Five tips for expanding your business to Indonesia
Wednesday, December 9, 2015/
As Asian markets go, Indonesia remains largely untapped by Australian small business.
Recent estimates suggest only 250 Australian companies have a physical presence in the archipelago, which has a population nudging 250 million.
This looks set to change. A recent two-week bid to boost business ties with Indonesia saw Malcolm Turnbull visit Jakarta and Indonesian President Joko Widodo in his first overseas trip as prime minister last month.
Soon after, trade minister Andrew Robb travelled to Jakarta for Indonesia Australia Business Week on November 17, with industries including infrastructure, manufacturing, agriculture, aged care, and education represented in his 300-strong delegation.
Tim Harcourt, economics professor at the University of New South Wales, has recently returned from moderating the Business Think Indonesia panel event in Jakarta and he told SmartCompany now is “probably a better time than most” to expand to Indonesia.
“Indonesia is your typical Asian consumer society, with a growing middle class if you’re in Jakarta, and consumer confidence is steady,” Harcourt says.
“If you look at that middle class, probably food, tech and agri-business are the growth markets at the moment.”
Here are five tips for Australian SMEs looking to expand to Indonesia.
1. Have a local contact who knows your industry
Dondi Hananto is a Jakarta-based former risk management strategist for HSBC Indonesia who now runs Indonesian Venture Capital firm Kinara Indonesia.
He says the successful overseas businesses that have entered Indonesia in recent years have generally recruited local entrepreneurs to tap into their experience in the Indonesian market.
“The Indonesian market can be very confusing for a lot of foreign investors when they first get here,” Hananto told SmartCompany.
“What’s best for any company wanting to come here is to either have a local contact with good experience in their industry in Indonesia, or to partner up with a local company who already has the business connections or management skills.”
“I think that’s really helped them find new clients and navigate the unique challenges of the local market.”
2. Don’t take the large population for granted
One of the biggest dangers for overseas businesses looking to invest in Indonesia is being overly optimistic about how successful they’ll be because of the large population.
“250 million Indonesians sounds big, but a lot of people don’t realise that it’s a very fragmented market because of geography,” Hananto says.
“Most of the population is concentrated on the island of Java, but there are also big population centres in Sumatra and Sulawesi.”
Harcourt says local market dynamics also present obstacles to foreign investors taking advantage of the large consumer base.
“Domestic firms have a pretty strong influence right across Indonesia, and the government still looks to protect Indonesian small businesses from foreign competition,” he says.
In one of these measures, foreign-owned companies must have a minimum capital of AUD$1 million (IDR $1 billion) before they can do business in Indonesia.
While Indonesia’s finance minister Bambang Brodjonegoro has said attracting foreign investment is now a priority, SMEs currently planning to expand to Indonesia will need to be savvy with the investment they make.
3. Navigating geography
Part of this savviness is in deciding where to set up shop. Most of the 250 Australian businesses have chosen to manage their Indonesian operations in Jakarta because, as Harcourt says, “it’s where the big money is”.
But this presents challenges for businesses whose product or services need space, such as agriculture.
Hananto says navigating geography is a key skill of entrepreneurs with this type of business.
“Being close to the decision-makers and clients is important, and most of them are in Jakarta, but sometimes those decision-makers are influenced by people on the ground,” he says.
“Logistics can also be a problem because transportation infrastructure is not the best at this point.
“So you really need to know where your market is, consider travel costs and distribution channels to make sure your costs don’t blow out.”
4. Build good relationships with your overseas staff
Harcourt says a key point to come out of Business Think Indonesia was how Indonesians value Australian insights.
“Take the goodwill of Indonesian people at face value,” he says.
“Some of the companies already in Indonesia that I’ve spoken to have strong cross-cultural training programs in Indonesia and Australia, and they said their Indonesian staff appreciated working for Australian companies.”
5. Be aware, but not put off, by politics
While diplomatic tensions over live cattle exports, intelligence agency surveillance and the Bali Nine have defined Australia’s recent relationship with Indonesia, Harcourt says the number of Australian small businesses exporting to Indonesia has remained consistent.
He says there’s no reason why this shouldn’t also be the case for businesses who establish a physical presence there.
“I would be aware of those political factors definitely, but the evidence shows [business activity] doesn’t really drop off,” he says.
“So, I’d say to small businesses in Australia, there’s a lot of exporters doing really well in Indonesia, and some of the companies there are telling me their rates of return are very high compared to China and India.”
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