Suryo Bambang Sulistyo, the newly elected chairman of KADIN Indonesia, aims to boost Indonesia's economic growth to 10% annually through strategic partnerships between the government and private sector to improve implementation of economic reforms. While ambitious, double-digit growth is achievable by focusing on infrastructure development, improving connectivity, and reducing barriers to business. Sulistyo believes Indonesia's current economic policies are moving in the right direction but need clearer priorities and stronger implementation to maximize the country's potential and increase competitiveness relative to its neighbors.
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
Attracting the investment necessary for Indonesia’s future growth and development will require South-east Asia’s largest economy to have a more predictable policy environment and to rejuvenate its fragile manufacturing sector, says a new report published today by The Economist Intelligence Unit (EIU). Open for business? Investing in Indonesia’s new era, sponsored by Shell, features essays by prominent thinkers from research, industry and academia that examine the investment opportunities and obstacles in the wake of the landmark election victory for Joko Widodo, President of Indonesia, in 2014.
Among the essays, Wijayanto Samirin, co-founder and managing director of the Paramadina Public Policy Institute, and economic advisor to Indonesia’s Vice President Jusuf Kalla, argues that poorly thought out policies preventing investment can be avoided if the government consults businesses more about new legislation. “Ideally, the government should engage the business community in the policymaking process, and the business community should proactively seek dialogue with government,” he writes.
Destry Damayanti, executive director of the Mandiri Institute, explains in another essay how Indonesia’s manufacturing sector has struggled to keep up with the country’s economic expansion and remains highly exposed to global business cycles and exchange rate fluctuations. “Indonesia should no longer rely too heavily on the primary resources sector, as falling global commodity prices are unlikely to recover in the next few years,” she writes. “It is time for the manufacturing industry to be revived and take a central role as an engine of growth and source of employment.”
Meanwhile Josephine Bassinette, manager, operations and portfolio, World Bank Indonesia, finds that relatively high logistics costs stemming from significant inefficiencies in port management, transportation and regulations may be a deterrent to investment. “Indonesia’s private sector will have a difficult time competing with its neighbours even in areas where it should have a competitive edge in terms of labour costs or inputs. For foreign investors, the relatively high logistics costs in Indonesia will make them less likely to invest,” she writes.
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
Attracting the investment necessary for Indonesia’s future growth and development will require South-east Asia’s largest economy to have a more predictable policy environment and to rejuvenate its fragile manufacturing sector, says a new report published today by The Economist Intelligence Unit (EIU). Open for business? Investing in Indonesia’s new era, sponsored by Shell, features essays by prominent thinkers from research, industry and academia that examine the investment opportunities and obstacles in the wake of the landmark election victory for Joko Widodo, President of Indonesia, in 2014.
Among the essays, Wijayanto Samirin, co-founder and managing director of the Paramadina Public Policy Institute, and economic advisor to Indonesia’s Vice President Jusuf Kalla, argues that poorly thought out policies preventing investment can be avoided if the government consults businesses more about new legislation. “Ideally, the government should engage the business community in the policymaking process, and the business community should proactively seek dialogue with government,” he writes.
Destry Damayanti, executive director of the Mandiri Institute, explains in another essay how Indonesia’s manufacturing sector has struggled to keep up with the country’s economic expansion and remains highly exposed to global business cycles and exchange rate fluctuations. “Indonesia should no longer rely too heavily on the primary resources sector, as falling global commodity prices are unlikely to recover in the next few years,” she writes. “It is time for the manufacturing industry to be revived and take a central role as an engine of growth and source of employment.”
Meanwhile Josephine Bassinette, manager, operations and portfolio, World Bank Indonesia, finds that relatively high logistics costs stemming from significant inefficiencies in port management, transportation and regulations may be a deterrent to investment. “Indonesia’s private sector will have a difficult time competing with its neighbours even in areas where it should have a competitive edge in terms of labour costs or inputs. For foreign investors, the relatively high logistics costs in Indonesia will make them less likely to invest,” she writes.
Masterplan Acceleration and Expansion of Indonesia Economic Development 2011-...Parivartin
This is the English translation of the "Masterplan Acceleration and Expansion of Indonesia Economic Development 2011-2015" or the "Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia 2011-2025 (MP3EI)" in Bahasa Indonesia, authored and published by the Coordinating Ministry for Economic Affairs, Ministry of National Planning & Development, and the National Development Planning Agency.
This has been uploaded by Parivartin to provide wider availability to the economic planning and policy direction of the Indonesia Government to wider English-speaking audience. All copyright is held by the Indonesian Government's respective ministries and agencies.
This publication was originally published at the Coordinating Ministry for Economic Affairs website: http://www.ekon.go.id/
ENTREPRENEURSHIP DEVELOPMENT AND UNEMPLOYMENT IN NIGERIAIJM Journal
A number of policy intermediations in Nigeria that were targeted at inspiring and stimulating entrepreneurship development through small and medium scale enterprises have botched. In its place of creating in-country entrepreneurial capacity, entrepreneurs have been converted and become distribution agents of imported goods. This paper argues the development of entrepreneurship and stressed that it has been instrumental in economic growth, balanced regional development and job creation in most vibrant economies, where technology is changing at a faster rate and the product lifetime cycle is dwindling. This paper also looks at Nigeria’s growing unemployment situation and how it increasingly deteriorates the potentials of the country. It emphasizes the prominence and significance of entrepreneurship as realistic machinery for sustainable economic growth and employment generation in Nigeria seeing the experiences of developed nations like Australia, the United States and vibrant economies like China and India.
Role of Finance and Organizational Climate on Entrepreneurial Development amo...ijtsrd
Entrepreneurship is a key driver of economic growth and economic development. It is also a medium through which unemployment can be reduced and innovation can be promoted. It is a fact to say that entrepreneurship is a panacea for poverty reduction and eradication which is one of the cardinal eight point agenda of Millennium Development Goals. Entrepreneurship is seen as a key vehicle for employment creation, creation of economic wealth, and an essential means of enhancing the innovation dynamics in the local, regional and national economies Chris 2010 . Entrepreneurship provides a satisfying and rewarding working life, provides a flexible lifestyle and considerable business autonomy. It is becoming an increasingly important career option for unemployed people, secondary school and university graduates. At the national level, entrepreneurial activity contributes to economic growth and economic development Chris 2010 . Many researchers have written extensively on entrepreneurship and its effectiveness to the development of any given economy. Akanni 2008 further opined that the experiences of developed economies in relation to the roles played by entrepreneurship buttresses the fact that the significance of entrepreneurship cannot be overemphasize particularly among developing countries. In order to highlight its importance in relation to the growth and development of a given economy, entrepreneurship has been variously referred to as "source of economic growth". This is because entrepreneurial activities have been found to be capable of making positive impact on the economy of a nation and the quality of life of the people Adejumo, 2000 . Ojo Adeshina Akinwumi | Abifarin Olusola Michael | Dr. Okoklie Emmanuel Azuka "Role of Finance and Organizational Climate on Entrepreneurial Development among Selected Residents" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-4 | Issue-4 , June 2020, URL: https://www.ijtsrd.com/papers/ijtsrd30297.pdf Paper Url :https://www.ijtsrd.com/other-scientific-research-area/other/30297/role-of-finance-and-organizational-climate-on-entrepreneurial-development-among-selected-residents/ojo-adeshina-akinwumi
Dissertation fdi-foreign-direct-investmentTutors India
We write abstract for your master’s dissertation which would approximately contain 250 to 350 words. We complete the abstract after the full dissertation has been written that includes a brief summary of introduction or background, objectives, boundaries, methodology, the results of the dissertation research, main conclusion that you arrive, and recommendations
Twenty-one years after the economic reforms began, India finds itself at a crossroads. While the global economic crisis is still a reality, growth is slowing and there is a paralysis in policy making. With the union budget around the corner, there is an urgent need to boost reforms and take radical policy decisions. Will finance minister Pranab Mukherjee deliver? Time will tell.
Housing finance in india challenges and issuesTapasya123
House is a centre and domestic device for mankind's moral and core
development ever since the dawn of evolution and civilisation. Housing is
one of the basic requirements that human beings need. Good housing is a
pre-requisite for human development and welfare. It provides shelter,
security, amenities and privacy to the human beings for decent living.
There are many things that people would find difficult, if not impossible to
do without good-quality housing. Housing shortage is a universal
phenomenon. Without good housing, people cannot realise their full
potential and carry on the life they want to lead. Good housing reflects the
general welfare of community, whereas bad housing leads to serious
consequences such as diseases, immorality, and juvenile delinquency.
Housing is also an investment activity and provides impulsion to economic
growth. It has both forward and backward linkages. Because of its forward
and backward linkages, even a small initiative in housing will drive
multiplier effect in the economy through the generation of employment and
demand. Housing finance is not a new concept in finance sector of India. It
has developed rapidly during last few decades due to the enthusiastic
interest of Government to cut-short the housing problem of the country.
Although, present environment of finance sector seems to be suitable for
uninterrupted growth of housing finance market, but there are few general
problems, which create challenges and issues directly and indirectly. This
paper is an attempt to reveal such problems and challenges in India.
Challenges And Opportunities Of Globalisationloveleenchawla
Globalization: challenges and opportunities
Abstract:
Globalization is a multifaceted phenomenon. The paper identify some of the
Challenges it poses, as well as some of the opportunities it offers. Attention is focused on three major aspects of globalization namely economic, cultural, and political.
During 1990 to 2003, the volume of world trade has increased and the higher and middle-income countries managed to increase their share in world trade mainly due to the opening up of economies because of globalization. The middle-income countries had invited more Foreign Direct Investment during the period and the per capita GDP of the low-income countries was marginally increased. This resulted into the economic inequality, which widened between different income groups. In other words globalization has been confined to developed countries and developing countries were able to participate in the process.
However, globalization should not be accused for loosing share of the low-income countries. These countries suffered from internal problems like rapid rise in population, infrastructure bottlenecks, weak financial markets and so on.
Globalization and its benefits required a conducive environment to ensure higher returns and larger markets for foreign investors. To get a share of global capital, technology and output, developing countries had to upgrade their social and economic institutions through administrative, legislative and legal reforms.
Globalization merely provides opportunities to flourish. Globalization is not a tool to produce equality of outcome but it produces equality of opportunity for those with right mindset. Therefore developing countries require focusing on economic restructuring, developing market-supporting institutions and creating efficient regulatory mechanisms.
The low-income countries cannot survive at their own; they require international assistance and a support mechanism so as to facilitate their participation in the process of globalization. The challenge of the hour is to make globalization work towards global prosperity through disaggregate development. The critically necessity in this context are the collective and cooperative actions which should be realized by all countries of the world and particularly the developed ones.
The broad theme of this paper is on the relations between creative economy and economic diplomacy in the Indonesian context. The paper believes that creative economy is a valuable asset in Indonesian economic diplomacy, besides other more established sectors, inter alia trade, investment, tourism, and services. The contribution of creative economy to the economic growth of Indonesia is evident from its share to the GDP growth, workforce absorption, and export balance. Furthermore with the establishment of the Ministry of Tourism and Creative Economy (being the first of its kind in the world), creative economy is also in synergy with the tourism sector in strengthening and promoting each other.
This paper recognized that in the venture of advancing creative economy, several challenges exist and if not carefully managed, they will shroud and hinder the creative economy to rise to a higher notch. Indeed there has to be a comprehensive approach to optimize the development of creative economy; including the creative ideas, creative technology, creative industries, and human resources. Furthermore, market penetration and access to financing have to be expanded.
Despite the current challenges that are still faced by the creative economy sector, the opportunity is still promising. The potency of the external market has not been fully utilized. In this regard, greater focus and attention for strategies to penetrate these markets, both in the traditional markets as well other countries as the nontraditional market are crucial. In addition to this, creative economy could play a very important role in promoting national tourism, including local culture and wisdom to the international audience.
On the recommendation part, this paper put forward ideas in the form of thirteen strategies to be considered by policy makers, as well as for diplomats posted in Indonesian Embassies/Consulate Generals abroad in doing their function in the economic and/or socio-culture sections, by emphasizing the synergy between the Ministry of Foreign Affairs and the Ministry of Tourism and Creative Economy.
The creative economy has become a driving force for economic growth
and cultural development in Indonesia, with the Minister of Tourism
and Creative Economy at the forefront of shaping policies and
initiatives to support this sector. This research employs a mixedmethods approach, combining quantitative survey data and qualitative
insights from in-depth interviews, to explore the Minister's role in
encouraging innovation and entrepreneurial networks in the creative
economy. The findings reveal a generally positive perception of the
Minister's policies, with stakeholders acknowledging their
effectiveness in promoting innovation and entrepreneurial networks.
Networking and collaboration initiatives facilitated by the Minister are
seen as instrumental in fostering connections within the sector. While
challenges exist, including the need for enhanced funding accessibility
and intellectual property protection, they present opportunities for
policy improvement. The study contributes to a nuanced
understanding of the Minister's impact and offers policy
recommendations to further enhance the growth and sustainability of
the creative economy in Indonesia.
