Local Content Requirements and Supplier Upgrading Decisions in the Indonesian Electronics Assembly Industry

Afferdhy Ariffien (Universitas Logistik dan Bisnis Internasional)
Sitti Rachmawati Yahya (Universitas Siber Asia)
Mohammad H. Holle (Universitas Islam Negeri Abdul Muthalib Sangadji Ambon)
Ruth Helen Simarmata (Universitas Sriwijaya)

Journal of Industrial Engineering and Management
Vol 4, No 1 (2026)

A 4G or 5G phone sold in Indonesia must reach a local content level (TKDN) of at least 35 percent before it can be certified. For an assembler, that requirement becomes hundreds of small sourcing decisions in the bill of materials. This paper follows those decisions in a simulated set of 24 assemblers and 216 component lines, calibrated to published parameters where a published anchor exists. Each line was replayed against the decision rule used by buyers, which rejects a local part above an 8 percent reject rate or a 12 percent price premium, and departures from the rule were treated as buyer overrides. Seven assemblers reached the 35 percent scenario threshold, and all seven sourced the display or main PCB locally, while none of the other 17 passed (Fisher exact p 0.001). These two parts carry 73 percent of BOM cost. Nine assemblers had a local display or PCB supplier and imported anyway. Of 20 overrides, three display imports pushed three assemblers below the threshold, and one local display with a reject rate of 10 percent kept another above it. Upgrading suppliers of casings, batteries, and chargers raised ratios by a median of 8.5 percentage points but moved no assembler across 35 percent. Sourcing every available local part would qualify 16 assemblers, exactly those with a local high-value supplier, at a median cost increase of 1.6 percent. The results suggest that compliance depends on a few high-value sourcing decisions, while mid-value suppliers upgrading builds the capability behind them