Indonesia Investment Climate Survey 2015

investing in indonesia

In October 2015 we conducted a study among Indosight blog subscribers to understand the opportunities and challenges of investing in Indonesia.

We received responses from 72 companies and while the study may not represent the entirety of foreign investors in Indonesia, it gives a good overview of the current investment climate. 

investment climate Indonesia

Country of the origin of the companies

Reasons to invest in Indonesia

Firstly, we wanted to know why people were investing to Indonesia or why they annulled their plan. The results could not differ more:

“We saw a huge opportunity in an underserviced market”
– Small company from Australia

“Marine aquaculture is underdeveloped and has great potential if foreign investors can keep control of financial and technical management of projects to ensure success”
– Midsized company from Malaysia

“Current currency issues and unpredictability make projects around infrastructure development difficult since costs are in USD and income is in Rupiah”
-Small company from Singapore

A large number of respondents brought out the huge market opportunity as the main reason to invest. It is obvious that a country with a population of 255 million and a growing middle class open up new possibilities. Despite the size of the country, many sectors are still not serviced yet.

Not all of the replies were positive. When the size of the companies is taken into account, it appears that the lack of transparency was clearly an issue for smaller companies. Especially the planning capability of market size and sales potential under the conditions of an ongoing changing environment is a great obstacle. Furthermore the Rupiah devaluation and the unpredictability of the politics raise doubts too.

Investment climate in general

Secondly, we wanted to know which other factors influence the investment process and what is the general opinion about the investment climate. It has to be underlined that this question was answered negatively by most of the participants and yet it is not all bad news:

“Messy! There seem to be constant changes by government without advance prior communication.”
– Midsized company from Australia

“High potential growth opportunity but high risk factor too”
– Small company from Singapore

Many respondents were complaining about the regulations and especially about the constant changes by government without any communication in advance.

Besides, it is emphasized repeatedly throughout the answers that the lack of transparency not only influences the process of investing, but also the daily business. This currently leads to a difficult economic situation on the whole. Of course, also the well-known arguments were mentioned, just as the required investment plan of US$ 1 million or the high corruption index.

However, nearly all of the participants end with a quite similar quote: To invest in Indonesia is tough but as soon as you find a proper Indonesian partner, were patient enough and were able to settle down a bit, it will worth it.

Common difficulties in doing business

Further we were interested about the faced issues while starting a business in Indonesia, thus the question was: What kind of regulatory difficulties did your company face in Indonesia?

“The power of the immigration is enormous. Even all documents are in place, they are able to block and to stop your business. When there are small mistakes in the documents, they give you no chance to fix the problem, but you have to leave the country first.”
– Small company from Indonesia

“Provinces appear to be out of date regarding laws, rules and regulations regarding foreign investors. Jakarta and the Provinces in East Nusa Tenggara are “marching to different drum beats”.”
– Midsized company from Australia

“Bureaucratic hurdles by lower and mid-level bureaucrats, especially where permits and processing of expatriates are concerned.”
-Midsized company from United States of America

It is obvious that most of the investors were complaining about the challenging bureaucracy in Indonesia. Especially the unjust distribution of power between government organizations and private companies was mentioned a lot. Apparently some investors feel that they are being treated unfairly because they are expats. Additionally the lack of transparency in different processes was another important issue for many of the businesses.

Biggest benefits of doing business in Indonesia

Since there were plenty of negative responds we were wondering about the benefits of investing in Indonesia and asked: What are the benefits of doing business in Indonesia compared to other countries? The answers were somehow quite surprising.

“Loyalty: once your product or service is a known respected quantity and you have built relationships, you will not be suddenly cut off at the knees by a disrupter. (This however does to hold true in large ITBs or similar big ticket deals where you, as foreigner, will very likely be out manoeuvred unless you have lined up a truly solid local partner)”
– Small company from Malaysia

“It’s so dynamic: things can happen very fast when you have the right people involved”
– Small company from Finland

Besides the apparent answer like a huge market opportunity together with a growing middle class, the dynamic environment was an often said reply. Basically, this means that although many investors are irritated by the changing laws and the lack of transparency, in specific occasion the exact same environment can become an advantage as well. However, it must also be added that this occasion is mostly related with an excellent local network or at least a trustworthy contact.

How to make your business a success

Last but not least we were asking the investors about their opinion to make a business as successful as possible: Which advice would you give to foreign investors considering investing in Indonesia?

“Patience! kesabaran. don’t cakap besar. Listen carefully, in fact very carefully, because more is conveyed by hints and body language than by outright speech. Remember you are dealing with a highly civilised culture (here I talk of Java), that has seen much and where inter-personal courtesy counts a great deal.”
–  Small company from Malaysia

“Do not underestimate the importance of intercultural issues and get some training/coaching from a competent company”
– Small company from Indonesia

“1 – Take time to select an Indonesian partner or mentor if partnership is not possible. 2 – Hire a few qualified expatriates with at least 5 years of experience in Indonesia, even if they are not specifically from your company’s area of operation. Their experiences and “local knowledge” will be invaluable.“
– Midsized company from United States of America

Focus on partnerships with an appropriate cultural behaviour. That is how you could summarize most of the answers. With a qualified partner, even a changing legislative situation will not harm your business. Furthermore a company should not hesitate to invest some money in a proper cultural training.  This makes it much easier for the person in charge to choose wisely in difficult situations.  But even if a business is following all the suggestions and the expats learn to speak Indonesian, it is unfortunately not a guarantee for success. Therefore, it is mainly important to stay calm and be patient.

Based on all the answers, we elaborated 6 important steps to make your business a success.

  1. Work together with a qualified and trustworthy business partner.
  2. Try to find an experienced expert to help you with legal issues.
  3. Learn how to behave culturally correct.
  4. Learn the Language.
  5. Try to hire the right employees.
  6. Be patient.

Conclusion

If you are investing in Indonesia, expect to face the following difficulties:

  • Constantly changing regulations with little or no prior communication from the Government
  • Lack of transparency
  • Unstable currency
  • High levels of corruption

However, by effectively handling or minizing the risks you can expect to have a market full of opportunities:

  • Low level of competition in many areas
  • Massive domestic market and growing middle class

In conclusion, here’s Indosight’s chief consultant Marlissa Dessy’s advice to foreign investors considering to invest in Indonesia:

“The fact that Indonesian laws and regulations are inconsistent and constantly changing cannot be denied. However, it should also be seen as an opportunity. It’s a barrier of entry and the ones willing to invest time and effort will be rewarded with a market that’s full of opportunities.”

-Marlissa Dessy, director of PT. Indosight

Indosight

Market entry services in Indonesia

Indosight provides legal and payroll services to companies entering and expanding in Indonesia. Get in touch with our consultants regarding our company registration, payroll, compliance or visa services.


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