Doing Business in Indonesia

What are the challenges?

Challenges when doing business in Indonesia

Foreign companies must be prepared to encounter challenges when doing business in Indonesia. It ranks 72^nd out of 190 global economies in the World Bank’s Ease of Doing Business report 2018: http://www.doingbusiness.org/data/exploreeconomies/indonesia.

Businesses should be prepared for:

• complex bureaucracy

• uncertain and unpredictable legal and regulatory environment

• lack of transparency

• high logistics costs

• developing infrastructure

• business culture where companies will rarely respond to emails

• being a trusted partner is more important than strong business case

Indonesia offers a lot of opportunities for British companies in a wide range of sectors. Companies looking for a ‘quick win’ would be advised to look elsewhere, however the rewards of doing business in Indonesia can be considerable. It can take time to develop the necessary relationships before any financial returns materialise and companies should recognise this and plan their business entry strategy accordingly.

[Source: DIT/FCO/gov.uk]

 

Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Corruption remains a challenge for Indonesia and acts as a major deterrent to business and investment. Bribery and bribing public officials is against the law in Indonesia and the Indonesian Government is publicly committed to tackling all forms of corruption. The Corruption Eradication Commission (KPK) monitor interactions between companies and their staff and government officials related to the delivery of public services, such as the issuing of business permits or provision of other business documentation. However, corruption remains a regular feature of business life.

Indonesia is ranked 90^th in Transparency International’s Corruption Perceptions Index (CPI) for 2016 with a CPI score of 37, a significant improvement from 2014 (107^th), although a slight drop from 2015 (88^th), see: http://www.transparency.org/news/feature/corruption_perceptions_index_2016. The large-scale decentralisation of government since 2000 is thought to have increased corruption despite a Presidential push to reduce it. President Widodo has also promised to make tackling corruption a priority and he has a proven track record on this in his previous roles as Governor of Jakarta and Mayor of Solo.

Indonesia is ranked 72^nd out of 190 in the latest 2018 World Bank Ease of Doing Business report, see: http://www.doingbusiness.org/reports/global-reports/~/media/WBG/DoingBusiness/documents
/profiles/country/IDN.pdf. Indonesia’s business environment was one of the most improved economies in 2015-16 and is middling among ASEAN neighbours (ahead of Cambodia, Laos, Myanmar, and the Philippines).

Foreign businesses should be aware that the risks of encountering bribery or attempted bribery are relatively high in Indonesia. Visit the Business Anti-Corruption portal at: http://www.business-anti-corruption.com/country-profiles/indonesia for advice and guidance about corruption in Indonesia and some basic but effective procedures you can establish to protect your company from the corruption risks.

Read the information provided on the UK Government’s website on bribery and corruption at: https://www.gov.uk/anti-bribery-policy.

 

Intellectual property 

Intellectual Property Rights (IPR), as intangible assets, are a key factor in the competitiveness of your business in the global economy. IPR can protect your innovation from competitors and can also be an important source of cash flow through licensing deals or selling intellectual property (IP). IPR infringement can lead to loss of business, revenue, reputation and competitive advantage unless you take steps to protect your IP both in the UK and abroad.

When exporting to Indonesia, it is essential to register your rights in Indonesia as soon as possible in order to be able to defend and enforce them. IP rights are territorial in nature which means that registrations in the UK or another country’s jurisdiction are not automatically enforceable in others.

Indonesia has been a member of the World Trade Organization (WTO) since 1995. Indonesia is also a signatory to a number of international intellectual property (IP) treaties administered by the World Intellectual Property Organization (WIPO):

• signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) – sets the international standards for various aspects of IP

• the Paris Convention – protection of industrial property

• the Berne Convention – relating to the protection of copyright

• the Patent Cooperation Treaty (PCT) – provides for a common patent filing system

Indonesia has accordingly enacted laws covering patents, copyright, trademarks, and industrial designs to implement its obligations under the international treaties.

Generally speaking Indonesia’s IP legislation is comprehensive and in accordance with international standards. However, some aspects – including enforcement mechanisms – still need to be strengthened.

IP top tips for businesses

Be aware of ‘bad faith’ registration of trade marks (intentionally registering someone else’s pre-existing IP). Cancellation of bad-faith registration can be expensive.

Be aware of corruption. The Indonesian Government is taking steps to address this. However, it is worth discussing potential corruption risks with your attorney when enforcing your rights through the authorities.

Indonesia works under a first-to-file system, meaning the first person to file an IP right there will own that right when granted. This means an earlier user may find they are infringing a later-filed registration.

Indonesia is part of the ASEAN Patent Examination Co-operation (ASPEC), a regional patent work-sharing programme among nine participating ASEAN Member States (AMS). The purpose of this programme is to share search-and-examination results between the participating offices to allow applicants in participating countries to obtain corresponding patents faster and more efficiently. ASPEC is free of charge and operates in English.

Businesses are generally encouraged to learn more about IP issues relevant to their specific industry sector and to consider defensive measures early in their plans to enter the Indonesian market.

Useful information on protecting your IP in Indonesia can be can be found at:

• The Intellectual Property Office – the UK Government agency providing free and impartial advice on protecting and registering your IP in the UK and abroad. See: https://www.gov.uk/government/organisations/intellectual-property-office

• The ASEAN IPR SME Helpdesk – a project funded by DG Enterprise and Industry of the European Commission to provide free information and training for European SMEs in the ASEAN region. See: http://www.ipr-hub.eu/

• The Directorate General of Intellectual Property Rights in Indonesia. See: http://www.dgip.go.id/

[Source: FCO Overseas Business Risk/gov.uk]

 

Payment risks in Indonesia

UKEF helps UK companies get paid by insuring against buyer default.

Be confident you will get paid for your export contract. Speak to one of UKEF’s export finance advisers at: https://www.gov.uk/government/publications/find-an-export-finance-manager for free and impartial advice on your insurance options, or contact one of UKEF’s approved export insurance brokers at: https://www.gov.uk/government/publications/uk-export-finance-insurance-list-of-approved-brokers/export-insurance-approved-brokers.

Currency risks when exporting to Indonesia

If you have not fixed your exchange rate you have not fixed your price.

You should consider whether the best option for you is to agree terms in Sterling or Indonesian Rupiah (Rp) in any contract. You should also consider getting expert financial advice on exchange rates (sometimes called FX).

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