PESTEL analysis of Indonesia

October 3

2009

SUBMITTED TO: MR. SUNDERASAN

SUBMITTED BY: Hitesh Goyal Nirupan Chakravarthi Sainath.V MBA 12 and PGPRM-9

with several countries ranging in products from gas to textiles. the Government of Indonesia signed a Memorandum of Understanding with the International Labour Organization under the International Program for PESTEL Analysis of Indonesia Page 2 . Last time it was held on 8 July 2009 (next to be held in July 2014).[PESTEL ANALYSIS OF INDONESIA] October 3. It has a very large trading environment. swamps and consists over 13000 islands. In April 1992. to protect the labour rights the government has made a law called Labour laws Article 28D (2).the World Fact book) PESTEL Analysis: Political and Legal factors: Indonesia is considered as Republic country. Labour laws: Indonesia has one of the largest labour forces in the world which make it stand on 5th rank. Indonesia declared its independence on 17th August 1945 from Japan but Netherlands agreed to transfer sovereignty in 1949. with one 30minute rest period for each 4 hours of work is legal in Indonesia. Cabinet also appointed by the president. between the Indian Ocean and the Pacific Ocean which contain mainly mountainous and covered with rain forests. Susilo Bambang is the President and Muhammad Yusuf Kalla is the Vice-President of Indonesia. Similarly. According to this law 7-hour workdays and 40-hour workweeks. 88% of Indonesians population is Muslim. Their constitution has abrogated by Federal Constitution in 1949 and Provisional Constitution abrogated in 1950 which restored on 5 July 1959. 22% of its population live below poverty line. 2009 Introduction: Indonesia is one of the largest countries in South-east Asia. It declared its independence on 17th August 1945 from Japan so 17th August is the national holiday. One day of rest weekly also mandatory in Indonesia. Political stability: In Indonesia after every five year election is being contested for president and vice president post by direct vote of the citizenry. Jakarta is the capital of Indonesia. Susilo Bambang has elected as president and Muhammad Yusuf Kalla is the Vice-President. Bahasa is the official language in Indonesia which modified form of Malay but the most widely spoken language is Javanese. So. (CIA. Indonesia¶s legal rules and regulations are based on Roman-Dutch law. So for next 5 years there are more chances of stability of the government.

their GDP growth has been increasing rapidly from last few years.000 income rate of tax is 10% then on next 25.62 billion and expenditures $98. Under the Company Law. it has 23rd rank.5% of their GDP to develop their nation. They spend 23.000 it is 15% and on next 50.000. and religious buildings (Inter Noise . According to last announced budget they had revenues $92.[PESTEL ANALYSIS OF INDONESIA] October 3.41% and their Central bank discount rate is 10. For instance.83% . In the same way Income Tax on interest from Indonesian banks is fixed at a final 15% for both companies and individuals. They have hub of natural resources such as in Oil production.3% Company law: The Indonesian Company Law of 1995 is the most important framework for the current legislation on corporate governance in Indonesia.000 it is 30%.88 billion in 2008. 2009 the Elimination of Child Labour (IPEC) where the minimum working age is 14 years.by occupation: Agriculture: 42. Every company must register their Memorandum of Act under this Company Law. schools.1% Industry: 18. PESTEL Analysis of Indonesia Page 3 . a company is a separate legal entity in which Directors and Commissioners represent the company. in natural gas production and in export it is on 8th position. Business or individual tax system: Tax system has various rules and categories for example on first 25. 2009) Labour force .000. Municipal Noise Reduction Plan (MNRP) has noise limit such areas in housing occupancy. (CIA. (Incorporation of company Law in Indonesia) Prime lending rate: If we talk about their commercial Bank prime lending interest rate it is quiet decent which is 6.6% Services: 39. Economical factor: Indonesia is considered as a developing country. Due to the government policies and treasure of national resources. (Labour & Social Protection in Indonesia. 2007). hospitals.000. 2009) Environmental law: Indonesia Environmental Agency states Decree Laws.

