The competitive environment for Indonesia's manufacturing industries has changed a great deal in the years following the Asian economic crisis. The major factors in the global environment that have adversely affected Indonesia's competitiveness in its manufactured exports include increasing economic openness, shorter product cycles, and continuous technological improvements. It is vital for Indonesia to monitor regularly the productivity and international competitiveness of its industries. Other major factors that have adversely affected or may adversely affect the competitiveness of Indonesia's manufacturing industries are China's rise as a formidable competitor in the world markets for manufactured exports and as an attractive host country for foreign direct investment (FDI); the emergence of global contract manufacturers in Singapore, Malaysia, and Thailand; the expiry of the Multi-Fibre Agreement (MFA) in early 2005; trade liberalization within the ASEAN countries; and the WTO-mandated reduction in tariff barriers. This paper discusses Indonesia's low industrial competitiveness and the steps which could be taken to remedy this problem.