marketing

"for business and understanding"

Distribution Channels Generally, import/export, wholesale and retail distribution have been reserved for Indonesian companies (defined as at least 51 percent Indonesian owned). The one exception, foreign investors importing raw materials for use in manufacturing, may not distribute their product in the domestic market. Representatives and Agents Foreign companies may open and maintain a local representative office with the permission of the Indonesian Department of Trade. The representative may be an Indonesian company, an Indonesian individual, or a foreign national, but only one trade representative office is permitted. Trade representatives are not permitted to engage in direct sales but may engage in sales promotion and marketing or provide market research and technical advice. The services of an aggressive, active agent are an important means of expanding sales in Indonesia. Many foreign firms and trading companies have opened up trade representative offices in Indonesia. Some of these have expatriates on their staffs. In many instances, representative offices of foreign companies have established close connections with Indonesian national importers, allowing the two companies to operate virtually as one. The Indonesian company acts as import distributor for overseas principals and the foreign company promotes products and, if necessary, provides technical assistance. Until the 1970s, the government did not require the appointment of an agent except when importing fertilizer and specific types of heavy equipment. Since December 1970, the import of certain types of heavy equipment, including road rollers, hoisting and lifting apparatus, and tractors and cement-mixing machines must be handled by a national franchise holder or sole agent. Sole agency relationships have also been required for motorcycles, cars, and trucks. At the end of 1980, in order to spur the development of indigenous enterprise, particularly new, small, economically weak enterprises, the government began requiring the state oil company and other government agencies to deal through Indonesian agents when purchasing imported goods or services. The government also began putting pressure on agents to deal directly with foreign manufacturers rather than third-country middlemen. For these reasons, a foreign firm selling to government agencies would do well to appoint an Indonesian firm as its agent. Traditionally, Indonesian importers have not specialized in particular product lines. It is generally advisable to set up agency arrangements with firms that handle a complementary range of products. These are not essential, however, since substantial sales can often be made by firms active in quite different product lines. An increasing number of firms identifying themselves as suppliers of "technical goods" concentrate on general industrial machinery and equipment. These firms often have engineers on their staff and are prepared to provide engineering assistance and after-sales technical support. The main difference between a representative office and an agent is that an agent can perform all trade activities and is allowed to have several offices throughout Indonesia. After an agent has been appointed and a trade representative office is established with a foreign employee, the expatriate can be assigned to and become employed by the agent. This procedure effectively permits the foreign firm to meet the legal requirements of the Indonesian law and still allows the foreign firm to have a more direct hand in selling its products. In many cases, a separate agreement is signed between the expatriate personnel and the foreign employer to regulate this relationship. The tax liability of the foreign firm is limited to the income tax of the expatriates assigned to the representative office, while any other taxes are assessed to and borne by the agent. Cooperation under a management agreement allows the foreign company in Indonesia to play a more active role. The types of management agreements are: (1) technical assistance agreements; (2) management agreements; and (3) management agreements coupled with financial agreements. The technical assistance agreement limits the foreign firm's function to providing technical assistance to the Indonesian company. The management agreement allows the foreign firm to manage the company or a division within the company. In the management agreement coupled with a financial agreement, the foreign firm also finances the Indonesian operation, either under the name of the Indonesian company or a division thereof. Remuneration to the foreign company can be in one of the following forms: (1) fixed fee; (2) commission; or (3) profit-sharing. Whatever basis is used for remuneration, it must be formulated clearly in the agreement, and it must be applicable under the present Indonesian laws. To protect the foreign company's interests properly, a bona fide and comprehensive agreement should be drawn between the parties concerned. Franchising