Indonesia’s Domestic Component Level (Tingkat Komponen Dalam Negeri or TKDN) policy has long been a pillar of the country’s industrial strategy, which aims to stimulate local production, reduce reliance on imports, and safeguard national interests in strategic sectors. However, in 2025, under the administration of President Prabowo Subianto, the TKDN framework is undergoing substantial reform. These changes reflect a shift from rigid protectionism toward a more calibrated and globally integrated industrial policy.
Historically, the implementation of TKDN has resulted in mixed outcomes. On one hand, it has supported the growth of domestic suppliers and encouraged foreign firms to localize their production. However, TKDN has created friction with global investors and trade partners. For instance, the United States has repeatedly flagged TKDN as a “trade barrier” in its National Trade Estimate Report. These concerns were amplified when President Trump announced on April 2 the imposition of “reciprocal tariffs” on most countries, including Indonesia.
A notable flashpoint occurred in late 2024 when the Indonesian government banned the iPhone 16 for failing to meet TKDN requirements. The dispute was eventually resolved after Apple agreed to invest USD 1 billion in Indonesia, including a USD 150 million facility in Batam to manufacture AirTag accessories. The agreement, valid until 2029, underscores the delicate balance between enforcing local content requirements and maintaining foreign investor confidence.
Recognizing both the strengths and limitations of TKDN, President Prabowo has initiated a significant recalibration. The President signed Presidential Regulation No. 46 of 2025, the Second Amendment to Presidential Regulation No. 16 of 2018 on government procurement of goods and services. The key objective of the reform is to modernize and rationalize the application of TKDN by introducing a priority framework based on the availability and level of domestic content–which can be summarized as follow:
- If a product has a combined TKDN and Company Benefit Weight score above 40%, it must be prioritized
- If no such product exists, but there is a product with a TKDN score above 25%, it can be procured
- If no product meets the 25% TKDN threshold, procurement of lower-TKDN products is permitted
- If no certified TKDN product exists, procurement is allowed for domestic product registered in the National Industrial Information System (SIINas)
In parallel, the Ministry of Industry is working to revise the TKDN calculation methodology. This includes simplifying the certification process, developing a more equitable assessment model for evaluating local contributions, and promoting investment in innovation that fulfills local content requirements through technology development–not merely through raw materials or assembly. These changes aim to increase participation by local businesses in national projects and ensure that foreign firms are able to meet domestic content requirements.
President Prabowo’s TKDN reform reflects a nuanced understanding of the trade-offs involved in industrial policymaking. The government is seeking to avoid excessive protectionism that could isolate Indonesia from global value chains, while also ensuring that domestic industries are not undermined by unrestricted imports. For local businesses, the reforms open new and better opportunities to participate in public procurement, though competition may increase from foreign firms that localize their operations to meet the revised TKDN thresholds. Meanwhile, foreign investors benefit from a more flexible and predictable framework, making it easier to plan long-term investments and collaborate with local partners. On the international front, the reform sends a positive signal to Indonesia’s trade partners, indicating a strong willingness to align industrial policy with broader economic diplomacy goals–without compromising national interest.
While the reforms represent is a step in the right direction, their success will depend on the government’s ability to ensure effective policy coordination, rigorous enforcement, and the implementation of complementary measures. These include offering investment incentives for local suppliers to build competitive capabilities, launching upskilling and technology transfer programs to strengthen the domestic workforce and industrial base, and ensuring transparent and consistent monitoring of TKDN compliance to prevent loopholes and abuse. Moreover, the development of a balanced and forward-looking industrial roadmap is crucial as Indonesia aspires to become a competitive player in the global economy. Striking the proper balance between nationalist policies and international openness remains a challenge–but one that Indonesia increasingly appears ready to meet.
In conclusion, Indonesia’s TKDN reform marks a turning point in the country’s industrial development strategy. By introducing flexibility without compromising national interests, the reform aims to unlock a more dynamic and inclusive manufacturing sector. The ability to balance local empowerment with international cooperation will determine whether TKDN evolves from a rigid regulatory requirement into a catalyst for sustainable industrial transformation.
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