News
14 Sep 2018 Updated 27 Nov 2018

Keeping up with Indonesia: Opportunities, misconceptions and challenges

The Business Times
Khairul Anwar, Regional Group Director (Indonesia) from Enterprise Singapore sheds light on doing business in Indonesia

 

1. What are some of the latest developments in this particular market right now?

Indonesia is one of the fastest growing economies in Asia averaging about 5% annual GDP growth since 2000. The market also continues to attract a high level of FDI, receiving S$44 billion in 2017 alone. Singapore remains the largest source of investment into Indonesia.

The Indonesian government launched its Indonesia 4.0 Roadmap in April 2018, which has received significant support from President Jokowi. This is part of efforts to make Indonesia one of the top 10 largest economies in the world by 2030. They aim to increase exports to form 10% of the GDP, create 10 million new jobs and ensure inclusive growth. The roadmap focuses on the capability upgrading of five manufacturing sectors, namely F&B, automotive, electronics, chemicals, and textile and garment. This will create opportunities for companies specialising in automation, industrial IoT and system integration, as well as those offering vocational training and re-skilling services.

The interest in marine tourism is also growing, given that Indonesia is an archipelago of over 17,000 islands. This makes it an attractive destination for marine tourism, bringing opportunities in cruise lines, ferries, marinas and landside hotels and attractions. This fits into Indonesia’s goal of attracting 20 million tourists to Indonesia by end 2019. It also complements Singapore’s role as a cruise hub for the region.

MarineTourism

The concept of a Smart City, though still relatively new in Indonesia, is catching on in both the public and private sectors. Cities such as Jakarta have started a Smart City unit within the provincial government called “Jakarta Smart City”, which develops and implements eCitizen services for the city population. For example, citizens can access these services and information, such as traffic conditions and providing feedback, through an app. Other cities such as Bandung, Makassar and Tangerang have also implemented similar operations with Indonesia announcing their 100 Smart City Plan in 2017.

Private developers have also caught on the smart city bandwagon. Conglomerate Sinarmas Land announced the development of their Digital Hub in 2017, aiming to develop a Smart CBD in their flagship township development, BSD City. The Digital Hub will focus on optimising the use of data in the operations of the township development, eventually incorporating initiatives such as Smart Street Lighting and the use of Autonomous Vehicles.

2. What are some of the biggest opportunities? Why should Singapore businesses consider entering?

Indonesia is a large and diverse country. Each region has its own characteristics that suits different investors depending on their niche. For example, beyond the familiar regions of Jakarta and the Riau Islands, regions such as Central and East Java, Sumatra, Sulawesi and Kalimantan are resource rich and offer potential for manufacturers, especially those targeting the large domestic market. Cities such as Bandung, Makassar and Yogyakarta offer opportunities in urban development, smart cities and consumerism. These regions are worth considering as the need for infrastructure development is high, and the cost of land, manufacturing and labour could be more competitive for some industries.

Many conglomerates originate from cities such as Surabaya and Medan, have sizable projects within the city and across Indonesia, and are also looking for partners to assist them in the development of these projects. Singapore companies should not limit themselves to Jakarta and the Greater Jakarta areas for their internationalisation efforts, and can consider exploring other cities to expand their partnerships to.

ecommerce

Many are also interested in Indonesia’s huge consumer base – it is the largest by population size in ASEAN. The growing middle class spell opportunities for companies in healthcare, food, retail and education. In addition, with the high mobile penetration and ecommerce taking flight in Indonesia, we see opportunities in related services, such as logistics fulfilment, data analytics and mobile marketing. The large unbanked population also means opportunities in fintech, including digital lending and payment solutions.

3. What are some misconceptions that businesses have about this market?

As part of a developing economy, some Singapore companies assume that Indonesian companies are likely to be a step behind Singapore in their corporate practices and solutions. On the contrary, Indonesia has many professionally-run corporates who have grown in scale over the years, and are now seeking world-class solutions for their internal systems (accounting, legal and data analytics) and projects. Many are exposed to products and solutions from leading companies. Singapore companies need to think hard about how to differentiate themselves when engaging these potential partners and clients.

While many Singapore companies are somewhat familiar with Jakarta, one should note that while it is the capital of Indonesia, Jakarta is not culturally representative of the entire country. Indonesia is diverse in its culture and influences, and different regions have their own practices and ways of doing things. Doing something right in Jakarta does not equate to common practice – products and services that are successful in one area may not be suitable in another. Singapore business should be astute to this. Look at the consumer preferences, purchasing power, product regulations and local practices, and adopt region-specific strategies.

4. What are some of the biggest challenges that businesses would face and how can they overcome these challenges?

Companies need to be patient and bear in mind the time taken for business registration and approval. The regulatory structure in Indonesia can be more complicated. Investors often have to clear both the central and regional governments before their licenses are approved. But this has improved with the Indonesia Investment Coordinating Board (BKPM) launching a one-stop service for business registrations and a 3-hour Investment Licensing Service for businesses with planned investment values of at least IDR 100 billion (S$9.3 million) or employing at least 1,000 local workers. Technical licenses such as those for imported food & healthcare products still have application procedures that require a longer time. Enterprise Singapore works closely with companies, sharing insights and advice on setup and regulations, and connecting them to experts who can provide detailed guidance.

The rupiah’s fluctuations have been a challenge for companies making long-term business and investment decisions in Indonesia. The dip in the rupiah exchange rate is caused by the appreciation of the US dollar rather than the depreciation of the rupiah. As mentioned by the various Indonesian economic ministers, the economy is not under stress; though investors are urged to take the currency fluctuations into account when making their business decisions.

5. What’s your top advice for SMEs thinking of entering this market?

Be very aware that Indonesia is culturally different from Singapore in business dealings. Indonesia business owners and professionals usually spend time and effort to build relationships and trust before commencing to work together on a business deal. Singapore companies should not expect to strike a deal during the first few meetings.

They also need to realise that Indonesia is a diverse country with each region having its own culture and characteristics. The pattern of increasing consumption and spending power is not uniform across the sprawling archipelago. It is important to fine-tune business models according to their target segments.

Source: The Business Times © Singapore Press Holdings Limited. Reproduced with permission.

Check out other market insights and tips from our regional directors on Malaysia, Thailand, The Philippines, Myanmar and Vietnam.

ASEAN is set to become the world’s fourth largest economy by 2030. From manufacturing to infrastructure to the digital economy, ASEAN presents a wealth of opportunities for your business. Read more.

 
 
 
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