Indonesia Market Entry

Indonesia Market Entry

Subchapters:

  • Market entry
  • Forms and conditions of operation on the market
  • Marketing and Communications
  • Issues of intellectual property protection
  • Public procurement market
  • Payment terms, payment ethics and resolution of commercial disputes
  • Visas, fees, specific conditions of travel to the territory
  • Employment of citizens from the Czech Republic
  • Fairs and events

Market entry

According to cheeroutdoor.com, Indonesia’s quarter-billion-dollar market, a growing middle class and a modernizing economy with a high growth rate provide a variety of options and opportunities across disciplines and sectors. However, success is not guaranteed and the main prerequisite in practice is a conceptual decision to focus on the development of activities in Indonesia in a targeted and long-term manner and the readiness to invest not only finances, but also time and, last but not least, personal commitment in this development. You cannot do business with Indonesia from a distance, you have to experience the country and get to know it personally. An official visit with a business escort, an economic diplomacy project – PROPED, an individual trip with the support of ZÚ/PaulTrade can help to get a quick and effective first overview. It is necessary to return to the country and it is rather unlikely that the first visit or the first meeting will bring success – different perception of the result on both sides. The key to success is finding a reliable local partner (distributor, partner). Personal input is essential and partnerships need to be nurtured and carefully nurtured at the personnel level as well. The local environment and the complicated bureaucratic jungle of changing regulations virtually excludes the possibility of a foreign entity managing in the country only with its own forces and resources. This applies to both corporate entry and distance trading, as market distribution, customs and import systems and other key areas require licenses, knowledge and, last but not least, contacts. The involvement of a local entity – consultant, partner, distributor – is necessary in practice. Legal and audit advice when creating a corporate base or setting up a presence on the market can prevent major problems in the future (disagreement with a local partner, distributor exclusivity). The mandatory role of the local entity can be replaced by a professional service (nominee services). At the same time, when choosing a contact, keep in mind that a seemingly ideal partner who is already active in the field may already be connected to competitors and may not necessarily be interested only in the development of one project.

In the case of registration of a business company in the region, the process is now based on the level of risk with regard to health, environment and safety, according to the Omnibus Law. A company representing a low risk can thus easily register and obtain an IČO (NIB – can be obtained through an electronic application in the OSS system based on similar criteria as in the Czech Republic). In addition to the NIB, a company presenting a medium risk will also need a document clearly defining business risks and a certificate of compliance with business standards. High-risk businesses are then subject to the issuance of additional licenses.

When entering the Indonesian market with the perspective of long-term cooperation, it is possible to use the financial instrument PROPEA, which is implemented in the region together with the partner business-consulting company CEKINDO.

Forms and conditions of operation on the market

Most Indonesian manufacturers and traders are allowed to sell their goods and products to anyone, at mutually agreed prices. In the case of a foreign entity, own sales, distribution and after-sales services must take place through an Indonesian representative, in some fields through an exclusive representative. Companies with foreign capital manufacturing in Indonesia are free to sell their products in the local market, export and operate freely in distribution and wholesale. Manufacturing companies are free to choose their exclusive representatives. The position of exclusive representative/distributor is relatively strong and generally respected by the business community. A foreign company can set up a so-called KPPA representation with the approval of the Ministry of Industry and Ministry of Trade in any Indonesian province. Representation may not enter into direct business, sign contracts, collect and participate in other business activities, on the other hand, this form of representation does not require entry capital. The foreign company is usually very closely linked with the Indonesian importer and together they function as a single company. Choosing the right partner is the key to successful business expansion for a foreign company. Most Indonesian importers are multi-industry focused. To establish a representative office in Indonesia, a foreign company must authorize an Indonesian company, an Indonesian citizen or a foreigner.

Among the essentials of the legal establishment of the representation itself are:

1) letter of intent (Letter of Intent) and letter of appointment (Letter of Appointment) addressed to the embassy or GK Indonesia;

2) reference letter from the embassy or consulate;

3) submission of these documents to the Ministry of Industry and the Ministry of Trade of the Republic of Indonesia.

