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Business Environment in Indonesia An overview of the Indonesian Business Etiquette The development of business in Indonesia has, for many

years, been inextricably linked to political influence and patronage. It has been virtually impossible to make progress on any major project without the right level of influence with senior people in the relevant government ministry - and the closer one's contacts to the President, the better. The last Asian currency crisis has forced the government to address some of the cronyism inherent inall business dealings - and a good deal of progress is being made in this area. (The issues of corruption and graft had reached such a scale that the World Bank, reportedly, had a special category in its cost calculations for major projects, just to cover these unaccountable expenses.) Such contentious issues as bribery and corruption aside, the Indonesian approach to business etiquette shares many similarities with customs and practices found in neighbouring Malaysia hardly surprising as both countries contain a Muslim, ethnic Malay majority and a small but commercially disproportionately influential Chinese minority. Attitudes and concepts of acceptable behaviour and etiquette, therefore, focus on such issues as the need to show respect to seniority, the unquestioning acceptance of hierarchical structures and the constant striving for the development and preservation of harmony within the group environment. Indonesia with a population of 230 million and a rapidly growong economy, represents a significant business opportunity in such areas as electrical goods, automotive, retail and infrastructure. To access this market though, you need to understand the business culture and etiquette.

DOING BUSINESS IN INDONESIA Indonesia is not the easiest place to start an enterprise or, generally, to conduct business. This is reflected in the World Bank's Doing Business 2014 index in which the country currently ranks 120th. One of the major obstacles of doing business in Indonesia concerns obtaining the necessary permits and licenses; this can become a time-consuming and expensive affair. In order to successfully start and expand a business it is also important to establish a good network in Indonesian business and government circles. Foreign entrepreneurs should realize the importance of these networks and make efforts to develop them. Luckily, it is not difficult to establish these networks as foreign businessmen are also interesting parties for Indonesians. It is highly recommended to become acquainted with cultural values beforehand in order to know how to socialize with Indonesian business partners and Indonesian employees as well as to grasp Indonesia's business culture. This will make your business more efficient and effective, especially in the long term. To read more about this topic, please visit our Indonesian Business Culture page. This section aims to provide an accurate overview of the Indonesian business environment by sharing detailed information on Indonesian companies and commodities. At the same time it will also discuss obstacles to the business environment that are hampering efficiency and effectiveness for economic and social development. Moreover, this section can function as a reference point for those wanting to start a business and/or planning to live in Jakarta as it contains detailed information about certain legal issues such as obtaining the necessary permits for establishing a company or another legal entity. Of course Indonesia Investments can connect you to agencies specialized in these matters and can act as a mediator. Our Business section also provides suggestions concerning strategic living or office accommodations and gives some tips for behavioral patterns when socializing with Indonesians. Enterprises or individuals that want to start doing business in Indonesia and offer services or goods globally (or are in search for specific services or goods) are welcome to advertise on our Business Platform. Business Columns The Business Columns section contains articles with an in-depth analysis of subjects at the heart of the Indonesian business world. Together, these columns should provide a clear and detailed image of a wide scope of subjects in Indonesia's business sector and inform about developments within this field. It can serve as a source for investment ideas but it also deals with the negative aspects of (doing) business in Indonesia in order to obtain an objective view.

Indonesian Company Profiles This section is an ever-expanding catalogue of Indonesian company files, both publicly traded at the Indonesia Stock Exchange and privately-held or state-owned companies. Each company file provides a comprehensive outline of the company in order to give insight into its business(es) and performance. It presents an overview of its basic data, future prospects and provides conducted interviews with management and other stakeholders.

Commodities Indonesia contains an abundance of commodities such as coal, gold and gas. A negative side effect in the case of Indonesia, however, is the country's over-dependency on the exports of raw commodities. Downstream processing industries still lack behind although the government is making

efforts to encourage development of such downstream industries. This section discusses the diverse and high traded Indonesian commodities separately, and in detail.

Risks Indonesia is a promising country from a macroeconomic perspective but also entails more risks than investing in a developed country due to some specific political, social and cultural dynamics of the country. This section aims to provide some insight into these country-specific obstacles for successful investments and hopes to contribute to a better understanding of the country, thereby reducing chances of failure.