Thailand 4. 2009 GDP: Indonesia has made significant economic advances through last years.159. Japan 11. China 11.1 billion) in 2006 and compression to the world they are on 54th position in GDP growth.9.9% (2008) PESTEL Analysis of Indonesia Page 4 . Inflation rates: Inflation rate is still high but it has come down after a high of 20. The major import partners are Singapore 16.7%.3 billion in 2008 compare to $58.1% ($915.1%. The major import commodities are machinery. (The World Bank. The total import in 2008 was $125 billion compare to $85.9 (2008) compare to 9.3% in 2006.5% ($811.[PESTEL ANALYSIS OF INDONESIA] October 3. import and export in Indonesia are increasing every year. income. Average Family Income ± 33 (Gina index) B. It was $67. A.9%.9% in 2008 compare to 6.8%. It was 9. chemicals.7% in 1999. US 6. The major reason behind it is economic downturn. Import: Due to change in population.500 in 2006 which was increase up to $3900 in 2008 and comparison to the world it is on the 157th rank in per capita income.9 billion) in 2008 compare to 5.4%. it was $3. Income Class Bottom 10% of population represents 4% of wealth Top 10% of population represents 27% of wealth Exchange rate: Indonesian rupiah (IDR) per US dollar .96 billion in 2007 and they are on 45th position in FDI stock. Malaysia 6.9%. 14. 2009) Per capita income: If we talk about per capita income. Indonesia's debt-toGDP ratio in recent years has declined because of increasingly robust GDP growth which was 6.1% comes from industry. It plays a vital role in Indonesia growth rate. 37.97 FDI: FDI is one of the most important factors for every country.4% of GDP earning from agriculture. fuels and foodstuffs. Distribution of Wealth 1.5% from service sector and the major part 48.26 billion in 2007. It is a developing country so they have good inflow of FDI. South Korea 5.205.698. equipment.3 (2006) Indonesian rupiah (IDR) per Indian rupee.

26 years and for female its 73.7%.1% (male 34.8 million in 2008. government policies.7%.876) Education: If a country has good literacy rate then it has bright future.1%.321) 65 years and over: 6% (male 6. Singapore 9. which is increasing at a steady rate. US 9.271.6% of their GDP is spent on education.3 billion in 2008 compare to $83 billion in 2007.337.[PESTEL ANALYSIS OF INDONESIA] October 3.4%.341/female 33.549. 3. Roman Catholic 3%.6 years in which for male it is 27.25 deaths/1. The government revenue has over doubled in the past 4 years while spending has increased by 3 times.8%.000 and the mortality rate is 29. 2009 Export: In the same way due to economic growth improvement in productivity. electrical appliances. India 5. Balance of payment: The current account balance of Indonesia is $7. Malaysia 4.000 populations.2% every year. The total life expectancy rate is 70.1 years Age structure: 0-14 years: 28. If we talk about majority it is a nation of Muslim with 86.5%. The government spending has increased due to the country trying to alleviate widespread poverty and well being of the country.8%.522 populations which is growing at 1.1million which was $8.207) 15-64 years: 66% (male 79.968.76 years in which for male its 68. 52% of total population live in urban areas which are increasing at 3. The total median age is 27. The birth rate in Indonesia is 18.4% of its populations are literate in which male are 94% and female are 86. Age factor: Indonesia is considered as nation of young people.84births/1.7%.208/female 7. plywood. textiles and rubber. The major export partner countries are Japan 20. Protestant 5.918. China 8.2%. and Hindu 1.1 years and for female its 28. Religion: Indonesia is a multi culture and religion country where people from different religion work there.5%.335. It was $93. Same thing apply on Indonesia.162. The major export commodities are oil and gas. export is also increasing rapidly. Social factor: Population: Indonesia has a large population. PESTEL Analysis of Indonesia Page 5 .13%. South Korea 6.2%.569/female 78.38 years. It is on the 5th position all over the world with total 240. 90.