It is possible to establish regional representations for two or more other ASEAN countries, the competent state body in this case is the BKPM (National Council for the Coordination of Investments). Other common ways to enter the Indonesian market include franchising, licensing, joint-venture or establishing an Indonesian company. The establishment of a branch office, with the exception of branches of foreign banks, is usually not permitted. The solution for foreign corporations is the establishment of a company with foreign participation, the so-called PMA (equivalent s.r.o.) . At the same time, the disadvantage is the relatively high capital requirements regarding both own capital (10 billion IDR) and the obligation to realize investments during the next period. The chosen field of business must be based on the government’s strategic document regulating sectors open to foreign investment, the so-called Positive Investment List. In practice, the possibility of establishing a local Indonesian company called PT is also used, in which case the foreign owner is represented by an Indonesian entity. Certain risks are logically associated with this procedure, which can be partly treated by using nominee services . The chosen field of business then no longer needs to reflect the previously named Positive Investment List document and the minimum required entry capital does not exceed IDR 50 million.

Marketing and communication

With the skyrocketing digitization of Indonesian society, taking place largely through smartphones and the shift of business and marketing activities online, media such as Instagram, Facebook, etc., are becoming dominant tools. Websites, on the other hand, are not very popular or effective precisely because the majority of the population is connected primarily through mobile phone. When promoting new products, it is also advisable to use local media, especially in areas where the purchasing power of Indonesia is concentrated, i.e. in Java. Television advertising is the most effective, primarily due to the potential to reach a target group of approximately 150 million viewers. In addition to the state television station, a number of private and regional stations broadcast. Advertising through mail order/postal services tends to be relatively effective depending on the quality of the mailing list, but is only suitable for certain types of goods. Company presentation at exhibitions is at a fairly high level, the use of the most modern PC technology, audio and LCD projection is common. For the presentation of products at exhibitions, it is clearly recommended to exhibit functional exhibits, or at least mock-ups (by default, the Indonesian customer cannot be impressed by a so-called panel presentation).

PR AGENCIES

Edelman

H+K

Praxis

HR AGENCIES

JAC Recruitment

HRI Group

Consult Group

Issues of intellectual property protection

In general, the protection of intellectual property in the local market is rather assessed as rather weak, or the risks as higher. When entering the market, it is therefore advisable to treat the given area with the support of local legal advisers. Even so, it is necessary to take into account the risks and, in particular, the complex enforcement of rights.

In connection with the fact of Indonesia’s membership in the WTO (since January 1, 1995), the government enacted 6 laws related to the protection of intellectual property:

Act No. 12/2001 concerning the Amendment to Act No. 6/1982 on copyright, further amended in Act No. 7/1987.

Act No. 14/2001 on patents. Act No. 15/2001 on trademarks.

Act No. 30/2000 on trade secrets.

Act No. 31/2000 on Industrial Design.

Act No. 32/2000 on the design of integrated circuits.

Detailed information on intellectual property issues:

South-East Asia Intellectual Property SME Helpdesk

Directorate General of Intellectual Property Right

Public procurement market

A number of projects in the past were negotiated without the relevant tender procedure being announced. The reason is that all these projects were usually tied to the state financial support of the supplier country. Public procurement is usually awarded by the government, which commissions a local government body or a state-owned enterprise. As decentralization progresses, the autonomy of local governments and the amount of funds available to them for public procurement purposes increases. The transparency and correctness of selection procedures, in a country with a disproportionately high level of corruption, can be successfully doubted. The fact that a tender is issued usually signals that the main parameters of the future business have already been negotiated and the chances of implementation are often minimal at this stage.

Some public business competitions are financed by ADB (Asian Development Bank) and IBRD (International Bank for Reconstruction and Development) or Islamic Development Bank . Opportunities arising from the project of the newly opened branch of the European Investment Bank can also be expected focused on sustainability and green topics. Only companies from member countries can participate in business competitions. Since the Czech Republic is not a member of the ADB, Czech companies can only participate in tenders issued in this way in a consortium with an Indonesian partner or with a company that comes from one of the 56 member states. A high-quality Indonesian business partner is a necessity not only for the possibility of real profit on the final contract, but also for the administrative processing of the requirements associated with participation in the tender process.

Participants in business competitions must usually meet the condition of several years of experience in the field and the presentation of a bank guarantee in the amount of 2% of the contract value. For some projects, the joint participation of a foreign and an Indonesian company is directly required. Tenders financed by the aforementioned banks are organized in accordance with the general rules of these institutions, which are freely available.

