Indonesia and Southeast Asia’s Business Complexity (Interview)

How do different situations in different countries affect the ease of doing business? Greenhouse interviewed Alvin Christian and Emmanuel Sumaryo of TMF Group to discuss TMF’s Global Business Complexity Index which measures this phenomenon.

You can watch the full video here, and read our summary below.

What is the Global Business Complexity Index?

According to TMF, the 2019 Global Business Complexity Index was designed to make an overview of all the complexities in these different jurisdictions.

They conducted the study by interviewing experts in 76 jurisdictions to measure how business complexity impacts commercial activities, focusing on three key areas:

  • Accounting and tax
  • Rules, regulations, and penalties
  • Hiring and firing of employees

Emmanuel explained, “We have a set of statistically weighted questions that give us the complexity score. For the top ten and bottom ten jurisdictions, there are individual interviews done by a third-party research consultant to ensure that the results aren’t skewed.”

According to Alvin, the survey has two main objectives:

  • To provide transnational companies and firms a benchmark of the business complexity around the world.
  • To provide insight for the policymakers within these jurisdictions about the global perception of the respective countries.

The data was compiled from statistical analysis and surveys about the companies in the process of investing, expanding, or exiting from different jurisdictions.

“The challenge is that the rules and regulations in different countries are very different from one another. That’s why in addition to the survey, we also conduct qualitative interviews with experts specializing in the highest and lowest-ranking jurisdictions to better understand the details.”

How Southeast Asia differs from other parts of the world

TMF found that Southeast Asia is an interesting region because its many constituent countries have similarities, but differences as well.

For example, the 2019 Business Complexity Index ranks Indonesia as the second most complicated jurisdiction out of 76. Meanwhile, other countries are less complex for businesses — Singapore ranks at 42, while Thailand ranks at 73.

According to Emmanuel, one major similarity is the importance of being in tune with the local language. He explained, “In Southeast Asia, language is always one of the major issues. If you don’t speak the language, it will be difficult to get through the regulatory barriers.”

This is why having local representatives is often a necessity when expanding into emerging markets, including Southeast Asia.

For example, this makes Singapore a very easy place to do business in. Not only because their regulations are very open to foreign investment, but also because their primary language is English — an easily accessible language for most businesses.

Emmanuel explained, “Thailand is also more centralized with its own procedures, which — if followed correctly — should produce minimal issues.”

He continued, “Meanwhile, the Philippines is in a bit of a mix because the governmental landscape is very turbulent. It’s similar to Indonesia where many things are changing quite quickly. But due to the Philippines’ long-standing relationship with countries like Spain and the United States, it’s a bit more open to foreign investment.”

The business complexity situation in Indonesia

According to Alvin, Indonesia is going through what he calls “growing pains” in terms of the business landscape and policies.

“I think there’s a strong desire from the government for building infrastructure or the overall economy to allow more foreign direct investment to come into the country,” he explained.

However, the country’s massive size — over 260 million people spread over seventeen thousand islands — presents challenges. The decentralized government gives a lot of freedom to regional authorities, making it hard to synchronize policies.

“We are in growing pains, and Indonesia, as a country, is pushing strongly towards digitalization. We are looking into making things more digital — one of the few initiatives is the OSS to make makes things more streamlined.”

Emmanuel stated the recent launch of the government’s Online Single Submission (OSS) as an example. While the system aims to simplify the process to get licensing, many businesses, service providers, and government officials are still used to the old way of doing things. As a result, they’re facing challenges in adapting to digitalization.

Another issue is the rapidly changing regulations — even government officials sometimes find it difficult to coordinate with each other. TMF has faced cases where officials in one government agency were not aware of policy updates that other agencies had implemented.

How should businesses in Indonesia adapt?

According to TMF, it’s more important in Indonesia for businesses to be educated about the policies and regulations. This is because businesses need to adapt, and the best way to do it is to understand it themselves.

“We help them comply with the regulations — whether it’s tax, accounting, legal, in the HR matters. We assist them to comply with their regulations that’s ever-changing.”

Alvin stated that the best thing to do for businesses is to find local partners. Not simply to perform services for them, but also guiding them through the processes. Every time a regulation changes or a new policy is put into place, businesses should always be aware of how it would affect them.

Greenhouse empowers 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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