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Challenges of Doing Business in Indonesia

Jun 205 mins

As we all know, starting a business in Indonesia is not easy. It’s worth noting that, while the situation is clearly difficult, the possibilities for foreign investors conducting business in Indonesia are stronger than they’ve ever been.

For the first time in a long time, the Indonesian government has taken a strong pro-business posture and pledged to increase Indonesia’s competitiveness and deepen its integration with the global economy.

In comparison to many other markets, incorporating a corporation in Indonesia necessitates extra work. Doing business in Indonesia can be simple and successful if you take the time to learn about the Indonesian business climate, society, and regulatory environment.

Indonesia, however, confronts constraints that hinder private-sector development despite its great economic performance. Having a local individual might prove to be a great asset for firms trying to take advantage of the country’s strong growth rates and promising economic future.

Starting a Business in Indonesia

In Indonesia, forming a business company takes an average of nine procedures and an estimated 47 days. Before establishing, new enterprises must communicate with the Indonesian State Treasury, the Ministry of Law and Human Rights, and the Ministry of Manpower, as well as adhere to a number of rules.

You will also have to decide on your business entity types that best suit your business goals. Some of these entities include:

  • Local PT Company

  • PT PMA Company (Foreign-owned)

  • Representative Office

Getting the Required Funds

The World Bank and the International Finance Corporation rank Indonesia 129th in the world for loan access, which explains a lot about the country’s resources. However, according to a study undertaken by the Indonesian government, increasing creditors’ legal rights by upgrading the asset-based lending system and developing a real property registration system will improve the credit climate.

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Paying Indonesian Taxes

Each year, approximately 51 tax payments must be made, requiring on average 259 hours of company effort to complete. It takes 75 hours to process a 25% corporate income tax, plus 184 hours to handle social security contributions and VAT. These are all averages, and the time may vary based on the person.

What are the Differences in Indonesian Business Culture?

Those who arrive in Indonesia with a clear vision, but an open mind will have no trouble fitting in. Prejudice frequently leads outsiders to have unrealistic expectations of Indonesians; thus, use these methods to mold your perception of how Indonesians do business.

Let us give you some tips and tricks you will need to embrace in Indonesia’s workforce!

1. Relationships come first before business

If you are visiting Indonesia, you must adhere to a variety of conventions and traditions. Indonesians are proud of both their cultural heritage and their willingness to demonstrate generosity to strangers. However, after you are in Indonesia, you will realise how many customs must be observed and how will it affect business.

2. The Influence of Power and Hierarchy on Indonesian Business Culture

The hierarchical ideas in this country are similar to those in numerous other ASEAN countries. In society, not everyone is equal, and this is reflected in the workplace. In other words, employees who have less authority in their personal lives expect and tolerate less at work.

3. Using the Phrase “Yes, Boss”

This statement does mean “Yes,” however it’s usually used to make someone pleased, show respect, and fulfill another’s request. However, don’t be tricked into thinking that it inherently verifies what couples are talking about.

4. The Importance of Making Friends

What matters is who you know, not what you know. This is especially critical when working with the Indonesian government. The second aspect is that Indonesians form strong bonds with the people they know. They keep track of people close to them as well as those in higher positions. If you’re a newcomer, you’re likely to be at the bottom of the list. As a result, form bonds with the locals and show real interest in their lives.

5. Don’t Make Agreements Right Away

While following up on new connections is not a priority, Indonesians are committed to maintaining excellent ties. Saying “no” is a difficult thing for them to do in order to keep the connection going. As a result, individuals frequently skip a meeting or contact if they believe it is business-related and they are not prepared. So, be ready.

Thinking of setting up a company in Indonesia or require visa application services? Reach out to us today for a free consultation!

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FAQs

What is the economy like in Indonesia?2022-01-04T10:06:22+08:00

Indonesia has a market-based economy in which the government plays a significant role, including administering prices for some basic goods such as fuel, rice and electricity. In terms of value added, the industrial sector accounted for 40 per cent of GDP in 2015. 

What causes Indonesian Corruption?2022-01-04T10:06:12+08:00

In the case of Indonesia, corruption in the country is likely to be facilitated by a number of factors, such as large amounts of public resources derived from natural resources, vested interests and politically connected networks, poorly paid civil servants, low regulatory quality, and weak judicial independence. 

How corrupt is Indonesia?2022-01-04T10:05:22+08:00

Transparency International’s 2020 Corruption Perception Index ranks the country 102th place out of 180 countries, dropped from 96 the previous year. There are two key areas in the public sector in which corruption in Indonesia can be found. 

Is it easy to do business Indonesia?2022-01-04T10:02:45+08:00

Indonesia is not the easiest place to start an enterprise or, generally, to conduct business. This is reflected by the World Bank’s Doing Business 2018 index in which the country ranks 72nd.

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