By The ASEAN Brief

---

How Indonesia is Building a Semiconductor Industry to Compete Globally

In an era where semiconductors underpin nearly all modern technology, Indonesia—a rising economic force in Southeast Asia—is repositioning itself from a commodities exporter to a credible player in the global chip ecosystem.

This article explores Indonesia’s shift toward semiconductor ambition, key partnerships, internal hurdles, and its growing relevance to global supply chains.

---

1. Why the World Needs New Chip Players

From electric vehicles to AI servers and smartphones, the world depends on semiconductors—and the past decade’s geopolitical shocks (such as the U.S.–China tech tensions, Covid lockdowns, and Taiwan factory fire risks) have highlighted a fragile reality: chip manufacturing remains heavily concentrated in Taiwan, the U.S., South Korea, and China.

International strategy now favours supply chain diversification, and countries like the United States view Indonesia—with abundant mineral resources, a growing workforce, and geopolitical neutrality—as a potential partner. Notably, Indonesia has been invited into the U.S.-led Mineral Security Partnership, positioning it as one of only seven countries the U.S. is supporting to become a potential semiconductor hub ([Reuters][1]).

---

2. Ambitious Plans from Base Level: The Policy Blueprint

In 2025, Indonesia officially launched a semiconductor and AI acceleration task force, led by Coordinating Minister Airlangga Hartarto, supported by Purdue University and Arizona State University, to fast-track chip research, design, and human capital development ([amcham.or.id][2], [ibai.or.id][3]).

The government has adopted a bold strategy:

Incentives and tax holidays for investors in fabless startups, design houses, and semiconductor test/assembly/packaging (TAP) facilities.

Mandatory partnerships with the state-owned Indonesia Battery Corporation (IBC) or Indonesia Battery Holding when setting up chip-related operations, aiming for technology diffusion and industrial ownership ([CSIS][4], [ibai.or.id][3]).

Local content policies applied across EV and electronics value chains to enrich production domestically.

---

3. Anchored in EV Growth: How Battery Ambition Enables Chips

At the heart of Indonesia’s downstream strategy lies its EV battery ecosystem—a sector already benefiting from international interest:

A consortium involving Hyundai, LG Energy Solution**, and IBC opened Southeast Asia’s first EV gigafactory in West Java, with 10 GWh capacity (scaling to 20 GWh) and eventual plans to reach 140 GWh/year by 2030 ([CSIS][4], [aseanbriefing.com][5]).

The Dragon Project, a joint venture with CATL under the Indonesia Battery Holding, aims for 6–15 GWh/year of downstream battery cell capacity, potentially powering over 300,000 EVs/year, thereby generating demand for semiconductor control chips, sensors, and power ICs ([thejakartapost.com][6]).

Other investments include a US\$9 billion initiative led by Anindya Bakrie’s INBC with Envision and Glencore, reaffirming Indonesia’s commitment to clean and vertically integrated EV industrialization ([thejakartapost.com][6], [en.wikipedia.org][7]).

EV battery production inherently demands embedded semiconductors—power management ICs, microcontrollers, and LiDAR sensor chips—which accelerates the need for local semiconductors or nearby partners who can supply them.

---

4. International Co‐Investment: The U.S. and Japan Step In

At the December 2024 National Investment Coordination Meeting, Airlangga officially announced that both the United States and Japan are poised to co-invest in Indonesia’s semiconductor push ─ an architecture of design houses, R\&D hubs, and TAP centres—supported through scholarships, vocational STEM training, and university partnerships in the U.S. and Singapore ([ibai.or.id][3], [amcham.or.id][2]).

This signals more than policy intent: it reflects alignment with global supply chain strategies—especially amid ongoing supply shocks and ambitions for economic resilience outside of China-centric routes.

---

5. What the U.S. Gains: Diversification, Stock, Influence

For American firms and policymakers, engagement with Indonesia means:

Greater supply-chain resilience—Indonesia offers raw materials (nickel, selenium, copper), site-neutrality, and regional depth.

Reduced geopolitical risk—as tensions grow in East Asia, having chip and battery production in ASEAN lowers reliance on singular hotspots.

Mission synergy—U.S. companies can form collaboration hubs in Jakarta, Bandung, or Surabaya instead of Beijing or Seoul, gaining access to technical talent at lower cost.

Indonesia’s inclusion in the Mineral Security Partnership further raises the stakes: it positions Indonesia as a credentialed partner expected to adhere to U.S. environmental and labor standards while building components beyond China’s dominance ([Reuters][1]).

---

6. Roadblocks Ahead: Cost, Capacity, Culture

⚠️ Capital-intensive barriers

A single semiconductor fab (5 nm or even 28 nm) can cost tens of billions of dollars. Domestic industrial stakeholders, start-up chip firms, and universities note that creating sustainable capacity may take decades to recoup ([amcham.or.id][2]).

