Indonesia offers a growing middle class, a table political situation, strong domestic demand, as well as conservative macroeconomic policies. It Is the world’s fourth most populous nation with approximately 235 million people where roughly half of the population is under the age of 30. In addition, English is the most widely spoken foreign language in Indonesia and it is commonly used in business. The strong economic performance of Indonesia has brought it recognition from global investment banks such as Goldman Cash and economic analysts including the Economist as one of the world’s most important and dynamic economies.
Indonesia is an open-market economy with a ere foreign exchange regime. It also has abundant natural resources and commodity products. Indonesia belongs to numerous International organizations including the World Trade Organization (WTFO), World Customs Organization (WACO and the World Intellectual Property Organization (WIPE). The Indonesian textile Industry Is expected to remain a major contributor to the economy In the future. One of the leading reasons is that Indonesia has some of the lowest wages among SEAN member countries and a literacy rate of about 90%.
The Indonesian textile industry is one of the oldest and most strategic industries of the country, contributing significantly to national growth. Indonesian textile and clothing industry provided approximately 1. 1 million jobs in 2012. It accounted for 7% of the country’s total exports in 2013 and almost 2% of national GAP. One of the key strengths of the Indonesian textile market is the presence of both an upstream and downstream industry, both of which are well developed. Forecasts by HASH indicate that the industry will become Indonesian largest export sector by 2030.
While significant potential exists, Indonesia struggles with numerous Issues. There Is Inadequate Infrastructure In much of the country, vague and conflicting regulations, excessive reassurance, and rolled labor laws that Include Limitations of the hiring of expatriate employees. In addition, corruption continues to be of significant concerns. However, component of this is the structure of the foreign direct investment. Most foreign companies enter the market by setting up an Indonesian limited liability company (AMA).
The textile industry does allow a 100% wholly owned entity by a FDA company. However, it is advised that seeking a Joint venture with an established and trusted Indonesian partner who can assist in navigating the bureaucracy will provide greater success. Otherwise, to mitigate the issues that exist, it will be imperative to hire reliable and trusted lawyers, consultants, and accountants. Established foreign investors and history have both shown that companies can be successful in Indonesia as long as a long-term view is established.
The need for the Indonesian textile industry to become more efficient provides our company opportunities to provide “know how’ and capital investment. In addition, the robust economic growth and rising purchasing power of the population make Indonesia an attractive market for textiles and clothing for the foreseeable future. Textile Industry The Indonesian textile industry, encompassing the production of fabric, apparel, and leatherier, is expected to remain a major contributor to the economy in the future. It is one of the most important elements of the country’s manufacturing sectors.
One of the leading reasons is that Indonesia still has a comparative advantage for labor- intensive industries such as the textile industry; even though wages have recently increased. It also has a sizable domestic market; given the population of the nation. The industry is concentrated near the capital Jakarta in the western end of Java Island; however Central and Eastern Java are becoming more important. Most of Indonesian textile businesses sell their goods on the home market; however the vast majority of Indonesian made clothing is shipped abroad; with many of the larger companies producing apparel for global brands.
The textile companies in the region have aligned with international industry standards and have achieved certifications; as well as recognition for sustainable and environmentally friendly production. This has enabled the Indonesian textile market to attract leading global fashion brands due to the quality of products produced. The National Medium-Term Development Plan (Renal Bemoaning Kananga Meghan National – RIPEN) recognized the need to increase the competitiveness of the industry.
To support the Indonesian economy, the National Industrial Policy placed a priority on the textile industry. In addition, the Indonesian government has supported the industry revitalization by providing financial incentives (subsidies of 11%) to invest in new machinery; along with promoting technological cooperation between local and foreign companies and the transfer of knowledge. This presents opportunities for foreign companies to step n and form partnerships with local companies, including Joint ventures and private equity investments.
The country’s sound economic fundamentals and location in a region of rapid economic development affords foreign investors the chance to participate in what could become one of the leading textile and clothing markets for both sales and production. By 2030, a survey by HASH forecasts that the Indonesian textile market will become the leading export sector. Indonesia has undergone a political transformation since the upheaval of 1998 which saw the fall of General Shorts after 30 years of authoritarian rule.
It is now the third most populous presidential, multi-party democracy in the world and the largest nation in Southeast Asia. Indonesia has experienced political stability under the current president, Silo Bambina Hoyden, who was elected in the first direct elections in Indonesia in 2004 and subsequently re-elected in 2009. The 3rd Indonesian presidential election will be held later this year in which incumbent President Hoyden is constitutionally barred from seeking a third term in office.
This poses risks; as economic and political reforms instituted by President Hoyden may come under scrutiny with new leadership. Separatist violence and threats have also diminished in the past several years. However, tensions continue to simmer in certain regions as violence between members of different ethnic and religious groups continue to flare up. One primary reason for this is that the gap between the rich and poor is widening and corruption continues to be a persistent issue. The administration of President Hoyden has made battling corruption a priority.