Masterplan Acceleration and Expansion of Indonesia Economic Development 2011-...Parivartin
This is the English translation of the "Masterplan Acceleration and Expansion of Indonesia Economic Development 2011-2015" or the "Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia 2011-2025 (MP3EI)" in Bahasa Indonesia, authored and published by the Coordinating Ministry for Economic Affairs, Ministry of National Planning & Development, and the National Development Planning Agency.
This has been uploaded by Parivartin to provide wider availability to the economic planning and policy direction of the Indonesia Government to wider English-speaking audience. All copyright is held by the Indonesian Government's respective ministries and agencies.
This publication was originally published at the Coordinating Ministry for Economic Affairs website: http://www.ekon.go.id/
ENTREPRENEURSHIP DEVELOPMENT AND UNEMPLOYMENT IN NIGERIAIJM Journal
A number of policy intermediations in Nigeria that were targeted at inspiring and stimulating entrepreneurship development through small and medium scale enterprises have botched. In its place of creating in-country entrepreneurial capacity, entrepreneurs have been converted and become distribution agents of imported goods. This paper argues the development of entrepreneurship and stressed that it has been instrumental in economic growth, balanced regional development and job creation in most vibrant economies, where technology is changing at a faster rate and the product lifetime cycle is dwindling. This paper also looks at Nigeria’s growing unemployment situation and how it increasingly deteriorates the potentials of the country. It emphasizes the prominence and significance of entrepreneurship as realistic machinery for sustainable economic growth and employment generation in Nigeria seeing the experiences of developed nations like Australia, the United States and vibrant economies like China and India.
Role of Finance and Organizational Climate on Entrepreneurial Development amo...ijtsrd
Entrepreneurship is a key driver of economic growth and economic development. It is also a medium through which unemployment can be reduced and innovation can be promoted. It is a fact to say that entrepreneurship is a panacea for poverty reduction and eradication which is one of the cardinal eight point agenda of Millennium Development Goals. Entrepreneurship is seen as a key vehicle for employment creation, creation of economic wealth, and an essential means of enhancing the innovation dynamics in the local, regional and national economies Chris 2010 . Entrepreneurship provides a satisfying and rewarding working life, provides a flexible lifestyle and considerable business autonomy. It is becoming an increasingly important career option for unemployed people, secondary school and university graduates. At the national level, entrepreneurial activity contributes to economic growth and economic development Chris 2010 . Many researchers have written extensively on entrepreneurship and its effectiveness to the development of any given economy. Akanni 2008 further opined that the experiences of developed economies in relation to the roles played by entrepreneurship buttresses the fact that the significance of entrepreneurship cannot be overemphasize particularly among developing countries. In order to highlight its importance in relation to the growth and development of a given economy, entrepreneurship has been variously referred to as "source of economic growth". This is because entrepreneurial activities have been found to be capable of making positive impact on the economy of a nation and the quality of life of the people Adejumo, 2000 . Ojo Adeshina Akinwumi | Abifarin Olusola Michael | Dr. Okoklie Emmanuel Azuka "Role of Finance and Organizational Climate on Entrepreneurial Development among Selected Residents" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-4 | Issue-4 , June 2020, URL: https://www.ijtsrd.com/papers/ijtsrd30297.pdf Paper Url :https://www.ijtsrd.com/other-scientific-research-area/other/30297/role-of-finance-and-organizational-climate-on-entrepreneurial-development-among-selected-residents/ojo-adeshina-akinwumi
Dissertation fdi-foreign-direct-investmentTutors India
We write abstract for your master’s dissertation which would approximately contain 250 to 350 words. We complete the abstract after the full dissertation has been written that includes a brief summary of introduction or background, objectives, boundaries, methodology, the results of the dissertation research, main conclusion that you arrive, and recommendations
Twenty-one years after the economic reforms began, India finds itself at a crossroads. While the global economic crisis is still a reality, growth is slowing and there is a paralysis in policy making. With the union budget around the corner, there is an urgent need to boost reforms and take radical policy decisions. Will finance minister Pranab Mukherjee deliver? Time will tell.
Housing finance in india challenges and issuesTapasya123
House is a centre and domestic device for mankind's moral and core
development ever since the dawn of evolution and civilisation. Housing is
one of the basic requirements that human beings need. Good housing is a
pre-requisite for human development and welfare. It provides shelter,
security, amenities and privacy to the human beings for decent living.
There are many things that people would find difficult, if not impossible to
do without good-quality housing. Housing shortage is a universal
phenomenon. Without good housing, people cannot realise their full
potential and carry on the life they want to lead. Good housing reflects the
general welfare of community, whereas bad housing leads to serious
consequences such as diseases, immorality, and juvenile delinquency.
Housing is also an investment activity and provides impulsion to economic
growth. It has both forward and backward linkages. Because of its forward
and backward linkages, even a small initiative in housing will drive
multiplier effect in the economy through the generation of employment and
demand. Housing finance is not a new concept in finance sector of India. It
has developed rapidly during last few decades due to the enthusiastic
interest of Government to cut-short the housing problem of the country.
Although, present environment of finance sector seems to be suitable for
uninterrupted growth of housing finance market, but there are few general
problems, which create challenges and issues directly and indirectly. This
paper is an attempt to reveal such problems and challenges in India.
Challenges And Opportunities Of Globalisationloveleenchawla
Globalization: challenges and opportunities
Abstract:
Globalization is a multifaceted phenomenon. The paper identify some of the
Challenges it poses, as well as some of the opportunities it offers. Attention is focused on three major aspects of globalization namely economic, cultural, and political.
During 1990 to 2003, the volume of world trade has increased and the higher and middle-income countries managed to increase their share in world trade mainly due to the opening up of economies because of globalization. The middle-income countries had invited more Foreign Direct Investment during the period and the per capita GDP of the low-income countries was marginally increased. This resulted into the economic inequality, which widened between different income groups. In other words globalization has been confined to developed countries and developing countries were able to participate in the process.
However, globalization should not be accused for loosing share of the low-income countries. These countries suffered from internal problems like rapid rise in population, infrastructure bottlenecks, weak financial markets and so on.
Globalization and its benefits required a conducive environment to ensure higher returns and larger markets for foreign investors. To get a share of global capital, technology and output, developing countries had to upgrade their social and economic institutions through administrative, legislative and legal reforms.
Globalization merely provides opportunities to flourish. Globalization is not a tool to produce equality of outcome but it produces equality of opportunity for those with right mindset. Therefore developing countries require focusing on economic restructuring, developing market-supporting institutions and creating efficient regulatory mechanisms.
The low-income countries cannot survive at their own; they require international assistance and a support mechanism so as to facilitate their participation in the process of globalization. The challenge of the hour is to make globalization work towards global prosperity through disaggregate development. The critically necessity in this context are the collective and cooperative actions which should be realized by all countries of the world and particularly the developed ones.
The broad theme of this paper is on the relations between creative economy and economic diplomacy in the Indonesian context. The paper believes that creative economy is a valuable asset in Indonesian economic diplomacy, besides other more established sectors, inter alia trade, investment, tourism, and services. The contribution of creative economy to the economic growth of Indonesia is evident from its share to the GDP growth, workforce absorption, and export balance. Furthermore with the establishment of the Ministry of Tourism and Creative Economy (being the first of its kind in the world), creative economy is also in synergy with the tourism sector in strengthening and promoting each other.
This paper recognized that in the venture of advancing creative economy, several challenges exist and if not carefully managed, they will shroud and hinder the creative economy to rise to a higher notch. Indeed there has to be a comprehensive approach to optimize the development of creative economy; including the creative ideas, creative technology, creative industries, and human resources. Furthermore, market penetration and access to financing have to be expanded.
Despite the current challenges that are still faced by the creative economy sector, the opportunity is still promising. The potency of the external market has not been fully utilized. In this regard, greater focus and attention for strategies to penetrate these markets, both in the traditional markets as well other countries as the nontraditional market are crucial. In addition to this, creative economy could play a very important role in promoting national tourism, including local culture and wisdom to the international audience.
On the recommendation part, this paper put forward ideas in the form of thirteen strategies to be considered by policy makers, as well as for diplomats posted in Indonesian Embassies/Consulate Generals abroad in doing their function in the economic and/or socio-culture sections, by emphasizing the synergy between the Ministry of Foreign Affairs and the Ministry of Tourism and Creative Economy.
The creative economy has become a driving force for economic growth
and cultural development in Indonesia, with the Minister of Tourism
and Creative Economy at the forefront of shaping policies and
initiatives to support this sector. This research employs a mixedmethods approach, combining quantitative survey data and qualitative
insights from in-depth interviews, to explore the Minister's role in
encouraging innovation and entrepreneurial networks in the creative
economy. The findings reveal a generally positive perception of the
Minister's policies, with stakeholders acknowledging their
effectiveness in promoting innovation and entrepreneurial networks.
Networking and collaboration initiatives facilitated by the Minister are
seen as instrumental in fostering connections within the sector. While
challenges exist, including the need for enhanced funding accessibility
and intellectual property protection, they present opportunities for
policy improvement. The study contributes to a nuanced
understanding of the Minister's impact and offers policy
recommendations to further enhance the growth and sustainability of
the creative economy in Indonesia.
Manufacturing in Indonesia: New Options, Opportunities and ChallengesCascade Asia Advisors
Though it has yet fully regained its former dynamism, Indonesia is increasingly being recognized for its manufacturing competitiveness. This white paper provides a snapshot of Indonesia’s manufacturing sector and identifies the fastest growing sectors and cost effective locations. By examining the size, growth trajectory, supporting infrastructure developments and the government’s targets and strategies within manufacturing this paper touches on both the challenges and opportunities facing the industry at present.
Banks Npa & Impact on Indian Economy
Impact of Fii on Indian Economy
Indian Economy After Independence : India
Impact Of Foreign Trade On India
Essay On Growth Of India
Indian Economic History Essay
The Economic Reforms Of India Essay
India s Effect On The Indian Economy
Essay on India—an Emerging Power in the World
Salient Features of Indian Economy
The Economic Growth Of India Essay
The Economic Growth Of India Essay
Effect of Rising Oil Prices on Indian Economy
Key Drivers Of India s Economic Growth
Impact of Tourism on Indian Economy
Impact on Indian Economy
Wto and Its Impact on Indian Economy
India s Development And Growth Essay
In order to improve the utilization of fishery, used as accessibility of food and exported to increase competitiveness, it is necessary to know potential of fishery in Indonesia. The purpose of this study was to analyze the potential of fishery in Indonesia based on the export intensity, output, sector concentration, labor, and the farmers exchange rate of the fishery. The method used in this study is descriptive quantitative research methods with a mathematical approach. Based on potential of fishery in Indonesia, there are four province which have potential in the development of output and export intensity of fishery in Indonesia, there are: South Sulawesi, East Java, Lampung and North Sumatra Province. The provinces can be used as a pilot area development of output and export intensity of fishery in other provinces in Indonesia
International Assignment
Starbucks in Indonesia
Abstract: In this report, we will firstly be analyzing Indonesia’s political, economic, institutional,
legal and cultural environment. Secondly, we will be looking at Starbucks’ strategy, culture, and
organization. Finally, we discuss the potential organizational and managerial challenges and
problems that we anticipate Starbucks will be facing in Indonesia and the strategies to overcome
these issues.
.
Michele Lu, Siyang Li, Ben Niu, Justin Pacher & Lars Olthof
Global Enterprise Management (MGTN3580)
Professor Tatiana Kostova
Chinese University of Hong Kong
July 26th, 2016
Introduction
Expanding your business into a new
country is never an easy task, and
usually it comes with many different
challenges and problems. Whether
these difficulties are legal barriers of
entry, political instability in the host
country, cultural differences or all of
the above, it often is very frustrating for
businesses wishing to expand
internationally to deal with these issues.
That does not mean however that
opening a foreign subsidiary is without
merit: it provides a company with the opportunity to not only expand its market share, but also the chance
to diversify risks (when one market performs badly, others are able to compensate for these losses.), to
achieve geographic advantages (such as a highly trained pool of potential employees in a certain
companies), and even the possibility to prevent competitors from taking over that specific foreign market.
In our report specifically, we will be looking at the international expansion of Starbucks, a Seattlebased
American coffeehouse chain, into the Indonesian market, the fourth most populous country in the world,
located in Southeast Asia. In order to provide a full and clear overview of the challenges and
opportunities that come with this expansion abroad, this report has been divided into three distinct parts.
In the first part, Indonesia’s political, economic, institutional, legal and cultural environment will be
analyzed. In the second part, we will be looking at Starbucks’ strategy, culture, and organization. Finally,
we discuss the potential organizational and managerial challenges and problems that we anticipate
Starbucks will be facing in Indonesia and the strategies to overcome these issues.
Part A: Country Analysis
Introduction
Indonesia, officially the Republic of
Indonesia, is a country located in Southeast
Asia with approximately 255 million
inhabitants . Colonized by the Dutch in the 1
early 17th century, the country gained its
independence in 1949 after having declared
itself autonomous from the Dutch empire in
1945 . Initially a democratic country, from 2
1957 until 1998, the country was moved
towards a more authoritarian leadership .
