Indonesia’s iPhone 16 ban sends the wrong message

(Bloomberg Opinion) — Even the world’s fourth most populous country, with more mobile phones than people, can’t seem to match Apple Inc.

Indonesia’s ban on iPhone 16 sales after the company failed to meet local investment requirements hasn’t bothered investors. Shares of the most valuable company in the world remained virtually unchanged after this news, which is quite logical, given the company’s smaller presence in an emerging market. And the deck was already stacked unevenly: Indonesia’s entire GDP is just over a third of Apple’s market capitalization.

Of course, a ban will not benefit Apple given its growing position in the premium smartphone market with a huge number of young and tech-savvy workers. But it also looks bad for Indonesia at a time when it is urgently trying to attract foreign investment while watching some of its neighbors cash in on big tech companies’ supply chain twists from China.

Instead of using the stick to punish Apple for not creating new jobs, Indonesian politicians would be wise to lure tech companies with carrots. Making yourself a more attractive partner to foreign firms is a better long-term strategy than trying to force them to produce in the country when it is not profitable to do so. This will require improving logistics, eliminating bureaucratic red tape, fair enforcement of laws, building infrastructure, and improving the skills of the workforce.

Blocking consumers’ access to Apple’s top devices won’t be a major blow. Last year, the company did not make it to the list of top five smartphone brands in the country.

In 2017, Indonesia introduced rules requiring companies to comply with certain local investment requirements. Indonesia has had some success tempting Samsung Electronics Co. and Xiaomi Corp. open factories. But both companies have a much larger share of the smartphone market (Samsung is No. 1 and Xiaomi is No. 4). Samsung factories in Indonesia have also faced reports of workplace abuses, which the company has denied.

Meanwhile, Apple’s supply chain in the Southeast Asian country is not growing. According to the latest list of suppliers, there was only one firm operating there, down from two in the previous year.

Despite falling short of the investment requirement by about $14.6 million, Indonesia still got Apple to pay about $95 million. The Cupertino, California-based company has opened four developer academies that teach local students how to code and create 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.

In April, Apple CEO Tim Cook made a brief visit to Indonesia. After a meeting with then-President Joko Widodo, Cook promised to “look into” opening production in the country. He did not provide any additional details.

Perhaps Cook and his team saw the same problems facing other firms. The US State Department’s 2024 Indonesia Investment Climate Report identified “restrictive regulations, legal and regulatory uncertainty, economic nationalism, trade protectionism and vested interests” as major obstacles complicating the prospects for foreign investment. Policymakers must work to remove some of these obstacles.

Indonesia’s economy remains largely dependent on commodities. The policy, which requires foreign companies seeking access to raw materials to do some of the processing locally, has had some success in attracting electric vehicle battery factories to the country. But they also faced condemnation from the World Trade Organization. The uncertainty and additional headaches caused by some protectionist measures have not been worth it more broadly. Manufacturing’s share of Indonesia’s GDP declined during the former president’s tenure in office.

Apple, for its part, must find a way to solve this problem. Even if it doesn’t currently control a huge share of the entire Indonesian smartphone market, it is leading the way with a 40% share in the premium segment, introducing devices priced over $600. And at the high end, shipments rose 70% year-on-year last quarter, led by Samsung and Chinese phone makers. Apple Chief Financial Officer Luca Maestri cited growth in Indonesia and other emerging markets as a bright spot following revenue woes in China earlier this year.

Apple has noticed some weakness here amid the growing number of domestic players in the smartphone market. But these competitors also dominate Indonesia: four of the top five smartphone makers are Chinese companies. More broadly, while U.S. firms have been slow to invest abroad in the Southeast Asian archipelago, Chinese money has poured in. Last year there were more than twice as many as in the United States. The big picture: Declining U.S. influence in Indonesia, coupled with a ban on Apple’s branded phones, leaves room for Chinese rivals to attack, which could have long-term consequences in the broader tech rivalry between the U.S. and China.

Good relations with Indonesia will be fruitful for Apple’s future in Asia. For its part, Jakarta must make doing business more attractive if it wants to see more investment from the tech giant beyond the developer classes.

Ultimately, Indonesia’s decision to ban the iPhone 16 likely won’t have much of an impact on Apple’s revenue. But it reinforces the view that this could be a finicky and uncertain environment for foreign companies. It’s time for the new administration to try a different approach.

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This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.

Katherine Thorbeck is a Bloomberg Opinion columnist covering Asian technology. She previously worked as a technology reporter for CNN and ABC News.

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