Indonesia: the pros and cons of doing business there

Indonesia is a country with a great deal of potential; it covers a very large and diverse area of land and sea; is largely fertile and productive; and has a slowly growing, reasonably well-educated middle class.

It is rich in a number of natural resources … timber, rubber, a range of minerals, hydrocarbons, fisheries, agricultural produce, and so on.

Its infrastructure is improving, though we are not ‘there yet’! My first work assignment in Indonesia, about 38 years ago, was a wholly different period in its history. The road and rail system was puny and inefficient; telecommunications in even the main islands of Java and Sumatra was unreliable and patchy in coverage; and the postal system was to be largely avoided. The country felt rather like an isolated outcrop in the middle of the Indian ocean, ignored by many of its neighbours, and with often fraught relationships with Western ‘powers’.

Times really have changed, but there remain a number of issues which I feel I should highlight for the (relatively) uninformed.

Indonesia’s size (those thousands of islands! Of course, that said the main ones comprise just three or four very large islands) continues to be problematical. Communication between its various islands is one such problem; travel times between and intra-island is also problematical; and the available modes of travel are still frequently unreliable (note for example, the country’s track record for aviation accidents).

Wedded somewhat to the fact that the country is an archipelago, is the fact that the people of the country comprise a diverse and heterogeneous collection of ethnic groups (Bataks, Javanese, Sundanese, Minangkabau, Buginese, Dayak, and so on) each with their own language, cultural traits, and general capabilities.

Imagine the problems one could face trying to understand, and then ‘deal’ with, such a range and variety of people, in the workplace; in a public forum; or if faced with a dispute between parties from different parts of the country. The different ethnic groups in Indonesia each appear to have their own manner of doing business, and their own attitudes and personality. The Bataks, it is said, are typically blunt, straightforward, ‘call a spade a spade’, and are often aggressive in manner. The Javanese, are more gentle, self-effacing, dislike confrontation, and rarely really speak their minds!

How does one learn to deal with all that diversity effectively, armed only with the culture and language we are ourselves born with!

Now, those are some of the issues we can face which are intractable, and unchanging.

There are other issues which are much less immutable, and are indeed slowly developing with time and ‘progress’. For example the Indonesian legal system, which in the early eighties, when I first started working on ‘Indonesia matters’, was little more than an ill-fitting suit, comprised largely of the legal system the Dutch left behind them, when Indonesia gained its independence from them in the mid-twentieth century.

Nowadays, the legal system is much more mature, and includes a large number of home-grown statutory law, on a very large range of areas and topics, from corporate acquisitions, to arbitration and other forms of dispute resolution, to infrastructure development.

But the law does remain a key problem which ‘foreign’ businesses continue to have to contend with. Jurisprudence is often patchy and unclear. Case law is unreliable. Good legal commentators or commentaries are few and far between; and there are still not that many really capable practitioners on the ground. In addition, many of the laws are poorly drafted, opaque, and hard to interpret.

Not surprisingly, in certain cases, one or other party to a cross-border transaction there, will insist on New York law, or English law, or some other more reliable system of law, to govern the contractual documentation inter-party. But that solution is also not without its potential difficulties (some years ago, I represented a major overseas bank in connection with a debt owed by an Indonesian corporate customer, where the main argument raised by debtor’s counsel was that the finance documents, which were common law governed, were in principle invalid, because they were contrary to Indonesian law … how do you resolve an issue sensibly and intelligently, if one of the parties in a dispute plays that kind of game?).

A further common complaint is that the law in Indonesia is inconsistently applied, with one kind of interpretation in one matter, or by one practitioner, and a wholly different one in another matter, or by someone else.

So, these are two major issues any ‘foreign’ business will face in Indonesia; namely cultural diversity and communication issues; and legal issues.

It really does take a great deal of careful due diligence, and reliable and experienced professional advisors, to help craft a deal worth the paper it is recorded on.

Once the business has all that under control, who knows what amazing profits it might reap from doing business in Indonesia!

This post is for information purposes only. It does not and is not intended to comprise legal advice. For legal advice on doing business in Indonesia, see www.inarakconsultants.com

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