Basically it is hot and humid country. At least 669 distinct languages and well over 1.569 sq km area in that land is 1. Panjang. Communication system: The communication system in Indonesia is highly developed which maintained 17.569 sq km and water is 93.000 sq km.811. Broadcasting technology: If we talk about media sources it has 678AM and 43 FM channels. Time zone: Indonesia¶s time zone is UTC+7 mean seven hours ahead of GMT and 16 hours ahead of U.[PESTEL ANALYSIS OF INDONESIA] October 3. By one count. Natural or environmental disaster: Due to its geographic location. Belawan. It has interisland microwave system. magnitude 9. each with its group of local transmitters) Environmental factor: Geographical location: Its geographic environment is one of the most complexes and varied in the world.100 different dialects are spoken.33 millions of people use landlines where as 83. Ciwandan. 2009 Technological factor: Transport system: Indonesia has effective and highly developed transport system with 139 airports. Tanjung Priok. 2004. HF radio police net and domestic satellite communications system coverage which makes its communication system better. Sungai Pakning. several times Indonesia has faced many natural disasters such as in December 26. it has situated in South-Eastern Asia between the Indian Ocean and the Pacific Ocean. railways with 8529 km and water ways covering 21579 km and major ports are Banjarmasin. Palembang.667 islands. Similarly it has 54 local TV stations (11 national TV networks. It has total 1. Tanjung Perak.0 earthquake caused a tremendously powerful tsunami in the Indian Ocean and about 155000 people died and after this PESTEL Analysis of Indonesia Page 6 . Kotabaru.904. The nation encompasses some 13. the landscape ranges from rain forests and steaming mangrove swamps to arid plains and snow capped mountains. Krueg Geukueh.S. It has one of the largest merchant moraine with 971 in which 114 is already registered in foreign country.3 million of people use Cellular mobiles in the same way there are 13 million of internet users which is good sign for a country. Pacific Standard Time.

it also affect their business relationship with western countries. followed by poor transportation service and corruption in electricity such as stealing. Other major obstacles include labour skills. The disastrous scale of this fire was made possible by the piles of dead wood left behind by the timber industry. In the same way. cost of financing. The Indonesian Chamber of Commerce launched an ambitious regional decentralisation program in 2001. 2008) If corruption rate is high then it also affects directly to country import and export.522 total populations PESTEL Analysis of Indonesia Page 7 . due to its mountainous interior regions of Kalimantan. tax administration. 2008) Secondly.000 hectares per year and possibly as much as 1 million hectares per year. at 700. but economists use it to mean µthe misuse of public office and services for private gain.271. Instead of being centralised. In 1983. Indonesia is on 100th position in corruption. but after 2001 there is huge amendment in term of reducing corruption. Infrastructure issues: Indonesia¶s investment climate rank poorly in international comparisons. The US$ 10 million transferred from the central bank to several members of the national parliament is also one of the examples of corruption. After 9/11 attack on USA. It was on 135 positions in 1997 due to high corruption where the government think this is one of the main reasons of the biggest slowdown in 1997 in Indonesia. In the same way out of 240. 2007. Key finding and analysis: Corruption impact on export: The word µcorruption¶ has many meanings. Macroeconomic instability is still viewed as the biggest obstacle. there is majority of Muslim population. country has faced deforestation. 2008 and many times country has faced same trouble because of its location. power and authority are now more diffuse. (Inside Indonesia. 2009 in May 26. all Muslim have negative image in Western countries. The World Bank¶s Doing Business 2007 report ranked Indonesia 135th out of 175 economies on ease of doing business. It goes same with Indonesia. It established also the Corruption Eradication Commission which helps to control the corruption. and labour regulation which raise the cost and uncertainty of doing business. 2006. and IMD¶s World Competitiveness Yearbook ranked Indonesia 54th out of 55 countries. Sulawesi. and Sumatra. soil erosion and massive forest fires. Even discounting the calamitous effects of the fire. about 3 million hectares of prime tropical forest worth at least US$10 billion were destroyed in a fire in Kalimantan Timur Province. in Feb. January 27. in the mid-1980s Indonesia's deforestation rate was the highest in Southeast Asia.[PESTEL ANALYSIS OF INDONESIA] October 3. (World Audit Org.

