Top 5 Challenges of Doing Business in Indonesia

How challenging is it to do business in Indonesia?

The British Chamber of Commerce conceived the Business Confidence Index in 2012 as a survey of British investors living in Indonesia. The study outlines the general attitude of foreign investors towards the economy, as well as the potential challenges of doing business in Indonesia.

Below, we’ve outlined the top challenges that foreign businesses face in Indonesia according to the survey.

What are the primary challenges for businesses in Indonesia?

The 2019 Business Confidence Index shows that most foreign investors are still confident about working in Indonesia. About 60 percent of respondents stated that they had a positive outlook on doing business in Indonesia over the next twelve months.

However, investors are still concerned about several factors. We summarize them below.

1. Regulatory Environment

According to the Business Confidence Index, many investors feel that Indonesia’s regulations might negatively impact their business.

Indonesia’s regulations for doing business can be particularly strict, especially for foreign companies. While Indonesia welcomes foreign investment, it also has some rules to make sure that incoming investments give as much value as possible for the local economy.

Also read: Are there any requirements for foreign businesses in Indonesia?

This topic is still the top concern for foreign businesses, but their opinions have improved in the last few years. About 60 percent of foreign investors are worried about regulations in 2019, compared to 73 percent in 2018 and 72 percent in 2017.

2. Bureaucratic Inefficiency

The second most popular challenge of doing business in Indonesia is the complex bureaucracy and red tape.

Investors will have to interact with many different organizations and ministries in the process of doing business in Indonesia. The government has made steps to simplify the process – such as introducing the Online Single Submission system in 2018 – but businesses still need a few weeks before their company is ready to launch.

Also read: What are the steps to register a business in Indonesia?

However, opinions are also improving. Only 56 percent of foreign investors are worried about bureaucratic inefficiency, compared to 77 percent in 2018 and 72 percent in 2017. The government’s push towards accepting foreign investment and developing the digital economy might also mean more steps to simplify business processes in the future.

3. Customs and Import Regulations

Like many emerging markets, Indonesia can be protective of its domestic industries. As such, businesses will have to face strict regulations when it comes to getting licenses and the products that they can import.

According to the survey, about 55 percent of foreign businesses are worried about facing customs and import regulations.

It can take a month to get an import license in Indonesia, both for further distribution or your own manufacturing activities. Some products have strict licensing requirements, including consumer electronics such as cell phones, handheld computers, and tablets.

Some foreign investors are coping with this situation by focusing on non-retail or physical business areas. According to the Business Confidence Index, opinions towards service and education sectors are improving during the past year.

4. Labor Policy

About 51 percent of foreign investors are worried about Indonesia’s labor policy. One of the possible causes is Indonesia’s strict rules about hiring foreign employees.

For starters, foreigners who want to work in Indonesia need to get a KITAS or work permit. The process of getting a work permit itself can have other requirements, like submitting a foreign employment plan and providing proof of expertise.

Besides that, there are also other restrictive policies. For example, the Minister of Manpower Decision No. 40 of 2012 bars foreigners from serving in most human resources-related roles.

5. Corruption

The British Chamber of Commerce found that investor perceptions toward corruption have slightly worsened over the past year. The 2019 Business Confidence Index found that 51 percent of foreign investors are worried about corruption, compared 43 percent in 2018 and 49 percent in 2017.

Despite that, other opinions suggest that conditions in Indonesia are improving. For instance, Transparency International’s Corruption Perceptions Index scores Indonesia’s corruption perception at 38 out of 100 points, beyond Brazil and Russia. Indonesia’s rank in this index has steadily improved since 2012, where it scored 32 out of 100 points.

Indonesia’s government has made steps to reduce bribery and collusion, such as moving many business application processes online. Regardless, investors who are unfamiliar with doing business in Indonesia should still look for guidance.

How can businesses deal with these challenges?

It’s important to note that despite all this, Indonesia is still a prospective and popular place to do business. These challenges shouldn’t discourage investors from working in Indonesia but serve as an overview of things to watch out.

A good way to face these challenges is to connect with experienced consultants. Business consultants who are familiar with the nuances of Indonesian regulations can help you navigate these obstacles and find alternatives.

Greenhouse offers an online platform for you to book business incorporation services and connect with market entry consultants in your target markets.

We’ll connect you with experienced consultants on the ground who can help answer your questions about doing business in Indonesia.

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