Indonesia is the fourth largest country in terms of world population¹. Indonesia has an abundance of natural resources and in recent years, Indonesia has recorded a steady economic growth at above 5 percent,² which is one of the factors placing Indonesia as Southeast Asia's largest economy. Regardless, starting a business in Indonesia can be very challenging especially for foreign investors with no experience and no contacts to rely on. This article will discuss some basic information that people should be aware of before investing or starting a business in Indonesia.
1．Complex Regulatory Structure
Indonesia has a very complex regulatory structure. The regulations are varied in many levels, either issued by the central government, the regional government or the relevant institution supervising a specific matter. However, there is no publicly accessible or comprehensive online platform which organizes all of these prevailing regulations. Further, lack of coordination among the government authorities in charge of the provisions of the existing regulations will likely frustrate investors. Although in the last few years the government has been trying to make some improvements, these problems have not been completely solved.
As such, selecting an experienced and competent legal consultant to provide proper legal advice and assistance is crucial. It is also important, before setting up a business in Indonesia, to conduct a comprehensive regulatory research and to have a face-to-face consultation with the relevant government authorities.
2．Corruption and Bribery Practices
Corruption and Bribery practices is another challenging factor when setting up a business in Indonesia. For decades, corruption and bribery practices have unfortunately become a part of doing business in Indonesia. The government has taken various actions in order to eliminate corruption and bribery practices in Indonesia. For example, in 2002, the Corruption Commission was established in order to eliminate such practices. In the field of investment, the government has been trying to replace its traditional licensing process with a more centralized online based licensing process. This is to reduce face to face meetings with the relevant officer in charge for the license application process, which in some cases have led to bribery practices. In spite of these efforts, however, corruption and bribery practices continue in Indonesia - the battle has not come to an end.
Therefore, for a Japanese party who is planning to set up a joint venture company or enter into a contract with an Indonesian party, we would strongly advise to include an appropriate anti-bribery clause in the contract or in the joint venture agreement in order to minimize (and hopefully prevent) the corruption and bribery related risks.
An example of antibribery clause:
“Compliance with Anti-corruption or Anti-bribery laws.
The Company and its respective directors, commissioners, officers and agents, have not and will not, in connection with [the Business or in relation to this Agreement, and/or ancillary agreement], acted and act in violation of any applicable anti-corruption or anti-bribery laws of Indonesia. The Company has established internal controls and accounting practices sufficient to reasonably ensure that any offer, promise or payment in violation of any similar applicable law of Indonesia will be prevented or detected in a timely manner.”
3．Diverse Cultural Background
Indonesia is a diverse nation. It consists of over 17,500 islands³ (6,000 of which are inhabited), 34 provinces that are home to over 300 ethnic groups. Each ethnic group has its own dialect, culture, and historical background. Historically, most Indonesians are a mix of Chinese, European, Indian, and Malay. This diversity led the government to come up with Indonesia's national motto called “Bhinekka Tunggal Ika (Unity in Diversity)”. The meaning behind this motto is that Indonesia has a diverse society – and that despite the differences, there is a true sense of unity among the people of Indonesia.
The official language of Indonesia is Bahasa Indonesia, but there are approximately 580 languages spoken all around Indonesia, including English and Javanese (language of the people in Java island). Establishing a multi-language website and especially in the most spoken languages in that area would be important for a business to succeed in Indonesia.
Religion plays an important role within Indonesian society. The majority of Indonesia’s population are Muslim, but Indonesia also includes people that follow other religions as well as the more traditional animist belief systems. There are 6 religions admitted by the Indonesian government - Muslim, Christian Protestant, Catholic, Hinduism, Buddhism, and Confucius.
It is important to have some general knowledge and respect religious activities or rituals regarding religions in Indonesia. For example, Muslims perform a prayer ritual 5 times a day and fast for a month per year before celebrating their religious day called “Lebaran”. During this fasting period, eating or drinking in a public area may be considered rude.
The following are some important points to note before having a business discussion with an Indonesian party:
- Address a person in a business meeting using the phrase “Bapak” which means “sir” and “Ibu” which means “madam”. For example: Bapak [First Name] or Ibu [First Name]. This is similar to adding the phrase “san” after the surname in Japan.
- Business cards are normally exchanged after handshake.
- It is common for the most senior person to exchange the first business card and introduce himself/herself first in the meeting.
- Indonesians normally do not make hasty decisions because they might be viewed as not having given the matter sufficient consideration.
- In a negotiation including meeting with government officials, try to avoid pressure tactics or confrontation. This would be likely be considered as being “aggressive” and “rude” and would likely backfire.
- Generally, Indonesians speak quietly and with a subdued tone. Loud people may come across as slightly aggressive.
- Indonesians are indirect communicators. This means they do not always say what they mean. It is up to the listener to read between the lines or pay attention to gestures and body language to get the real message.
- Business is considered personal in Indonesia. As such, spend more time communicating in order to establish a strong relationship. Face-to-face meeting is the most effective way of doing business in Indonesia.
Click here for Japanese translation article.
The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.