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Exporting to Indonesia - a Guide

The Indonesian market requires a deep understanding of consumption patterns, B2B business logic, and local specificities. You need to have clear and accurate data on the market and regulatory framework of your industry.
Former Guardia di Finanza officer turned private sector as CEO and manager; in 2010 he founded I4D Consulting, focusing on strategic consulting for SMEs. He is a Certified Public Accountant. Passionate about IT related to business organization and the Asian world. In his free time he reads, does puzzles and takes Winston, a Lagotto and Breton Spaniel mix, for walks. The best thing he has done in life (a bit late) are two beautiful children, half Italian and half Polish.

Table of Contents

Opportunities and Challenges

Opportunities

Export opportunities in Indonesia are linked to the tumultuous economic growth, driven by a middle class of 74 million people, more than the entire population of Canada, with an estimated 100 percent growth by 2020. Indonesian consumers are:

  • Young people, 60% under the age of 30
  • Computer enthusiasts
  • Interested in international brands
  •  

International surveys show that Indonesians are very receptive to advertising campaigns and eager to try new products. Indonesia has 72 million Internet users, expected to increase to 102 million by 2018. Demand from the new middle class is increasing, particularly with regard to the following products/services:

  • Consumer Goods
  • Healt care
  • Education and professional qualifications
  • Information and communications technology
  • Transportation products and services
  • Building and construction materials
  • Manufacturing

The Indonesian market

Challenges

The World Bank ranks Indonesia 91st out of 190 countries evaluated in the report "Doing Business 2017: Equal Opportunity for All," an improvement of 15 places from the previous report (Update: see Doing Business Indonesia 2020 Report)
The Indonesian government is doing a lot in recent years to improve the quality of the business environment, although there are still difficulties that foreign companies must be willing to face, such as:

  • Bureaucracy
  • Precarious and unpredictable legal and regulatory environment
  • Logistics costs
  • Poor infrastructure
  • Poor use of email with preference to personal relationships
  • Focus on trusting relationships and less on partner's business characteristics
  • A large territory spanning 3 time zones

Before You Export to Indonesia

BPOM code assignment.

The Indonesian government has implemented a control system for medicines and foods, administered by the National Food Agency (BPOM, Badan Pengawas Obat dan Makanan). As a result, all imported or locally produced food and beverages, as well as cosmetics, medicines and complementary products, must be registered with the BPOM before they can be distributed in Indonesia. This registration must be done by a local agent or partner.

Halal Certification and Label.

Halal certification is important if you plan to export to Indonesia, as 88 percent of people in Indonesia are Muslim and Halal is one of the most important foundations of Muslim life. Halal is an Arabic word that means "permitted" or "legal." Therefore, to use or consume Halal products/services means not to enact actions against God's will. Halal certification constitutes a guarantee of obedience. This certificate applies to any kind of product or service related to food, beverages, medicines, cosmetics, chemical and biological products, and genetically modified products that are used or consumed by humans.

SNI – Standar Nasional Indonesia (Indonesian National Standard)

Indonesian National Standard (abbreviation SNI) is the only national standard applicable in Indonesia. It was produced by the Technical Committee and defined by the BSN (National Standardization Agency of Indonesia). Adoption of the SNI is essentially voluntary. However, for the purpose of protection of public interest, national security, development of national economy and preservation of environmental functions, the government may impose certain mandatory SNI. Enforcement of mandatory SNI is accomplished through the issuance of technical regulations by government agencies that have the authority to regulate activities and product circulation. In this case, services and products that do not meet the provisions of the SNI are prohibited.

Indonesian Import-Export Prohibition and Restriction Regulations (Lartas Indonesia)

In accordance with the Decree of the Minister of Trade of the Republic of Indonesia Number 48/M-DAG/PER/7/2015 dated July 3, January 2015, imported goods are classified into three categories:

  • Freely importable goods
  • Import controlled goods
  • Import prohibited goods

3 Essential Moves for Exporting to Indonesia.

Finding the right partner

Although every company has different characteristics and finding the right partner is related to specific factors, there are at least three aspects that you need to consider when starting to export to Indonesia:

Check the importer's requirements.

Every importer, whether a company or sole proprietorship, must have the following administrative details (depending on the goods and the purpose of the import).

Importer Identification Number (API, Angola Pengenal Impor). The API, governed by Ministry of Commerce Regulation No. 27/2012, is the mandatory proof of the importer's identification. It is valid for five years and can be renewed.

Customs Identification Number (NIK, Nomor Identitas Kepabeanan). The NIK is a personal identity number required to access importers' records in the DGCE system that uses both technological and manual procedures in the management of customs obligations. The NIK must be obtained from the DGCE and will remain valid unless canceled by the same authority.

Importer Special Identification Number (NPIK, Nomor Pengenal Importir Khusus). The NPIK is required for the import of certain products, such as rice, electronics, sugar, corn, soybeans, toys, footwear, and textiles. The NPIK is issued by the Ministry of Commerce.

