Being one of the world’s top ten economies is just one of the reasons to consider when expanding your business to Indonesia. It is rich in both natural and human resources. It continues to attract foreign direct investments while the government continues to work hard to improve its fiscal policies and infrastructure. There has been a rapid increase of company registration in Indonesia in the last few years.
With expansion, however, comes several challenges. You may not be able to avoid them, but knowing what they are will help you get prepared and find the best solution to mitigate the risks that come with them.
1. Cultural Barriers
A huge percentage of the population knows how to speak in English, but most speak in Bahasa Indonesia. In fact, legal documents must be translated to the native language. They also have a different mind-set and attitude towards business partnerships. While Westerners may be used to a fast-paced approach, Indonesians prefer to take their time and build strong relationships.
Religion also plays a huge role in its economy. For example, the law mandates all its products to be halal. You can also find Sharia banks that have a different set of products and services from international and other mainstream banks.
Despite government efforts, bureaucracy still remains a pervasive problem in the country. Red tape is very common, and many processes are exhausting, time-consuming, and confusing. Trademark registration alone usually takes 12 to 24 months to complete. This culture also makes the entire system prone to corruption and bribery. In a lot of cases, it still pays for companies to “know someone from the inside” if they want fast and efficient service.
3. Changing Complex Regulations
Expanding your business to another country means following the laws of the land. That in itself is a tall order. It becomes even more difficult when these regulations can vary and change very quickly.
As an illustration, let’s talk about minimum wages. Indonesia is one of the countries that recognize minimum wagesthat can change every year using a very specific formula. This formula, however, doesn’t apply to 8 provinces whose cost of living is still lower than what’s mandated by the government. Wages too may vary depending on the agreement among the council, employers, and employees.
Indonesia can sometimes be very relaxed with its implementation of laws. Then become strict afterwards.
4. Cost of Hiring and Setup
Although cost of labour has been increasing in the country, it still remains one of the lowest. But that doesn’t mean Indonesia is cheap through and through. Foreign companies usually have to put up a huge amount of capital for company registration in Indonesia. If you wish to hire foreign workers, you need to follow the 1:3 ratio – that is, three locals for one expatriate.
The complexity of the laws makes you more vulnerable to mistakes, which could then mean hefty penalties.
5. Focus on Local Growth
Indonesia’s economic policies can make it seem liberal – then not. For example, foreign companies can set up here through a local special purpose vehicle or a shareholding company where some of the members of the board of professional directors are locals. Foreign workers need a sponsor before they can be given a work permit. Some industries remain closed to foreign investments. Otherwise, the amount of foreign capital is capped.
Related article: International Expansion to Indonesia: Company Set Up
These are certainly huge challenges to conquer, but they’re no reason to pass up the country, particularly when you have the best partner: Cekindo.
Our company provides a comprehensive business consulting services from business setup to PEO outsourcingsuch as HR recruitment and payroll processing. Our expert business consultants can provide you with initial free advice.
It’s been our policy to make sure we can provide the right and needed support from the time you seek our help in your country of origin to your arrival here in the country.
All you need is to email us at firstname.lastname@example.org so we can discuss our successful partnership in detail.