Midterm Presentation Group 2 International Business (1).pptx
SOROTAN_XIX_vol_4_2010
1. VOL. XIX / 4 / 2010
the MAGAZINE OF THE Indonesian-German Chamber of Commerce and Industry
INDONESIA:
THE
SOUTHEAST
ASIA’S
SLEEPING
GIANT
• Title: Interview with Suryo Bambang Sulistyo, KADIN Chairman
• Portrait: DAAD
• Economy: Indonesian Economic Outlook 2010/11
2. Contact us at +62 21 788 43 788.
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Arabia, a power station in India, a dam in
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Indonesia.
projects
3. SOROTAN 2010/3 1
P R E F A C E
Dear Reader,
This year has arguably been the most challenging of President
SBY’s administration, shaken by political and domestic issues.
However, the future looks bright for Indonesia’s emerging
economy. It is meanwhile an open secret that the country’s
economy is on the rise.
In this issue of SOROTAN, the newly elected KADIN Chairman,
Suryo Bambang Sulisto, talks about Indonesia’s current economic
policies and his strategies in boosting the industrial sectors. As
the emerging economy, Indonesia’s middle class is growing and
currently at its peak consumption. Contributor Tunggul Wirajuda
analyzes current dynamic economy trends in the country, while
Maria Gracias takes a close look at the Indonesian middle class and
its spending habits as an impact of liberalization, globalization,
and consumerism. Necip Bagoglu of GTAI is also reviewing
Indonesian economic outlook 2010/ 2011.
The first European – Indonesian Business Dialog (EIBD) in
Indonesia took place between November 28th and 30th. The
event was praised by high-level business players and top
government representatives. The six organizing European
Chambers, including EKONID, are committed to support this
process which will continue in 2011.
Our Clean Batik Initiative project has also enjoyed remarkable
progress. The EU Head of Delegation for Indonesia, H. E Julian
Wilson praised EKONID for its initiative and its commitment in
preserving this precious world heritage by incorporating in its
green principles.
EKONID had the honor to be one of the partners of the 1st
Science Film Festival in Indonesia, organized by the Goethe
Institut. The Festival demonstrated that learning science can
be educational and fun at the same time and addressing
“biodiversity” and environmental challenges. We hope you had
a chance to enjoy the films with your children.
The management and staff of EKONID express our deepest
sympathy and condolences to the victims of the Tsunami on
Mentawai Island, Sumatra and the victims of the volcanic
eruption of Mount Merapi in Central Java.
Last but not least, we wish you a Merry Christmas and Happy
New Year.
Happy Holidays.
Jan Rönnfeld
Jan H. Rönnfeld
Managing Director
6. MALAYSIA
SINGAPORE
PHILIPPINES
VIETNAM
THAILAND
GDP - in million US$
GDP per capita -
in million US$
T I T L E S T O R Y
SOROTAN 2010/4
Indonesia is by far the biggest
economy in Southeast Asia-four
times bigger than the Philippines,
three times bigger than Malaysia
and twice as big as Thailand.
Indonesia’s economy continued to
grow during the global economic
crisis and could record more than
7 percent annual growth in the
coming years.
Indonesia is not only rich in
raw materials, but offers a
growing domestic market for
industrial and consumer goods
with 240 million consumers and
an increasingly wealthy middle
class of some 35 million.
4
7. SleepingGiant
SOROTAN 2010/4
Out of the 565 million large population of ASEAN, Indonesia is
home to 40 percent of these inhabitants. Indonesia also records
50 percent of ASEAN’s GDP, at US$1.3 trillion. According to
Morgan Stanley, the Indonesian economy being Southeast
Asia’s largest, may grow by 60 percent in the next five years to
$800 billion due to a stable administration, lower capital costs
and the government’s plan to spend as much as $34 billion for
road, port and power plant construction by 2017.
“The ASEAN-5 economies are projected to grow by 5.4
percent in 2010. Private domestic demand is expected to be
the main driver of growth,” said the IMF in its latest World
Economic Outlook report, referring to Indonesia, Malaysia,
the Philippines, Thailand and Vietnam.
Among the ASEAN-5, the Indonesian economy has proven
remarkably resilient, with output growing at 4.5 percent in
2009, compared to 1.75 percent for ASEAN-5 as a whole, thanks
to strong domestic demand and less dependence on trade.
During the presentation of the World Bank June Indonesian
Economic Quarterly Report, Subham Chaudhuri, the Chief
Economist of World Bank Indonesia said, ”Indonesia’s
economy continues to consolidate its recovery from the global
economic and financial crisis. Slower government spending
early in the year slowed growth, but private sector demand
will likely continue supporting activity.”
In comparison with Thailand, Southeast Asia’s second
largest economy, the Indonesian economy performed better
Asian countries are enjoying improvements to the economy and are diverting the
attention of western countries to the East. After India and China, Indonesia is currently
the third fastest growing economy among the G-20 industrialized and developing
economies. The country also plays an important role in backing up the economy in the
Southeast Asian region.
Author: Maria Gracias
Southeast Asia’s
Maria Gracias Hutapea joined EKONID as Editor for Sorotan in
September 2008. She left EKONID in August 2009 after receiving the
prestigious Fulbright scholarship to study journalism and government
studies in Madison, the United States. Hutapea has now come back to
EKONID and filled the position of Head of Publication Division.
5
than expected while Thailand still struggles with political
instability, which then resulted in economic instability, with
the condition reportedly worsening.
In terms of natural resources, Indonesia is a country that is
blessed with incredible mineral riches, including some of the
largest copper and gold mines in the world - not to mention
plenty of rubber plantations and food. Hence, there is great
investment potential in the country ready to be taken action
on. Not to mention the growing size of the middle class, which
reflects that the economy is growing and healthy.
According to KADIN Indonesia, there are numerous factors
why Indonesia is the place to be; large potential domestic
market; democratic market economy; abundant supply of
natural resources; robust economic growth; competitiveness
among the global players; labor forces; cultural diversity;
tourism; and tax/ fiscal incentives. Many predict that in the
next decade, with the slowing down of Western economies,
the Asian nations including Indonesia will rise as the new
economy power.
T H E S O U T H E A S T A S I A ’ S S L E E P I N G G I A N T
9. “Indonesia need to be clearer about the priorities and more
focused on implementation to achieve real outcomes for
economic development”
Priorities
The newly elected KADIN Chairman, Suryo Bambang Sulisto, comparing Indonesia and
neighbouring countries stated that the country was not performing at its maximum
potential. He also shared his views with SOROTAN specifically on Indonesia’s diverse
economy, abundant natural resources, skillful labor force, as well as on the future
relationships between Indonesia and Europe, especially Germany.
First of all congratulations on your winning. Many
expect you to find innovative solutions and to assist the
government in creating a road map to guide the direction of
the country’s industrial development. What approach will you
take for such a challenging task?
I think the most important first step is to develop and
maintain a close and cooperative relationship with the
Government so that Kadin can have a productive dialogue on
the policy priorities and on implementation. This must be a
strategic partnership with shared goals and real willingness to
work together to make the breakthroughs that both sides know
are so important for our national growth and development.
The contribution from business can be very positive and
practical with this type of relationship.
We would like the foreign chambers in Indonesia, including
EKONID, to be part of this relationship, because their members
include some of Indonesia’s most committed long term
investors who are keen to expand their operations here. They
can bring investment, technology and expertise to the table.
I believe there is very clear consensus around the roadmap and
direction we are wanting in Kadin because, after all, the issues
have been with us for a long time now. We need infrastructure,
especially transport and energy infrastructure. We need more
downstream value-adding industries in resources, agriculture
and manufacturing. We need the transport and logistics services
to open up our provinces and regions so they can develop and
reach bigger domestic and international markets. At the same
time, we need to build capacity to empower a new generation
of entrepreneurs who can develop all these opportunities in a
competitive regional and international economy.
Our focus will be on implementation and squarely
addressing those bottlenecks that are preventing more
rapid implementation. The essential thing is to make some
breakthroughs on these issues to unlock the great potential
that we have in this country. That’s why we need a very
strategic and productive partnership with the Government.
During your election, you vowed to help the national
economy achieve two-digit growth of at least 10 percent.
Although we’ve seen robust economic growth these past few
years, our economy was slightly shaken due to some political
tension. Wouldn’t you say your statement was a bit ambitious?
Achieving double-digit growth is ambitious of course
but we should have that ambition in Indonesia because
higher growth performances are certainly within our reach.
& implementation
SOROTAN 2010/4
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S O U T H E A S T A S I A ’ S S L E E P I N G G I A N T
10. We came through the global financial crisis with modest
but continuing growth because our own domestic economy
is large and our financial markets and institutions were not
badly affected. We are now looking at 6 percent growth even
though international markets are still rather uncertain. But
we should remember that this kind of comfortable economic
performance is being achieved without doing very much at all
to change the underlying factors or structural underpinnings
of our economy.
If we focus our efforts on kick starting infrastructure
development, improving our connectivity and taking away the
barriers that impede and slow business, I can assure you there
would be a lot more investment flowing very quickly into
this country. Investors are ready at the door. Export growth
is already increasing and if we can retool our industries and
provide incentives for more value-adding industries, we
would have more drivers for growth beyond consumption.
I am not saying this is going to be easy
but it is achievable if we can work
together, implement the reforms and
make Indonesia a more competitive
place for doing business for both
domestic and foreign investors. I
don’t believe there is any dispute
domestically in Indonesia about
whether these are the right goals so I don’t really see political
tension over this. It is a matter of keeping our eye on the target
and on implementation and working together strategically.
What do you think about Indonesia’s current economic
policy?
The current economic policy directions we have in
Indonesia are on the right track. My point is that we
need to be clearer about the priorities and more focused on
implementation so we achieve real outcomes for national
economic development.
If the Government does not coordinate policy reform among
the different agencies in the right way, we get bogged down
and dilute the impact of reform. Sometimes government
officials tend to think that implementation is about ticking off
the individual boxes one-by-one in a reform package but we
know from experience that truly successful reform is about
how the measures are brought together to provide impact in
the market-place.
Indonesia is operating in a highly competitive global and
regional market and it is our relative performance that
really counts. Indonesia may be making improvements in
the business climate, but the thing that matters for our own
business community and for prospective investors is whether
our relative costs are higher and whether we are building
foundations for continued improvements in competitiveness
relative to our competitors in other countries.
Industrial growth in Indonesia lags behind those of its
neighboring countries.
The evidence shows that the industrial sector’s relative
contribution to GDP in Indonesia has still not returned
to the pre-crisis levels of more than a decade ago and, as a
consequence, we are not performing as well as we could against
some of our neighboring countries. Why? The same issues of
underinvesting in the infrastructure and transport systems in
the existing industrial centers and the more decentralized areas
of new opportunity in provinces. There is now a comprehensive
program in Indonesia to address these issues, to develop the
industrial clusters and to improve the regional competencies in
the provinces.
But remember that industrial growth
is only one part of the equation. If
we look at Indonesia’s economic
potential in the Asian context, I think
we need take a broader view. We are
a much more diversified economy
than many of our neighbors.
Indonesia is very rich in natural and mineral resources and
it has enormous potential as an agricultural producer. I think
we are also going to see continued and impressive growth
in services. Indonesians are by nature very creative and we
have a young and sizeable labor force. Within this country,
we have large populations with the same purchasing power
as Singapore, Malaysia and Thailand. Our export markets are
also more diversified than many of our neighbors’.
These are big pluses for Indonesia and investors are starting
to realize this. Again it is a matter of keeping our eyes on the
target over the next few years to turn potential into reality.
Now is not the time to oversell ourselves in Indonesia. We
just need to get on with the job and I am confident that if we
do that, then Indonesia as an individual economy, and as the
cornerstone of the bigger market ASEAN, can be one of the
economic powerhouses of East Asia.
If there is one particular sector of industry that needs to
be developed, what would it be and how would be the
best way to go about it?
This is a big and diversified country so I would hesitate to
pick one sector for development. For me, the one thing
that we must do is to position ourselves for more value-adding
production in all industries from resourced based sectors right
We are looking
at 6% growth but
international markets
are still uncertain.
T I T L E S T O R Y
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SOROTAN 2010/48
11. through to manufacturing and agricultural based industries.
More value-adding will drive employment and economic
growth and provide many more attractive options for investors.
This is where SMEs come into the picture. SMEs now make up
99 percent of our business enterprises in Indonesia. A stronger
emphasis on value-adding will open up many high value
opportunities for SMEs as suppliers, supporting industries and
service providers. From this group of SMEs, we need to develop
the entrepreneurs who can be more innovative, knowledge-
based and adaptable in a competitive international environment
and who can help drive the process. To achieve this, we need to
focus on financing, knowledge building and getting rid of the
high cost barriers that block the smaller players.
The retail sector in Indonesia continues to grow. More and
more foreign retailers are investing in Indonesia. What
do you think makes the sector so important? Are there any
strategies designed to boost the retail industry in the country?
Renewable energy is an issue of economy. The price of
fossil fuels is increasing because they are limited. Hence,
the price of the energy produced from fossil fuels is going
to increase as well. But when using renewable sources, you
do not have the problem of limited resources. Of course it is
expensive now, because the technology is new. But as soon as
the technology is more common and widely spread, the costs
of renewable energies will be decreasing. With the increase of
fossil fuel prices, a decrease in the prices of renewable energies
is going to occur. So it should be easy for PLN to switch to
renewable energies and move away from fossil sources.
