Opportunities abound for doing business in Indonesia, with the country’s GDP showing showing healthy growth in recent years. Indonesia sovereign debt has also achieved investment-grade by all 3 main rating companies, leading to an inflow of funds into the economy.
At the same time, East Indonesia – an area with an abundance of natural resources and a large domestic market – is fast emerging as an area beyond Jakarta that’s home to increasing business opportunities. Spurred by a growing middle class, abundance of natural resources and infrastructure development, cities in the region are exhibiting strong economic growth.
Our iAdvisory Seminar on East Indonesia focused on just that, and how Singapore firms can capture ensuing opportunities. Representatives from the Indonesia Tourism Development Corporation, DBS Indonesia, Kendal Industrial Park and Orissa International all shared their insights on doing business in East Indonesia – and here are the highlights!
The region, which typically refers to regions east of West Java, makes up over 40% of the country but it has long been an underdeveloped and emerging market. In recent years, however, Indonesia President Jokowi has placed a focus on building up the region’s infrastructure to improve connectivity, grow the tourism sector, and reduce its economic disparities with the rest of the country.
In particular, East Java, is becoming a magnet for foreign investment and industry. It is a natural resources processing and logistics hub buoyed by its proximity to Jakarta. Wages and land prices there are also more competitive. In addition, it does not face the same infrastructure bottlenecks as other parts of the country. Instead, infrastructure, including improved port facilities, the Trans-Java toll road, and improved air and rail connectivity, is being developed to support the region’s future economic growth.
Sectoral opportunities and challenges
Growth in East Indonesia is already outpacing the national average. Increasing urbanisation and a young population with rising incomes bode well for the consumer market. Companies can count on a less competitive market for their products and cheaper overheads, given lower labour costs, lower land prices and proximity to raw materials. However, robust market data on regions beyond Jakarta is not always readily available, so companies are advised to prepare early and undertake on-the-ground research.
Here’re some of the key sectors Singapore companies can look at.
- Consumer goods and retail: A growing middle class that is less price sensitive and more open to discretionary spending on entertainment and fashion presents numerous opportunities for retailers. The growing mobile penetration rate is also fuelling the digital economy and powering the growth of e-commerce and its related services.
- Infrastructure: To support the region’s rapidly growing cities, companies with expertise in the areas of utilities, power and renewable energy, distributed water and waste solutions, cold chain storage and logistics, and digital solutions for the tourism industry are highly sought after.
- Manufacturing: Companies can reap the benefits of lower overhead costs due to close proximity to raw materials. Skilled labour is almost 50% cheaper than Jakarta, and land costs are a fraction of those in the Greater Jakarta region.
- Tourism: The region figures prominently in the government’s push to develop 10 priority tourism destinations and to attract 20 million tourists by 2019. In particular, Indonesia Tourism Development Corporation (ITDC) has highlighted Mandalika, Lombok; Malang; and North Bali as priority areas.
With Southeast Asia’s e-commerce industry set to cross the US$200b mark by 2025, Indonesia is set to play a pivotal role in the region’s growth
Singapore’s digital companies such as Shopback, 99.co and Style Theory have established themselves in the market and are running successfully, acquiring users for their products as well as expanding their business beyond the main cities in Indonesia.
Tips for Singapore companies looking east
- Capture the growing consumer base: With higher incomes, retail consumers are seeking convenience and variety. Companies should take advantage of Singapore’s strong brand name to target the growing consumer base in East Indonesia, particularly in the F&B, architecture, education, and healthcare sectors. At the same time, companies should capitalise on digital media as a form of marketing and tap online distribution channels to expand their reach.
- Adopt a long-term view: While entering East Indonesia is not as easy as in many of the more developed markets in Southeast Asia, the barriers to entry can be viewed as an advantage as competition is still relatively low. Singapore companies might also find it useful to start small to learn the ways of doing business there before diving into larger investments. Exporting products, franchising brands or making small investments to build up market knowledge are some examples.
- Network in the right way: A good local partner will help you understand market norms, manage local labour, and deal with local authorities and bureaucracy. Typically business hurdles for investors in Indonesia include the negative investment list restricting foreign ownership in certain sectors and the risk of change in regulations. Local partners alleviate many of these concerns, and resources provided by Enterprise Singapore and Indonesia Tourism Development Corporation can help you navigate the hurdles, and can help you to find the right partner for your business.
- Consider locating your business in an industrial park: Industrial parks can help provide manpower management and training, logistics services, security and estate maintenance. Many also facilitate business license applications and help businesses acquire the permits necessary from regional authorities.