Trade successfully with Indonesia - Ten important principles
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Trade successfully with Indonesia
Ten important principles
10 rules that can help make your sales to Indonesian buyers successful
Indonesia has one of the world’s
fastest developing economies, with a
burgeoning consumer market driving its
For the forward economic expansion. Its growing middle
class is eager for foreign goods and
thinking exporter, services, while its government is focused
on vital infrastructure development.
this is a market As a result, Indonesia offers a wealth
of business opportunities – provided
worth pursuing that potential suppliers approach this
promising market in the right way.
That’s why this report has been
produced, because Indonesia, for all its
opportunities, is by no means the easiest
T
o call Indonesia ‘a country’ country to do business with. While some
seems like an understatement. barriers to trade have been reduced
It consists of over 17,000 by deregulation, foreign exporters can
islands, spans three time zones and still face complex time-consuming
covers an area of 8 million square bureaucracy. But for the forward
kilometres – 80% of which is sea. thinking exporter, this is a market worth
Around 6,000 islands are inhabited, pursuing. It has demonstrated solid
leading to a multiplicity of cultural growth over recent years: a trend that
influences. This fascinating mix is is set to continue. Already the largest
encapsulated in the country’s national economy in Southeast Asia, over the
motto ‘Bhinneka Tunggal Ika’ – ‘Unity next decade it is expected to figure in
in diversity’. the world’s top ten.
1. Choose your local agent or distributor carefully.
Foreign companies wishing to sell their In the event of an early termination of To do so you will need to obtain a
products or services in Indonesia may a sole agency distributorship, the new business permit from the appropriate
find it useful to appoint a local agent or agent/distributor may be registered with government agency. In some cases,
distributor. Such an arrangement must the MOT only after obtaining a ‘clean several of these agencies may be involved.
be registered with the Ministry of Trade break letter’ from the previous sole
For instance, various types of local
(MOT), which makes a clear distinction agent/distributor. For that reason, care
presence are available to foreign
between agents and distributors. An should be taken in choosing an agent
companies:
agent is an intermediary of the foreign that is suitable for your industry, so it is
principal, while a distributor acts for itself advisable to do a thorough background • A Foreign Trade Company
in marketing and selling the principal’s check on your chosen agent/distributor’s Representative Office, approved by the
goods and services. The agency/ previous track record. Ministry of Trade (an MOT RO) is
distributorship agreement, notarised by a relatively simple to set up and can
notary public, and a statement letter from If you do appoint an agent, they undertake specific activities on behalf of
the Attache of Trade at the Indonesian can of course be of great help in the foreign exporter, such as acting as
Mission in the principal’s country of navigating Indonesia’s cultural and an intermediary, handling promotional
origin, are among the documents that legal complexities. You may want to activity and market research. However, it
must be submitted to the MOT. extend your representation further by can’t undertake operational activities such
establishing an office in Indonesia. as accepting offers, signing contracts and
distribution.
Trade successfully with Indonesia Ten important principles 2
• A Foreign Company Representative • Other types of representative office foreign-owned PMA company without a
Office from the Investment Coordinating can be established: some associated local Indonesian partner, unless stated
Board – the Badan Koordinasi with particular trade sectors, such as a otherwise in the Presidential Regulation
Penanaman Modal (a BKPM RO) can Foreign Company Construction Service No. 36 of 2010 - the Negative List of
manage a foreign company’s interests Provider Representative Office from the Foreign Investment. A 100% foreign-
and assist in establishing and developing Ministry of Public Works (MPW RO). owned PMA company is obliged to sell
its business in Indonesia. The activities shares to Indonesian investors within
of a BKPM RO are limited to the role You can go further by establishing 15 years of its inception.
of supervisor, intermediary, coordinator an Indonesian legal entity, the most
or manager of the foreign company’s common of which is a penanaman Each of these arrangements has its
interests but it may not participate modal asing (PMA) company: a limited benefits, so seek independent advice
in managing the foreign company or liability company subject to both on which would suit your business best.