Besides the high price for new technology, what else is
slowing the provinces down?
Retailing is certainly a growth sector and it reflects the
buoyant consumer demand that helped bring us though
the global financial crisis and which continues to drive much
of our growth now. The big foreign retailers have come with
very sophisticated supply and distribution systems so they
have lifted the retail sector’s capacity and profitability across
the country. They also do well because of their size.
Frankly, if we are going to boost the retail sector in Indonesia,
I hope that we can see parallel development in smaller scale
retailing across the country and more openings for local
producers to put their products on the shelves. Indonesian
consumers are very cost conscious so that is the issue we will
have to address if we are to see this sort of development. We
therefore need to lower the cost of distribution and transport
across the country, enhance the retail distribution networks
for smaller players and ensure that our retailers in wet markets
and smaller centers have a higher standard of infrastructure.
What is your view on the economic relations between
Indonesia and the EU, or Germany perhaps? How do
you think the bi-lateral relations between the two countries
will fare in the next decade?
Europe is a vital partner for us in Indonesia, and
Germany, as the biggest economy in Europe, must
take a central role in our economic relations. In fact, we just
have concluded the 2nd EU-Indonesia Business Dialogue
(EIBD) in Jakarta and I am very pleased to see the strong
interest and commitment from both sides to boost bilateral
trade and investment to a new level. We submitted a range
of policy recommendations to our governments to increase
access to markets and improve the investment climate and
we will be working hard with government over the next year
to act on these recommendations. I believe the EIBD, which
is a continuing process, is a reflection of the very warm and
productive relations between us and of the strong interest we
share in developing very substantive ties.
In Kadin Indonesia, we have received a lot of assistance
from the German chamber system, supported in part by
the German government, to build our capacities in Kadin
and in business generally. We have a German expert
working full time in the Kadin Secretariat and at least
three German educated staff. We look forward to more of
the very practical capacity building programs for business
that Germany provides, not just for Kadin, but for business
development right across the country. These programs
make a real difference.
While we are still looking to build ties and programs with
Germany, you are no strangers to us. We have a very
influential alumnus of German educated Indonesians in
business, government and academia and so we understand
the great value of cooperation with Germany.
How important is German investment to Indonesia?
German investment is vital for us now and in our
next wave of investment. Germany is a global
leader in technology and engineering and has top quality
manufacturers and service providers. One measure of our
success in all our reforms in Indonesia will be the ability to
attract high quality German investment. We think there is
considerable scope to increase German investment over the
next few years. Our goal is to make Indonesia a place where
German investors and manufacturers can confidently base
their businesses in Asia. This is why we want to work
closely with our German partners in the reform process in
Indonesia.
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13. DynamicMarket
I N D O N E S I A ’ S R E T A I L B U S I N E S S
SOROTAN 2010/4
Like other things in Indonesia, the country’s retail market is in
a constant state of change. The sector made over US$42 billion
in revenues in 2009, and stands to make more than US$82.
Southeast Asia’s largest economy continues to be swarmed by
retailers big and small, giving the public more choices to shop
than ever. Indonesian Retails Business Association or Aprindo
chairman Benjamin Mailool announced that the sector noted a
turnover between US$3,931,259,126 to US$4,492,867,572 as of
the first quarter of 2010. He adds that retail’s average growth
of 15 percent over the past few years increases its contribution
to Indonesia’s services sector, which already employs over 36
percent of Indonesia’s workforce. Mailool also expects the retail
sector to make up to US$ 11,215,791,834 in turnovers for 2010,
as retail outlets increased between seven to 10 percent a year.
He said the number of retail shops will total 12,000 in 2010 and
grow by 10 percent next year.
More retailers stand to take advantage of the public’s improved
buying power, as consumer spending currently stands at
US$1,450 and is expected to rise to US$2,183 in 2014. This
development stems from Indonesia’s middle and upper class,
which at over 30 million people is estimated to double within
the next decade. The gains that they make are bound to be
substantial. The Investment Coordinating Board or BKPM
announced that private consumption rose from 5 percent in
the second quarter to 5.2 percent in the third quarter of 2010.
The gains also pushed consumerism upwards, as private
consumption alone accounts for 57 percent of Indonesia’s
economy. The retail sector is also helped by Indonesia’s tourism
industry, which noted over US$3 billion dollars in revenue so
far in 2010.
Analysts estimate Indonesia’s GDP to be US$675.57 billion in
2010, a figure that is estimated to grow by 5.7 percent by 2014.
The country’s per capita income currently stands at around three
thousand dollars, while its relatively youthful demographics
are more favorable than China’s though the latter’s population
is five times as large. The Nielsen Company puts Indonesia’s
consumer confidence at 116 points, second only to India’s 127
points. Aside from regulars like Carrefour, Marks and Spencer
or Debenhams, the new movers include South Korean retail
heavyweight Lotte Mart and Japanese convenience store giant
7-11. US retail giant Wal Mart is also expected to open up
outlets in Indonesia, as are British supermarket heavyweight
Tesco and Swedish furniture maker IKEA. However, Lotte is set
to beat the competition in making inroads into the Indonesian
market, after it launched a 1 billion dollar bid for Indonesian
hypermarket and supermarket company Matahari.
Hypermarket and supermarket movers would find Indonesia
particularly fertile ground. An Australian Trade Commission
report said that the country’s food and beverage sector is worth
around US$51 billion. This number is bound to get bigger by
no less than between 6 to 12 percent by 2010. All told, the
sector is set to expand to 43.6 percent by 2014. Indonesia’s
30 million strong middle and upper classes are a particularly
lucrative market, as it is greater than Australia, New Zealand
and Singapore combined. The country’s increasing population,
A thriving retail sector is contributing a strong boost to Indonesia’s business sector, as the economy
is showing resiliency towards the end of 2010. As the only member of the so called ASEAN-5 to
enjoy economic growth of up to 4.5 percent during the global economic crisis, new government
initiatives such as the VAT refund program targeting foreign tourists and the influx of new retail
heavyweights make for an overall positive climate. However, inefficient bureaucracy still poses
obstacles for direct foreign investment and the country still falls behind its ASEAN counterparts
when it comes to ease of doing business, revealed by the Doing Business Study 2011 report.
Author: Tunggul Wirajuda
A Glimpse at a
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14. T I T L E S T O R Y
SOROTAN 2010/4
especially its middle and upper classes, pushed food
expenditures upwards from US$370.10 in 1995 to US$507.57 in
2007. These developments are among the main factors that led
to the increasing number of hypermarkets and supermarkets.
These outlets became the shopping venue of choice for more
affluent shoppers seeking to buy imported foods, like meats,
dairy and convenience snacks. Aside from contributing to 9.3
percent growth in the Indonesian retail sectors in 2010, mass
grocery retail sales are expected to grow by up to 63.8 percent
by 2014. Consumption of fresh fruits and vegetables lead the
way, as Indonesians consume 35 kg of fresh produce. Sales of
meat products from domestic sources and imports alike also
surged, following setbacks like the spread of avian flu disease in
2007. Consumption of chicken led the way, reaching over 1.575
million in 2009. The number is set to grow to 2.064 million
in 2013 in this sector, much of which is still home grown.
On the other hand, Indonesia imports between 400 to 500
thousand tons of beef a year, mostly from Australia. Importers
stand to gain from the sale of dairy products, as domestic milk
production can only meet 25 percent of demand.
Aside from domestic customers, a number of retailers also
sought to gain a following among foreign clientele. The
Directorate General of Taxation designated 30 retail outlets on
its Value Added Tax (VAT) refund program for foreign tourists,
22 of which were named last September. The Directorate General
took the step after eight companies successfully finished a trial
period for the program.
The Directorate said 14 of the new outlets are located in
Jakarta. They include Batik Keris outlets in Central Jakarta’s
leafy Menteng district as well as its branches in malls like
Pondok Indah Mall 2 and Pacific Place. The Sogo department
store’s branches in malls like Plaza Senayan, Kelapa Gading
and Pondok Indah are also recipients of the program. Other
recipients include the Seibu outlet in Grand Indonesia mall as
well as its Alun-alun retailer. Seven of the retailers in the VAT
program are in Bali. They include the Alun-alun branch at the
Indonesia Nusa Dua mall, as well as the Batik Keris branch
at Ngurah Rai airport. They join the original eight retailers,
five of which are Jakarta based outlets like Pasaraya Blok
M and Sarinah Thamrin malls, as well as the Metro stores at
the Pondok Indah and Plaza Senayan malls. The other three
original recipients of the program are in Bali. They include
the Batik Keris outlet at Discovery Shopping Mall, UC Silver
in Batu Bulan at the island’s Gianyar district, as well as the
Mayang Bali outlet in Kuta.
Under the program, foreign travelers leaving the country are
entitled to get refunds from the tax offices on the VAT imposed
on taxable goods sold by wholesalers or retailers. Currently
foreign tourists can claim VAT refunds at Indonesia’s two main
airports, Soekarno Hatta airport in Jakarta as well as Ngurah
Rai airport in Bali. The Directorate General of Taxation hopes to
expand the program to several airports throughout Indonesia.
The office outlined its plans to expand the program after it
received positive reviews from the tourists and outlets alike, as
proved by the constantly increasing VAT refund claims and the
number of outlets which wish to join the VAT refund program.
However, the retail sector still needs to address a number of
problems. Property analysts warned that the increased number
of malls and stronger public buying power does not always
mean good business for retailers, especially high end outlets.
Harvey Nichols learned this lesson the hard way. The high end
retailer announced that it will close its outlet at the Grand
Indonesia mall last September due to sagging sales. Harvey
Nichols’ pullout not only deprived Grand Indonesia of a major
client, it also reflected the declining occupancy rate for malls
in the center of Jakarta. The Jones Lang LaSalle global real
estate services firm announced that occupancy rate for malls in
Jakarta’s business district has fallen from 90 percent in 2005 to
70 percent today, since more elite malls like Grand Indonesia,
Pacific Place and Senayan City opened their doors to the public.
Indonesia’s biggest property developer Lippo Karawaci is also
feeling the pinch. The company announced that it plans to sell
some of the malls in its portfolio to offset the expected sale and
lease strategy of other developers. However, it still has 15 malls
currently in the works.
The Colliers International real estate firm said malls are starting
to offer tenants cheaper leases to fill vacant spaces. The company
adds that the recent trends marked a shift by retailers towards
middle and low income consumers, a shift caused by the sheer
number of high end “one stop” malls offering shopping outlets,
cinemas and other entertainments as well as restaurants that
saturated the market.
Nonetheless, the development of retail is bolstered by a 32
percent rise in foreign direct investment. The BKPM announced
that foreign direct investment stood at US$12.4 billion out of
US$16.8 billion in investment up until September. The BKPM
also released data on domestic investment, which showed
that it had risen 36.5 percent to US$4.3 billion from a year
earlier. BKPM chairman Gita Wirjawan attributed the increase
to improved investment regulations, and better coordination
between the central and regional governments.
The BKPM adds that foreign investors are attracted to Indonesia
because of its ability to withstand the global economic
downturn. Indonesia’s strong domestic market and its lack of
reliance on exports, make it the only member of the so called
12
15. With international backgrounds and tons of experiences in broadcast
journalism, Tunggul Wirajuda is specializing in politic and economic
reports. Writer can be contacted at tunggulmdw@gmail.com.
ASEAN 5 (Indonesia, Malaysia, Thailand, the Philippines and
Vietnam) to enjoy economic growth of up to 4.5 percent during
the global economic crisis last year. On the other hand, the
other ASEAN-5 economies only grew by 1.75 percent during
the same period. Indonesia is also one of three G-20 countries,
along with China and India, to enjoy economic growth during
the economic crisis in 2009.
Indonesia’s relatively high key interest rates of 6.5 percent are
a draw for investors seeking higher returns. The investment
climate is set to improve, after the government managed to
control the inflation rate from a 16-month high of 6.4 percent
to the target of between four to six percent last August. Growing
political stability and the prospect of gaining investment-grade
ratings for sovereign debt also reassured investors.
Indonesia’s economic gains do not
end there. The Central Statistics
Agency or BPS announced that
the country posted a trade balance
of US$2.5 billion last September,
a 22.7 percent increase from the
same period last year. On its part,
the Trade Ministry said the trade
surplus totaled US$13.5 billion, up
14.2 percent from the same period in
2009. The Ministry also announced that and gas exports totaled
US$110.8 billion or up 38 percent from last year. Non oil and
gas exports rose 34.9 percent to US$91.8 billion, while the trade
surplus in the sector amounted up to US$14 billion.
However, Indonesia’s economic growth somewhat cooled in
the third quarter of 2010, after unseasonably heavy rainfalls
that lasted through August hurt production in the agricultural
and mining sectors. The Indonesian Stock Exchange announced
that the revenues of the country’s leading tin producer, Timah,
fell to US$209 million in the third quarter from US$224.87
million a year ago. Indonesia’s largest palm oil producer, Astra
Agro Lestari, noted that its palm oil output fell 3.4 percent to
3.02 million tons in the first months of 2010.