Working & Living For someone who is not or barely acquainted with Indonesia it can be difficult to find his or her way. It will take perseverance to arrange organizational matters (such as arranging a work permit, establishing a company or finding a place to live) while adjusting to a new culture that differs markedly from his own. This section deals with Indonesia's regulatory framework and other (cultural) information needed to ease the process of settling in Indonesia for business or private purposes.

Business Platform Our Business Platform is intended to function as an online meeting point for companies or individuals that seek to advertise their services or goods and those that are in need of such matters. Both sides can put an advertisement on this platform in order to attract attention on a global stage. Companies, institutions and organizations can also announce events here (if in accordance with our regulations).

Doing business in indonesia Indonesias economy is on the rise and thus seeing the country take its rightful position as a major destination for foreign direct investment (FDI). Having previously been overlooked in favour of other countries in Asia such as India and China; Indonesia is now hard to ignore. The country is unique in many ways as the biggest archipelago in the world, the largest Muslim majority country, the worlds third largest (albeit young) democracy and a leading exporter of numerous high value commodities such as palm oil and thermal coal. Its distinct characteristics are now coupled with political stability, self reliance and robust economic growth which saw the country largely shielded from the global economic crisis. Indonesia now finds itself at a key point in its transition from that of a low income to middle income economy and from a primary producer to a value added exporter as well as knowledge based economy. Investment opportunities are ripe in all sectors; ranging from infrastructure to manufacturing and services. This represents a window of opportunity for investors to participate in a market in the worlds fastest growing region that exhibits strong fundamentals and is poised to flourish. The country faces many challenges ahead of itself in securing the business environment for investors and sustaining economic growth. Core issues of corruption and excessive bureaucracy are still hurdles for any investor while unqualified human resources and poor infrastructure are restraining GDP growth from reaching the levels being seen in India and China. However, slow but steady steps are being taken to address the aforementioned obstacles. Undoubtedly, Indonesia possesses the fundamentals to be a leading global economy over the coming decades. This analysis aims to provide readers with a brief overview of some of those core fundamentals that differentiate the country to provide firm foundations for all business and investment ventures. Natural Resources Indonesia is endowed with diverse natural resources and is strategically positioned among markets from which there is high demand for them. The country was the only South East Asian member of OPEC until 2008 and continues to be a major liquid natural gas (LNG) exporter. In energy and mining, Indonesia is the worlds leading thermal coal exporter, the largest tin exporter and home to vast deposits of precious metals such as gold, silver and copper. Its unique topography yields highly sought after attributes. For example, its coal offers low sulphur content and high calorific value while its deposits of both coal and other minerals are found close to the earths surface thus maintaining competitive extraction costs. Located on the Asia Pacific Ring of Fire with over 40% of the worlds proven geothermal energy reserves; Indonesia has access to huge renewable energy sources to meet its domestic needs. This places it in the enviable position of being able to reap the full benefits of exporting its other energy resources. Its climate and highly fertile soil due to volcanic activity make it suited to the cultivation of high value agricultural commodities such as palm oil, rubber, coffee and cocoa. The vast availability of land and the low levels of productivity in many of these key crops give the scope for increased output. Indonesias geographical proximity to energy and resource hungry China and India provide natural markets for future exports alongside its own rapidly growing domestic market. Such natural resources make the country unique among other emerging markets in providing long term energy and food security for its burgeoning population. The challenge that now exists is that of effective and sustainable management. Long an exporter of primary products, Indonesia has been riding the global commodity boom while failing to take advantage of value added processes to boost revenues. The country is tightening its grip over its natural resources by securing domestic needs over that of exports and in some cases banning the export of primary resources. While controversial, this is presenting opportunities for investors to bring technical knowledge and expertise as the

