Five Reasons To Do Business in Indonesia
Australia’s relationship with Indonesia often resembles a pendulum, swinging back and forth between periods of stability and turbulence in our international relations.
Business needs to make a commitment to the relationship and look beyond the annual controversy, as maintaining business relations will improve the relationship overall in the longer term.
Indonesia offers a solid case for why Australian companies should consider it as a viable international business destination, here’s why:
1. Proximity to Australia
Firstly, Indonesia is Australia’s largest neighbouring country, and an average flight from Sydney to Jakarta takes seven hours. You can jump on a plane in the morning, be in Jakarta by close of business and hit the ground running the next day without the jetlag you may experience on longer-haul flights to other parts of the world. There’s only a three-hour time difference between the two cities - even less if you’re dealing with Bali or any of the other Eastern provinces.
2. 250 million consumers and counting…
With 252.8 million consumers, Indonesia is the world’s fourth most populous country. Its large domestic market is spread across an archipelago of 6,000 inhabited islands, and it is similar to China in that it can be subdivided into smaller, culturally diverse markets that require targeted market entry strategies.
Indonesia is also considered to be a middle-income country - it has halved the proportion of its population living in poverty since 1999, and has a rapidly expanding middle class. Taking the Asian Development Bank’s absolute definition of ‘middle class’ (anyone earning $2USD to $20USD per day in 2005), Indonesia’s middle class is approximately 46.58% of its population, with 102.72 million people. Compare this to the world’s two most populous countries - China and India. While their populations are larger by volume, Indonesia’s middle class in terms of population share falls in between the two countries, with China’s middle class around 62.68% and India at 25.05%. This should put Indonesia on the radar of any company looking to capitalise on the opportunities presented by the rapidly expanding middle class across Asia, let alone Africa, the Middle East and other emerging markets around the globe.
3. Low cost production base in Southeast Asia
During a visit to Sydney last year to promote investment in Indonesia, His Excellency Pak Franky Sibarani, Chairman of the Indonesian Investment Coordinating Board (BKPM) told Australian companies that they needed to look to Indonesia not just as an export market, but as a viable production base in Southeast Asia.
This advice follows a production shift from the traditional North Asian manufacturing powerhouses like China, Taiwan, South Korea and Japan to Southeast Asia, as a result of steadily rising salary and manufacturing costs. For example, unskilled workers in Central Java earn around $120 per month, compared to around $330 in China.
This has triggered a range of Asian and Middle Eastern companies to migrate their production facilities to more cost-effective countries like Indonesia, Vietnam, the Philippines and Cambodia.
4. Launchpad to the ASEAN region
As the largest of the ten member states of the Association of Southeast Asian Nations (ASEAN), Indonesia provides an ideal launchpad to target the broader ASEAN region. Opportunity in Indonesia therefore extends beyond its large domestic market, to the other nine members of the ASEAN region that benefit from favourable trading terms (Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia).
Due to its size, Indonesia is more insulated from the shocks that other ASEAN markets experience, and is projected to be bigger than all other ASEAN members combined by 2025, economically and in terms of population.
5. Complementary economies
Australia and Indonesia’s economies are complementary insofar as Indonesia is looking to collaborate with technical expertise from abroad to build its local capabilities. While Indonesia can provide low-cost production facilities and inputs, Australia is in a position to share its world-renowned technical capabilities, particularly in agricultural R&D, food production and processing, information technology (IT) and the maritime industry.
Australia and Indonesia: “We’re friends in business”
These five points provide a brief overview for why Australian companies should be looking to our nearest neighbour when seeking new markets abroad, and consider Indonesia’s merits beyond the latest news headlines.
Pak Suryo Sulisto, Chairman of the Indonesian Chamber of Commerce and Industry (KADIN) described Australia and Indonesia as “friends in business” to an audience of internationally-attuned companies in Sydney in 2015, and it is these business linkages that will continue to keep our bilateral relationship afloat despite the hurdles that often occur.
If you're interested in learning more about building productive relationships between cross-border teams in Indonesia, register for our breakfast event with Ashurst next Tuesday 15 March on Working with Cross-Border Teams in Emerging Markets.