However significant Indonesia’s strides in investment and other
economic sectors may be, the country still has work to do.
Southeast Asian retail heavyweights Malaysia is expected to
make over US$49 billion in sales in 2010, while Singapore will
make over US$32 billion in the sector. The Philippines is not
far off the mark, as the country expects to make up to US$31
billion of retail revenues in 2010.
On his part, Indonesian Employers Association or Apindo
chairman Sofyan Wanandi blamed Indonesian officials for
SOROTAN 2010/4
the country’s poor showing in easing business procedures, a
fact that is less than conducive for investors. Increased public
buying power was offset by consumer prices that rose between
5.67 percent to 5.8 percent compared to the same period in
2009, particularly during the holy Islamic month of Ramadhan.
And though Indonesia made more strides than its neighbors
during the economic crisis, the World Bank endorsed Doing
Business Study 2011 study shows that the country still has
much to do in easing business procedures. The problem, along
with legal uncertainty, remains Indonesia’s biggest obstacle to
foreign direct investment. Indonesia fell six places this year
in the study to 121st out of 183 countries in terms of ease
of doing business, keeping it behind a number of its ASEAN
counterparts. Singapore lead the list, followed by Thailand
(19th), Malaysia(21st), Vietnam(78th), and Brunei(112th).
Indonesia’s inability to ease business
procedures is particularly glaring,
as the Doing Business 2011 report
showed that East Asian and Pacific
countries are among those which
made strides in this aspect.
Aside from raising awareness about
Indonesia’s shortcomings in the
Doing Business Study 2011 report, the
World Bank urged Indonesia to learn
methods to untangle bureaucracy from its neighbors so as to
maintain its competitive edge. The Bank also called for other
far reaching moves, like reducing corporate taxes, to persuade
businesses to comply with the rules.
Prospects for the retail business in Indonesia remain bright.
Indonesia’s rising GDP ensures constant demand, while public
consumption continues to drive the economy. However, the
government will waste this chance if it lets consumer spending
drive prices up, or fails to ease business procedures. The trend
will definitely ensure that malls, hypermarkets and other
shopping centers will remain b part of the public’s life for the
foreseeable future, especially in big cities. This development will
be more marked, as shoppers are liable to have more choices
due to the increasing number of foreign retailers putting their
capital in Indonesia. While the Indonesian market is never out
of challenges, risks or other pitfalls, retail investors can be
sure that the country’s large population and strong middle and
upper classes will ensure that taking chances here would be a
worthwhile effort.
I N D O N E S I A ’ S R E T A I L B U S I N E S S
Indonesia’s relatively
high key interest rates
of 6.5 % are a draw
for investors seeking
higher returns.
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16. SOROTAN 2010/4
T I T L E S T O R Y
Consumerism will continue to spread
especially in big cities like Jakarta where
people are in their peak spending prime.
@IwanNasution
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17. I N D O N E S I A ’ S R E T A I L B U S I N E S S
Strong economic growth has given birth to a confident
new middle class. With relatively stable economic growth,
Indonesia’s middle class is growing swiftly, as people from
the previously lower-middle income bracket now ascends to
the middle class category. After China and India, Indonesia
is probably the front-runner in terms of expanding middle
class consumption in Asia. These people are set to generate
significant spending growth in the coming years, as more
people, especially in major cities like Jakarta and Surabaya,
are increasingly drawn to luxury items. Research reveals that
Indonesian markets demonstrate the very definition of diversity.
According to the World Bank, more than 35 million people,
representing 14.6 percent of Indonesia’s total population,
belong to the middle class. Unlike in Western countries, where
income typically peaks during the middle-age period, it is likely
that the middle class group in Indonesia is made of people
who would fall into the age group of people in their 30s, as
the younger generation tends to be more highly educated.
Traditionally, a large proportion of Indonesia’s middle class, as
in most Southeast Asian countries, are of Chinese ethnic groups
who have accumulated wealth through family businesses such
as trading.
However, over the last decade, professionals, managers,
executives, and medium entrepreneurs have generally witnessed
a high degree of social mobility. Successful and upwardly mobile,
these people are highly brand-conscious, buying the latest cars
and electronic gadgets. Their tastes are indistinguishable from
those of their prosperous, young, western counterparts—many
own high-end luxury cars, wear designer clothes, employ maids,
and regularly vacation abroad. It can be easily predicted that
the character of consumption will change dramatically over
the next 20 years. A huge shift is underway from spending on
necessities such as food and clothing to choice-based spending
on categories such as household appliances and restaurants.
Long-established spending attitudes are already changing at a
rapid pace. Branded clothes are becoming de rigueur for the
wealthiest Indonesians—Gucci, Prada, Calvin Klein already
have a presence in the country. Last year the high-end luxury
leather brand Louis Vuitton opened its global store in Jakarta,
the first in Southeast Asia, while Spain based clothing retail
Zara enjoy outstanding growth as the front-liner retail chain.
This not only shows that there is huge demand from consumers,
but also highlights fact that many Indonesian can afford such
luxuries. The newly rich-middle class society have desire to
wear expensive brands as they desire to flaunt it to others. In
other words, these people are quietly creating an environment
of competition for conspicuous consumption.
“We have almost all the international brands in Indonesia
and in terms of pricing, some of it is cheaper here,” says
Fetty Kwartarti, the Cooperate Secretary of Mitra Adi Perkasa,
Indonesian largest up-market retail company. Well-heeled
Indonesians are currently in their consumer spending prime, with younger buyers seeking
a bit of prestige. The middle class is changing the economic, social and political landscape
of the country. With better education and a preference for western viewpoints, the young,
urban, middle class of Indonesia is as sophisticated as that of any country anywhere on the
globe. They have sophisticated lifestyles and want sophisticated products and services. They
are looking for quality as part of a self-conscious search for quality of life.
Author: Maria Gracias
middle class
SOROTAN 2010/4
Emergence of a new
Liberalization, Globalization and Consumerism
15
18. Indonesians typically fly to Singapore to shop for the hottest
brands, but that trend is changing, Kwartati said, because
Jakarta now offer more choices.
One of America’s biggest shoe retailers, Payless Shoes, has
reportedly signed two new franchise deals to bring the Payless
retail chain to new international markets beginning next year,
including opening Payless stores in Indonesia. “We have seen a
strong global appetite for our brands and today’s announcement
of two new franchise partnerships to bring Payless to four new
countries next year, including Indonesia, our largest franchise
market to date, helping us expand our global footprint to
better meet growing international demand,” said Matt Rubel,
chairman, chief executive officer and president of Collective
Brands, Inc. “To address the burgeoning Indonesian market with
its significant population and its emerging economy as well
Malaysia and Singapore have very strong and growing middle
class economies, which are a good match for Payless,” he adds.
“We know that shoppers in these markets will appreciate our
Payless brand promise.”
One factor that influences Indonesian spending habits is
perhaps the proliferation of credit cards. As credit cards offers
financial flexibility and convenience, many people have
attempted to capitalize on these advantages that suggest one
does not need cash to meet one’s shopping appetite. While
large parts of society have grown accustomed to consuming
credit cards, less affluent people have been trapped in debs as a
result of purchasing goods and services that are not necessary
in daily life. And the most lucrative target is the new middle
class and students whose professional skills ensure their future
affluence and encourage them to spend more, thanks to the
so called “plastic money”. Nevertheless, good credit growth is
a signs of a healthy economy. Analysts have long attributed
the rise of low interest rates to higher spending by consumers.
With interest rates at 6.5 percent, the lowest since introduced
in July 2005, Indonesia may keep its main interest rate at a
record low for 12 straight months, putting off the need to
join its neighbors in raising borrowing costs, even as growth
and inflation accelerate in Southeast Asia’s biggest economy.
Speaking at Bank Mandiri Economic forum, Finance Minister
Agus Martowardjojo also stressed the recognition of Indonesia
is reflected by the improvement of investment grade credit given
by the international rating agencies. “I believe the position of
Indonesia will continue to rise. The government will also strive
to continue to accelerate economic growth and to reach a level
of 7 percent until the year of 2014.”
The growth of the middleclass has also played a major role in
enhancing the number of motor vehicles. Whatever the price
is, the growth momentum has not slowed down anywhere
in Indonesia. Supported by a progressive economy, car sales
rose 65 percent from the previous year. Sales in the January
to September period rose to 556,193 units from 337,913 units
in the same period in 2009, an evidence that Indonesia has
overtaken Thailand in leading auto sales in the region over
the past decades. Japan-based manufacture Nissan Motor has
recently affirmed their plan to expand production capacity
from 50,000 to 100,000 units, while Volkswagen plans to build
a plant with a capacity of 50,000 units in 2012, and Mercedes
Benz has decided to build a large assembly line to produce
various products for both the Indonesian and the regional
market.
President Director of Mercedes-Benz Indonesia, Rudi
Borgenheimer, cited that Indonesia as a developing country
with healthy and rapid growth undoubtedly constitutes an
important part of the Mercedes-Benz long term strategy, adding
that the company is seriously considering Indonesia as one of
the countries where it plans to increase its global production.
“There are plenty of opportunities that can be developed by
Mercedes-Benz in Indonesia. Hopefully we can continue to
launch products that meet the requirements of Indonesian
consumers in the years 2012-2013,” says Borgenheimer.
Indeed the developing Indonesian middle class is rapidly
increasing its size and purchasing power as the people are
currently at their peak consumption. These new spenders,
through lifestyles choices and consumption, manifest a kind
of class consciousness in a very practical way. Nonetheless,
rapid economic growth has contributes to the massive growth
of “white-collar” workers, literally the new middle class. Such
improvement has significantly increased household income and
as a result, has improved the living standards of Indonesians.
The larger the middle classes of a country, the greater its
likelihood to reduce poverty faster. Instead of just “pushing”
people out of poverty, as the Asian Development Bank says,
the expansion of the middle class will act as a magnet to “pull”
people out of poverty, providing an anchor for sustained and
more inclusive economic growth. It also creates a class that
demands good governance and better social safety nets that
ensure better education, health care and pensions. In the near
future, we might witness a prosperous country of 240 million
people standing as one of the global economy powers: the tiger
from Southeast Asia.
Maria Gracias Hutapea joined Ekonid as Editor for Sorotan in
September 2008. She left EKONID in August 2009 after receiving the
prestigious Fulbright scholarship to study journalism and government
studies in Madison, the United States. Hutapea has now come back to
Ekonid and filled the position of Head of Publication Division.
T I T L E S T O R Y
SOROTAN 2010/4
I N D O N E S I A ’ S R E T A I L B U S I N E S S
16
21. A new boom is waiting to unfold in the Indonesian economy. Several macroeconomic
indicators are pointing toward a positive trend. Overall business expectations tend to
be optimistic. The consumption climate is developing and the island state is attracting
international companies in their search for a target market and an future investment
hub. Analysts predict that Indonesia – the country with the world’s 4th largest
poplulation – will achieve real growth of about 6 percent and a GDP of approximately
US$700 billion in 2010. Per capita GDP is expected to reach the US$3,000 threshold,
which by many analysts is regarded as the beginning of a new economic upswing.
The Indonesian economy, which due to its limited integration
with the global economy, was only slightly affected by the
global crisis of 2009, shows resilency towards the turn of
the year. Despite the negative effects in the agriculture and
mining industry as a result of unfavorable climate, including
unusually heavy rainfall during the second-half of the year,
real GDP growth in 2010 is expected to reach 6,0 percent,
with an expected small increase to 6,3 percent in 2011. The
Central Bureau of Statistics (BPS) calculates GDP growth rate
in the first three quarters of 2010 to be 5,9 percent in the same
year. Southeast Asia’s biggest economy is pursuing ambitious
development plans. Increasing economic activity brought
about by the ASEAN integration and the opening of new
markets is pushing the significance of Indonesia – a country
richly endowed with natural resources – as an economic
partner. The growing economic dynamics in the Asian region
is making the archipelago increasingly realized and to appear
as an interesting market for German companies.
Increasing consumer income together with the currency’s
stability and relatively low inflation are continuing to ensure
strong demand. This is beneficial for consumption, investment
and export trade. Analysts have predicted that the number of
consumers belonging to the high and middle income bracket
will double from around 25 million people today to about 52
million people in 2015. Household and company debt is also
low, hence, with sufficient liquidity in the credit industry and
low interests are setting the path for favorable economic trends.
The stable and healthy banking sector will ensure a credit –
based expansion.
Author: Necip C. Bagoglu
Economic policy makers are concerned however by the
speculative capital-inflow, which resulted due to the liberal
monetary and credit policies of the USA and other western
industrialized nations experienced strong increase in 2010 and
are a threat to the economy‘s resilency. The Central Bank of
Indonesia (BI) has made use of new monetary instruments and
by prolonging the maturity time for Central Bank certificates to
attempt to reduce import of capital and to avoid a too strong
devaluation of the local currency. At the same time the official
foreign currency reserves are being stocked up, to obtain
liquidity from the market and as a response to inflation risks.
