DOING BUSINESS IN INDONESIA: REFLECTIONS OF MY EXPERIENCES

Dr Jane Menziesjane.menzies@deakin.edu.au Department of Management, Deakin Business SchoolDeakin University, Australiahttp://www.linkedin.com/profile/viewid=9062770&trk=nav_responsive_tab_profile

Map 1: Indonesia Archipelago (Source: Nations Online - http://www.nationsonline.org/maps/indonesia_map_855.jpg)

CONTEXT OF INDONESIA

• Indonesia has the largest economy in Southeast Asia • Is a World Trade Organisation (WTO) and ASEAN member • Key exports are largely textiles and those from the natural-resources sector, including palm oil, seafood, rubber, oil, gas and minerals.• Population of 248 million people (DFAT, 2015)

• Standard & Poor’s Credit ratings: BB+ STABLE •Moody’s Baa3 - STABLE • Fitch Rating BBB - STABLE • Overall Credit rating 46 STABLE

INDONESIAN ECONOMY: GDP

INDONESIAN ECONOMY: GROWTH RATE• Consumption expenditure is major contributor to growth• Consumer confidence remains strong• Solid performance in motor cars, electronic goods, FMCG and

food

INDONESIAN ECONOMY: GDP PER CAPITA

INDONESIAN ECONOMY: BALANCE OF TRADE

INDONESIAN ECONOMY: UNEMPLOYMENT

INDONESIAN ECONOMY: CPI

INDONESIAN ECONOMY: GOVERNMENT DEBT

INDONESIAN POLITICS & CULTURE

• Republic of Indonesia came into being in 1945 • Indonesian elections in 2014• President Joko Widodo (won 53% of the votes)• PDI-I – 19%, Golkar Party 45%• One of the largest democracies in the world• People’s representative council (DPR) – 560 members• Regional representative council (DPD) - 132 members

• Home to the largest Muslim population in the world• 300 ethnic groups – 700 languages• Bahasa Indonesia is the official language• Strong ties to the Dutch

INDONESIAN LEGAL SYSTEM

•Uses a bureaucratic legal system •Based on civil law•Foreigners can’t own land•Foreigners can own land using local nationals•Corporate tax rate is 30% but 25% in other areas•Special economic zones

(KPMG, 2013)

TYPES OF COMPANY STRUCTURES IN INDONESIA

KPMG (2013) states:

• Limited liability company (PMA);• Representative Office;• Direct shareholding in a publicly listed company; or• Direct participation by a foreign company in certain sectors (i.e. oil and gas).

• Foreign investors can hold up to 100% ownership, or between 45% to 95% ownership in certain industries.

INDONESIA – AUSTRALIA RELATIONS• Australia’s trade with Indonesia worth $14.9 billion in 2013 - 12th-

largest trade partner. • Trade in goods was valued at $11.2 billion in 2013, and included:

–wheat ($1.2 billion in 2013)

–sugar, molasses and honey ($363 million)

– live animals (excluding seafood) ($302 million)

–aluminium ($284 million)

–crude petroleum ($207 million)

–cotton ($195 million)• Trade in services was $3.7 billion in 2013. Education-related travel

and personal travel.

• Australia’s total investment in Indonesia was valued at $10.9 billion and • Indonesian investment in Australia was around $959 million in

2013 (DFAT, 2015).

REFLECTIONS OF INDONESIA• Setup a joint program with an Indonesian University• Interesting but a diverse country• Indonesians are very friendly, and welcoming• Hospitality is a used as a way to get to know each other• Lots of different Indonesian cuisine to reflect diversity in Indonesian culture• Indonesians speak English very well• Time• Hard working• Save face through indirect methods of communication• Great importance on respect

REFLECTIONS OF INDONESIA• Cultural elements are important

–Batik

– Indonesian food such as Nasi Goreng & Chicken Skewers

–Understanding of Cultural/Religious issues• Indonesians are more conservative than Australians:

–Dress

–Drinking of alcohol

• Religion• Need to take into account for the need to pray

REFLECTIONS OF INDONESIA

• Indonesia isn’t as developed as China• Isn’t as expensive• Indonesian still perceive westerner’s as something amazing• Infrastructure is still an issue (can spend hours in the back of the car in Jakarta)• Social media is very popular• Strained political relationships between Australia & Indonesia:

–Bali Bombings 2002

–Government Spy Scandal at the end of 2013

–Recent executions of Chan & Sukumaran

WHAT ARE THE OPPORTUNITIES IN INDONESIA

• Aged care to Indonesia – by 2030 – 36 million will be over the age of 60 – 80 million in 2050 (DFAT, 2015). Not traditional for Indonesians to be cared for by aged care, but it is in Australia. May solve a few problems.

• Agribusiness and food – Needs to import grains (wheat), soya beans and beef. Desire for western consumption of food – therefore vegetables, fruit, sugar, beef, dairy products, wheat, bread, poultry and seafood.

• Automotive – Growing at 17.8% or 1.3 million vehicles, ASEANs largest automotive market. Middle class set to grow to 135 million by 2020. Purchasing power grows to will car purchase. 25% of the population own bikes, 3.5% own cars. Demand for parts and aftermarket items.

WHAT ARE THE OPPORTUNITIES IN INDONESIA

Consumer goods – 90 million will be consumer class by 2030, with a net income of $3600 US. 240 shopping malls (76 in Jakarta), therefore expected to increase in regional areas. Prospective retailers establishing in Indonesia or already existing expanding.

Infrastructure - Airport developments, eastern Indonesian region which is largely unexplored, need for local infrastructure providers – architects, consultants, engineering service firms.

Information Communication Technology – Largest mobile phone network in Asia – 390 million mobile users. 139 million internet users. High use of social media. E-commerce is taking off. Cloud computing increases. Needs to develop its broadband infrastructure.

CONCLUSIONS

–Economic prospects remain strong with plans in place to

further stimulate the economy, boost infrastructure and

increase wealth.

–Emerging middle class

–Strong financial system.

– It faces corruption issues that need to be dealt with

–Opportunities in many different sectors