6 billion to develop 275 financial projects and programs in 1991. Due to financial crisis in 2000 the bank repositioned itself with the lower amount of annual lending around $450 million. Here they are mainly focusing all lending and grand activity by dividing into two ways which is following y y A week investment climate Low quality service delivery to the poor Apart from these two ways the CAS have other four business platforms for enhance the growth of government¶s plan in Indonesia. World Bank Assistance to Indonesia: Indonesia has good relationship with other nations for enhance the economic growth cooperation. and Indonesia committed strong agreements with some of the globalized organization like APEC (Asia Pacific Economic Co-operation). governance as well. social development 12% and environment 5% respectively. The four major business platforms are y y Community Driven Development platform (CDD) The narrow Service Platform Page 8 PESTEL Analysis of Indonesia . at the time the bank has focused more investment on different sectors like education. By analysing in the pie chart they have captured high percent of other trust funds have 39%. 2009 only there is 13 million users of internet which is very less. urban development 19%. social development and environment. then AFTA (ASEAN Free Trade Area) and FTAs (Free Trade Agreement). Then the World Bank allotted around US$ 24. for this they have maintaining co-operation with regional level and international level as well. Country Assistance Strategy (CAS) which governed the World Bank assistance to Indonesia for the year 2004 ± 2008. health. Since 1967 the World Bank has continued an energetic occurrence in this country for sustain high economic growth with the ultimate importance of reduction of poverty. but Indonesia has good natural resources because of it there export is increasing and it helps them to improve in infrastructure and transportation services due to vast investment by foreign countries. By seeing the World Bank grant programs they are lending more than $2 US billion for 125 trust funds.[PESTEL ANALYSIS OF INDONESIA] October 3. Rests have the other percents for combined developments. And this country plays a vital role in WTO.

Myanmar. Vietnam. it leads to invest more money into new business in the country y The scale of economies and the scope of production have increased progressively. throughout the plan of CAS period of time from 2004-2008. 20% for National lending program respectively. Malaysia. y y An international competitive have increased in the ASEAN industry of production.3% to 14. At that time this group has allowed the Indonesians to region and regional society. Cambodia.[PESTEL ANALYSIS OF INDONESIA] October 3. these are the countries have membership in this ASEAN group. This ASEAN includes the structure that Jakarta is the capital of Indonesia it was diffident adapt itself to constant frame and agreements which will enhance the functional integration. Singapore.6% The sources from ASEAN group has increased. In this group have many countries like India. Benefits of the ASEAN for Indonesia: y y It gradually increased the industrial production from 12. For the local services they use to lend 40%. By the year of 1967 the Indonesia¶s unsettling has changed. This group has started in 1967 8th of August from that time they have concentrated in Indonesian international co-operations. PESTEL Analysis of Indonesia Page 9 . the expected annual lending to go for CDD one of the business platform programs for about 25%. Since the Indonesia was the final member nation of the ASEAN group to squeeze complete potential economic of the organization. Indonesia and the future of ASEAN: This country belongs to ASEAN (Association of South East Asian Nations) group. One of the ultimate goals for the Indonesia¶s is to decrease the regional dependence on external powers like military and defence. After that all the decisions made by the five foundation members of ASEAN. and 15% for community efficiency. 2009 y y The community efficacy Platform National Lending Platform On the whole. and the base of technology also improved as well. After that the group has gradually increased the peace and sustainability of the regional. Thailand. At certain time the participation of private sector have increased and industrial complementation as well.