Due to the household deficit’s relatively low share of the GDP
of less than 2 percent the Government provides increased
funding. Nevertheless, the public sector continues to suffer
from insufficient outflow of funds from public households. In
the area of investment funds the cumulative realization ratio
as per mid-October 2010 amounted to a mere 38 percent.
flips to a new page
I N D O N E S I A N E C O N O M I C O U T L O O K 2 0 1 0 / 11
SOROTAN 2010/4
Indonesia
2009 2010 2011
Gross Domestic Product 4,5 6,0 6,3
Imports** -15,0 15,0 11,6
Investments 3,3 8,3 9,2
Private Consumption 4,9 5,2 5,3
Economic Benchmarks* 2009 - 2011
(real change in %)
*) 2010 Estimate and 2011 forecasts; **) Goods and Services
Source: Worldbank, BPS, Expert forecasts
19
22. The sluggish outflow of funds can be traced back among other
things, to the inconsistecies in contract awards. Invitations of
tenders frequently need to be redone, hence causing delays.
Above average growth rates in 2010 were achieved in transport
and communications, trade and construction. The many projects
for infrastructure development, indstrial capacity expansion as
well as establishment of residential and commercial buildings
ensured strong demand for construction services, creating a
multiplier effect on numerous branches.
rose by 8,2 percent, compared to the same period last year.
The overall favorable business climate and the favorable sales
forecasts are attracting new investments. Interest of foreign
companies towards new engagements are growing. Investment
attracting are also the good return prospects. Because of the
predominantly oligarchical market structure in most branches,
the market does not only promise sales growth, but generally
also attractive profit margins.
Private consumption, with a percentage of 57 percent of GDP
continues to form the backbone of the Indonesian economy. Real
private consumption increased by 4,7 percent in the first three
quarters of 2010, compared to the same period in the previous
year. Public consumption, which in 2009 was strengthened as
a result of the economic program with a tremendous increase of
15,7 percent, experienced a setback this year. In the first three
quarters of 2010 it shrunk by 4,6 percent, compared to the same
period in 2009.
Price increases, the relatively low credit interest and the
strenthening of the local currency are laying a good foundation
for a stable consumer demand. The high percentage of shadow
economy activities, at least 50 percent of total economic
output, and irregular income distribution are giving certain
population groups in the bigger cities significantly wider
consumer choices, than assumed by the statistic average values.
According to analyst estimates, around 12-15 percent of the
entire population are exercising extraordinary buying power,
which is also drawing the attention of foreign companies.
Outlook Based on Sector
Automotive Industry
Driven by the rapid increasing real income and the credit
expansion, Indonesia’s automotive market is growing faster than
expected. According to the association of automobile industry
(GAIKINDO), motor vehicle sales during the first three quarters
of 2010 increased by 64 percent to 556,194 units compared to
the same period the previous year. For the entire year of 2010,
the association calculates a record number of around 730,000
(2008: 607.000) motor vehicles. Favorable market developments
convince sole agents that the government can meet the 2015
sales target of 1 million motor vehicles as early as 2012.
However, expansion in 2011 may slow down slightly following
the rapid market growth of 2010.
Several international motor vehicle producers plan to expand,
with total investment amounting to almost US$1,7 billion.
Suzuki will double its annual production capacity to 200,000
motor vehicles. To achieve this target, a US$470 million
investment is planned. In addition, the company plans to invest
another US$250 million to produce energy-efficient models.
The energy-efficient models will be offered at a selling price of
below US$10,000. Other international motor vehicle producers
planning to invest in the country are Volkswagen (US$140
SOROTAN 2010/4
E C O N O M Y
The manufacturing industry, which continues to suffer from a
general structural weakness and lack of competitivness, also
shows signs of recovery. Following a real growth rate of only
2,1 percent in 2009, in the first three quarters of 2010, an
increase of 4 percent was experienced compared to the same
period in 2009.
The Government’s mid-term development plan (2010-14)
consists of highly ambitious goals. Real GDP growth should
reach at least 7 percent by 2014. Per-capita income was set at
US$4,500 for the aforementioned year. Through strengthened
invesment in education and health, quality of living standards
improved. The unemployment rate is expected to decline from
7,9 percent in 2009 to 5-6 percent by 2014. The percentage of
the population living below the poverty line should fall from
14,2 percent to 8-10 percent.
Driven by increased overall economic demand, low interest and
credit expansion, the investment boom is unfolding better than
expected. According to National Statistic Agency (BPS), real
gross fixed capital formation in the first three quarters of 2010
Indicators 2009 2010 2011
Gross Domestic Product 4,5 6,0 6,3
Investments(brutto) 3,3 8,3 9,2
Private-sector Consumption 4,9 5,2 5,3
Public-sector Consumption 15,7 5,4 6,4
Imported Goods (cif) 2)
-25,0 40,0 16,0
Exported Goods (fob) 2)
-15,0 35,0 12,0
Wage level 11,0 6,0 10,0
Inflation rate 3)
4,8 5,2 5,7
Unemployment rate (%) 7,9 7,4 7,0
Exchange rate towards US$ 4)
10.356 9.000 9.000
Central Bank-base rate 5)
7,4 6,5 6,5
National/public debt (% of
GDP)
31 29 28
Overall Economic Forecasts
1)
Changes in %, 2010 Estimate and 2011 Forecasts; 2)
US$-based nominal; 3)
Annual
averages in %; 4)
Indonesian Rupiah based on annual average; 5)
Annual average in %
Sources: Worldbank, BPS, Expertenprognosen
20
23. Necip C. Bagoglu is the delegate of the foreign trade and investment
promotion agency Germany Trade & Invest (GTAI) of the Federal
Republic of Germany in Indonesia. Based in Jakarta since 2008 he
reports about all aspects of the Indonesian economy and business
opportunities for the German industry.
million), General Motors (US$150 million), Daihatsu (US$41
million), Nissan (US$20) and Hyundai (US$600 million).
Information and communications Industry
In the area of Information Technology (IT) analysts‘ mid-term
forecasts are pointing to a market increase of 10–15 percent
annually. By far the biggest growth was experienced in the
hardware division. The demand for notebooks is growing
strongly, while the sofware division continues to suffer from
inadequate protection of intellectual property. More than 85
percent of all software being used in current PCs comes from
illegal sources.
Strong development has also been recorded by Mobile-Internet
services. Owing to the favorable market development, therefore
requiring base-stations and transmission systems. The new
and technologically inclined population in the city center are
causing a strong demand for mobile cellular devices with spezial
applications. Driving the demand are not only online activities
such as chatting and browsing, but especially through new IP-
based access to social networks (Facebook, Twitter, Friendstar,
YouTube, MySpace, etc). Indonesia has an estimated 19 million
Facebook-users, with 14 million of these being between the
ages 15-23 years.
In connection with wireless Internet technologies, new contents
and multifunctional cellular-phone devices are providing service
providers and hence also equipment providers with interesting
business prospects. Driven by a huge interest by customers
are broadband systems access, which are being capitalized by
media companies for the providing of new offers. The number
of broadband subscribers in the country is forecasted to triple
to around 46 million by 2015. Now however, only a limited
percentage of the total 196 million cellular-service customers
have broadband access. This is likely to change drastically in
the coming years.
Electrical Engineering and Electronics
Almost 15 percent of total non-oil import value in the first
three quarters of 2010 were electrical and electronic equipment.
These imports increased by 42 percent compared to the same
period in the previous year. Especially in the consumer-goods
division of the electron market developments are favorable. The
same is happening in the entertainment electronics industry as
well as electrical kitchen applicances, where a lively demand
exists. The increaing population, the expanding construction
of residental areas and last but not least the increased buying
power of consumers is leading to a steadily increasing
demand for new equipment and devices. The interest of young
consumers for new technologies and applications is great. The
local assemply of electronical should according to government
forecases be greatly expanded in the coming years. Their share
of the market supply should according to plans by the Ministry
of Industry increase by 90 pecent by 2015.
Positive market developments convince many manufactureres
to expand production. The Ministry of Industry predicts a total
investment of US$2 billion in 2010. The Korean conglomerate
LG Electronics has plans to invest around US$1 billion to
quadruple production and establish a regional production center
for Southeast Asia. Panasonic, Sanyo, Toshiba and changhong
(China) are also acting fast to profit from the expanding market.
Panasonic is relocating its Audio-Digital-Works from China
to Indonesia and relocating its production of energy efficient
lighting from Japan to Indonesia.
I N D O N E S I A N E C O N O M I C O U T L O O K 2 0 1 0 / 11
SOROTAN 2010/4
Project Value Status/Note
Sunda Strait
Bridge, after PPP-
Model
US$18,9
billion
29 km long suspension bridge,
to connect the islands of Java
und Sumatra. Construction to
commence 2012; feasibility studies
in progress now.
Aluminium
smelter in South
Sumatra (Nalco,
India)
US$3,2
billiion
Plans to build plant with an annual
„melting“ capacity of 500.000
tonnes and a power plant of 750
MW; feasibility study in progress
now.
Coal Plant
Pemalang (PT
PLN), after PPP-
Model
US$3,0
billion
Coal-fired power plant 2.000 MW
in Central Java; seven companies
from Japan, China and Korea pre-
qualified
Petroleum refinery
(PT Chandra Asri)
US$2,3
billion
Crude oil processing plant
expansion; construction of
Naphtha-Crackers
Dimethyether-
Plant (PT
Pertamina)
US$1,9
billion
Building of DME-plant
(Dimethylether) Replacement for
LPG; attempted completion by 2012
Coal-Railway
Central
Kalimantan, after
PPP-Model
US$1,5
trillion
185 km long railway between Puruk
Cahu and Bangkuang for 10 million
tonnes annual coal-transport
Fertilizer plant
(PT Pupuk
Kalimantan Timur
- PKT)
US$870
billion
Plant construction for production
of ammonia and 3.500 tonnes
Harnstoff per day in Bontang/East-
Kalimantan; completion expected
by end of 2012
Jakarta Mass
Rapid Transit
Project (MRT)
US$800
million
Design-work until 2010, Completion
planned for 2014 geplant; financed
by Japanese JBIC
Fertilizer
production (PT
Petrokimia Gresik)
US$730
million
Building of a plant for daily
production of 2.000 tonnes
ammonia and 1.750 tonnes urea;
operation for 2014
Natural Gas
terminal in
Banten (PT PLN,
PT Pertamina, PT
PGN)
US$500
million
Completion planned by 2013;
capacity 4 million tonnes/year
Potential Megaprojects (Selection)
Source: Germany Trade & Invest
21
25. Boosting
Since the year 1977 the Association of German Chambers of Industry and Commerce (DIHK)
surveys twice a year members of 80 associated chambers about current economic trends and
their business expectations. A representative selection of firms spread over entire Germany
draws a prosperous picture of today’s recovering economy.
The anastatic European economy, having its basis on the
strength regaining Euro, is lifting recovery hopes. Especially
in businesses relying on high consumption, hospitality
management or tourism being two examples, the economic
situation improved explicitly. The retail industry even attained
best growth parameters since German reunification in 1990.
Construction business profits of governments’ stimulus
package which also has a positive influence on industrial
manufacturing companies besides rising investments and the
boost of global trading. Unique German industrial products
– almost independent from currency’s re- and devaluations
during crisis – also play an important role in regaining
economic strength fast.
Export-driven recovery will lead to a further improvement of
domestic consumption. At the same time the industry is afraid
of lukewarm economic dynamics in the USA, Japan as well
as in parts of Europe. For German development this does not
explicitly mean a rebound: Rising investments, employment
and consumption are expected to sustain for a couple of
months. Due to this fact, German economic power is expected
to follow up pre-crisis levels soon.
“The recovery process is going to be self-supporting”, says Dr.
Martin Wansleben, CEO of the Association of German Chambers
of Industry and Commerce (DIHK). “With a 2.4 per cent rate by
next year, Germany’s economy is going to grow nearly twice
the number it has in the last 20 years.”
Germany also profits from its outstanding position in emerging
Author: M.Müller
Source: DHK
markets. Focusing on capital goods seems to be an advantage
even if still down-falling growth rates and ending stimulus
packages in some global regions influence trade business
negatively.
Nevertheless, Asia, especially China and India as booming
economies with high capacities in private consumerism as well
as key markets for German life science, automobile and energy
industry, stabilized Germany’s growth once more. By the end of
2009 German companies had made about US$17 billion direct
investments in China, the German Ministry of Foreign Affairs
posts. Even in economic crisis, companies would have remained
optimistic – in particular SMEs stepped up their engagement.
Since several years the big players in China business - BASF,
Bayer, VW, BMW and Daimler - are on the go in manufacturing
chemicals and construct automobiles, machinery and plants.
Firms upload their budgets for domestic and international
investments massively. Investment plans almost reached
record-level of 2007. Especially German automobile and metal-
goods manufacturers as well as companies in the fields of
electronic technology and trading show intentions to expand.
This would be a chance to reduce the traditional weakness of
German businesses in capital investments step by step.