Although franchising is relatively new in Indonesia, it is rapidly becoming a popular business approach for both U.S. and Indonesian companies. Franchises facilitate the transfer of know-how and managerial expertise to Indonesian companies while simultaneously allowing a U.S. company to quickly establish a presence in the country. Under a typical franchising agreement, the franchiser receives royalties and fees as stipulated in the contract. In exchange, the franchisee has the right to use (and manufacture) copyrighted, patented or service-marked materials identifying the enterprise. The franchiser typically provides training and organizational guidance in return for a guarantee that the franchisee will follow these operational directions. Although there is no specific law regulating franchising, the legal underpinnings for franchising are specified in article 1338 of the Indonesian Civil law (KUHPerdata - Kitab Undang Undang Hukum Perdata) which states that businesspersons are free to conclude contracts. Further legal grounding for franchising can be found in the 1992 law on trademarks No. 19, article 44-50. There are no known accepted standards for business contracts covering franchise agreements. However, the foreign principal usually provides the franchisee with his own standard contract format which is used as a basis for developing franchise agreements with the local business enterprise. The franchise agreement should be reviewed and notarized by a public notary in Indonesia in order to make it legally binding. Franchise agreements should be accompanied by other contractually binding arrangements such as a loan agreements, site leases, building agreements, graphics, employee selection, standard description and promotion. Franchise agreements should also include a provision regarding the settlement of disputes which may arise out of breach of contract or disagreements between the contracting parties. This provision should be in accordance with the Rule of Law and Arbitration in the International Chamber of Commerce. Typically another country is agreed upon by the contracting parties as the place of arbitration in order to provide a neutral ground Direct Marketing Indonesian law does not permit a foreign firm to market its products directly to their customers, with the exception of specific products sold directly to government agencies. In those cases, direct approval must be obtained by the purchasing entity. All other products must be marketed through Indonesian firms, as agents or distributors. Foreign firms can be involved in marketing primarily through the assignment of foreign technical representatives to the local firm. Joint Ventures/Licensing In June 1994, the government lifted most requirements for domestic equity and joint ventures. Those who opt for 100 percent initial ownership are obligated to divest some share, as little as 1 percent, after 15 years. This can be accomplished through the stock market. The choice of an Indonesian joint venture partner is critical for many reasons. For example, the partner can be relied upon for knowledge of the local scene and contacts, which are important for successful operations in Indonesia. Also, a partnership in Indonesia is difficult to dissolve. Consequently, the first choice has to be the correct choice. It is generally wise to keep in mind that business sense is crucial to any commercial endeavor and, while contacts are important, they are a poor substitute for business skills. Because Indonesians place great importance on personal relationships and mutual understanding, partnerships tend to be based primarily on genuine accord, with the written contract playing a less significant role. It is therefore important that any agreement is well understood by both sides. A contract over which there are conflicting interpretations is certain to cause future problems. There are a small number of reference sources and credit check agencies in Indonesia. Banks, advisory companies, the American Chamber of Commerce in Indonesia (AMCHAM), and the U.S. Embassy Commercial Service (World Traders Data Report) can provide some assistance in this area. In some cases, licensing arrangements for products/services are more cost-effective for U.S. companies doing business in Indonesia, but the same caution mentioned for joint venture partners must also be used. Steps to Establishing an Office A business permit issued by the appropriate Government agency is required to establish an office in Indonesia. Several government agencies may be involved in issuing a business permit, depending on the nature of the business. Foreign companies may open a representative office by submitting a business permit to the Indonesian Department of Industry and Trade. After reviewing the application to see if it meets all the requirements, the Department will issue a letter of approval and make recommendations to the Immigration Office of the Department of Justice to obtain a "stay permit" and to the Indonesian Department of Manpower for the "work permit". This