Business opportunities in Indonesia

It is destined to be the next emerging country in Asia. All it needs is to improve its infrastructure. And it is doing so by offering good business opportunities to foreign companies, which are finding a very favourable framework for their investments.

Mor info in

One day in Jakarta, the capital of Indonesia. At the Suharto-Hatta International Airport, information panels flicker nervously about the origin of incoming flights: Frankfurt, Paris, London, Amsterdam… Shortly after, a legion of foreign executives in suits come out of the brightly lit arrival terminal of this airport and flock to take a taxi. They come to do business. This is increasingly the case at the main gateway to Asia’s third largest economy.

But what is it about Indonesia today that even Angela Merkel herself recently accompanied a delegation of German businessmen? Let’s take it one step at a time.

A succulent cake

It is now the fifth largest emerging country in the world. It has a market of 240 million inhabitants and a high internal demand, “and a middle class, which continues to grow, of more than 35 million potential consumers, a consolidated financial sector, diversity and abundance of natural resources, great dynamism of the tourism sector and a certain political stability”, summarized by Crédito y Caución.

The third Asian economy, after China and India, plays an important role in the world economy to the extent that it will contribute to 50% of the growth of the world economy in the next five years, according to ASEAN.

The country’s economic growth was 6.1% last year, and ASEAN forecasts place this indicator at 7% in the coming years, a growth that is related to the development of its infrastructures.

Indonesia is also a landing platform for the Chinese market thanks to the free trade agreement (the largest in the world by number of consumers) signed by China and ASEAN, to which Indonesia belongs, in 2010. This FTA eliminates 90% of the tariff barriers between its members and opens up excellent business opportunities for foreign investment throughout the Asian area, where Spanish companies still have a deficit. Only a small handful is operating in the country (Indra, Meliá, Acerinox, Cimsa, Repsol, Zara, Centrade, Esmalglass). In fact, our trade balance is in deficit (-‘728 million, as of June 2012).

Not surprisingly, Indonesia is losing its appeal to Spanish companies. The country is immersed in an improvement of its infrastructure, which affects especially the road and rail network. Other sectors of interest for Spanish companies are renewable energies, water treatment and environmental management.

Of particular interest, according to the Economic and Commercial Office in Jakarta, is industrial construction, which is expected to grow by over 15% by 2015. Added to this is the $140,000 million expected to be spent on infrastructure over the next five years, 29% of which will be financed by the Indonesian government.

Better in company

In Indonesia, representative offices can be opened and even joint venture agreements signed with Indonesian companies.

When it comes to penetrating the country, Crédito y Caución, a credit insurance company that is classifying commercial operations with this market as “normal and unrestricted in the short term”, makes the following recommendation: “Companies wishing to start commercial relations will need to hire agents or distributors, who will help not only to sell the product or service, but also to advise on penetration strategies. You have to make sure that you do not hire an agent to sell similar products and, on the other hand, that in some manufacturing processes licenses or authorizations are necessary”.

The country in figures:

240 million inhabitants

Per capita income: $3 billion

Increase in GDP: 6.1%.

Inflation rate: 6%

Import growth:
42% in 2010 over previous year

32% in 2010 over previous year

The tug of war

There are three sectors that are the drivers of the Indonesian economy: transport infrastructure, energy and the environment. These are the major projects with multilateral funding. They have to do with projects related to the improvement of the railway network, roads (it is expected that the new infrastructure will be capable of transporting 350,000 people a day by 2020), energy to break the country’s dependence on oil (the aim is to increase electrical power) and those that propose solutions to pollution (the government wants to reduce CO2 emissions by 30,000 tonnes over the next eight years), water and waste treatment. These are international tender projects. In the Tender Plan of the Institute of Foreign Trade (ICEX) you will find how to carry them out (direct and inverse missions, partnerships, individual programs, etc). The agency that coordinates the investments in the country and that grants the licenses is Badan Koordinasi Penanaman Modal ( or BKPM.

To be noted

Crédito y Caución’s experts help us to do business in Indonesia. These are their recommendations:

Usages and customs

In meetings, punctuality is not essential and they may even be cancelled at the last minute. Furthermore, ‘price is a sensitive element which is usually taken into account rather than quality, with the first communications being fixed from the outset. Personal aspects can appear at any time during the meeting, and long-lasting business relationships are particularly valued”. Closing meetings with a “thank you” in Indonesian can be helpful (‘Terima kashi’).

Better, face to face

The English language is used in any company, “although it is preferable to be accompanied by a native agent for negotiations outside Jakarta. Face-to-face meetings are valued and only any other written communication should be used at the beginning of the operation in which a meeting is set,” they say.

Financial risks

“For the first operations it is usual to pay by irrevocable and confirmed documentary credit”. Payments are made through officially designated financial institutions and no cash is accepted. “When relations are established, payment is made by current transfers through advance payments, in cash or with deferred payment, between 90 and 180 days. In most cases, deferred payment is agreed, where it is important to contract export credit insurance”.