Trade with Indonesia – Overview
Trade with Indonesia—The Republic of Indonesia is now the world’s third-most populous democracy, the world’s largest archipelagic state, and the world’s largest Muslim-majority nation. It is one of the largest economies in the emerging markets and the fifth largest economy in Asia. It is a member of the G20 and is today trying to increase foreign investment and diversify the economy away from a reliance on natural resources. According to recent World GDP economy rankings, Indonesia is the 17th largest economy globally (source Knoema.com). Indonesia has just over 2977 million people, with 68.1% of the population between the ages of 15-64 (source cia.gov).
So, Buying from Indonesia
Indonesia has an abundance of raw materials and low labour costs. It has developed export markets for a range of products, including:
- Furniture
- Apparel & Clothing
- Footwear
- Food Products
- Wood and Paper products
- Electrical
- Machinery
- Minerals & Metals
Trade with Indonesia – Business Culture
A handshake is a common form of greeting for both men and women. The standard polite greeting is ‘Bapak’ (Sir) for men and ‘Ibu’ (Madam) for women, to be spoken before their first name.
So, when giving or receiving business cards, do so with both hands. Therefore, never give or offer your business card (or any items) with your left hand. Take time to read the name on the card.
Building relationships should be the prime emphasis of any initial meetings. This advice applies to those looking to source from or sell in Indonesia. Therefore cultural objective for anyone attending a meeting in Indonesia is to try to build consensus, as trying to force an opinion or idea will not have positive results.
Finally, similar to most other Asian countries, it is common in Indonesia for many meetings to occur before business properly commences, as trust must be established first.
If it becomes apparent that your supplier or customer in Indonesia is becoming cold or starting to ignore you, take immediate action, as this indicates that the business relationship is in serious jeopardy.
It is worth checking with your partners in Indonesia about their preferred communication channels. WhatsApp and other online messaging systems are more commonly used and are the preferred means of communication for businesses and government officials than emails.
Meetings times are causally treated in Indonesia, and people are more relaxed about being late.
Almost 90% of the population in Indonesia is Muslim. You should avoid making appointments on Friday afternoons as it is prayer time. Indonesians generally have a relaxed view of alcohol; however, it is polite to ask if it is okay to consume alcohol before consuming it.
So, Setting up in Indonesia
There are many ways you can do business in Indonesia. The most common are:
- Appoint a local partner, distributor or agent –
Unlike other countries, this channel can be a challenge in Indonesia as local distributors prefer to act as sales and promotion services and do not incur storage and distribution costs. Therefore many foreign companies might store and fulfil orders for Indonesia from Singapore.
Incidentally, it is also a legal requirement that foreign companies must undertake these are regulated by the Ministry of Trade (MOT) Regulation No. 36/1977 on Termination of Foreign Business Activities in the Trade Sector as amended and by Government Regulation No. 15/1998.
- Set up an office in Indonesia –
There are two legal ways that foreign companies can establish their own offices in Indonesia.
A representative office or a Limited Liability Company, known as “Perseroan Terbatas” and abbreviated as “PT.”
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Franchising
Indonesia has a good history with the franchise business model. Those interested in pursuing franchising as a strategy to enter Indonesia should familiarise themselves with Indonesian laws.
- Joint Ventures/Licensing
A joint venture with a local partner provides a foreign firm with knowledge of the local environment and contacts. Indonesia is opening up its industries and allowing joint ventures to occur.
- E-commerce
Indonesia has one of the highest rates of e-commerce adoption in the world. Mobile devices are the primary means of e-commerce for Indonesians. Some of the leading e-commerce sites include tokopedia.com, bukalapak.com, ralali.com, and blibli.com.
Banking and Finance
The unit of legal tender in Indonesia is the Indonesian Rupiah RP (IDR).
Indonesia’s Financial Services Authority (“Otoritas Jasa Keuangan” or OJK) regulates critical aspects of the banking and financial system, including bank regulation and supervision.
The Bank of Indonesia, its central bank, regulates payment systems and conducts foreign exchange supervision.
Currently, there are restrictions and controls on foreign currency use in Indonesia. It is advisable to seek advice on this matter before setting up any bank accounts in Indonesia.
So, Tariffs and Non-Tariff Barriers
Tariff
Indonesia is a member of the Association of South-East Asian Nations (ASEAN), and there may be trade agreements between this block and your country.
Taxes and duty rates are revised continuously in Indonesia and can change without notice.
Further information on excise taxes can be obtained from the website of the Customs of Indonesia.
Non-tariff barriers
Importers in Indonesia are required to have an import license and importer identification number. There are four types of import licenses available in Indonesia:
- API-U (General Import License) for importers of goods for further distribution.
- API-P (Producer Import License) for importers of goods for their manufacturing.
- API-T (Limited Import License) for importers of goods limited to a particular industry.
- API-K (Limited Import License for Contractors) for contractors to import goods that may require additional licenses from particular ministries.
If the importer intends to import without an import license, they would need to apply to the Indonesian Ministry of Trade for a special permit for importing without API.
Product labelling, Certification, and Packaging
The Indonesian Ministry of Trade oversees the regulation of labels for imported products. Indonesia also enforces the ‘Halal’ labelling regulated by National Agency of Drug and Food Control (BPOM) and Halal Product Assurance Agency (BPJPH).