US-China troubles about loans and interest rates could thereby
threaten German companies. On the one hand Chinese workers’
loans are under pressure, next to Yuan’s low interest rates – on
the other, America’s leaders use controversial monetary policies
to finance government’s budget plans. As an immediate result
to these currency moans protectionism would have a bad impact
E C O N O M I C S I T U A T I O N A N D D E V E L O P M E N T I N G E R M A N Y
SOROTAN 2010/4
optimism
23
26. E C O N O M I C S I T U A T I O N A N D D E V E L O P M E N T I N G E R M A N Y
on export-based German economy. International agreements
are an ongoing effort. Germany’s diverse investment and
consumer goods producing industry seems to be well prepared
to face upcoming challenges.
Due to the actual changing post-crisis situation, companies
also plan to recruit a high amount of new employees. With the
number of unemployed at about 2.9 million people, the long-
lasting 3.0-limit will get undercut. SMEs play an active role in
reemployment, besides big engineering companies hiring blue-
collar workers back. Even skill-intensive services like IT or R&D
expand. Nevertheless the lack of a skilled labor force can not be
ignored anymore and will be an issue companies have to face.
Short-term employment could be a short possibility of pushing
the capacities after months of reduced working hours.
Dr. Martin Wansleben pledges for structural reforms in times of
higher revenues for the government. “But also the government’s
program for budget consolidation is still important. It reduces the
fear between private businesses government could raise taxes
to finance consolidation attempts.” According to Wansleben
a reform of sales tax, retirement plans, as well as a system
for controlled immigration of high skilled workers are further
issues the government has to deal with. “With these reforms the
government would not only strengthen the country’s business
opportunities but also citizens’ trust in the actionability of the
political system”, he says.
Whatmakesthesurveysospecialisthefactthatitalsoilluminates
the economic environment in different German areas. In all four
zones business performances along with export expectations,
investments and reemployment are upturning. Germany’s
South shows traditionally an outstanding performance – the
North newly. In the East some sectors like construction industry
show above-average parameters. Germany’s West struggle with
vanishing recession but still keeps up with the entire country’s
convalescence.
The lack of skilled labor forces in addition to the upcoming
struggle for rare resources will probably be the main two
post-crisis topics. For about 66 percent of German exporting
companies rising prices for energy and resources are said to be
the most dangerous risks in the next months.
Insofar the need of Lanthan, Europium and Neodyn as well as
of highly skilled workers from abroad displaces companies’ fear
of long-lasting recession and downturn.
Maximilian Müller is a trainee for EKONID’s Business Development
Departement. He graduated with a degree in International Development
and Political Science from the University of Vienna. He previously did
an internship at the German Ministry of Foreign Affairs.
E C O N O M Y
Changes on the previous year, in
per cent, use of the gross domestic
product (GDP), price-adjusted, chain-
linked
2009
DIHK-
Forecast
2010
DIHK-
Forecast
2011
GDP -4.7 3.4 2.4
Final consumption
expenditure of private
households
0.0 0.2 2.4
Government final
consumption expenditure
3.5 3.0 1.0
Gross fixed capital formation
(GFCF)
-9.0 5.8 5.0
GFCF in machinery and
equipment
-20.5 9.2 8.0
Other fixed assets 5.0 6.0 6.0
GFCF in construction -1.0 3.5 3.0
Exports -14.5 15.2 8.5
Imports -9.5 14.0 9.5
DIHK-GDP-Forecast 2010 - 2011
Source: DIHK
2009
DIHK-
Forecast
2010
DIHK-
Forecast
2011
Unemployment in
millions
3.42 3.2 2.9
Labor Market in Germany
Source: DIHK
Investment Intentions of the Enterprises
(in percent)
Balance of “higher” and “lower” Opinions
long-time-average = -8
Source: DIHK
SOROTAN 2010/424
27.
28. P O L I T I C S
SOROTAN 2010/4
Investment interest remains strong in
the electronics industry, as consumers
are more eager to spend their cash on
electronic goods.
IwanNasution
26
29. Good
More than anything else, people expect their government to create an environment within
which they can get on with their lives. Creature comforts add to the quality of life, by reducing
the effort required for daily chores. The buying and selling of these simpler pleasures of life are
pillars of the economy. The signs for the consumer economy are still positive. The Roy Morgan
Consumer Confidence index was at an all-time high of 124 points across the nation at year’s
end, contrary to the drop indicated by Bank Indonesia in its big city indicator.
Author: Debnath Guharoy
economy
A G O O D E C O N O M Y C A N B E D A M A G E D B Y B A D P O L I T I C S
SOROTAN 2010/4
The Good Governance monitor continued to rate the SBY
administration highly, but the thumbs-down from big-city-
folk had already become visible by December. The Bank
Century scandal has undoubtedly taken its toll, with the mood
of the people adversely affected primarily in the big cities
for now. But the contagion is spreading and could dampen
buoyant spirits if the seemingly unending saga isn’t brought
to a conclusion soon.
A walk through a home reveals a lot about the family that lives
in it. A virtual look inside all the homes should say a lot about
the country. Equally revealing are the intentions, the desires of
Indonesian households. That is what this column will attempt
to explore because there has never been a better time. For three
consecutive quarters more people believed now is “a good
time to buy major appliances”, with 36 percent agreeing at
year’s end. Eighty-seven percent of Indonesians live in homes
owned, not rented, by the family. By international standards,
that is a big number. Two reasons explain the phenomenon.
First, most homes are inherited, handed down from generation
to generation. Second, a number of generations live together
as an extended family, under the same roof. Only 3.5 percent
of homes have a car parked outside. This number is growing,
but very slowly. What is growing steadily is the population of
motorcycles. Today, 60 percent of households proudly own at
least one.
Inside the home, domestic appliances help make life easier. The
consumer electronics industry had a good year in 2009 and
expects a much better year in 2010. In that sense, life should
be getting better for a lot more people and not only those
replacing ageing gadgets. Today, nine out of 10 homes have a
TV set. In the next 12 months, 2.5 million people are planning
to buy a new one, but most of them will be replacements or
additions. Refrigerators are on top of the nation’s shopping
list. While only 38 percent of homes have one today, some 8
million people are planning to buy one. Washing machines
are a similar story. Only 10 percent of homes have one, but
ranks as No. 2 on the wish-list with 7.6 million intenders. The
international favorite, the humble toast, is neither popular today
nor about to become a best-seller. Only 7 percent of households
own one, less than 800,000 Indonesians are planning to buy
one. The microwave oven also personifies growing middle-
class aspirations. Some 600,000 women are planning to add
one to the kitchen this year. While nine out of 10 homes have
an electric iron today, the replacement market remains strong
with about 700,000 homes looking at another one. Ovens and
dishwashers remain upper-class conveniences, each garnering
only 200,000 intenders nationwide. Less than 100,000 people
want a new coffee-maker, or a telephone answering machine.
In the home entertainment arena, the country’s affluent
homes are reflections of a global phenomenon. Plasma or
Pushing bad politics over good economics
Badpolitics
27
30. LCD screens and accompanying surround systems have
jumped in popularity, with some two million people eyeing a
new system. A similar number are hoping to add a personal
computer to the home. Almost a million are thinking of a new
digital video camera. Over 800,000 have been thinking of a
new portable music system like an MP3 or MP4, and 500,000
are keen on an iPod in particular. But it’s not just the passive
seekers of entertainment who are growing in numbers. Almost
a million people are planning to buy an electrical musical
instrument, like a guitar or keyboards. Material possessions
are not the only reflections of a home. Gender differences
reflect an interesting facet of life in Indonesia. Seventy
percent of women and only 30 percent of men “enjoy grocery
shopping”. Eighty-three percent of women “love to cook”, a
pleasure shared by only 17 percent of men. Six out of 10
women and two out of five men “can’t relax till I know the
house is clean and tidy”. About half of all men and women
have “worked in the garden” in the last month, a number that
will surprise many a reader.
On the one hand, this report pays little attention to the
everyday struggle of millions of poor Indonesians living with
very little joy, either material or emotional. On the other,
it does not address the role consumer credit can play in
boosting the consumption of goods and services that forms
the backbone of Indonesia’s economy. To do those updates
real justice, they are best left for another day.
Debnath Guharoy is an advertising man-turned researcher. Now
based in Melbourne, he has lived and worked in seven countries in
both local and regional management roles. He is also contributing
to several publications including The Jakarta Post where the article
you read above had been published. The writer can be contacted at
debnath.guharoy@roymorgan.com .
A G O O D E C O N O M Y C A N B E D A M A G E D B Y B A D P O L I T I C S
P O L I T I C S
Plasma or LCD Screen Television
Surround Sound System
Portable combined CD/Cassette/Radio
Digital Camera
VCD player
Oven or Hotplate - only gas
DVD player
Personal Computer
Other Colour Television
Blender/Food Processor/Juice Extractor
Washing Machine
Refrigerator
Domestic Appliances Indonesians
“Intend to Buy”
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
(Population in ‘000)Source: Nielsen.
28
The official opening of the Bosch Automotive Training Center in
Jakarta on 22 September 2010 was attended by the German
Ambassador to Indonesia, HE Dr. Norbert Baas. Attended by
more than 100 guests, the event marked a new milestone for
Bosch in Indonesia.
Building up on its positive presence in the country, a strong
double-digit growth in the first half of this year and expects
to maintain steady growth for the year ahead, the Automotive
Training Center will provide after-sales support to the Bosch
Service network and its distributors in Indonesia. It features
full facility workshop equipment for both diesel and gasoline
car diagnostics. Course modules offered at the Center are
up-to-date and tailored to the latest product technologies to
enrich customers’ skill sets for the increasing complexity of
car repairs.
33. to operate airports in their respective regions. This was
prohibited according to the old law. Nonetheless, the allowed
entry of the private sector should attract new and interesting
investment projects in coming years. The management of
airports has belonged to state-owned PT Angkasa Pura I and PT
Angkasa Pura II, which together operate 16 airports. However,
the service offered from these companies is of poor quality. It
is expected that the participation of the private sector should
result in airport service quality improvement.
According to the Indonesian Transportation Society (MIT), the
three terminal airports which in its initial establishment had
a capacity of serving 22 million passengers annually, served
approximately 27,3 million passengers in 2009. In 2010 the
number is expected to rise to 40 million while in 2011 the
figure is placed at 45 million. MIT predicts that the number of
passengers in 2015 to come to 60 million and until 2020 to 75
million. Reportedly, the airport executes some 900 take-offs
and landings daily. The airport operator PT Angkasa Pura II
is said to be preparing an expansion project, details of which
have not been released, and which would require approval
from the Ministry of Transport. Experts, however, estimate
construction duration of at least five years.
Nevertheless, there is demand for investment at other airports
as well. Of the 26 international airports in Indonesia, only five
meet the requirements brought about by the liberalization of
the market, which are to be fully implemented by 2015. These
are airports of Jakarta, Medan, Bali, Surabaya, and Makassar.
Measures for standards-conformity still need to be developed
for the remaining airports. It can generally be expected that
extensive demand for consulting and planning services will
emerge with the implementation of these stages.
Concrete development plans are in place for the Ngurah
Rai Airport in Denpasar, Bali. Worth at US$210 million, the
project will begin in the near future. Ngurah Rai Airport is
counted as the second busiest airport in the country. Last
A I R T R A F F I C L I B E R A L I Z A T I O N I N S O U T H - E A S T A S I A
year, number of passengers doubled to 9 million in 2009
from previously 4,4 million in 2000. Serving 76,800 flights
in 2009, the airport area for international flights will be
expanded to 120,000 sqm, while the hall for domestic flights
will be expanded to 65,000 sqm. Reportedly, the domestic
terminal of the airport will be capable of serving larger
aircraft, such as Boing-747 and Airbus A-330. Moreover, a
parking garage with a capacity for 1,500 vehicles will use
39,000 sqm of the airport’s area. Upon completion of all
construction and renovation work, Ngurah Rai Airport as of
2013 will be capable of serving 14 million passengers. As of
2010, 17 million passengers can be handled and as of 2035,
25 million airline passengers. With the expansion project
in Bali, increased activities of domestic and international
airlines can be taken into account. Several international
airline companies, such as Singapore Airlines, Thai Airways,
Japan Airlines, Qatar Airways and Air Asia plan to increase
flights to Bali. In connection with the plans to expand and
modernize, an immense demand of a diverse range of airport
engineering facilities alongside transport opportunities will
arise for international manufacturers including security
equipment installation.
In early 2009, Indonesian airline companies provided air-
transport service with a total of 964 registered aircrafts (739
actual operations) on 167 flight routes, connecting 87 cities.
The annual sitting capacity was at 65, 8 million seats. At
the end of 2008, 30 new applications came from companies
hoping to acquire airline licenses. The Ministry of Transport
expects an adjustment of the market within the next few years
and calculates around 17 airline companies to be in actual
operation for the medium term.
Necip C.Bagoglu is the delegate of the foreign trade and investment
promotion agency Germany Trade & Invest (GTAI) of the Federal
Republic of Germany in Indonesia. Based in Jakarta since 2008,
Bagoglu reports about all aspects of the Indonesian economy and
business opportunities for the German industry.