its branches in Indonesia or generate Indonesian Foreign Investment Law
revenue from Indonesia, nor can it and Indonesian Company Law. As a
engage in agreements or transactions rule, all business sectors are open to
relating to the sale and/or purchase of foreign investment and foreign investors
goods and services in Indonesia. may conduct business through a 100%
2. Adapt your business model to suit the market.
Competition for Indonesian business is Indonesia’s distribution system is
strong, with companies from many other complex and its poor infrastructure
Asian nations vying for the Indonesian is something you’ll need to take into
Rupiah. consideration when planning to enter
the market: while it is certainly one
Study consumer preferences and of the fastest growing economies in
competitive practices and seek advice Southeast Asia, its infrastructure is still
from your appointed agent. While one of the worst. The government has
Indonesian consumers are price announced its intention to invest more
sensitive, there is also a perception that in infrastructural improvements, which
foreign goods are of a superior quality. is good news for foreign companies that
can offer related services. However,
Your pricing strategy should take into until there is substantial improvement,
account warehousing, delivery and those who simply want to distribute
distribution, and after-sales service. their goods within this vast country
Also, bear in mind that, although should factor this potential problem
Indonesia’s middle class is growing into their plans. Seeking a suitable
fast, average incomes in Indonesia distribution partner in Indonesia can
are considerably lower than in more ease the burden, especially as many of
mature markets. those distributors can also assist with
issues such as importation and customs
clearance.
3. Make a name for yourself.
Brand recognition and loyalty are But tread carefully with your advertising. before launching an advertising
highly valued in Indonesia. Direct mail Indonesia is steeped in religion and campaign there.
marketing is common there, for many tradition, and many of its people can
types of product and service. Advertising be sensitive to the graphic elements As well as giving your brand and
in local media can be effective in those of advertising that would be more products a high profile, make sure that
areas of concentrated purchasing power acceptable in other countries. Take this your local representatives can provide
like Jakarta and West Java. Television into consideration and arrange for your strong sales and after-sales support.
advertising will give national cover, advertising to be reviewed by native Indonesians’ brand loyalty can be
reaching most consumers. Indonesians beforehand: perhaps focus established and maintained only if they
groups who can give you feedback can rely on fast and efficient local service.
Trade successfully with Indonesia Ten important principles 3
4. Protect your intellectual property
Since the mid 1990s, Indonesia’s Trade mark registration is on a ‘first-to-
efforts to combat intellectual property file’ basis, meaning that the first person
theft have made some progress. It has to file an application will usually have
reformed its laws to bring them in line
with the World Trade Organisations Trade-
priority over the use of that trade mark
in Indonesia. That can cause problems
Apply for trademark
Related Intellectual Property Rights
(TRIPS) agreement, which requires WTO
as there is no requirements for owners
of registered trademarks in Indonesia
registration before you
members’ legal systems to encompass a
stipulated standard of IP protection.
to prove that they are using their
trademarks when registering or renewing
begin to market your
However, the 2012 edition of the US
them. Sometimes the system is abused
as a way of blocking well known foreign products in Indonesia
Trade Representative’s annual Special 301 trademarks from filing for registration in
report still named Indonesia on its priority Indonesia. Therefore, it is advisable to
watch list. While praising Indonesia’s apply for trademark registration before
progress on intellectual property you begin to market your products in
protection, with rights holders reporting Indonesia and to make vigorous efforts
good cooperation from the enforcement to seek trademark protection in the
authorities, the report urged Indonesia to country. To its credit, Indonesia has
further its efforts to counter piracy and introduced stricter penalties for trade
counterfeiting. All the more reason for mark infringement.
foreign exporters to take every measure
available to protect their intellectual Protection of industrial designs lasts for
property. 10 years. Copyright arises automatically
once the product is created in a tangible
In Indonesia, intellectual property rights form. While registration (with the General
can be registered for patents, trade Register of Works at the Director General
marks, designs and copyright. This is of Intellectual Property Rights of the
essential, as registration in your own Ministry of Law & Human Rights) is not
country won’t protect your rights in mandatory, it is advisable, as production
Indonesia. of the registration letter can be used as
legal evidence in court if a dispute arises.
There are two forms of patent protection:
normal patents, which have a 20 year
lifespan, and simple patents, i.e if there
is less inventiveness involved in the
product, which have a 10 year lifespan.
