Navigating Business Challenges in Indonesia

Addressing Business Challenges in the Indonesian Market

  • InCorp Editorial Team
  • 18 June 2024
  • 5 minute reading time

In Indonesia’s dynamic and diverse business landscape, addressing business challenges is crucial for organizations aiming to thrive and expand. Organizations must navigate complex regulatory frameworks to stay compliant.

Companies must also grasp cultural nuances to capitalize on the Indonesian market’s immense opportunities. Read on to discover why overcoming these obstacles is vital for businesses aiming to maximize growth and succeed in Indonesia.

Indonesia’s Business Environment

Navigating Business Challenges in Indonesia

Now with the expansion of the middle class, Indonesia’s population exceeds 260 million. The situation leads to potential growth with a nominal GDP of approximately 1 trillion USD. Therefore, it has become a focal point for investors seeking a stake in its rapidly growing market. 

The country is gradually reducing its reliance on exporting raw materials as it transforms towards a modern economy driven by industry and services. Despite undergoing political changes inherent to its democratic system, Indonesia displays considerable economic resilience. 

By implementing policies that prioritize the development of new infrastructure and fostering a business-friendly tax environment, Indonesia aims to achieve sustainable, long-term growth and enhance its appeal to businesses of all sizes.

The government has set ambitious growth objectives and addresses the logistical challenges of connecting a nation comprising more than 17,000 islands. The new venture opens up new business challenges to tackle. 

Read more: Unlocking Investment Opportunities in The New Capital of Indonesia.

The Challenges of Doing Business in Indonesia

Indonesia’s inclusive growth projection by Standard Chartered highlights its emergence as a dominant force in Asia. However, business challenges may hinder private-sector development. Nevertheless, businesses can still benefit by capitalizing on Indonesia’s growth prospects and seeking local support.

1. Starting a Business

According to the World Bank and International Finance Corporation (IFC), Indonesia is ranked 166th globally regarding ease of doing business. Establishing a corporate entity in Indonesia involves nine procedures and takes an average of 47 days, compared to the OECD average of five methods.

2. Permits and Licenses

Acquiring construction permits in Indonesia takes an average of 158 days and involves 13 procedures. The lengthy process includes certificates and consultations with the Zoning Department and the land and building tax office.

Other permits from the Ministry of Industry and Trade regional office are required. The bureaucratic process often stretches for long periods. However, the Indonesian government has enhanced this by providing a streamlined system. 

3. Property Registration

Registering property in Indonesia takes 22 days and involves six procedures. The process will include land certificate examination and tax payment on acquisition. The cost of registering property is also considerably higher than the OECD norm.

4. Securing Funding

According to the World Bank and IFC, Indonesia ranks 129th in the world for ease of getting credit. However, efforts are being made to restore its credit reputation by improving the asset-based lending system and promoting a real property registration system. 

5. Tax Regime

A significant 51 tax payments will be made annually in Indonesia, requiring an average of 259 hours of company time. In addition, processing corporate income tax takes 75 hours, while social security contributions and VAT add another 184 hours.

6. Enforcement and Insolvency

Enforcing contracts in Indonesia takes 498 days and incurs substantial costs. Similarly, insolvency cases have an average duration of 5.5 years, with a low recovery rate of 14.2 cents on the dollar, contrasting with the OECD average of 70.6 cents.

How Can Companies Deal with the Business Challenges?

Guide to Doing Business in Jakarta

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Despite bureaucratic challenges, starting businesses in a new country can be overwhelming. Some may feel unprepared due to a lack of local knowledge, capital distribution, or confusion about business concepts in other regions. Here are some general guidelines and valuable tips before starting a business in Indonesia.

1. Start Without Hesitation

The first crucial step for aspiring business people is to start. Taking risks and pursuing goals is essential. Moving forward means broadening your horizons, expanding networks, and opening doors to countless opportunities. 

2. Focus on Making an Impact, Not Just on Profits

Focusing on something other than immediate large turnovers and rewards is essential to tackle any business challenges. Successful entrepreneurs often emphasize that money isn’t their primary motivation. Instead, start small and concentrate on providing excellent customer service. 

3. Leverage Modern Technology

Embrace the advantages of technology in your business. Social media can significantly empower your business by effectively marketing and establishing strong brand awareness. 

In addition, digital platforms offer cost-effective advertising and enable businesses to operate 24/7 without incurring high rental and manpower expenses associated with physical stores.

4. Foster Relationships

Building connections is vital for business success. Seek partnerships and collaborations with trustworthy individuals, whether they are close acquaintances or potential investors. 

5. Keep It Simple

When starting your business, consider starting with a simple concept. Simple ideas often have a solid pioneering appeal. Moreover, successful businesses don’t have to be complex; they exist to solve real-world problems.

Read more: EV Battery Indonesia: Understanding the Opportunities and Challenges

How InCorp Indonesia Can Assist

Indonesia presents significant opportunities for entrepreneurs and businesses with its ambitious economic growth. Nevertheless, starting a business in Indonesia entails navigating challenges that require careful consideration.

For entrepreneurs embarking on a new journey, InCorp Indonesia (formerly Cekindo) offers a one-stop solution for business licensing and company registration. This service may be integral to successfully maneuvering the business challenges in Indonesia.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Disclaimer: The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.

We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials.

We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.

Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.