letter of approval is valid for three months and can be used by the applicant to obtain other permits, including the payment-of-guarantee money (Rp 500,000 per individual) and the annual administrative fee of Rp 50,000. After all the requirements are fulfilled, the Department will issue a two-year business permit for the representative office. To begin the process, the applicant must fill out a special application form accompanied by the following documents: A statement indicating the appointment of a local company as an agent or representative; A list of the personnel in the company; Appointment letter from the principal; A statement indicating the office location; Curriculum vitae of company personnel; Fiscal certificate (taxpayer number). The application should be addressed to: Dra. Neneng R. Tarigan MA Director Direktorat Bina Usaha Dalam Negeri Ditjen Perdagangan Dalam Negeri Departemen Perindustrian dan Perdagangan Jl. M.I. Ridwan Rais No. 5 Jakarta Pusat, Indonesia Tel.: 62-21-385-8189, 384-1961, ext. 1111 If a company establishes a regional representative office covering at least two other ASEAN member countries, the applications should be sent to: Ir. Sanyoto Sastrowardoyo Minister and Chairman Capital Investment Coordinating Board (BKPM) (Badan Koordinasi Penanaman Modal) Jalan Jend. Gatot Subroto 44 Jakarta Selatan, Indonesia The application should be accompanied by the following documents: The letter of appointment; A list of expatriates in management and employed as experts; A copy of the articles of incorporation of the company. The permit for a regional representative office will not expire until the office is dissolved or closed. The Department of Public Works issues business permits for construction, engineering and consulting companies. This application should be addressed to: Drs. Moh. Charis Chief, Corporate Institutes Development Bureau Department of Public Works Jl. Pattimura 20 Jakarta Selatan, Indonesia tel.: 62-21 720-3371 ext. 261/263 The applicant must complete a special form provided by the agency and include the following attachments: A copy of the articles of incorporation; A description of business activities; A letter of appointment; Curriculum vitae of the appointed personnel; Certification by the company's home Embassy. Selling Techniques The Indonesian consumer, particularly from the middle and lower income groups, is sensitive both to price and to general economic trends (e.g. interest rates). As such, importers of US goods and services here will pay close attention to pricing, product quality, and promptness in delivery when making purchasing decisions. Moreover, they are especially fond of low interest financing. Other key success factors for doing business in Indonesia are patience and presence. Companies that have made a commitment to the country by establishing an office, or some other significant presence, will be more successful in marketing their product than those that attempt to sell their product on annual whirlwind trips. Brand loyalty and name recognition are highly valued by the Indonesian consumer. There are a number of avenues through which foreign interests can engage in business in Indonesia. These include: -the appointment of agents and/or distributors -joint venture operations -representative offices -technical assistance or licensing agreements -establishing a local subsidiary (although receiving government approval is difficult). A joint venture production operation can be a good option for products that have sales potential in both the domestic market and as exports throughout the rest of Asia. Press Contacts Personal contacts are important in Indonesia, and businesses should foster open communication with the press. The U.S. Information Service (USIS), located at the American Embassy, is available to help businesses make initial contacts with the local media. USIS can arrange an introductory meeting between company representatives and the Indonesian press through a press conference or an informal gathering. Please contact the Press Attach at the American Embassy for further information. (See Appendix E for contact information.) Advertising Advertising in local media and newspapers is recommended for introducing new products, particularly in Jakarta and West Java where purchasing power is concentrated. However, advertising is currently circumscribed by government decree to 35 percent of a newspaper's content. A maximum length of 24 pages per newspaper edition is also mandated by the government. These restrictions have resulted in very high advertising rates in the leading newspapers. In Kompas (estimated readership of three million), for example, a quarter-page color advertisement now runs $13,150, while 19 x 26 cm black and white ad costs about $6000. A listing of major, recommended newspapers and business journals (in Bahasa-Indonesia, except where noted) follows: Newspapers (all dailies): Kompas Suara Pembaruan Media Indonesia Bisnis Indonesia Jakarta Post (English language) Gatra (weekly) Business Journals: Warta ekonomi (weekly) Eksekutif (monthly) Properti (monthly) Matra (monthly) Economic and Business Review Indonesia (weekly, English language) Indonesia Business Weekly (English language) In most cases, direct mail advertising is efficient and effective as long as the mailing lists are properly prepared and updated. Local advertising agencies can also assist to arrange for films, slides, and posters and signboards for bus exteriors, bus stop shelters, and bridges. Suggestions on reliable advertising agencies may also be obtained through the Commercial Service at the U.S. Embassy or the U.S. Commercial Center in Jakarta. Television advertising has grown rapidly and surpassed newspaper advertising in dollars spent since 1992. Indonesia has five commercial television stations (TPI, RCTI, SCTV, Indosiar and An-Teve) and one state-owned outlet (TVRI). RCTI and SCTV are the most popular stations in major cities and are available in 19 and 20 major cities, respectively. The potential viewership for any station is approximately 120 million people. Another excellent advertising medium is the "Standard Trade and Industry Directory of Indonesia," an official publication of the Indonesian Chamber of Commerce and Industry (KADIN). Requests may be made to the publisher at Jl. Hayam Wuruk 4 SX, PO Box 4556, Jakarta Pusat. Pricing Product Given the competition that American suppliers face from products supplied by firms from other countries, product pricing must take into account the costs of delivery, distribution, advertising, and image. As product pricing is one critical factor in determining the product's success in the market, pricing policy will best be determined after conducting market research. This includes studies on both consumer preferences and competitive practices. Pricing is best developed with advice from local distributors, who are well attuned of the competitive factors at play in the specific market. U.S. companies may conduct their own market research or obtain information from the Foreign Commercial Service or private resources. Sales Service and Customer Support One critical aspect of a product's successful penetration into any market is customer support and after-sales service. Some American firms face difficulties in providing this support due to geographical separation (from the home country) and the costs of maintaining product support facilities in a foreign country. Although some local distributor partners normally establish such mechanisms, firms should be prepared to invest substantial amounts of capital and manpower into making their local partner a first-class service provider. Regardless of the reputation a company may have internationally, Indonesian consumers value a firm that has on-the-ground customer support. They expect not only to have their needs can be handled locally but also quick turnaround times. This may also be one reason why Indonesians prefer locally manufactured goods to products from foreign trading companies. Selling to the Government Although plans are underway to at least partially privatize state industries (i.e. "go public"), the Government of Indonesia is still a major customer of a variety of products and services. These cover the full range of defense materials, items needed for infrastructure projects, research and development programs, and several of the pure industrial needs categorized under "Strategic Industries," that are under the control of the national government. These industries include steel making, ship building, aircraft assembly, and some electronics and communications manufacturing. Though many of the items sold to the government can be negotiated directly, there is still reason to utilize the services of an agent or distributor, for the early stages of project development, and for delivery, installation and service needs later. Most sales to the military, however, require that an agent be used. Often the customer will assist in the identification of the proper agent. Many of the agencies are composed of retired military officials, and consequently are in an excellent position to understand the needs and operations of the particular branch of the service. American firms should become familiar with the "Blue Book", a listing of major projects identified by the Government of Indonesia as essential to national development priority. The document is published annually by the National Planning Agency (BAPPENAS) and constitutes the official list of projects that are open to foreign official assistance and other sources of external financing. Companies should note that virtually all of the projects listed in this book request "soft loan" (low interest rate) financing. Projects listed in the Blue Book are classified into three catagories, A, B, and C, according to their stage of preparation (i.e. feasibility). A Catagory C project, for example, is one on which feasibility has yet to be established. With such projects, there may be opportunities for foreign firms (especially engineering firms, consultants, etc.) to assist