To market a product or service in Indonesia, foreign investors or corporations are not required to establish a commercial entity in the nation. Instead, selecting a local agent or distributor in Indonesia might help expedite and scale business operations.
When first entering the Indonesian market, many foreign investors choose to enter an agency or distributorship agreement with local companies. Once the business delivers promising growth, they then form a foreign investment company (Penanaman Modal Asing, or PMA) to gain a broader operational presence.
In this article, we will summarize the difference between an agent and distributor in Indonesia and which could fit your requirements.
Pros and Cons of Agents and Distributors in Indonesia
Agents in Indonesia
An agent is a third party hired to negotiate and, if necessary, close contracts with clients on your behalf so you can keep the contract. Agents are paid a commission on the sales they make, which is commonly calculated as a percentage.
The pros of an agent are as follows:
- Cheaper than a distributor
- More control over terms of sale and marketing, as well as a wider range of clients
- Customers and manufacturers, can have direct interactions
The cons of an agent are as follows:
- May involve tax implications
- Expensive maintenance of stock inventory
- An agent could be selling products that compete with your products
Distributors in Indonesia
A distributor is essentially a self-employed individual. You sell your items or services to a distributor, who then sells them to their customers after adding a margin to cover the distributor’s costs and profit. The customer has a contract with the distributor.
Pros of a Distributor in Indonesia:
- The distributor is liable for any risks
- Because they must cover the expense of holding back stocks, a distributor has a higher incentive to sell products
Cons of a Distributor in Indonesia:
- Less control over marketing, terms of sales, etc.
- The credit risk is with the distributor rather than with the customers
- Distributor’s agreements are regulated by local competition law
How to Appoint a Local Agent or Distributor in Indonesia
According to Government Regulation No. 24, 2018, foreign companies wishing to appoint a distributor or agent in Indonesia for any product other than:
- Alcoholic beverages
- Food and beverages
- Medicines and cellular phones must obtain a Surat Keterangan (Letter of Reference) from their respective Trade Attaché and submit an Online Single Submission (OSS).
For the embassy to grant a Surat Keterangan (Letter of Reference), each application must be supported by the following documents:
- Cover Letter: A formal letter to the Trade Attaché requesting that paperwork for the appointment of an agent or distributor in Indonesia be legalized.
- Instant Information Service from ACRA (Accounting & Corporate Regulatory Authority)
- Provide the most recent copy or printout of the business profile and make sure the extracted copy is no older than a month from the date of issue.
- Form 9 or 13 Certificate of Incorporation (if the company’s name changes) or Notice of Incorporation
- Letter of Authorization from Manufacturer/Producer/Owner of Products
- Letter of Statement
- Certificate of Registration of Products and Services (only for renewal/extension/addendum/amendment of Distributor /Agency Agreement)
- The Ministry of Trade of the Republic of Indonesia issues a Certificate of Registration to attest that such items have been registered with the Authority (Surat Tanda Pendaftaran Sebagai Agen/Distributor di Indonesia)
- Agency or Distributorship Agreement
- Verify that the agreement is notarized by a public notary and signed by both parties, i.e. the company’s director(s) or competent officials.
- 1 (one) original plus 1 (one) photocopy
- Letter of Appointment
- To summarize the Agreement’s content
- 1 (one) original plus 1 (one) photocopy
Appoint Your Local Agent or Distributor Wisely
An agency/distribution agreement certified by a notary public, and a declaration letter from the Attaché of Trade at the Indonesian Mission in the principal place of origin are some of the documents that must be supplied to the MOT (Ministry of Trade).
If a sole agency distributorship is terminated early, the new agent/distributor may register with the MOT only after receiving a clean break letter from the prior sole agent/distributor.
As a result, extreme caution should be exercised in selecting an agent who is appropriate for your business, and it is recommended that you conduct a full background check on your selected agent or distributor’s track record. If you do decide to hire an agent, they can certainly assist you in navigating Indonesia’s cultural and legal complications. Establishing an office here may help expand your reach even further.
How Cekindo Can Help?
As your local representative in Indonesia, Cekindo will work closely with your existing local distributors and partners. We will not only strengthen your mutual relationships but also motivate the distributors to increase performance.
Moreover, Cekindo provides a seamless product registration experience with its team of experienced professionals. Additional services that may help are due diligence and background checks to help you avoid pitfalls; the preparation of legal agreements by a team of lawyers; company registration, and assistance in acquiring business licenses.