Hong Hai Precision (also known as Foxconn) has cancelled plans to build a handset factory in Indonesia and is now considering investing in neighbouring Malaysia.

Foxconn, the world’s largest electronics contract manufacturer, had asked the Indonesian government for free land in exchange for its $1 billion investment, which it announced in January 2014. The company made the request after determining that the price of land in Cakung, East Java, was too high, and the government failed to respond to the request, Suryo Bambang Sulistyo, head of the Indonesian Chamber of Commerce and Industry, told the Jakarta Post.

The Taiwan firm said in a statement that it would consider investments in Indonesia or other markets “only if they made commercial sense” and would continue to look at investment opportunities in Indonesia as it does in a number of other markets.

Foxconn said it is shifting its search to Malaysia.

Smartphone shipments in Indonesia increased 30 per cent in Q2 from a year ago, Counterpoint Research said. The country is now the third largest smartphone market in Asia behind China and India.

A new regulation requiring at least 30 per cent of LTE device components to be sourced domestically should give a boost to local component and device makers and will force international brands to rethink their strategy for Indonesia.

Last week Taiwanese device maker Acer announced it is looking for an OEM partner in Indonesia to manufacture smartphones to avoid the country’s high import duties.

In April Chinese smartphone maker Xiaomi said it planned to assemble smartphones in Indonesia this year to comply the local content law.

Foxconn is also looking to set up production in India, where smartphone growth has also soared. It announced plans last month to invest $5 billion in a factory in the state of Maharashtra, which will employ up to 50,000 people.

Meanwhile, Taiwan’s Arima is partnering with Indonesian handset and voucher distributor Tiphone Mobile to build an assembly plant in Cikarang, West Java, that will be operational by the end of the year.

The plant will assemble TiPhone devices as well as those from LG, Sony, HTC and BlackBerry.

Arima is Taiwan’s second largest smartphone maker after Foxconn.