Exporters must consult with their importers and local authorities about specific product label requirements.
Labels in Bahasa Indonesia are mandatory for all types of goods. Labels for food products must include:
- The date of expiry.
- The full contact details of the importer, including their name and address.
- Indicate that the product has been registered with and has a product number (ML number) supplied by the National Agency of Drug and Food Control (BPOM).
- It must be in the Indonesian language – Bahasa.
- If the product is halal, have a certificate from an agency approved by the Halal Product Assurance Agency (BPJPH).
The outer part of each package should be labelled with the type of goods and quantity or weight of contents.
**Indonesia uses the metric system**
Packing
Colourful and attractive packaging is preferred. Indonesian customers love to see colours, images and designs.
Exporters should ensure that any packaging used can protect the products from extreme weather and climate changes and the rigours of transport and handling.
Indonesian regulations require certain products, such as food, beverages, textiles, and consumer items, to be in the manufacturer’s original packaging. The exporter should consult with the importer in Indonesia about these requirements.
Methods of quoting and payment
Quotes are can usually be FOB, C&F, or CIF (Incoterms 1990) basis.
An irrevocable letter of credit (L/C) payable at sight is commonly used to settle international transactions. It offers protection to both the exporter and the importer. The currency can be US$ or Euro. Letters of Credit are one of the most widely used methods of payment in Indonesia.
Payment terms must be agreed to in advance. Whatever payment terms are agreed upon, please ensure all parties understand them and that your client, representative or contact signs a mutually agreed document.
It is best practice for sellers dealing with new customers to use secured payment terms such as 100% payment before shipping, letters of credit, sight drafts, or bills of exchange.
Indonesia Documentary & Clearance Requirements
Documentation required:
The importer in Indonesia must inform Indonesian customs before the arrival of goods. They can submit the documents required for clearance electronically to customs.
Therefore, the documents which are required for products being exported to Indonesia include:
- Bill of lading – At least three endorsed originals and four non-negotiable copies.
- Commercial invoice – At least three copies are required; however, seven may be necessary for Letter of Credit transactions.
- Certificate of origin – The original copy plus two copies. There also may be a requirement for three originals of the certificate of analysis are required; however, this should be checked with the importer before the products are sent to Indonesia.
- Packing list – Three originals and four copies are required.
Customs process:
Indonesia’s Ministry of Trade requires pre-shipment verifications on many types of goods, such as electronics, textiles and footwear, toys, food and beverage products, and cosmetics, when the goods arrive in Indonesia. Appointed surveyor companies conduct this verification service. The importer must pay the fees and costs for these services.
Indonesia has restricted and prohibited the goods including:
- Narcotics.
- Explosives, including fireworks.
- Arms and ammunition.
- Defined books and printed materials, audio and visual recording media.
- Certain species of flora and fauna.
So please visit their online customs site to check and be updated on Indonesia’s list of restricted and prohibited products.
So, Trade with Indonesia – Business Risks
If you are transporting goods from or to Indonesia it is strongly advised to secure Cargo Insurance. Goodada Insurance provides clients with online insurance facilities.
Therefore, companies that operate in Indonesia should maintain the highest level of corporate behaviour and familiarise themselves with the laws of Indonesia and the penalties for bribery of its officials.
Intellectual Property (IP) Protection
So IP protection in Indonesia is weak in both protection and enforcement. At the time of this writing, Indonesian authorities have not adequately funded and developed an IP protection system that is fit for purpose.
Trade with Indonesia – Dispute resolution
As a legacy of being a colony of the Netherlands, Indonesia has a civil law system based on the Roman-Dutch model. The Dutch influence is reflected in the Indonesian Civil, Commercial, and Criminal Codes.
The Indonesian judicial system comprises several types of courts under the oversight of the Supreme Court (Mahkamah Agung). Most disputes appear before the courts of general jurisdiction, with the court of first instance being the State Court (Pengadilan Negeri). The High Court (Pengadilan Tinggi) hears appeals from the State Court. In some instances, individuals can appeal from both the High Court and State Court to the Supreme Court, which is located in Jakarta.
Therefore, in 1998, the Indonesian authorities established the Commercial Court (Pengadilan Niaga). The Commercial Court handles bankruptcy and insolvency applications. It can also extend its jurisdiction to other commercial matters.
Hiring a local legal representative is the best advice.
So, Trade with Indonesia – About the Author
Aidan Conaty, ACMA, GCMA, MBA, is the founder of TCI China and Goodada.com. He has spent over 15 years assisting companies in trading internationally. TCI China provides trade support services for China, and Goodada helps companies sell globally. Trinity College Dublin awarded Aidan the Seamus McDermott MBA scholarship.
Incidentally, you can contact Aidan by email at aidan@goodada.com or at:
(Europe/ Rest of the World) +353 1 885 3919
(UK) +44.020.3287.2990
(North America) +1.518.290.6604
So Trade with Indonesian – Web Resources
BKPM – Indonesia Investment Coordination Agency
Islamic Banking in Indonesia in Brief
Indonesia Customs Portal
The Indonesia Customs & Excise
Indonesia National Standardization Agency (BSN)