country seeks to move up the value added chain. Prospects for investment are to be found in areas such as petrochemical refinement, smelting plants for metal mining and other downstream processes in energy and agricultural commodities. Large & Youthful Domestic Market As a country of some 240 million people and growing, the size of the Indonesian domestic consumer market is an alluring attribute for any investor. The countrys resilience over the course of the global financial crisis illustrated the merits of its immense population and economic self reliance. Bucking the trend of most other G20 economies, in 2009 the country recorded 4.5% GDP growth and achieved higher than expected growth of 6.1% in 2010. This can be attributed to strong private consumption which accounts for over 60% of total GDP. This placed the country in good stead as demand for exports from developed markets tailed off with the financial crisis leaving many other emerging economies in a state of flux. Indonesias lower middle income population continue to realise their consumer aspirations off the back of expanding consumer credit and rising incomes bringing GDP per capita to $4,200 at PPP at the end of 2010. A growing middle class that is poised to reach 150 million people by 2014 (Nomura) is opening up the scale and scope of the consumer market. What lays ahead to take full advantage of the consumer boom is ensuring that Indonesias manufacturing sector plays a greater role in the production of the goods being purchased. Imports are still largely responsible for meeting the countrys insatiable appetite for gadgets such as smart phones and other high tech goods that the country as yet does not produce. In terms of future outlook, Indonesia is entering a sweet spot as a convergence of its young, working population with that of relatively stable inflation and sustained economic growth is fuelling consumer spending. There is much to be said for Indonesias demographics as a key component of its future growth potential. Over 50% of the population is below the age of 30, is highly adaptive to new technology and has a low dependency ratio among its workforce giving rise to a so called transitional demographic dividend. This is in marked contrast to countries such as China where an ageing population and a high dependency ratio due to the one child policy is taking its toll. For Indonesia, this optimal environment is projected to continue for another decade to 2020, according to the World Bank, after which the population will begin to age faster and modern lifestyles reduce the birth rate. To fully reap the benefits of this transitional period, Indonesia must avoid the middle income trap of failing to transcend its income level to become a fully developed nation. As witnessed in countries such as South Korea, investment in higher education, research and innovation to create a skilled workforce that produce high technology goods is the way to do this. On paper at least, this is the direction that Indonesia is headed according to the Economic Masterplan to 2030 that would see a transition to a knowledge based economy. However, realising this goal will be dependent on realisation of private sector and foreign direct investment. This represents a pivotal stage as investors have an opportunity to come into the market during exciting and unfettered growth to thus play a role in this transition. Political Stability Indonesia has undergone a political transformation since the upheaval of 1998 which saw the fall of General Suharto after 30 years of authoritarian rule and a collapse of the Rupiah. The country is now a vibrant democracy that is continuing to strengthen its political structures and deepen the enfranchisement of the population. Over past decade, varied experiments with democracy has seen

the rise and fall of extreme religious parties and an equilibrium found in the direction of secular, reform minded nationalism. The 2009 election results signalled a maturity among the electorate through the re-election of the incumbent president, Susilo Bambang Yudhoyono who became the first Indonesian president to be democratically elected for two consecutive terms which hugely boosted global investor confidence. His firm stance on terrorism and national security is another welcome continuation of his tenure. Other political reforms such as decentralisation of political power to regional and provincial leaders, while still at an experimental stage, is serving to unleash the potential of Indonesias less developed regions outside Java and fostering more even participation in the countrys growth. The political situation is not without its risks; the speed of economic and political reform under President Yudhoyonos coalition has come under fierce criticism for its inertia and pandering to vested interests of coalition members. Political noises towards greater protectionism are regular occurrences that often result in overlapping regulations which creates investor uncertainty. In the run up to the 2014 elections, party interests are coming to prevail over that of political progression with a stalemate over many proposed new bills. The gap between the rich and the poor is also widening while corruption continues to be a persistent issue. However, despite the various push and pull forces to veer of course; the country remains on a stable track while fully acknowledging its political flaws. The deepening politicisation of the electorate is seeing greater demands and expectations being placed upon their politicians. The relatively free media is providing the space for open debate and discussion as well as bringing into question accepted cultural and political norms. This is a healthy environment for the future development of democracy and the gradual stamping out of detrimental and corrupt practices. The political system therefore continues to be a work in progress but not without its concerns. Yet, the events of the Arab Spring and the political turmoil that has ensued show that seemingly stable authoritarian regimes all have an expiry date which is brought about by the inevitable peaks and troughs of economic cycles. The over centralisation of authority is also a major flashpoint, as witnessed in countries such as Thailand. The immediate impact of Indonesias decentralisation has been excessive waste and bureaucracy. However, this is part of the process of political maturation that will eventually yield a series of coordinated regions that have adopted policies which compliment their particular attributes and commercial strengths. From this long term perspective, investors can have confidence in Indonesias stability and its political system will continue to strengthen in the decades to come. Indonesias advantages as a business and investment destination are defined by the current global and political environment that is highlighting several key parameters to be considered in emerging markets. The countrys natural resources, potential in renewable energy and food security offer a sustainable buffer to the climbing prices being seen in oil and foodstuffs which is fuelling social discontent in other markets. Their potential as feedstock for value added manufacturing will also be vital in steering the country through its transition to a middle income and developed economy. The vast population that is set to grow to 288 million by 2050 will serve in both a highly skilled productive capacity as well as consumer market as the country reaches its predicted position of being the worlds 6th largest economy (PricewaterhouseCoopers).