in determining feasibility. Catagory A and B projects, on the other hand, are ones on which feasibility has been or will soon be established. Participation therein is open only to foreign financial institutions. For more detailed information on selling to the Government, see the USFCS Marketing Report: The Process of Government Major Projects and Their Procurement Procedures. Protecting Your Product from IPR Infringement Protection of intellectual property rights (IPR) in Indonesia is hampered by inadequate enforcement of the laws and regulations passed since 1987. Foreign companies therefore must be vigilant in protecting their products from IPR infringement. Many choose to go through the Indonesian legal system but cases may take several years before they are finally resolved. Occasionally, foreign companies work with local law firms and law enforcement officials to conduct police raids on counterfeiters. (The Embassy can provide a list of reputable law firms upon request.) Others conduct periodic seminars on the adverse effects of IPR infringement on the Indonesian economy, most notably reduced investment by foreign companies. Ultimately, the course taken by companies to protect their IPR will depend on their product. As an example, one U.S. company first identifies the counterfeiters of its products and then proceeds to work with them and sign them as legal licensees of its products. Some computer software companies provide free training and/or sell their software at competitive prices, while warning that copies of their product may contain damaging viruses. Also, companies with well-known trademarks must be vigilant in defending their marks by registering them early or seeking a cancellation of an unauthorized registration through the Ministry of Justice. (See also Chapter VII - "Investment Climate" - for background on Indonesian laws and regulations regarding the protection of IPR.) Need for a Local Attorney Because Indonesia's legal system is currently being overhauled and modernized, firms are strongly advised to locate and retain a local attorney early in the investment process. In the event of a commercial dispute, one should first attempt to reach consensus through negotiation, using a mediator acceptable to both parties if necessary. This approach is, in fact, prescribed by or in accordance with Pancasila, the Indonesian state philosophy. If deliberation fails to achieve consensus, then companies should enter into arbitration. To prepare for this eventuality, an arbitration clause should be included in any commercial contract with Indonesia chosen as the site of arbitration. This is recommended because foreign arbital awards have proven difficult to enforce locally. Badan Arbitrase Nasional Indonesia or BANI is the local arbitration board and companies may employ BANI or select their own arbitration vehicle and procedures (i.e. ICC or UNCITRAL). Only when arbitration fails should companies enter litigation. This approach is to be used as a last resort because of the length of time involved (in litigation), the uncertainty of outcome and the lack of experience of most judges in commercial matters. Although foreign firms cannot yet open offices in Indonesia, there are a number of American attorneys working with Indonesian firms, some having practiced locally for more than 10 years. These people are here to assist American firms in working their way through the local legal structure. More recently, a few American law firms have established consulting arrangements with local firms. A list of local attorneys appears in Appendix G of this guide and is available in the Consular Section of the U.S. Embassy.

Trade Promotion The U.S. Embassy Foreign Commercial Service Opened in November 1994 by Secretary of Commerce Ronald Brown, the U.S. Commercial and Information Center is the focal point for the promotion of exports of American goods and services to Indonesia. The Commercial Center, one of only two such facilities in the world, has experienced staff to provide counseling to Indonesian and American businessmen, and has office space available for rent, and conference room and meeting room facilities for company exhibitions, technical seminars, contract signings and other events. In addition, the Center's Commercial Library has U.S. industry directories in hard copy and CD formats. The Commercial Center is located in the heart of the Jakarta business district in the World Trade Center complex, 3rd floor, Wisma Metropolitan II, Jalan Sudirman 29-31. (See Appendix E for phone and fax numbers.) The Foreign Commercial Service in Jakarta also offers a number of other programs designed to promote sales of U.S. products and services in Indonesia, including the following: a. Gold Key Service -- a tailored program including pre-arranged appointments with Indonesian business and/or government officials, secretarial services, translators, seminar/ demonstration planning and more. Prices start at $300.00. Six weeks advance notice is required. b. Agent/Distributor Service -- a