Opportunities and Challenges
Opportunities
Export opportunities in Indonesia are linked to 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. The demand of the new middle class is increasing, particularly with reference to the following products/services:
- Consumer goods
- Health care
- Education and professional qualifications
- Information and communications technology
- Transportation products and services
- Building and construction materials
- Manufacturing
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 Report Doing Business Indonesia 2020)
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 vast territory spanning 3 time zones
Before Exporting to Indonesia
BPOM code assignment.
The Indonesian government has implemented a control system for medicines and food, administered by the National Food Agency (BPOM, Badan Pengawas Obat dan Makanan). Accordingly, 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 performed 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 meaning “permitted” or “legal.” Therefore, using or consuming Halal products/services means not putting in place 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 made by the Technical Committee and defined by the BSN (National Standardization Agency of Indonesia). The adoption of SNI is essentially voluntary. However, in order to protect the public interest, national security, the development of the national economy and the preservation of environmental functions, the government may impose certain mandatory SNIs. Enforcement of mandatory SNI is achieved through the issuance of technical regulations by government agencies that have the authority to regulate the activities and circulation of products. 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:
Importer requirements.
Every importer, whether a company or sole proprietorship, must have the following administrative items (depending on the goods and the purpose of the import).
Importer identification number (API, Angola Pengenal Impor). 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, which uses both technological and manual procedures in managing customs obligations. The NIK must be obtained from the DGCE and will remain valid unless canceled by the same authority.
Special importer 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 the import of electronics, clothing, toys, footwear, food and beverages, cosmetics, traditional medicines and herbs.
Partner’s area of influence
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.
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 administrative activities necessary for the distribution of your product in the Indonesian territory, such as product registration and the various essential certifications, should be handled by your local partner.
Getting to know Indonesian culture (and “business culture“)
Interpersonal relationships
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.
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. It may happen that you meet 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 compelled to provide every treat for incoming visitors. Some may take offense at your rejection. However, do not appear greedy and leave something on the plate unless you politely ask permission. Granting it to you will be their way of saying thank you.
Speaking the local language.
English is good, 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 dating. In Indonesia there is a famous proverb that says“tak kenal maka tak sayang” (if you don’t know, you don’t love). In business, this gives an idea of how important it is for Indonesians to meet and get to know potential partners personally and establish a good relationship of trust with them.
Be effective, efficient and focused. Doing business in Indonesia is not easy. Although some may think that Indonesians are unorganized, business-focused 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.
Prepare the necessary documents
In order to export to Indonesia, especially when establishing partnerships related to the marketing of products, it is necessary to have some basic documents:
Letter of Authorization. Signed by the CEO with company letter and company stamp, notarized by the Authorized Government Office and respective embassy of Indonesia, legalized by a notary public.
Certified Good Manufacturing Practice (GMP). 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 the event that 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 by the recognized institute in the relevant country.
Certificate of Free Sale. Certificate stating 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 Development
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 relevant information before embarking on a business development path. Intervention phases:
- Understanding of the company, its expectations, the product/item, and the means available.
- Examination of the current market environment referring to the specific product/item.
- Analysis of local and international competition.
- Analysis of purchasing and distribution methodologies.
- Examination of mechanisms and price levels.
- Verification of the regulatory framework, duties and import limits.
- Discussion of reports in the company, support for analysis and consequent strategic 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 that must be organized and followed with the utmost care (given the necessary investment in time and cost of travel).
It is necessary to take care in identifying the most suitable business interlocutor with respect to the predefined objective; take care in explaining the characteristics of the company and the product/service; and carefully plan 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
