Doing Business in Indonesia
With a population of over 260 million people, more than 300 different ethnicities and languages and the largest Muslim population in the world, expats doing business in Indonesia will find themselves in an extremely unique and diverse country.
Indonesia is Southeast Asia’s largest economy; it has emerged from the global economic downturn relatively unscathed and has experienced steady economic growth in recent years. The country is rich in natural resources, acquiring much of its wealth from gas, oil and other mining activities, while services make up the majority of Indonesia’s GDP. Agriculture also plays an important role in the Indonesian economy.
Today Indonesia is a stable democracy, and this political stability and the government’s commitment to economic reforms and eradicating corruption have partly contributed to this success. The capital, Jakarta, is the centre of business in Indonesia. Other important business hubs include Surabaya and Bandung, while oil and gas and mining industries are largely centred in Kalimantan and Papua.
Despite the positive aspects of Indonesia's business setting, an extremely complex and dynamic regulatory and bureaucratic environment can be a source of frustration for expats doing business in Indonesia. Changes occur frequently and it can be difficult to keep track of these. This is evident in Indonesia’s ranking in the World Bank’s Ease of Doing Business Survey for 2017 in which the country ranked 91st out of 190 countries. Areas in which Indonesia scored particularly poorly included starting a business (151st) and enforcing contracts (166th), but it fared better in areas such as getting credit (62nd) and protecting minority investors (70th).
Indonesian/Bahasa Indonesia is the main language in Indonesia. Although English is widely spoken by the younger generation, and especially in Jakarta, it may be useful to have an interpreter or learn a few key phrases in Indonesian. Dutch and many local dialects are also spoken.
Business attire is generally conservative. Suits and ties are appropriate for men in formal business situations, while long-sleeved batik shirts are also acceptable. Women should be well covered and should ensure that they do not expose their shoulders or legs. Due to the heat, loose-fitting cotton fabrics are best.
Office hours are usually 8am to 4pm or 9am to 5pm, Monday to Friday. Many offices are also open till about 1pm on Saturdays. Some offices may close for an extended period on Friday afternoons for Muslim prayers.
A handshake is given and accompanied by the word “selamat”, meaning peace. Always use the right hand to shake hands; the left is considered unclean. A slight nod of the head is also an acceptable greeting. Don’t shake a woman’s hand unless she offers it first.
Gift giving etiquette may vary according to the specific ethnic group one is dealing with. Gifts are generally not opened when received and alcohol and pork products should be avoided out of respect for the Muslim culture. Offer and receive gifts with the right hand only.
Indonesia is still a patriarchal society. Although women are not specifically targeted for discrimination in the workplace, men generally still tend to hold more senior positions and earn higher salaries.
Business culture in Indonesia
Cultural identities in Indonesia have developed over centuries and have been influenced by Chinese, European, Indian and Arabic traditions. Identity in Indonesia is therefore often dictated by one’s ethnic group, family and place of birth, and religious and cultural traditions also play an important role in Indonesian society. This is also carried through into Indonesia’s business practices and adapting to the business environment in the country may depend on the city or region in which one is operating, as well as the ethnicity of those one is doing business with.
Bahasa Indonesia is the official language of Indonesia, although English and Dutch are spoken in many business circles, particularly in Jakarta, while many indigenous languages are also spoken throughout the country. Expats would do well to learn a few key phrases and how to at least greet their Indonesian counterparts – this marks a great sign of respect.
As with the wider Indonesian culture and society, business structures are hierarchical and status is respected. Decisions are made from the top down, although there are usually also group discussions. Titles are very important in Indonesian business circles and elders are often called “bapak” or “ibu”, which is the equivalent of father/mother or sir/madam. Indonesian associates should be addressed by their full title and name.
Indonesians are generally friendly and hospitable people and the concept of "saving face" is very important. This concept is about avoiding shame and maintaining harmonious relationships. Indonesians are therefore very careful about how they communicate and often adopt a very indirect communication style in order to avoid offending anyone. This means that they may not always say what they mean and even when the answer is “yes” it may just indicate that they have heard what someone has said, rather than agreed with their request. This should be taken heed of to avoid confusion when engaging in negotiations with Indonesian business associates.
Business decisions may take some time and many meetings may need to be arranged before a final agreement is made; Indonesians like to give careful consideration to any business proposition and they place great emphasis on trust and relationship building. Expats may find that their Indonesian business associates are more interested in building a personal relationship first before entering into any business dealings. Indonesians also prefer to maintain harmony (related to saving face) and one should always maintain a calm demeanour and speak politely and respectfully during meetings. Trying to put pressure for the hard sell or raising one’s voice during negotiations is not likely to be met with success.
Dos and don’ts of doing business in Indonesia
Do be respectful of Indonesian associates – avoid applying pressure or being confrontational and speak in a gentle manner in business meetings
Do exercise patience – Indonesians prefer to take their time and consider business propositions carefully
Don't touch or pass something over the top of someone’s head as it is considered to be the most sacred part of the body
Do hold face-to-face meetings as these are generally more effective than written communications in Indonesia
Don't give or receive anything with the left hand – always use the right hand or both hands together
Don't sit with the soles of your feet showing as it is considered to be discourteous
Don't stand with your hands on hips or arms folded – both these stances are considered aggressive and rude
Do leave enough time to get to business meetings, especially in Jakarta and other larger cities, as traffic congestion is a constant hindrance
Don't make too much eye contact when speaking to Indonesian associates – this can be viewed as suspicious and threatening