⚠️ Infrastructure and skills gaps

Existing tech parks and universities are expanding, but wafer processing demands clean-room conditions, stable power, ultra-pure water, and logistics none of which are yet prevalent:

Bandung Techno Park has emerged with a dozen chip startups, but still lacks foundry scale-up capacity ([en.wikipedia.org][8]).

Talent shortage persists; many engineers still train overseas despite scholarships.

⚠️ Competitive headwinds

China, Taiwan, Malaysia, Thailand, and Vietnam already have established semiconductor ecosystems—Indonesia must navigate technology standards, LFP battery preference over NMC/NCA (affecting chip demand), and global price competition ([CSIS][4]).

---

7. Why the “TAP‑Only” Approach Isn’t Enough

Initially, Indonesia’s semiconductor growth will focus on Back-End Semiconductor Manufacturing—namely testing, assembly and packaging (TAP)—given lower cost and less technical complexity than full silicon fabs. Still, these operations account for over 50% of the global chip workforce and attract repeat revenue from contract manufacturing.

Indonesia already has firms like PT Len expanding into TAP for EV controllers and local electronics. The engagement with Washington and Tokyo seeks to push further into data-centric and custom chip design, making Indonesia more than a TAP node ([sourceofasia.com][9], [amcham.or.id][2]).

---

8. A High-Stakes Timeline: A 5–10‑Year Window

Indonesia is betting that:

EV battery capacity hits 140 GWh/year by 2030**, triggering local semiconductor demand.

Digital sector reaches US\$600 billion by 2030, including e‑commerce, fintech, and digital services that also demand chips.

Semiconductor strategy maturation by 2027–2028, aligning with the next electoral cycle and international positioning ([aseanbriefing.com][5], [indonesiabusinesspost.com][10], [aseanenergy.org][11]).

If achieved, Indonesia could take its place as a regional semiconductor hub for EVs, automotive, digital infrastructure, and industrial electronics—not poised to challenge Samsung or TSMC directly, but enough to support diversification away from East Asian hotspots.

---

✅ Final Word: A Calculated Leap Toward IP-Rich Manufacturing

Indonesia’s semiconductor strategy is **long game, not quick turn. Leveraging its mineral wealth, young population, and strategic U.S.–Japan alignment, the country is laying what it hopes will become a credible regional chip centre by 2030.

For American audiences—especially those tracking supply-chain resilience, EV expansion, or ASEAN geopolitics—Indonesia’s bet is one worth watching: From nickel to nodes, it seeks a deeper role in the global chip future.

---

By The ASEAN Brief

Source :

[1]: https://www.reuters.com/markets/commodities/us-approaches-indonesia-multinational-critical-mineral-partnership-2024-07-15/?utm_source=chatgpt.com "US approaches Indonesia for multinational critical mineral partnership | Reuters"

[2]: https://www.amcham.or.id/news/detail/amcham-update-vol-6-44?utm_source=chatgpt.com "AmCham Update Vol. 6 #44"

[3]: https://www.ibai.or.id/news/item/6438-indonesia-to-develop-semiconductor-industry-with-us-and-japan-as-co-investors.html?utm_source=chatgpt.com "Indonesia to Develop Semiconductor Industry with US and Japan as Co-Investors"

[4]: https://www.csis.org/analysis/indonesias-battery-industrial-strategy?utm_source=chatgpt.com "Indonesia’s Battery Industrial Strategy"

[5]: https://www.aseanbriefing.com/news/southeast-asias-first-ev-battery-plant-begins-operations-in-indonesia/?utm_source=chatgpt.com "Southeast Asia’s First EV Battery Plant Begins Operations in Indonesia"

[6]: https://www.thejakartapost.com/opinion/2025/07/11/analysis-indonesia-bets-on-ev-batteries-to-reinvigorate-manufacturing.html?utm_source=chatgpt.com "Analysis: Indonesia bets on EV batteries to reinvigorate manufacturing - Academia - The Jakarta Post"

[7]: https://en.wikipedia.org/wiki/Anindya_Bakrie?utm_source=chatgpt.com "Anindya Bakrie"

[8]: https://en.wikipedia.org/wiki/Bandung_Techno_Park?utm_source=chatgpt.com "Bandung Techno Park"

[9]: https://www.sourceofasia.com/indonesia-and-thailands-ev-boom-driving-semiconductor-growth/?utm_source=chatgpt.com "Indonesia and Thailand's EV Boom Driving Semiconductor Growth"

[10]: https://indonesiabusinesspost.com/4361/policy-and-governance/indonesia-strengthens-ev-battery-industry-through-strategic-partnership?utm_source=chatgpt.com "Indonesia strengthens EV battery industry through strategic partnership | Indonesia Business Post"

[11]: https://aseanenergy.org/post/seizing-indonesias-position-in-the-global-supply-chain-of-critical-minerals-for-aseans-integrated-ev-battery-industry/?utm_source=chatgpt.com "Seizing Indonesia's Position in the Global Supply Chain of Critical minerals for ASEAN's Integrated EV battery industry - ASEAN Centre for Energy"