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How to do business in Indonesia

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1. Understand the scale of the country 

Indonesia is a huge country, made up of twenty-thousand islands, with different languages, religions and cultures. Java, which is just one island alone, is 132,000 sq km, and home to a population of 140 million people; so although we talk of Indonesia as one country and one market, it might be more appropriate to consider it as several different potential markets for your product.

2. Research the income earning potential of your target market

Research into the market for your product is critical given the wide diversity in incomes being earned, particularly if your market is the Indonesian retail market. Bear in mind that the minimum monthly wage is US$130. 

3. Consider manufacturing costs

The costs of manufacturing are low, particularly for land and for labour. However there are infrastructure constraints in both transportation and power that can lead to extra costs. Also be aware of bureaucratic challenges in getting products both in and out of the country and ensure that you take this into account as you progress through your business planning, particularly when choosing a location for your business.

4. Choose a good local law firm to support you

Setting up a wholly owned foreign subsidiary requires obtaining permission from various government departments, and this can be very time consuming. Therefore, choosing a good local professional firm to support your efforts is key. The major accounting practices have a presence in Indonesia, but the international legal firms tend to have alliances with local firms due to restrictions on their ability to practice in Indonesia. For the creation of your legal entity, choose your professional partner carefully as you will be working closely with them for sometime on the project.

5. Consider using a distributor

Given the challenges of setting up your own entity in Indonesia, a distributor can gain your product an early entry into the market. Do this in parallel with pursuing the creation of your entity. 

6. Do your homework

Given the sheer size of Indonesia, enforcement of the law can be challenging. If you are conducting business in remote or rural Indonesia you might find there is little chance of enforcement, even with watertight contracts with your business partners. So, conduct thorough checks on who potential business partners are and how they conduct business before you sign up with them. Any time and money spent carrying out these checks is inconsequential compared with facing a potential dispute in the more remote parts of Indonesia, where law enforcement may not be as strong as it is in the major cities.

7. Seek out business networks

A good way of understanding how business is done in Indonesia is to join international trade associations, such as the British Chamber. A relationship with the UK trade and industry office can be of great help if you ever find yourself in a situation, that due to either the UK Bribery Act, or your own values, you feel uncomfortable with.

8. Respect religious customs

The population of Indonesia is predominantly Muslim. Those who practice the religion fast during the daylight hours of Ramadan, which can have an impact on how productive individuals are during this period. Inviting your business associates for dinner when they are due to break their fast is a good way to develop strong relationships with them.It is also worth bearing in mind that the Islamic calendar is lunar and therefore Ramadan is not on a fixed date each year. 

9. Fly early 

Getting around Indonesia requires using domestic airlines, but cancellations and delays are common. Try to get the first flight out of any major city, because delays tend to build up during the day, which leads to later flights being delayed more often than early ones.

10. Check the weather forecast 

Indonesia is located on the ring of fire, and as such is prone to earthquakes and volcanic eruptions. Although these occur infrequently, flooding is far more common during the rainy season, even in the capital of Jakarta. This can play havoc with traffic, so plan ahead and leave in good time for appointments or meetings, particularly in Jakarta.

Doug Alliston is managing director of CFO Services Asia, which helps British and European-based businesses launch in Asia.

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