Public contracts can be searched on the LPSE portal.

All state purchases of material, construction or consulting services are carried out on the basis of the Presidential Decree on Public Procurement known by the abbreviation PBJP, the latest amended version of which is Regulation No. 12/2021 (Available at https://pro.hukumonline.com). The government primarily uses an electronic method of purchasing, which takes place with the help of an e-catalogue. Nevertheless, state purchases at different levels of state administration (ministries, local councils, sub-institutions) can take place in different ways – direct purchase, direct procurement, or accelerated procurement. Among other things, the government uses an electronic procurement system known by the abbreviation SPSE, which is managed by the Directorate for the Development of Electronic Procurement (LKPP). It was developed for the purpose of streamlining government contracts, does not require fees or the use of special software. On the other hand, it offers an electronic database of public contracts, where the entire mechanism of entry and subsequent submission of the offer takes place in the online space. The process is governed by LKPP Regulation No. 9/2018 on electronic public procurement.

A preview of the e-catalog managed by LKPP is available on the website.

Offers of Public-Private Partnership projects are published on the website of the Ministry of Finance.

Payment terms, payment ethics and resolution of commercial disputes

The efficiency and activity of the judiciary is at a low level, which brings as a result great uncertainty in the area of ​​property rights and commercial contracts. Chances of legal enforcement are low, corruption in the judicial system is significant and, at least for now, commonplace. The commercial and civil code dominates the commercial sphere. The Civil Code regulates the purchase contract and the relationships related to it. Disputes in foreign trade can be resolved by arbitration, but such an option must be dealt with contractually. Indonesia is bound by the arbitration rules of UNCITRAL (United Nations Commission on International Trade Law), i.e. foreign companies use the option of arbitration in Indonesia under the supervision of UNCITRAL. In any case, in Indonesia, the best solution is always to settle the dispute out of court . Indonesia is also a signatory Convention on the Recognition and Enforcement of Arbitral Awards signed in New York in 1958 . Indonesian courts are not legally bound to enforce court decisions of the Czech judiciary, due to the absence of an international treaty on the recognition and enforcement of court decisions. Law enforcement can be a longer and more complex process in Indonesia, and the position of the foreign entity is usually not very strong within it. The general recommendation is, at least in the case of the first deals with a new partner, to insist on the strongest possible payment security, ideally on a full prepayment. This applies all the more in view of the relatively frequent cases of fraudulent behavior in the form of either non-payment of the delivery or, conversely, non-delivery of the goods paid for. The sophistication of these frauds can be such that after the first flawlessly filled smaller deliveries “for a test” they start only with the subsequent larger business.

While the Indonesian rupiah (IDR) is freely convertible and its exchange rate against the USD has been stable over the long term, there is some concern about the outflow of foreign reserves in the country. Foreign exchange transactions are governed by a law known as the Currency Law of 2011. Domestic transactions must then be carried out in IDR. When transferring foreign currency abroad, a monthly limit of USD 25,000 in favor of a foreign account must be taken into account. Indonesian exporters are then forced to repatriate their profits within 90 days of the incoming payment to the domestic account.

Visas, fees, specific conditions for traveling to the territory

Note The information below does not include emergency measures taken in connection with the COVID-19 pandemic. You can find information about them on the website of the Embassy of the Czech Republic in Jakarta.

For updated information regarding visa issues, it is best to refer directly to the Embassy of the Republic of Indonesia in Prague.

Service Visa : Service visa is granted to foreign nationals, holders of service passports for non-diplomatic work in Indonesia. For a stay of up to 30 days, the visa requirement for service and diplomatic passports was mutually abolished. Business visa applications must be submitted through Indonesian diplomatic missions abroad by completing the appropriate registration forms and attaching: Completed visa application form Two x cm color photographs of the passport holder. Original passport with a minimum validity of 6 months from the date of submission. A diplomatic note confirming an assignment of a non-diplomatic nature.

Visitor visa (on Arrival): Visitor visa is granted to foreign nationals who visit Indonesian territory for the purposes of an official visit, education, socio-cultural, tourist, business, family, or transit. Visitor visa requirements: Completion of the visa form. Passport must be valid for at least 6 months. Make sure you have at least 3 pages free in your passport. Invitation letter from the party in Indonesia (if applicable) and return ticket. One x cm color photograph on a white background. Visa on arrival is charged at Rp 500,000. / approx. 35 USD. More information on the border crossings at which it can be applied for and the current list of nationalities to which this option applies is available here.

