Doing Business in Indonesia

Indonesia, as Southeast Asia’s largest economy, has positioned itself as one of the vital area for international trade since 7th century. In the course of the last global financial crisis, Indonesia had not only survived, but also outperformed other ASEAN countries including: Singapore, Malaysia and Thailand with an estimated growth of 6.4% in 2011. IMF ranked Indonesia as the 16th for GDP nominal and 15th for purchasing power parity, amounted to US$845,680 M and US$1,124,649 B respectively. Furthermore, Fitch upgraded sovereign credit rating of Indonesia to investment grade and estimated a 6% growth in 2013 conservatively. On top of the stable economic growth, Indonesia’s economy relies heavily on its domestic market, which is comprised of some 240 million people. Additionally, Indonesia is gifted with vast and diverse natural resources.

The combination of resilient economic growth, vast domestic market and extensive natural resources has made Indonesia to be an attractive emerging country. As a growing market, Indonesia offers huge opportunity for investment in many industries. The most inviting and significant markets are mining and agriculture sectors, including the equipment and services. Telecommunication industry also continue to be one of the largest opportunities with more than 30 million mobile phones are sold per year. Another attractive opportunities are in crude oil processing and refining, military, medical equipment, education and professional training industry. Moreover, the growing financial services has expanded IT technology needs, especially software and system.

However, there are several market challenges that investors need to encounter, such as heavy bureaucracy, intense competition and ineffective law enforcement. Even though the government has been trying to deregulate the bureaucracy system to be more transparent and faster, foreign investors might still find it complicated. Indonesia is also a very competitive market, in addition to local players, many regional players from Singapore, Malaysia, Japan and China are already active in the market. With regard to the law implementation, corruption in court has made dispute settlement mechanism ineffective. Furthermore, business disputes may be considered as criminal cases rather than administrative or civil matters. However, the main and real challenge of doing business in Indonesia is its demographic profile. As the world’s largest archipelago country, Indonesia is comprised of 17,500 islands, 33 provinces, 300 ethnic groups, and 742 languages, consequently it creates a very complex business environment.

In addition to the traditional culture influence, business environment in Indonesia also affected by dutch legacy, chinese domination, and Islam. The egalitarian heritage is seen in day-to-day business environment, everyone in a company is considered worthy of esteem. Customers are not king, they are valued and respected but their power is limited. Chinese culture also strongly presence in the business life, such as  fast decision making process, patience, family oriented objectives, and large dose of uncertainty. It roots back to the Soeharto regime, when chinese community involvement was limited to commercial activities. As the largest Muslim population in the world, daily and business patterns in Indonesia are also formed by Islam. As a result, business community values personal relationship over business matter, this is a form of ‘Silaturahmi’, which means goodwill. In order to establish a business relationship, investors need to have a good personal relationship as the initial step. Indonesian emphasizes social behavior, courtesy to others, and hard work. Furthermore, collective or community benefits are more important than individual goals.

Nevertheless, Indonesians respect and practice its national motto, Bhinneka Tunggal Ika, which means unity in diversity. They believe in the power of consensus by respecting diverse opinions. Indonesians are trained to maintain harmonious live with diversity, subsequently it helps them to embrace globalisation without neglecting their own culture. Communication plays an important role in business environment. A comprehensive understanding of Indonesia’s immense culture, including the language, is the key success factor to penetrate this promising market.

Photo by F1etch

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