customized search by USFCS staff for interested and qualified Indonesian representatives on behalf of U.S. firms. Up to six names of potential representatives will be supplied. $250.00. c. Business Counseling -- intensive one-on-one sessions with USFCS professionals on business conditions in Indonesia, tailored to the specific requirements of the U.S. firm. Appointments should be made in advance. No charge. d. CMA -- tailored, product specific marketing reports which compare various aspects of a specific U.S. product (e.g. specifications, pricing, method of distribution) with comparable products available in the Indonesian market. $3000.00. e. Trade Opportunities Program -- timely sales leads from Indonesian firms seeking to buy or represent U.S. products and services. Additional services are available to the U.S. businessperson through a nationwide network of District Offices located in 74 cities. Addresses and telephone numbers are listed under "U.S. Department of Commerce" in the telephone book. The Office of Agricultural Affairs The Office of Agricultural Affairs (AAO) and the Agricultural Trade Office (ATO) in Jakarta work closely with importers and trade promotion organizations to increase the sale of U.S. agricultural products in Indonesia. AAO and ATO specialists in various commodity areas can provide basic information and advice regarding tariffs, non-tariff barriers, regulations, and other aspects of the Indonesian market. The AAO covers bulk and intermediate agricultural products and the ATO covers consumer ready food products. SUPPORT OF BUSINESS TRAVELERS AND AGRIBUSINESS TEAMS: Both offices provide assistance to U.S. exporters and agribusiness companies, including briefing and debriefing of trade visitors, hotel arrangements and contact lists, and arranging trade shows, seminars, and other activities to provide a venue for U.S. exporters to meet Indonesian traders. AAO and ATO staff can also provide advice on the market development project plans of U.S. business groups and trade associations, and can offer suggestions on strategy and tactics for promotional undertakings. TRADE EXHIBITS: The AAO and ATO assist U.S. companies planning to exhibit their products in Indonesia. Such exhibits may take a variety of forms, often promoting groups of similar products or the products of a single state or region. The ATO also assists U.S. exporters in planning exhibits at U.S. Food Showcases and Food and Hotel Indonesia. ASSISTANCE TO TRADE ORGANIZATIONS: The offices provide advice and logistical support for USDA Market Development Cooperators and Market Access Program (MAP) participants, State Departments of Agriculture, and other regional and industry-sponsored market promotion organizations. ANIMAL AND PLANT HEALTH INSPECTION SERVICE (APHIS): The Animal and Plant Health Inspection Service (APHIS) is responsible for the inspection and certification of agricultural products to meet phytosanitary requirements for export to Indonesia. The AAO works closely with the Regional Veterinarian based in Canberra, Australia. For more details, please contact: USDA/APHIS - U.S. Embassy Canberra Moonah Place Yarralumla, A.C.T. 2600 U.S. Information Service Programs for Trade Development USIS organizes programs to foster trade and investment. Programming highlights the advantage U.S. investment provides in terms of value, technology transfer and human resources development. USIS programs also promote the reduction of trade barriers, protection of intellectual property rights and encourage sustained Indonesian support for trade liberalization. USIS operates the Zorinsky Research and Information Service (ZoRIS), a state-of-the-art electronic research facility located in the USIS building adjacent to the Chancery. ZoRIS resources include Internet access and a variety of databases accessible on-line. These include the U.S. Information Agency's Public Diplomacy Query (PDQ) database, Dialog, Legi-Slate, and Westlaw. ZoRIS's large collection of CD-ROMs include the UMI/PROQUEST series, which indexes hundreds of periodicals, with over 200 available in full image text, the U.S. Code Annotated, Phonedisc and North American Fax. ZoRIS staff maintains the U.S. Embassy Jakarta home page, a website with current information about the U.S. Mission, with direct links to the U.S. Department of State Foreign Affairs Network (DOSFAN), other U.S. government agencies, and additional sites related to foreign affairs, trade, and important bilateral issues. (See Appendix E for contact information.) USIS recruits speakers for events such as the annual Economic Seminar, co-sponsored with the Indonesian Economists Association, and on topics including U.S. trade policy and trade promotion. For further information on the speakers program, please contact the Public Affairs Counselor (Appendix E). The USIS Press Section, through press releases, its Book Translation Program and Worldnet interactive television dialogues, communicates U.S. views on trade and investment issues to Indonesian policy makers and the public.