Doing Business in Indonesia ? Heres some pointers to get you started.


About Indonesia Political and Economic Environment 2012 Indonesia and U.S. Public Holidays Useful Tips

Market Overview

Indonesia is Southeast Asias largest economy and has delivered consistently high annual growth exceeding 6% in both 2007 and 2008. Growth of between 2% and 4.5% is expected in 2009. The consumer market continues to grow in the worlds fourth-largest country. There are more than 237 million citizens, 50% of whom are under the age of 30. GDP per person exceeds its ASEAN neighbors such the Philippines and Indonesia has a GDP per person three times that of Vietnam. Indonesia is a thriving democracy with significant regional autonomy. It is located on the worlds major trade routes and has extensive natural resources. It is a top-ten market for U.S. agricultural products and within the top 30 overall markets for U.S. exports. Indonesia has ratified the Cape Town Treaty, which gives U.S. aircraft exporters access to financing through international protection and registration of financial interests.

Market Challenges

The business environment in Indonesia is challenging. U.S firms often find it difficult and time consuming to enter the market. Although improving, rule-of-law issues persist. Dispute settlement mechanisms are not highly developed. Local and foreign businesses cite corruption and ineffective courts as serious problems. Business and regulatory disputes, which would be generally considered administrative or civil matters in the United States, may be treated as criminal cases in Indonesia. Competition from companies from Singapore, China, Japan, Malaysia and other regional players is intense. Deregulation has been successful in reducing some barriers by creating more transparent trade and investment regimes, but the bureaucracy can be cumbersome. The Rupiah has depreciated by approximately 20% against the U.S. dollar since January 2008, making U.S. exports relatively more expensive. The public trade statistics may significantly understate market opportunities and trends due to the large numbers of shipments that are recorded as U.S. exports to Singapore but which ultimately enter Indonesia via Singapore.

Market Opportunities

Important opportunities exist in mining and agribusiness equipment and services. The aircraft market favors U.S. products. Aircraft, replacement parts and service are valuable and significant markets. Telecommunications technology and satellites remain excellent areas for American products and services.

The expansion of banking to previously underserved customers offers software and systems opportunities. Education and professional training, research, medical equipment and high-quality American agricultural commodities all retain their market edge even with premium prices. Emerging opportunities include palm oil biofuel processing and refining. U.S. franchises continue to attract Indonesian demand. Growing markets include: renovation and construction of regional and municipal infrastructure and water systems, military upgrading, safety and security systems and protection of sea-borne traffic.

Market Entry Strategy

Although it may be possible in some cases to sell directly to the Government or state-owned companies, local services of agents, local offices or distributors are often critical to successful project development and to assure timely delivery, installation and follow up service needs. Most government procurement decisions favor proven providers or assurance of service based on long-established relationships. Small- and medium-sized U.S. firms entering the Indonesian market increase their likelihood of success with strong local agents or distributors. The U.S. Commercial Service Jakarta helps U.S. companies identify and qualify potential Indonesian representatives. U.S. companies must visit the Indonesian market in order to properly choose an appropriate agent or distributor. Appointment of a representative requires care, since it is difficult to get out of a bad relationship. Qualified representatives will not take U.S. principals seriously unless they make a commitment to visiting the market on a regular basis. Patience and presence are key success factors. Key factors affecting purchasing decisions in Indonesia are pricing, financing, technical skills, and after-sales service. Firms should be prepared to invest capital and manpower into making their local representative a first-class service provider. Indonesian non-financial firms obtain nearly 50% of their financing from abroad via loans, bonds, and other credit thus Indonesian exports often depend on trade financing.