5. Don’t forget to factor in import tariffs…
Some products, such as raw materials countries. Import duties from the
for pharmaceuticals and machinery ASEAN countries (The Association of
related to the print industry, are free Southeast Asian Nations) can in
of import tariffs, while others have general range from 0% to 5%, except
risen markedly: especially on luxury for products in the exclusion list.
goods and those that may compete
with locally produced goods like Indonesia also has a number of Free
electronic goods and a range of Trade Zones (Kawasan Perdagangan
agricultural products, coffee and tea. Bebas/KPB) which are exempt from
Most Indonesian tariffs are bound import duty and excise and various
at 40%. import taxes such as VAT. When
supplying to these zones, suppliers
Indonesia has preferential trade should seek to share in the benefits
relationships with several other that they offer to importers.
Trade successfully with Indonesia Ten important principles 4
6 …and abide by import regulations.
These are quite extensive. You or your
agent must provide pro-forma invoice,
commercial invoice, certificate of origin,
bill of lading, packing list and insurance
certificate. In addition, certificates may
also be required to ensure the required
standard of products like food or
pharmaceuticals. The importer must also
notify Indonesian Customs before arrival of
goods and submit import documentation
electronically. All imported goods must
meet Indonesian labelling regulations in
the Indonesian language or Bahasa
Indonesia.
Also, bear in mind that, even when
goods are imported to a Free Trade Zone,
customs audit and penalties still apply.
7. When in Rome (and Jakarta)…
Understanding your customer’s business relationship building is essential and so
culture is vital, wherever you intend to trade. that first meeting is just to get to know
In Indonesia, as in many other Southeast
Asian countries, businesses are very
each other. And secondly, decisions aren’t
taken quickly in Indonesia: your opposite Relationship
hierarchical - so entering the meeting room
in order of rank will set the right impression.
number will not want to give the impression
that your proposal has not been given full building is
On the other hand, the room may be empty consideration. That means that patience is
because, although you’ll be expected to needed – negotiations can be frustratingly essential
be punctual for business meetings, your prolonged. Even insisting on a written
Indonesian host may not be! Always greet contract may be seen as questioning
your host’s party with a handshake using your customer’s trust, although they will
your right hand and the words ‘Selamat Pagi’ understand that for you it’s necessary. But
(good morning), ‘Selamat Siang’ (good day) present it as if it’s a guideline rather than a
or ‘Selamat Malam’ (good evening). statement of obligations.
As elsewhere in Asia, business cards should Because of Indonesians’ innate wish to
be presented with care, again using the right maintain harmony, their response to your
hand, and received with respect. Because proposal may be indirect: there are many
rank is important, ensure that yours is shown words in Bahasa Indonesia that appear to say
clearly on your business card. ‘Yes’ but actually mean ‘No’. Because the
nuances of the language are quite subtle, it
At your first business meeting, don’t be would be advisable to have a fluent Bahasa
surprised if little actual business gets Indonesia speaker on your meeting team.
done. There are two reasons. Firstly,
Trade successfully with Indonesia Ten important principles 58. Resolve any disputes over payment efficiently.
Indonesian contract law is based on law and in which judges are not bound Arbitration has more force than mediation
the principles of ‘freedom of contract’. by precedents, can be slow moving. – although the process can take longer
While there is no restriction on the Moreover, usually Indonesian courts do and be more expensive - and has the
parties electing a foreign governing not award costs in litigation cases, and advantage over court proceedings that
law and foreign courts as the dispute therefore each party is responsible for its the parties to the dispute have more say
resolution mechanism, a foreign own legal costs. in the procedure and even in the choice
court decision cannot be enforced in of arbitrator. What’s more, while a court
Indonesia as Indonesia is not a party There are alternatives to court decision is open to appeal, an arbitration
to any international convention for the proceedings, when a dispute arises over award is final and binding.
