Rich in Resources and Opportunities
What makes Indonesia attractive for companies
In light of trade conflicts, entrepreneurs and executives are looking for new high-growth markets. In this respect, Southeast Asia, and Indonesia in particular, comes into focus. With a population of more than 283 million and need for technology, the world’s largest island nation is attractive to foreign companies. At the same time, market entry should also be carefully prepared for regulatory reasons.
A double-decker highway leads to the north of Jakarta. There is heavy traffic in the afternoon when Rainer Ruppel is taken to a production facility. Trucks with sea containers on the way to the port are lined up one after the other like a string of pearls. “Massive investments are being made in infrastructure. Motorways, local and long-distance rail networks, logistics – there is an enormous need to catch up here,” says Ruppel, looking to the left, where a high-speed train is rushing by. “So far, I have mainly seen companies from China, Japan and South Korea in projects. The market offers great potential for companies also from other regions of the world.”
Rising middle class
Ruppel is a member of the supervisory board of the German-Indonesian Chamber of Industry and Commerce (EKONID). At the same time, he has been managing the business of a medium-sized company in Indonesia since 2018 and has come to appreciate the country. “In Indonesia, companies see a young population of 30 years on average, including more than 100 million people in a rising middle class with a lot of untapped potential in a wide variety of areas. At the same time, annual economic growth has been stable at more than 5 percent for years,” says Ruppel. In the B2C sector, renowned consumer goods and luxury items are in demand. It is true that the middle class in Indonesia is also struggling with rising inflation. But both there and among the rich upper class of the population, there is a strong demand for well-known brands, according to his perception.
Raw materials as the basis for growth
The country’s economic rise is based on the export of raw materials. Indonesia has the largest nickel reserves in the world. About a fifth of the global deposits are located there. In addition, gold, copper, bauxite and tin are abundant. In addition, it has considerable coal, natural gas and oil reserves. For many years, nickel ore was exported to China as a raw material. Since the introduction of the export ban in 2020, Indonesia has set up its own nickel smelters to produce the final product for the manufacturing of stainless steel itself. This approach is also reflected in the principle of “local content“ in other industries, which is already familiar from China.
Government pushes for local content
Apple had to learn this when the government decreed a ban on the sale of the iPhone 16 in 2024, claiming that at least 40 percent of the components in smartphones sold in Indonesia had to come from local manufacturing. While providers such as Samsung had been manufacturing locally for a long time, Apple still imported. The first offer of the US company for an investment of 100 million US dollars was rejected by the authorities. After tough negotiations and Apple’s commitment to a production facility on the Indonesian island of Batam – with a rumored investment volume of about one billion US dollars – the sales ban was lifted. The situation is similar in the public procurement market: when authorities or state-owned companies buy goods, all items must be listed in an e-procurement system – from toilet paper to robots. As soon as an Indonesian supplier produces a comparable product, an importer can no longer sell to the public sector. In this way, foreign companies are encouraged to invest locally.
Diversification offers opportunities
Where there are commodities, there is money for diversification. The country’s 300 wealthiest families have become rich with land and raw materials – now they are investing in other areas. Money plays a subordinate role in this, as can be heard. Business ideas and technologies are needed. Investments are opportunistic – from food production to consumer goods and tourism to entertainment and pharmaceuticals. There is also increasing interest in renewable energies despite a carbon-centric economy, and some international wind and solar energy companies are already active locally. Since Indonesia’s raw materials are also finite, this provides opportunities for international companies.
Logistics expertise in demand
There are other options in terms of logistics. The costs of transport and distribution are high in Indonesia because of its geography. Of the 17,508 islands, 6,044 inhabited islands have to be supplied on an ongoing basis. For international logistics companies with experience in complex markets and intelligent merchandise management systems, there are therefore interesting prospects. This applies not only to food and pharmaceuticals but also to industrial products. A possible starting point could be the greater Jakarta area with its 35 million inhabitants.
High cash investment at foundation
Those who want to enter the market in Indonesia are met with great interest in collaboration from local partners. Whether a joint venture or the founding of a company makes sense depends on the business model. When it comes to importing and distributing products, most foreign companies start with a local distributor. When it comes to services or local production, a separate legal entity is the means of choice. The only legal form available for this purpose is the so-called PT PMA – and requires significant equity: “At least IDR 10 billion, the equivalent of approx. EUR 560,000 or USD 612,000, must initially be raised as share capital. However, the capital can be used for operational purposes,” explains Freddy Karyadi, a lawyer in Jakarta. Except for the share capital, no minimum investment is required to obtain the regulatory license to commence operations. For such a license, a business plan must be drawn up and, with the help of consultants, it must be clarified on the basis of an official list to which category the transactions are to be assigned. Depending on the business model, there can be several licenses. In addition, the risk profile determines whether the application can only be submitted online or after consultation with the competent authority.
Quick and unbureaucratic foundation
It takes two to three weeks for the company to be founded if all the necessary documents are available, which can take several months depending on the investor. Setting up a local bank account is done within two weeks; for international banks, on the other hand, the KYC processes take longer. “Once the notary has entered the founding data into the online mask, the company is registered the next day and a tax number is automatically issued at the same time,” explains German lawyer Philipp Kersting. Each PT PMA has a Board of Directors and a Board of Commissioners, a relic of the colonial times of the Netherlands. In addition, at least two shareholders are required, but they do not have to be resident in Indonesia. “At least one director must be registered for tax purposes in Indonesia, for which local service providers are sometimes used,” says Kersting.
Patience and serious interest required
Anyone who sets up a business in Indonesia needs staying power: “You should take enough time if you want to be successful here,” Kersting emphasizes. “You have to think in the medium to long term and that means five to ten years,” Ruppel also confirms. What is quite common for family-run medium-sized companies, on the other hand, can be a stumbling block for capital market-oriented corporations. A careful market analysis and the establishment of local contacts via chambers of commerce are advisable, according to Ruppel. Suitable visas are available for up to 60 days without a work permit on site. Serious interest and financial resources are needed. In any case, the market entry in Indonesia cannot be implemented remotely from the desk.
Board Journal – March 16th, 2025