Registered Importer Number (ITPT, Importir Terdaftar Produk Tertentu). ITPT is mandatory for importing electronics, clothing, toys, footwear, food and beverages, cosmetics, traditional medicines and herbs.

Ascertain the partner's real area of influence

Exporting to Indonesia - a Guide

Indonesia is an archipelago country consisting of more than 17,000 islands. Developing a partnership with entities that have branches or distribution facilities in different cities is critical to exporting to Indonesia because it can greatly affect the chances of penetration and marketing of your products.

Check structure and resources

Having a well-structured partner with qualified resources will help you work effectively and efficiently. The local partner will be the key resource for exporting to Indonesia. All the administrative activities required to distribute your product in Indonesia, such as product registration and the various essential certifications, will need to be handled by your local partner.

Getting to know Indonesian culture (and "business culture")

The importance of interpersonal relations

Entering a new market is also a matter of overcoming cultural distances; an approach that respects and takes into account local customs will help export to Indonesia. Formal and informal relationships with customers, suppliers, and local regulators are extremely important elements in Indonesia. Indonesians prefer a direct and personal approach and often feel uncomfortable when meeting people for the first time. Smiling, even during an important meeting, is not a sign of superficiality or disrespect, but a normally accepted and appreciated behavior.

Exporting to Indonesia - a Guide

At first they observe their behavior and ask some small personal questions for the sole purpose of creating a direct and confidential context and in order to understand what is the most correct attitude to take.

Different people, different ways of greeting, different behaviors. Usually, when an Indonesian meets a person on a formal occasion, for the first time or on subsequent occasions, they shake hands. But this rule does not apply to everyone. You may encounter people who will not shake your hand but will put their hands in front of their chest, while others will step back. When this happens, do not insist on extending your hand; it is simply a sign that they are Muslims and do not consider physical contact with people outside their family sphere appropriate.

Accept offers of food and drink. Indonesians are famous for their hospitality; they feel obliged to provide every treat for incoming visitors. Some may be offended at your refusal. However, do not appear greedy and leave something on your plate unless you politely ask permission. Granting it will be their way of thanking you.

Speaking the local language.

English is fine, but Indonesian (Bahasa) is better. Unless you are dealing with multinational companies or foreign top managers, communication in the local language is the best way to develop your business relationship and market penetration. You may meet people who can speak English, even fluently, but communication in the local language can help reduce cultural distances and materialize the expected business faster.

Personal meetings. In Indonesia, there is a famous proverb that says "tak kenal maka tak sayang" (if you don't know, you can't love). In business, this reflects the importance that Indonesians place on meeting and getting to know potential partners in person and building trust with them.

Being effective, efficient and focused. Doing business in Indonesia is not easy. Although some may think that Indonesians are unorganized and unfocused business people, this is actually not the case at all. They will be the first to walk away from a negotiation as soon as they realize that the other party does not manifest a professional level suitable for a long-term business relationship.

Preparing the required documents

In order to export to Indonesia, especially when establishing partnerships related to the marketing of products, it is necessary to have some essential documents:

Letter of Authorization. Signed by the CEO with the company's letter and corporate stamp, notarized by the Authorized Government Office and the respective embassy of Indonesia, legalized by a notary public.

Good Manufacturing Practice (GMP) Certificate. Certificate stating that the manufacture of cosmetics has met Good Manufacturing Practice (GMP) requirements substantiated by a Government Authorized Office or recognized institution in the country of origin. In cases where productions are outsourced to foreign manufacturers, you should highlight the certificate indicating that the manufacturer has met the GMP requirements of the authorized government department or from the recognized institution in the country of origin.

Certificate of Free Sale. A certificate establishing that the product is freely saleable in the country of origin, issued by the authorized service of the government in the country where the products are in circulation.

Cooperation Agreement. Products that are not imported by direct producers, but by distributors, must attach a Cooperation Agreement or letter of appointment.

Business Developement

Market Analysis

The Indonesian market requires a deep understanding of consumption patterns, B2B business logic, and local specificities. You need to have clear and accurate data on the market and regulatory framework of your industry. Market research is the best tool to reduce uncertainties and provide the relevant information before embarking on a business development path. Stages of the intervention:

  • Understanding of the company, its expectations, the product, and the resources available.
  • Examination of the current market environment referring to the specific product.
  • Analysis of local and international competitors.
  • Analysis of purchasing and distribution practices.
  • Review of mechanisms and price levels.
  • Verification of the regulatory framework, duties and import limits.
  • Discussion of survey results in the company, support for analysis and market approach decisions

Local relations and events

Creating real business opportunities in Indonesia requires direct contact with potential local Partners. The physical meeting with the Partner is the result of a series of preliminary activities to be organized and followed with the utmost care (given the necessary investments in terms of time and cost of travel). Care must be taken in identifying the most suitable corporate interlocutor with respect to the predefined objective; taking care in explaining the characteristics of the company and the product/service; and carefully planning the in-depth meeting.

Summary of Critical Issues for Exporting to Indonesia

> Identifying the suitable partner
> Finding the correct way to connect with the partner.
> Managing contact while respecting local customs and culture by overcoming language barriers

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