Airport/City Local Inter-
national
in tons
Polonia, Medan 11.385 3.353
Soekarno-Hatta, Jakarta 152.303 118.379
Juanda, Surabaya 22.425 7.790
Ngurah Rai, Bali 6.362 27.195
Hassanudin, Makassar 22.522 -
Total 214.997 156.717
Airfreight in major airports
Source: Central Statistic Agency, BPS
Airport/City 2008 2009
person
Polonia, Medan 130,211 148,193
Soekarno-Hatta, Jakarta 1,464,717 1,390,440
Juanda, Surabaya 156,726 158,076
Ngurah Rai, Bali 2,081,786 2,384,819
Hang Nadim, Batam 1,061,390 158,076
Foreign tourists in major airports
Source: Central Statistic Agency, BPS
SOROTAN 2010/4 31
34. SOROTAN 2010/4
L E G A L
If you answer “yes” to at least one of those questions, you
better prepare or at least start searching for information
on what and how Transfer Pricing (“TP”) may affect your
Indonesian operations.
TP has become an even more critical issue for taxpayers’
especially multinational companies, as Indonesia’s tax
regulations are maturing. There is a growing number of TP
audits or TP related queries, which are being posed by the
Indonesian Tax Authority (ITA) to multinationals companies
operating in Indonesia. Taxpayers with large numbers of
related party transactions are at risk of being subject to a TP
scrutiny. Paying substantial fees to affiliate companies will
also trigger a TP scrutiny.
The Indonesian Tax Law offers a definition for related party
transactions. Generally, if a taxpayer conducts transactions
with another taxpayer under the same control, such
transactions will be considered as related party transactions. TP
scrutiny can also be initiated by ITA, based on its own factual
analysis of the taxpayer’s tax returns. Taxpayers who have
lower profit in comparison to the average within its industry
or taxpayers who report losses in several consecutive years
or taxpayers who report increased revenues but unchanged
profits are also among those who will likely be scrutinized
on TP matters. According to the Income Tax Law, the ITA has
the authority to adjust a taxpayer’s related party transactions,
if it is not based on the arm’s length principle. On the other
hand, taxpayers may use TP documentation to demonstrate
that they are following the arm’s length principle.
Determining arm’s length nature of transactions is not a
simple process. It requires identification and analysis of
factors surrounding the price being charged in a related
party transaction. Those factors need to be compared to
reflect that such a price would be the same, if the transaction
were conducted between unrelated parties. The Organization
for Economic Cooperation and Development (OECD)’s TP
guidelines provides steps for this exercise, one of which is
finding comparables with non-related party transactions. It
is not easy to find comparable unrelated party transactions.
If a taxpayer does not conclude transaction with an unrelated
party, then a publicly available database must be obtained.
For the ITA, it may obtain particular comparables through the
tax return filings or tax audits.
Current TP regulations
The ITA constantly works at developing TP regulations. In
March 2010, the ITA issued an internal letter pertaining to TP
audit guidelines, while in September 2010, it issued Per-43/
PJ/2010 (Per-43) pertaining to guidance or the approach to
be taken by Indonesian taxpayers in determining the arm’s
length pricing of related party transactions. Tax professionals
note that many of the pointers being captured in the Per-43 are
significantly consistent with those of OECD’s TP guidelines.
Per-43 stipulates that taxpayers must demonstrate that pricing
between related parties is conducted at arm’s length, in other
words, fairly and in accordance with common business
principles. It also outlines the steps to enable taxpayers
to demonstrate that they are following the arm’s length
and common business principles. Tax payer must perform
comparability analysis including outlining factors affecting
the comparables, e.g. the goods/service’ characteristics;
functional analysis; contractual arrangement; economic
conditions; and business strategy. Subsequently, taxpayers
shall determine the appropriate TP methodology for their
situation. All of those activities must be documented by
taxpayers in a single set of documentation, frequently referred
to as “TP Documentation”.
Does the Indonesian company receive loans from stakeholders, pay “Management or Technical
Service Fees” to shareholders or other affiliated companies, buy or sell goods from or to
affiliated companies, reported losses for several years?
focus
Author: Tomy Harsono & Wahyu Indradi
Time to
Transfer Pricing:
32
35. Per-43 also outlines that, at minimum, the TP documentation
must cover a general company overview, such as business
structure, shareholding structure, organization structure,
business operational, competitors, business environment, and
pricing policy. The result of comparability analysis, such as
characteristics of goods/services being delivered, functional
profile of related parties involved, contractual arrangement,
economic condition, and business strategy needs to be
disclosed as well.
Another critical step in preparing TP documentation is the
selection of appropriate TP methodology. The reasons of
selection or rejection on certain TP methodology is among the
information that needs to be disclosed in TP documentation.
Selection of appropriate TP methodology is specifically
addressed in Per-43. The selection must be made using a
hierarchical approach. It is obvious that the Comparable
Uncontrolled Price (“CUP”) method is the most favorite of
methods, as it can easily assess whether or not the pricing is
based on the arm’s length principle.
However, it is not easy to get a comparable price in the
market. If there is no comparable price for specific goods or
services, the regulation suggests other methods, in hierarchical
approach from the most favorite to the less favorite would be
Resale Price method; Cost Plus Method; Profit Split Method
and Transactional Net Margin Method (TNMM). Only after
thorough consideration has been given to each of the prior
methods, may a taxpayer adopt TNMM.
It is worth noting that even though having a TP documentation
which has been prepared with good intentions, a taxpayer
may still encounter the risk where the ITA may arrive at a
different conclusion pertaining to the arm’s length nature of a
particular related party transaction.
New taxation regulations
SOROTAN 2010/4
T R A N S F E R P R I C I N G R E G U L A T I O N
The Directorate General of Taxation is calling upon the
public to help keep a watchful eye on the practice of
transfer pricing, a practice that is becoming very common in
Indonesia. Not only is the country to lose billions of Rupiah
because of transfer pricing, but it also triggers a sense of
injustice towards taxpayers.
“We want an environment of fairness in tax-related
transactions,” says Head of the Transfer Pricing and Other
Special Transactions, Directorate General of Taxation Edward
Hamonangan Sianipar.
Transfer Pricing (TP) can be defined as setting a price on
transactions involving the transfer of tangible and intangible
goods, or on the provision of services between two parties
having special relations. According to OECD data, more than
60 percent of world trade is done by affiliated companies.
The Directorate General of Taxation is currently examining
a number of large companies that are not proportional
when it comes to their tax obligations. Logically, a company
that grows will have increasing profit and hence its tax
obligations will also increase. Yet often the opposite happens,
where many companies are growing however their profits do
not rise significantly and their tax obligations also remain.
The Directorate General of Taxation is also collaborating
with taxation auditors in other countries to catch up on and
prevent cross-border tax evasion. The collaborative audit is
being conducted with countries that are in a tax treaty with
Indonesia.
The tax audit collaboration is hoped to lead to the
investigation and eradication of all cross-border tax evasion
cases.
Taxation from the Tax Center UI Darussalam explains that
a collaborative audit at the international level is referred to
as simultaneous tax examinations. The effort is being done
in with taxpayer investigations involved in the practice of
transfer pricing. The audit is being done simultaneously in
countries providing as well as receiving the income.
According to the Director General, the joint policy audit
is very effective in tax evasion since it is being conducted
comprehensively by two countries of different standpoints,
that is, by the country acting as the income payer and the
country acting as the income receiver.
Tomy Harsono, Head of Tax Practice Group of Roedl & Partner Indonesia.
Wahyu Indradi, Senior Tax Manager of Roedl & Partner Indonesia.
Tax Practice Group of Roedl & Partner Indonesia provides broad ranges
of Indonesia tax advisory services. Further information, please log on to
www.roedl.com
Source: Directorate General of Taxes of Republic Indonesia,
www. pajak.go.id
33
36. L E G A L
SOROTAN 2010/4
Companies that trade in Indonesia are faced with many issues. In the past there have been no
questions about the conditions of a foreign investment company which has a distributor or
wholesaler license in selling its products to a third party as long as it is not selling to the end
consumer. However, the remaining question is who can be defined as an end consumer?
Trading activities
Author: Herbert Blank & Miranda Junirman & Silke Helmholz
Foreign Investment Companies in Indonesia
There are two different ways that companies can conduct
trade in Indonesia. A foreign company could directly appoint
a national trading company which is not established in the
framework of a foreign investment. The national trading
company has to act for the foreign company as their distributor
or agent of their products in Indonesia. Pursuant to Ministry of
Trade Regulation No. 11/M-DAG/PER/3/2006 dated 29 March
2006 concerning Provisions and Procedures for the Issuance of
Registration Identity of Agents or Distributors of Goods and/
or Services (Regulation No. 11/2006), this appointment of a
distributor or agent shall be evidenced by a distributorship or
agency agreement between the parties. It shall be legalized by
a public notary in Indonesia. Then the distributor or agent that
was appointed shall be registered at the Indonesian Ministry
of Trade.
A different approach that a foreign company can take to
conduct trade in Indonesia is that it could incorporate a foreign
investment company (Perseroan Terbatas Penanaman Modal
Asing (PT PMA)) owned 100 percent by foreign shareholders, as
long as it has permission from the Negative List of Investment.
The business activity of this PT PMA company generally could
34
IwanNasution
37. E N D - C O N S U M E R
SOROTAN 2010/4
only be engaged in the field of “large scale trading as a main
distributor or wholesaler”.
Basically, foreign companies are not allowed to conduct retail
trading or to sell their product directly to end-consumers in
Indonesia. Foreign companies may engage in large scale
trading, for example, as a wholesaler. If they want to conduct
retail trading, they must appoint a national trading company as
mentioned above.
A wholesaler is an individual or business entity acting on its
own behalf and/or on behalf of another party who appointed
it to conduct activities in the way of purchasing, storing and
selling goods to major parties as not directly to end-consumers
(Article 1 paragraph 6 Decree of Minister of Industrial and
Trade No. 23/MPP/Kep/1/1998 concerning Trading Business
Institutions).
Large scale trading is the resale (without technical change)
whether new goods or used goods to retailers, industrial,
commercial parties, institutions or professional users, or to
other wholesalers, or to a party acting as an agent or broker
in the purchase or sale of goods, whether an individual or a
company (Category G of KLBI 2009).
A retail trader (retailer) on the other hand, is an individual
or a business entity which primarily conducts sales activities
directly to end-consumers in small parties (Article 1 paragraph
7 Decree of Minister of Industrial and Trade No. 23/MPP/
Kep/1/1998 concerning Trading Business Institutions).
Retail trading is the resale (without technical change), whether
new or used goods, mainly to the public community for
individual and household/domestic consumption, through
stores, department stores, stalls, mail-order houses, door to door
sellers, pedlars, consumption cooperatives, auction houses, and
others (Category G of KLBI 2009).
It is clear that under the current regulations in relation to
trading that a foreign company cannot conduct a sale to
an end-consumer. To engage in retail trading activities the
business must appoint a local agent or a local distributor, while
a wholesaler can sell its goods directly to the third party as
long as it is not an end-consumer. The governments’ purpose
for this rule is as mentioned in the Regulation No. 11/2006 to
provide protection for consumers as well as legal and business
certainty.
The main question for foreign companies arises when the
company sells its products to an end- or interim consumer.
A problem emerges as there is no standardized definition in
Regulation No. 11/2006 for the term “end-consumer”. Therefore
companies do not always know, whether they need a local
agent or distributor to sell their product. This creates certain
insecurities among businesses that sell products to people or
companies that could be defined as end- or interim consumers.
It needs to be defined, whether an end-consumer is only a
private household or also someone that consumes a product?
A private household is always an end-consumer. But is a
business that consumes a product as part of the production
process of another product, for example petrol or oil to run
their machines, also an end-consumer for these products?
In Law No. 8/1999 concerning Consumer Protection a definition
is offered for the term consumer in Article 1 paragraph 2. The
definition states that a consumer is each individual user of
goods and/or services available in society for the benefit of
themselves, family members, other people and other living
creatures and which are not for trading.
Based on this, one might argue that an end-consumer is a user
or end-consumer of a product, while an interim consumer is
a consumer who is using a product for commercial purposes
as part of the production process of another product and for
trading. Therefore an end-consumer is only a private household
and does not use the product for trading or commercial use.
Businesses that use products as part of their production process
are interim consumers and not end-consumers.
However, the definition in the Consumer Protection Law can
only be used as a guideline for Regulation No. 11/2006. The
problem of a missing definition in the regulation remains and
therefore also the insecurity for foreign investment companies.
We hope that Indonesian legislators will define the term end-
consumer in Regulation No. 11/2006 as soon as possible to
guarantee more legal security in the field. Until then, in case
there is doubt about whether a consumer of a foreign investment
company is an end- or interim consumer, a local agent should
be used to sell the products.
Silke Helmholz is Head of the Department Corporate Services at
EKONID, focusing on consulting in corporate and investment issues.
Miranda Junirman is Senior Executive of the Department Corporate
Services at EKONID, focusing on consulting in corporate and
investment issues.
Herbert Blank has studied Law at the Rheinische Friedrich-Wilhelms-
Universität in Bonn and the Westfälische-Wilhelms-Universität in
Münster. He recently worked for the Corporate Services Department
at EKONID as part of his legal clerkship.
35
