Setting Up a Small Business in Indonesia - photo

Setting Up a Small Business Indonesia: The Challenges and Solutions

  • InCorp Editorial Team
  • 19 December 2023
  • 3 minute reading time

Due to the reforms and improvements by the Jokowi’s administration in recent years, Indonesia’s economy having a big jump. The current on-a-roll economy also opens the door to the rapid business development of doing business in Indonesia.

Challenges for Starting a Small business Indonesia

Setting up a small business in Indonesia encompasses challenges. Traditionally speaking, the higher the challenges or risks are, the sweeter the fruitful results can become. Investors and entrepreneurs need to prepare themselves for the following key obstacles.

# High Minimum Capital to Make the First Move

BKPM requiring foreign investors to have the minimum capital to set up a company in Indonesia (PMA); the amount costs IDR 10 billion. In addition to this, the minimum paid-up capital amount is also IDR 10 billion.

# Restrictions on Foreign Ownership

The restriction of the percentage of foreign ownership is one of the obstacles the foreign investors must overcome; according to the Negative Investment List and Invest Law in Indonesia.

# Infrastructure Limitations

Lack of sufficient quantity and quality of infrastructures and their uneven distribution has barred the business development in Indonesia to reaching its full potential. Most of the infrastructures are highly concentrated in Java but not the other parts of the country.

# Governance and Inconsistent Law

Apart from the lack of financial transparency and inconsistent laws and regulations that change over time, complex processes have also negatively influenced the business development and performance in this immense archipelago.

# Foreign Hiring

According to the Ministry of Labor in Indonesia, the priority of hiring is reserved for local people. While investors can obtain their work and stay permits quite easily, foreign hiring is relatively challenging. Foreign hiring is usually approved if that particular position is impossible to be fulfilled by local hiring.

Solutions for Starting a Small Business Indonesia

# Be cautious on the Local Partners selection process.

Unless you are married to an Indonesian you can trust and have obtained a permanent residency (KITAP) after 2 years of marriage, always be cautious when choosing a local partner. The local partner can take over your business entity at any time when they want it.

# Start the business small and with more than minimum capital.

It is easy to start a small business in Indonesia as the government doesn’t always monitor the paid-up capital. However, once your company is up and running, it is advisable to expand your business with sufficient funds. Most of the time, businesses stay small and informal because becoming big is very costly. As a result, limited by-laws, they lack access to capital, foreign hiring, and thereby find it harder to hit mega success.

# Acquire legal possession of entity outside of Indonesia.

In most circumstances, especially for those online businesses, the country in which you registered your company does not matter to your customers. You can thereby choose a country where it has less hassle to oversee and manage your business. The only issue, however, is that you will be traveling back and forth between Indonesia and another country every 2 months; alternatively, you may delegate a foreign partner who can take turns to do the traveling with you.

small business indonesia 1

Indonesia had survived the last global economic crisis and all the existing challenges; Indonesia still remains Southeast Asia’s largest economic hub and has outperformed many Asian countries such as Singapore, Malaysia, and Thailand.

If you want to be part of Indonesia’s fast-growing economy, you should be able to find reliable help setting up a small business in Indonesia to start with. Cekindo, you can find help and comfortably talk with our friendly consultants and market-entry specialists now.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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