Multiple entry permit: The multiple entry permit is intended for those who work in Indonesia and want to visit the Czech Republic for a short time. Note: Multiple entry permits are granted only on the basis of a permit from the General Directorate of Immigration in Jakarta, where the applicant applied for a short visit to the Czech Republic before leaving Indonesia.

Permits for long-term stays of entrepreneurs : the registration of companies and their representatives in Indonesia is arranged by intermediary offices. Although the amounts charged are high, the alternative to using an intermediary is the difficult negotiation in the bureaucratic tangle of local authorities, usually associated with non-standard payments. In addition, lower level Indonesian officials only speak Indonesian. The so-called KITAP residence permit is valid for 5 years.

For trips to the provinces of Papua and West Papua , a special permit (so-called SKJ) is required, with the exception of trips to Jayapura, Biak, Sorong. The passport number, a photo of the person traveling and the names of the cities and places he plans to visit are required. This certificate is issued by either the Immigration Office or the police upon arrival in the province. Journalists who intend to photograph, film or write reports in Papua need special permission from the local authorities, and the type of visa granted should correspond to this activity.

Foreigners are required to carry an identity document; short-term visitors passport, persons with a long-term stay in the territory of Indonesia residence permit card (so-called KITAS). KITAS holders are required to be registered with the local Rukun Tertangga (RT) registration office and the local police department, monitor the duration of their long-term residence permit (and entry and exit visas) and apply for their extension in a timely manner. Short-term visitors are obliged to monitor the validity period of their visitor visas and, in the event of their necessary extension, apply for it in time at the relevant police office. Expired visas can be grounds for detention, fines and possible deportation and ban on staying in Indonesia in the future. Non-compliance with immigration laws (e.g. staying in Indonesia after the expiry of the visa,

Employment of citizens from the Czech Republic

The conditions for employment of citizens from the Czech Republic in Indonesia are identical to the conditions for employment of other foreigners. The employment of foreigners is permitted in the case of jobs that cannot be filled by domestic labor and on the condition of training provided to the Indonesian workforce that may replace the employed foreigner in the future. There are usually no problems in granting permits for foreign managers and technicians. Foreign employees are classified into 4 groups as professionals, managers, supervisors and technicians/operators. There is a list of prohibited professions where foreign employees are theoretically not allowed to work, e.g. in the judiciary, accounting or human resources. However, this regulation is usually circumvented by classifying such a foreign worker as a “technical consultant”. The employment of local forces in foreign companies and offices is governed by the same rules as for Indonesian companies. An employer with more than 10 employees or a monthly turnover exceeding IDR 1M is obliged to pay local workers the so-called JAMSOSTEK (Jaminan Sosial Tenaga Kerja – Employee Social Security System), which as a minimum insurance includes insurance during working hours in case of injury, death and a minimum pension. As in the Czech Republic, social insurance practically does not exist, so only 2% of health insurance is paid by the employer and the employee pays another 1% of the salary himself.

The minimum wage, known as UMK, increases every year and was IDR million (approx. USD 320) in 2021.

Fairs and events

In Indonesia, several dozen to hundreds of different fairs take place every year at the central and regional level. The really key fairs take place especially in Jakarta at one of the two local exhibition centers – JIEX (Jakarta International Expo) and JCC (Jakarta Convention Center). Here, too, the individual fairs have a different level, which can also change significantly from year to year. Several trade fairs are combined quite often, and it may happen that in the current year the sector that is the object of the visitor’s interest is left behind in favor of others. Before deciding to visit a particular trade fair, it is always recommended to consult with the Representative Office or PaulTrade Jakarta.

An updated overview of major fairs and exhibitions held in Indonesia is available on the TradeFairDates website.

In the past, Czech companies participated in the HospitalExpo fairs organized in the GBK stadium complex, as well as the Machine Tools Indonesia, Ina GreenTech, Indo Medicare, and Railway Indonesia fairs. Furthermore, it traditionally participates every other year in the regionally important trade fair in the field of defense and security technology IndoDefence.

Indonesia Market Entry