Legal or political barriers: Tariffs For doing the international trade business we have to know about the tariff and non tariff defence. y y y The tariff for import has reduced faintly up to maximum of 5% in the year 2001 from 20% Whereas for the year 2003 again it has reduced 10% from 20%. the excluded import tariff as follows . in Indonesia. then tariff.In 2003 the tariff reduced up to 10% for the chemical products. So. Licensing for import and export. Regional and social factors: Indonesia has majority of Muslim religion.[PESTEL ANALYSIS OF INDONESIA] October 3. consumption and the import of meat products decrease rapidly because people in Indonesia eat only one time in a day and restaurant and shops open 5 PM to 10 pm but in Western Countries it is entirely different from it such as consumption and imports of foods and beverage and electronic gadgets increase during festival like Christmas. the country still sustain the export taxes for palm oil products. with an transitional target of 20% in 2000 This tariff will differ from products. With the respect to export taxes. 2009 Then within the country the government allowed some schemes for the people enhance those are the plans which are implemented by the ASEAN group. They have come up with new schemes and agreements like AICO (Asian Industrial Co-operation Scheme). during festival like Ramzan. have been considerably decreased exploring domestic business to high international competitive business. In the same way if people are educated.A definite agriculture product can be committed in GATT/WTO which usually synchronized individually . even though it reduced significantly the extent and tax rate level. plastic goods.At some of the time particularly an automotive products will be regulated individually . According to The Indonesian Chamber of Commerce the meat import is increasing rapidly but there is less import of meat in Ramzan time. this leads to the country business improvement. it will help to boost the economy growth because they have knowledge about latest technology which helps them to maximize their output at low PESTEL Analysis of Indonesia Page 10 . and metal as well. these are all now reduced. Here for this country they have huge changes in their international trade policy progression.

water resources and natural resources such as gas. foreign reserve. labour force. 2009 cost with effective use of input.[PESTEL ANALYSIS OF INDONESIA] October 3.6% of Indonesia GDP is spent on education. geographic and technological factor.8%. In Indonesia FDI is restricted in most of the sectors and the business environment is not good because of persistent corruption and natural disaster but it is recovering very fast and in next 4 or 5 years Indonesia would be in better position. economic factor. Where growth rate. Conclusion: After analysing PESTLE analysis of Indonesia. huge population. high inflation and unemployment rate. 3. social. 90. PESTEL Analysis of Indonesia Page 11 . we came to know it has some advantage and disadvantage in term of legal policy.4% of Indonesia¶s populations are literate in which male are 94% and female are 86. crude oil are more in Indonesia they have less per capita income.

2009.). from Cia. from Indonesia-tourism: http://www. (2008.htm Corruption inside Indonesia. Retrieved September 6. Retrieved on October 2008.html Fry. (2008).worldbank.org/democracy. 289-312. (2009. August). Retrieved 08 30.worldaudit. Retrieved 08 29.com/front/ Economy. E.ft. 2009. 06 26).com/cms/s/0/dad55046-61f4-11de-9e03-00144feabdc0. 2009.d. 2009.cia. Retrieved from The World Bank: http://web.org/content/view/1082/47/ PESTEL Analysis of Indonesia Page 12 . from Kwintessential: http://www. (n. doi:10. Retrieved 08 29.html Index of economic freedown. doi:10.gov/library/publications/the-world-factbook/geos/id. Real Effects of Monetary Policy in New Zealand.indonesiatourism.gov: https://www. D.d.00478.). Lee.indonesiacommerce. 44(2).insideindonesia.2007. (2007.html#top Key Issues in Indonesia Private Sector. (2008). 2009.).org/Index/Country Indonesia. 385-401. December). Retrieved September 4. (n.1080/0007491080216903 Commerce. Indonesia GDP improve for fifth quarter. 2009. Retrieved 9 3.1467-8462.co.d. & Gan.kwintessential. from FT: http://www.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/IND ONESIAEXTN/0 Corruption position of Indonesia. Retrieved on 2009 from: http://www.[PESTEL ANALYSIS OF INDONESIA] October 3.uk/resources/global-etiquette/new-zealand.nl/w3vlindonesia/ The world fact book. from The World Audit Org. 2009.dwp_uuid=b2e7f792-b6a611db-8bc2-0000779e2340. 2009 Reference: Karim..html?nclick_check=1 Global etiquette. from IISG: http://www. (n. WHAT CEREALS WILL INDONESIA STILL IMPORT IN 2020?.iisg. R.com/general/economy. 2009. & Kusumaningrum.. S. from heritage: http://www. C. M. Bulletin of Indonesian Economic Studies.: http://www. (2008). Australian Economic Review. Retrieved 08 05.1111/j.heritage.x Bourgeois. Retrieved 08 28. 40(4). 2009. from Indonesiacommerce: http://www. Retrieved 08 26..

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