Indonesia is the largest economy in Southeast Asia and the third-largest democracy in the world, offering opportunities in almost every sector of the economy. With rising disposable incomes, the country’s 261 million people make it the fourth most populous country in the world. Indonesia is the seventh-largest economy by purchasing power, and a leader in ASEAN, with a growing middle class, showing an increased interest in products and services imported from abroad.
As the world’s largest Muslim-majority nation, Indonesia is culturally diverse. It has more ethnic populations, languages, and cultures than other countries. It has several ethnic groups, including Javanese, Sundanese, and others, with more than 700 recognized regional languages.
Indonesia has an important place in the world’s economy as the 24th largest goods trading partner. Goods exports totaled USD 7.4 billion, and goods imports totaled USD 20.2 billion.
The Indonesian government’s policy, abundant natural resources, and young labor force have shaped the country’s economic performance.
Get regular insights
Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.
Indonesia is the largest economy in Southeast Asia and the third-largest democracy in the world, offering opportunities in almost every sector of the economy. With rising disposable incomes, the country’s 261 million people make it the fourth most populous country in the world. Indonesia is the seventh-largest economy by purchasing power, and a leader in ASEAN, with a growing middle class, showing an increased interest in products and services imported from abroad.
As the world’s third-largest Muslim-majority nation, Indonesia is culturally diverse. It has more ethnic populations, languages, and cultures than other countries. It has several ethnic groups, including Javanese, Sundanese, and others, with more than 700 recognized regional languages.
Indonesia has an important place in the world’s economy as the 24th largest goods trading partner. Goods exports totaled USD 7.4 billion, and goods imports totaled USD 20.2 billion.
The Indonesian government’s policy, abundant natural resources, and young labor force have shaped the country’s economic performance.
The country has also been increasingly open to international trade openness over the past half-century.
For foreign companies looking at selling directly to the government and state-owned companies, it is critical to utilize the services of local agents or distributors. At times, companies are required to use their services by law.
In 2021, the country’s President officially launched the Online Single Submission (OSS) System, a web-based platform for issuing business licenses to facilitate micro to large entrepreneurs. The goal was to adjust the business licensing process to the level of risk and improve the ease of doing business in Indonesia.
The government said they would continue to cut regulations that potentially hamper business and investment licensing and called for transparency between government officials and entrepreneurs for obtaining business permits. They also put memorandums in place to increase investment and national revenue and ease the flow of investment into the country.
For foreign companies entering the country, Indonesia is a lucrative market, and these companies need to understand Indonesian culture and local consumer preferences.
Essential factors affecting purchase decisions in Indonesia are pricing, financing, technical skills, and after-sales service. Brands entering the market should invest in training their local staff for varying levels of seniority within the company.
Market Opportunities in Indonesia
The Indonesian consumer has been ranked the most confident in the world, and it’s a young nation with nearly 43 percent of Indonesia’s 277 million citizens under 25 years old.
Consumer-related market opportunities continue to lead expansion in the world’s fourth-most populated country, and growth in the retail, health, education, telecom, and financial services sectors has been booming.
Indonesia’s aviation market is the second-fastest growing in the world, and a competitive and expanding banking market offers significant opportunities for IT and banking equipment, software, and technology providers. There are opportunities for telecommunication infrastructure and aircraft replacement parts and services. Telecommunications equipment, services, and satellites remain excellent areas for products and services from western markets with a relative technological advantage.
Indonesia’s under-developed public infrastructure presents opportunities in aviation, rail, ports, and land transport, and public utilities infrastructure projects such as water supply, wastewater systems, and waste management establishments. Emerging opportunities include palm oil, biofuel processing, clean energy, energy efficiency, and technology to improve local production capacity, dams, and waste-to-energy projects. There are opportunities for U.S. defense manufacturers to sell a range of military aircraft, vehicles, communications systems, spare parts, and maintenance services.
Education and professional training, medical equipment, and high-quality U.S. agricultural commodities maintain their edge even with higher prices.
Challenges of doing business in Indonesia
Significant challenges revolve around labor relations, intellectual property protection, and transparent rules in setting and implementing standards and certification. The Government of Indonesia has introduced plans to reduce the bureaucratic red tape to facilitate investment.
Protecting intellectual property is a crucial concern for foreign brands in Indonesia. However, in a positive development, Indonesia established a new Intellectual Property Enforcement Task Force to improve IP enforcement coordination.
Foreign companies entering Indonesia should be mindful of additional requirements for testing and certification imposed on a range of products.
Another issue many exporters that target public tenders find is an opaque pricing environment and local content requirements.
Manufacturers selling goods or services through e-commerce platforms with a significant presence in the country are assessed a 10 percent value-added tax on all transactions in Indonesia. A “significant presence” is determined based on gross sales or the number of customer transactions.
Significant challenges of doing business in Indonesia are:
- Bureaucratic inefficiency
- Delays in land acquisition for infrastructure projects
- Weak enforcement of contracts
- Delays in receiving refunds for advance corporate tax overpayments
The energy and mining sectors still face significant foreign investment barriers, and all sectors need more effective IP protection and enforcement.
Despite some of these challenges, Indonesia continues to attract substantial foreign investment. According to the 2020 IMF Coordinated Direct Investment Survey, the top foreign investment sources for the country came from Singapore, the United States, the Netherlands, Japan, and China.
Private consumption drives the largest economy in ASEAN, making Indonesia a favorable destination for a wide range of brands and industries.
Want to take your brand to Indonesia? We are consistently recognized as one of the top market research agencies globally. To learn more, go to https://kadence.com/en-us/office/indonesia/ and download our agency credentials.
Senior Marketing Executive
Sales & Marketing
General Manager PR -Internal Communications & Government Affairs
Vital Strategies
Customer Intelligence Director