recognition and enforcement of foreign payment for goods and services. Indeed,
court judgements. a central feature of Indonesia’s legal Indonesia is a party to, and has
system is the national ideology of ratified, the 1958 UN Convention on
If the Indonesian party has assets outside Pancasila, which calls for consensus rather the Recognition and Enforcement of
Indonesia, you may consider using foreign than confrontation. Thus, before a case Foreign Arbitral Awards (the New York
law and courts as the dispute resolution goes to court, a judge must be satisfied Convention). The existence of a valid
mechanism. If a foreign party were to that the parties have at least tried to arbitration agreement precludes the right
seek the performance of an Indonesian resolve their dispute through some form of the parties to submit a dispute to the
party (in Indonesia) under a foreign of third party arbitration or mediation. Indonesian courts. Enforcement of the
court judgement, it would have to file a arbitral award must be made by way of
new lawsuit in Indonesia at the relevant Mediation must be undertaken by an application to the competent district
Indonesian District Court and the foreign professional/licensed mediators under court and, in the event of enforcement of
court judgement would then serve as the supervision of the court. The aim is to an international arbitration award, to the
evidence in the new case. The Indonesian reach an amicable settlement and disputes district court of Central Jakarta.
judge presiding over the case would have that are mediated are often resolved
the discretion, but not the obligation, to quickly – but mediation does rely on a However, in some cases court proceedings
evaluate such a foreign court judgement. willingness by both parties to reach a still continue after the arbitration decision
settlement. has been awarded.
It is also worth noting that Indonesia’s
legal system, which is based on civil
9. Don’t lose a valuable customer over a single late payment.
Customers are hard to come by and in Indonesia can be biased towads
even more so in new markets. So, once the debtor, expensive and drawn out,
you’ve invested resources in winning a with no guarantee of success. Atradius
contract, you’ll want your new customer Collections specialises in amicable out
to become a regular customer. If any of court settlements wherever possible
payment problems do arise, an amicable on behalf of their clients and will stay
settlement is therefore far more in close contact with the debtor, using
advisable than heavy handed recovery proven negotiation and persuasion
action. Atradius Collections can help. techniques to convince them to settle
the debt: effectively helping both
Don’t assume that, if you have a parties to the sales contract. Atradius
retention of title clause in your sales Collections’ most valuable asset is its
contract, this will be acknowledged understanding of Indonesian business
by an Indonesian court. Court action culture and practices.
Trade successfully with Indonesia Ten important principles 610. Be competitive – but protect your sales.
While you may choose some form of Our underwriters are expert in ‘reading
payment security within your conditions between the lines’ of company accounts
of sale, such as Irrevocable Letter of and often visit the company they are
Credit, remember that you are up against
competition from other suppliers. So
assessing to verify the information
they’ve obtained. They give particular
Expert in ‘reading
offering open account terms and an
attractive credit period will put you at
attention to the riskier trade sectors
like shipping, which is highly capital
between the
an advantage. But that will leave open
the risk of not getting paid – unless
intensive; electronics, where many of
the smaller distribution companies have
lines’ of company
you’re credit insured. poor liquidity; and metals, which can
be vulnerable to volatile global market accounts
Atradius provides protection for prices.
business-to-business open account
sales to Indonesian companies. What’s
more, in doing we will assess the
creditworthiness of your prospective
customer in Indonesia – something
that you may find hard to do yourself
because of the difficulty of obtaining
financial information on companies
there.
Many opportunities for profitable trade
Having experienced political turmoil investment in improving the although bureaucracy and corruption are
in the late 1990s, Indonesia has now infrastructure. This trend seems set still issues. Overall, provided that foreign
achieved stability as the world’s third to continue, with some forecasters exporters understand the characteristics
largest democracy after India and the predicting growth in household of the markets and take suitable
USA. In recent years, the country has disposable income and expenditure precautions to safeguard their sales,
seen economic growth of around 6% of around 40% between now and Indonesia promises many opportunities
a year, driven largely by the rise in 2020. The government of President for profitable trade.
consumer spending by its expanding Yudhoyono continues to take steps to
middle class and government liberalise foreign trade along WTO lines,
Trade successfully with Indonesia Ten important principles 7Follow Atradius on social media:
Atradius would like to thank international law firm DLA Piper and Indonesian law firm Ivan
Almaida Baely & Firmansyah for their assistance in compiling this report.
Copyright Atradius NV 2013
Atradius Disclaimer
This report is provided for information purposes only and is not intended as a recommendation as to particular transactions, investments or strategies in any
way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided. While we have made
every attempt to ensure that the information contained in this report has been obtained from reliable sources, Atradius is not responsible for any errors or
omissions, or for the results obtained from the use of this information. All information in this report is provided ’as is’, with no guarantee of completeness,
accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or implied. In no event will Atradius, its related
partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance
on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such damage
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