To help strengthen its efforts against corruption, Indonesia ratified the UN Anti-Corruption Convention in 2006; giving it access to much needed resources. Indonesia is also a member of numerous regional and international organizations and has ratified many bilateral and multilateral trade and investment related agreements. It is a signatory to numerous international agreements protecting intellectual property rights and belongs to several international organizations to support these efforts. The US and Indonesia have enjoyed good relations. In 2010, Presidents Obama and Hoyden inaugurated the U. S. Lemonades Comprehensive Partnership. This partnership has fostered consistent engagement on issues related to democracy and civil society, education, security, climate and environment, energy, ND trade issues, among others. Indonesia has also pursued cooperative relations with neighboring nations; contributing to the peace and stability in the region. Indonesia and the US also cooperate on regional economic and security issues as well as global concerns. They both belong to several of the same international organization and forums such as the United Nations, SEAN Regional Forum, 6-20, World Bank, East Asia Summit, to name a few.
The US is one of the largest investors in Indonesia and is a major market for Indonesian exports. Indonesian large and youthful population makes it an important market for US products and services, including investment in new infrastructure projects. Overall, Indonesia is now a vibrant and stable democracy that is continuing to strengthen its political structure; thus providing confidence for foreign direct investment (FDA). In 2012, the Indonesian government welcomed increased FDA, aiming to spur economic growth and create jobs.
To attract investors, the government has adopted more pro-investment policies; offering tax and other incentives and relaxing restrictions on foreign investment in certain sectors under the Negative Investment List. The government has strengthened its Investment Coordinating Board (BACK) to reduce red tape and rate a one-stop shop for investors. BACK is responsible for issuing investment licenses to foreign entities and has taken steps to simplify the application process through better coordination between various government institutions.
In addition, approval for expatriate employee work permits. Permits are issued only for positions that cannot be filled by Indonesian nationals. In 2012, BACK launched the online portal for its National Single Window for Investment which allows foreign investors to apply for and track the status of licenses and other services online. Indonesia is an open-market economy with free foreign exchange regime. It has abundant natural resources and commodity products. The government does play a significant role in the economy through ownership of 141 state-owned enterprises.
The country has a large domestic consumption base and the middle class has grown substantially to well over 100 million people; with 7 million more being added each year. Indonesian conservative macroeconomic policies and continued strong GAP (5. 6% in 2013), coupled with wage growth, improving employment outlook, and strong domestic demand due to the growing middle class make it an attractive destination for FDA. As result, Indonesia is being increasingly recognized as one of the world’s most important and dynamic markets.
Indonesia has continued to bring its legal, regulatory, and accounting systems into compliance with international norms; however it does struggle with an array of challenges and progress is slow. Indonesia has a relatively low ranking of 120 on the ease of doing business index benchmark in 2013. Even with progress, there remains vague and conflicting regulations, poor and inadequate infrastructure, excessive bureaucracy, and rigid labor laws. These coupled with corruption continue to be of significant concerns for FDA.
Despite these challenges, Indonesian growing economy has resulted in increased foreign and domestic investment in recent years. Many of these issues are mitigated with proper planning and execution. Partnering with established and trusted Indonesian including lawyers, accountants, and consultants prior to FDA in Indonesia should be a high priority and well thought out. Business Culture The business culture in Indonesia is much different in comparison to the US. When conducting business in Indonesia, it is essential to understand and learn about the country, culture, and attitudes.
This will allow engagements with Indonesian to be more productive and results oriented; if not enjoyable. Attitudes towards time, relationships, and harmony are key elements to consider in social and business engagements with Indonesian. Time is considered limitless in Indonesia. They do not follow rigid schedules and are generally not punctual; however foreigners are expected to be on time. Hurrying is seen as impolite; as such, flexibility and patience are critical to success. Foreigners must be prepared for slow processes; drawn out negotiations including bargaining is assumed and even encouraged.
Strong legislations are also essential for successful business ventures in Indonesia. Lengthy discussions are a norm in order to develop respect and friendship in a relationship. Nurturing a relationship over an extended period requires mutual respect and leads to harmony. In general, Indonesian avoid aggressiveness, conflict, and embarrassment; instead they embrace restraint, politeness, discussion, respect, and consensus in order to produce harmony. It is also important to show respect and interest in the Indonesian culture, language, and religion to develop harmony. Socializing and developing relationships further. Understanding and respecting there social norms such as gift giving, body language and behavior, meeting and greeting, dining and entertainment, and attire are all very important. Due consideration should also be given to how business women interact with Indonesian. A thorough review of the Indonesian customs and social norms will prove beneficial in developing strong long-term relationship that can directly impact the success of any business venture.
