By Business Team Last updated on November 6, 2019

Indonesia is an emerging global powerhouse in Asia. With the current GDP (as of 2018) 1.042 trillion USD (source: WorldBank), Indonesia is the largest economy in Southeast Asia. Over the past decade, Indonesia has enjoyed steady economic growth, though less than needed to pull the country into upper-middle-income status, and the rate of growth is slowing. 

In this article, we have put together 5 tips for foreign SMEs looking to expand to Indonesia.

1. Have a local contact who knows your industry

Indonesian market and regulations can be very confusing for foreign investors when they first entered Indonesia. Although the regulations keep improving, there are still a number of regulations that prevent foreign investors from entering Indonesian market. It can be conflicting like Indonesia has begun to implement local content requirements that prevent some foreign products from being sold in Indonesia.

It is better for any company that wants to enter Indonesia market to have local contact with good experience in their field of industry, or to partner up with a local company who already has the business connections or management skills. It will really help the company to find new clients and navigate the unique challenges of local market.

Most of successful overseas businesses that have entered Indonesia in recent years have generally recruited local entrepreneurs to tap into their experience in the Indonesian market.

2.Don’t take the large population for granted

One of the most common mistakes foreign investors usually make is being overly optimistic about their success because of Indonesia’s large population. Although Indonesia has a large population, the market is very fragmented because of geography. Most of the population is concentrated on the island of Java, but there are also big population centers in Sumatra and Sulawesi.

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.

3.Navigating geography

How to determine the best place to open your business? Most of foreign SMEs have chosen to open their Indonesian operations in Jakarta since it is the capital city of Indonesia and the center of business.

But this becomes a challenge for businesses whose products or services need space, such as agriculture. 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.

Logistics can also be a problem because Indonesian infrastructure and service networks have not been developed the best at this point. Thus it is really important 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

Another important point is how Indonesians value foreigners’ insights. Some of the companies that have strong cross-cultural training programs in Indonesia and overseas said that Indonesian staff appreciated working for foreign companies.

5.Be aware, but not put off, with politics

While diplomatic problems may occur or defined some countries’ recent relationship with Indonesia, the small businesses exporting to Indonesia has remained consistent. SMEs would be aware of those political factors definitely, but the business activity doesn’t really drop off. There’s a lot of exporters doing really well in Indonesia, and some of the companies have their rates of return are high compared to China and India.