakers would be wise to lure tech companies with a carrot approach. Making itself more attractive as a partner for foreign companies is a better long-term strategy than forcing them to produce in the country if it is not profitable. This includes improving logistics, removing red tape, fairly enforcing laws, building infrastructure and upskilling the workforce.

Blocking consumers from Apple’s top devices won’t pack a punch. The company was not on the list of the country’s five largest smartphone brands last year.

Indonesia introduced regulations in 2017 requiring companies to meet certain local investment requirements. This has had some success and has allowed Samsung Electronics Co. and Xiaomi Corp. encouraged to set up factories. But both have a much larger share of the smartphone market (Samsung is No. 1 and Xiaomi No. 4). Samsung factories in Indonesia have also faced previous reports of labor abuse, which the company has denied.

Meanwhile, Apple’s supply chain in the Southeast Asian country is not growing. According to the most recent supplier list, there was only one company operating, down from two the previous year.

Despite falling short of about $14.6 million to meet investment requirements, Indonesia still got Apple to cough up about $95 million. The Cupertino, California-based company has launched four developer academies that train local students to code and build iOS apps. But the vast majority of domestic smartphones run the Android operating system, so it’s unclear how much value these institutions have actually added to the economy.

Apple CEO Tim Cook made a short visit to Indonesia in April. After meeting with then-President Joko Widodo, Cook promised to “look at” the feasibility of bringing manufacturing to the country. He did not provide further details.

It’s possible that Cook and his team saw the same challenges that other companies face. The US State Department’s 2024 Investment Climate report on Indonesia lists “restrictive regulations, legal and regulatory uncertainty, economic nationalism, trade protectionism and vested interests” as the key headwinds complicating the prospects for foreign investment. Policymakers must work to remove some of these obstacles.

The Indonesian economy is still largely driven by raw materials. Policies that require foreign companies to gain access to raw materials to do some processing locally have had some success in bringing electric vehicle battery factories to the country. But they have also faced condemnation from the World Trade Organization. The uncertainty and additional headaches caused by some of the protectionist policies have not paid off more broadly. Manufacturing as a percentage of Indonesia’s GDP has fallen during the former president’s term in office.

Apple, in turn, should look for a way to solve this. Even if it doesn’t now have a large share of the total Indonesian smartphone market, it does have an edge and a 40% share in the premium segment, which represents devices above $600. And the top end saw 70% year-over-year growth in shipments last quarter, thanks largely to Samsung and Chinese phone makers. Apple Chief Financial Officer Luca Maestri earlier this year pointed to growth in Indonesia and other emerging markets as a bright spot amid China’s revenue woes.

Apple has seen some weakness there amid the rise of domestic smartphone players. But these rivals also dominate in Indonesia: four of the five largest smartphone manufacturers are Chinese companies. And more broadly, Chinese money has flowed in as American companies have dragged their feet on foreign investment in the Southeast Asian archipelago. Last year it was more than double that of the US. Big picture: US declining influence in Indonesia, coupled with the ban on Apple’s big phones leaves room for Chinese competitors to strike, which could have longer-term implications for the broader technology rivalry between the US and China.

A good relationship with Indonesia would be fruitful for Apple’s future in Asia. In turn, Jakarta needs to make business more attractive if it wants to see more investment from the tech giant beyond just developer classes.

Ultimately, Indonesia’s move to ban the iPhone 16 is unlikely to make a major dent in Apple’s revenues. But it does reinforce the story that it can be a difficult and uncertain environment for foreign companies. It’s time for Indonesia’s new government to try a different approach.

Catherine Thorbecke is a Bloomberg Opinion columnist covering Asia technology.