Osaka Steel Co. is closing its Indonesian subsidiary after a decade of operations, the latest Japanese manufacturer to exit Indonesia as regional competition from Vietnam and Thailand reshapes Southeast Asia's industrial landscape.
PT Krakatau Osaka Steel (KOS), a joint venture between Osaka Steel (80%) and state-owned PT Krakatau Steel (20%), cited financial difficulties and an inability to compete in the current market environment, according to Indonesia's Deputy Industry Minister Faisol Riza.
The facility in Cilegon's industrial zone began operations in January 2017 following a $220 million investment. Its closure represents not just capital loss but a signal about Indonesia's competitive positioning in industries where Japan has been the country's top investor for decades.
Japan invested $4.2 billion in Indonesia in 2023, concentrated in automotive manufacturing, electronics, and industrial machinery. But the relationship has faced pressure as Vietnam attracts semiconductor and electronics investments, Thailand pushes electric vehicle production, and China's steel exports flood regional markets.
Cheap Chinese steel has particularly pressured Japanese producers operating in Southeast Asia. China produces approximately 1 billion tons of steel annually, far exceeding domestic demand, and exports the surplus at prices that undercut regional manufacturers. Indonesia's import restrictions have been inconsistent, allowing Chinese steel to capture market share.
Indonesia offers advantages that should make it competitive: a population of 280 million, abundant natural resources including nickel and coal, and a government that prioritizes downstream processing of raw materials. President Prabowo Subianto has pledged to attract manufacturing investment as part of economic nationalism policies.
But infrastructure bottlenecks, regulatory complexity, and high logistics costs erode those advantages. Moving goods from Jakarta to Surabaya costs more than shipping containers from Shanghai to Singapore. Electricity prices in Indonesia exceed those in Vietnam and Thailand. Permitting processes that take weeks in Vietnam take months in Indonesia.
Vietnam has systematically built manufacturing competitiveness through infrastructure investment, streamlined regulations, and strategic targeting of high-value industries. The country attracted $36 billion in foreign direct investment in 2024, six times Indonesia's $6.2 billion, despite having less than a third of the population.
Thailand leverages existing automotive manufacturing ecosystems and geographic centrality in mainland Southeast Asia, though political instability has constrained its growth. Malaysia focuses on semiconductors and data centers.
The question for Indonesia is whether it can reform fast enough to capture manufacturing relocating from China. The opportunity window is finite—companies making supply chain decisions in 2025 and 2026 will build facilities that operate for decades.
Tanaka Hiroshi, a business consultant in Jakarta who advises Japanese firms, told reporters that Indonesia "has all the ingredients for manufacturing success but hasn't mixed them into a competitive product."
The steel sector is particularly symbolic. Indonesia is the world's largest nickel producer, a key input for stainless steel and electric vehicle batteries. It should be building downstream industries that add value to raw materials. Instead, it exports nickel ore and imports finished steel—the classic resource curse.
For ASEAN's industrial hierarchy, Osaka Steel's departure is one data point in a larger pattern. Vietnam rises, Thailand stabilizes, Malaysia targets high-value sectors, and Indonesia struggles to convert demographic and resource advantages into manufacturing momentum.
Ten countries, 700 million people, one region—and for Indonesia, a test of whether the largest economy can become a manufacturing powerhouse or remain a commodity exporter.
